Baltic Trading -- an equity to consider
Some investors may find this equity appealing. It promises volatility, but also income. At the current stock quote, the yield is about 5.4%.
Baltic Trading Limited owns drybulk vessels. The company trades in trip charters and vessel pools in the spot market. Baltic Trading Limited was incorporated in 2009 and is based in New York, New York. Baltic Trading Limited operates as a subsidiary of Genco Shipping & Trading Ltd.
We are a New York City-based company incorporated in October 2009 in the Marshall Islands to conduct a shipping business focused on the drybulk industry spot market. We were formed by Genco Shipping & Trading Limited (NYSE: GNK), a leading international drybulk shipping company that also serves as our Manager. On March 15, 2010, we announced the completion of our initial public offering ("IPO") of 16,300,000 shares of Common Stock at $14.00 per share, raising gross proceeds of $228.2 million before deducting underwriting discounts and commissions and estimated offering expenses.
With the net proceeds of our IPO, together with a $75 million capital contribution from Genco, we entered into agreements to acquire our initial fleet of six vessels, consisting of four Supramax vessels and two Capesize vessels. Five of these vessels have been delivered, and the remaining vessel is expected to be delivered in October 2010.
In June 2010, we entered into agreements to acquire three Handysize drybulk vessels from affiliates of Metrostar Management Corporation ("Metrostar") for an aggregate purchase price of approximately $99.8 million. The first of these vessels, namely the Baltic Wind, was delivered to us on August 4, 2010, and the remaining two vessels are expected to be delivered between August 2010 and October 2010. We have used our $100 million revolving credit facility to fund the deposits and purchase price of the first vessel of this acquisition, and we intend to repay the incurred indebtedness with proceeds from this offering.
Our current fleet consists of drybulk vessels that transport iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. We operate all of our vessels in the spot market, on spot market-related time charters, or in vessel pools trading in the spot market.
We aim to grow our fleet through timely and selective acquisitions of vessels in a manner that is accretive to our earnings and cash flow. We expect to finance future vessel acquisitions primarily with equity capital and borrowings under our revolving credit facility for bridge financing purposes, and to utilize little to no leverage.
We intend to distribute to our shareholders on a quarterly basis all of our net income less cash expenditures for capital items related to our fleet, other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous quarter, subject to any additional reserves our board of directors may from time to time determine are required for the prudent conduct of our business, as further described below under "Our Dividend Policy and Restrictions on Dividends."
Our operations are managed, under the supervision of our board of directors, by Genco as our Manager. Upon the closing of our IPO, we entered into a long-term management agreement (the "Management Agreement") pursuant to which our Manager and its affiliates will apply their expertise and experience in the drybulk shipping industry to provide us with commercial, technical, administrative and strategic services. The Management Agreement has an initial term of approximately fifteen years and will automatically renew for additional five-year periods unless terminated in accordance with its terms.
We pay our Manager fees for the services it provides us as well as reimburse our Manager for its costs and expenses incurred in providing certain of these services. Please see "Our Manager and Management Agreement—Management Agreement" for further details of the Management Agreement.
Our Relationship with Genco Shipping & Trading Limited
One of our key strengths is our relationship with Genco, a leading international drybulk shipping company with a market capitalization of approximately $613.9 million as of August 9, 2010 which also serves as our Manager. Genco has developed strong relationships with major international charterers, shipbuilders and financial institutions through its seasoned management team. Genco's management team is based in New York City and includes several executives with extensive experience in the shipping industry, including managing the strategic, commercial, technical and financial aspects of shipping businesses.
Our Fleet
On February 19, 2010, we entered into agreements with subsidiaries of an unaffiliated third-party seller under which we agreed to purchase four 2009-built Supramax drybulk vessels for an aggregate price of approximately $140.0 million. In addition, on February 22, 2010, we entered into agreements with subsidiaries of another unaffiliated third-party seller under which we agreed to purchase two newbuilding Capesize drybulk vessels for an aggregate price of approximately $144.2 million. Five of these vessels have been delivered, and the remaining vessel is expected to be delivered in October 2010.
On June 3, 2010, we entered into agreements with Metrostar under which we agreed to purchase three Handysize drybulk vessels for an aggregate purchase price of approximately $99.8 million. The first of these vessels, namely the Baltic Wind, was delivered to us on August 4, 2010, and the remaining two vessels are expected to be delivered between August 2010 and October 2010.
Our fleet is currently comprised of Capesize, Supramax and Handysize vessels, but we will evaluate all classes of drybulk vessels for potential acquisition. We will seek to grow our fleet through timely and selective acquisitions of drybulk vessels. In evaluating vessel purchases, we plan to acquire modern vessels with high specifications that we believe will provide an attractive return on equity and will be accretive to earnings and cash flow based on anticipated market rates at the time of purchase. We intend to use most of the proceeds from this offering to repay borrowings under our credit facility which were used to finance the three vessels purchased from Metrostar.
We employ our vessels in the spot market, on certain spot market-related time charters or in vessel pools trading in the spot market. Our goal is to provide shareholders with the opportunity to invest in a company with a strategic focus on the drybulk spot market which utilizes little to no leverage and seeks to distribute regular dividends based on earnings.
Business Strategy
Our strategy is to employ a profitable fleet of drybulk vessels in the spot market and to grow our business through accretive vessel acquisitions.
As detailed below, our strategy largely relies on blending certain complementary elements of vessel employment with a capital structure that supports our operations. For example, we believe that by focusing on the drybulk spot market and seeking to pay quarterly dividends, we provide equity investors with the opportunity to gain exposure to the trends of the drybulk shipping industry, and are attractive to investors.
We believe that by relying primarily on equity financing, we will be in a better position to withstand the volatility of the spot market and will have more cash available to pay dividends than if we relied primarily on debt financing. Key elements of our business strategy include:
Deploy our vessels in the spot market.
We seek to provide shareholders with the opportunity to invest in a company with a strategic focus on the drybulk spot market by deploying our vessels on voyage or time charters or in vessel pools that are related to the spot market. The spot market is volatile and holds the potential for significant increases or decreases in shipping rates over time. Upward movements in spot rates have the potential to increase our revenues, and we will have opportunities to take advantage of these upswings by not locking our vessels into long-term, fixed-rate time charters.
Conversely, our revenues may decline if the spot market does, and we will not benefit from the stabilizing effect of fixed-rate time charters.
The spot market may be affected by whether the global economy declines or recovers, particularly with respect to economies outside the United States such as China and India, which have been the primary drivers of drybulk trade in recent years.
Further, while economic health is one factor influencing demand, supply of drybulk vessels is also an important factor affecting spot market rates. An undersupply of drybulk vessels could lead to higher spot market rates despite weak economic conditions, while an oversupply of drybulk vessels could lead to lower spot market rates despite strong economic conditions. Because we generate virtually all of our revenues in U.S. Dollars, the current weakness of the U.S. Dollar does not affect our revenues; however, as we may incur certain costs in other currencies, the weakness of the U.S. Dollar could affect our business if these costs are significant.
Return a substantial portion of our cash flow to shareholders through quarterly dividends.
We intend to pay quarterly dividends to our shareholders approximately equal to our net income minus cash capital expenditures for vessels, other than vessel acquisitions and related expenses plus non-cash compensation.
See "Our Dividend Policy." As we intend to primarily finance future vessel acquisitions through equity financing as well as internally generated cash flow and to maintain little to no leverage, we expect our cash flow to be sufficient to support quarterly dividends. By paying dividends in this manner, our goal is to make our common stock more attractive to investors to enhance our ability to conduct equity financings, which we intend to use primarily for our financing needs. Our board of directors has declared a dividend of $0.16 per share for the second quarter of 2010, which represents our first full quarter of operation.
Maintain a strong balance sheet.
We believe that primarily using equity to finance our business will strengthen our balance sheet to help offset the volatility risk of trading our vessels in the spot market. We also believe that focusing on equity rather than debt financing will help us capitalize on opportunities if the spot market improves as well as reduce the impact debt covenant restrictions and scheduled debt payments would have on our business if the spot market declines.
In our view, this strategy is suited to the current global economic downturn, given the ongoing restricted flow of credit, and we intend to pursue this strategy whether the global economic downturn persists or abates. However, our use of equity rather than debt financing may result in substantial dilution to our shareholders.
Strategically expand the size of our fleet.
We intend to acquire modern, high-quality drybulk carriers through timely and selective acquisitions of vessels in a manner that is accretive to our earnings and cash flow.
We currently view Capesize, Panamax, Supramax and Handysize vessel classes as providing attractive return characteristics but will evaluate all classes of drybulk vessels for potential acquisition. A key element of our acquisition strategy is to pursue vessels at attractive valuations relative to the valuation of our public equity. In the current market, asset values in the drybulk shipping industry are at cyclically low levels. We believe that these circumstances present an opportunity for us to seek to grow our fleet at favorable prices.
Operate a high-quality fleet.
We maintain a modern, high-quality fleet that meets or exceeds stringent industry standards and complies with charterer requirements through our technical managers' comprehensive maintenance program. In addition, our technical managers maintain the quality of our vessels by carrying out regular inspections, both while in port and at sea.
Maintain low-cost, highly efficient operations.
Under the Management Agreement, Genco coordinates and oversees the technical management of our fleet and utilizes qualified third-party independent technical managers. We believe that Genco is able to do so at a cost to us that is lower than what could be achieved by performing the function in-house. Genco's management team actively monitors and controls vessel operating expenses incurred by the independent technical managers by overseeing their activities.
Capitalize on our management's experience and reputation.
We intend to continue to capitalize on the reputation of the management at Genco and our company for high standards of performance, reliability and safety, and maintain strong relationships with major international charterers and other owners, many of whom consider the reputation of a vessel owner and operator when entering into charters and asset sales.
We believe that the track record of Genco's management team improves our relationships with high quality shipowners, charterers and financial institutions, many of which consider reputation to be an indicator of creditworthiness.
Our Dividend Policy
We have adopted a dividend policy to pay a variable quarterly dividend equal to our Cash Available for Distribution, which represents net income less cash expenditures for capital items related to our fleet other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous quarter, subject to any additional reserves our board of directors may from time to time determine are required for the prudent conduct of our business, taking into account contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of Marshall Islands law.
Dividends will be paid equally on a per-share basis between our Common Stock and our Class B Stock. Declaration and payment of dividends is at the discretion of our board of directors, and there can be no assurance that we will not reduce or eliminate our dividend. Please read "Our Dividend Policy and Restrictions on Dividends" and "Risk Factors" for a more detailed description of the calculation of Cash Available for Distribution and various factors that could reduce or eliminate our ability to pay dividends. Our board of directors has declared a dividend of $0.16 per share for the second quarter of 2010.
Baltic Trading Limited owns drybulk vessels. The company trades in trip charters and vessel pools in the spot market. Baltic Trading Limited was incorporated in 2009 and is based in New York, New York. Baltic Trading Limited operates as a subsidiary of Genco Shipping & Trading Ltd.
We are a New York City-based company incorporated in October 2009 in the Marshall Islands to conduct a shipping business focused on the drybulk industry spot market. We were formed by Genco Shipping & Trading Limited (NYSE: GNK), a leading international drybulk shipping company that also serves as our Manager. On March 15, 2010, we announced the completion of our initial public offering ("IPO") of 16,300,000 shares of Common Stock at $14.00 per share, raising gross proceeds of $228.2 million before deducting underwriting discounts and commissions and estimated offering expenses.
With the net proceeds of our IPO, together with a $75 million capital contribution from Genco, we entered into agreements to acquire our initial fleet of six vessels, consisting of four Supramax vessels and two Capesize vessels. Five of these vessels have been delivered, and the remaining vessel is expected to be delivered in October 2010.
In June 2010, we entered into agreements to acquire three Handysize drybulk vessels from affiliates of Metrostar Management Corporation ("Metrostar") for an aggregate purchase price of approximately $99.8 million. The first of these vessels, namely the Baltic Wind, was delivered to us on August 4, 2010, and the remaining two vessels are expected to be delivered between August 2010 and October 2010. We have used our $100 million revolving credit facility to fund the deposits and purchase price of the first vessel of this acquisition, and we intend to repay the incurred indebtedness with proceeds from this offering.
Our current fleet consists of drybulk vessels that transport iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. We operate all of our vessels in the spot market, on spot market-related time charters, or in vessel pools trading in the spot market.
We aim to grow our fleet through timely and selective acquisitions of vessels in a manner that is accretive to our earnings and cash flow. We expect to finance future vessel acquisitions primarily with equity capital and borrowings under our revolving credit facility for bridge financing purposes, and to utilize little to no leverage.
We intend to distribute to our shareholders on a quarterly basis all of our net income less cash expenditures for capital items related to our fleet, other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous quarter, subject to any additional reserves our board of directors may from time to time determine are required for the prudent conduct of our business, as further described below under "Our Dividend Policy and Restrictions on Dividends."
Our operations are managed, under the supervision of our board of directors, by Genco as our Manager. Upon the closing of our IPO, we entered into a long-term management agreement (the "Management Agreement") pursuant to which our Manager and its affiliates will apply their expertise and experience in the drybulk shipping industry to provide us with commercial, technical, administrative and strategic services. The Management Agreement has an initial term of approximately fifteen years and will automatically renew for additional five-year periods unless terminated in accordance with its terms.
We pay our Manager fees for the services it provides us as well as reimburse our Manager for its costs and expenses incurred in providing certain of these services. Please see "Our Manager and Management Agreement—Management Agreement" for further details of the Management Agreement.
Our Relationship with Genco Shipping & Trading Limited
One of our key strengths is our relationship with Genco, a leading international drybulk shipping company with a market capitalization of approximately $613.9 million as of August 9, 2010 which also serves as our Manager. Genco has developed strong relationships with major international charterers, shipbuilders and financial institutions through its seasoned management team. Genco's management team is based in New York City and includes several executives with extensive experience in the shipping industry, including managing the strategic, commercial, technical and financial aspects of shipping businesses.
Our Fleet
On February 19, 2010, we entered into agreements with subsidiaries of an unaffiliated third-party seller under which we agreed to purchase four 2009-built Supramax drybulk vessels for an aggregate price of approximately $140.0 million. In addition, on February 22, 2010, we entered into agreements with subsidiaries of another unaffiliated third-party seller under which we agreed to purchase two newbuilding Capesize drybulk vessels for an aggregate price of approximately $144.2 million. Five of these vessels have been delivered, and the remaining vessel is expected to be delivered in October 2010.
On June 3, 2010, we entered into agreements with Metrostar under which we agreed to purchase three Handysize drybulk vessels for an aggregate purchase price of approximately $99.8 million. The first of these vessels, namely the Baltic Wind, was delivered to us on August 4, 2010, and the remaining two vessels are expected to be delivered between August 2010 and October 2010.
Our fleet is currently comprised of Capesize, Supramax and Handysize vessels, but we will evaluate all classes of drybulk vessels for potential acquisition. We will seek to grow our fleet through timely and selective acquisitions of drybulk vessels. In evaluating vessel purchases, we plan to acquire modern vessels with high specifications that we believe will provide an attractive return on equity and will be accretive to earnings and cash flow based on anticipated market rates at the time of purchase. We intend to use most of the proceeds from this offering to repay borrowings under our credit facility which were used to finance the three vessels purchased from Metrostar.
We employ our vessels in the spot market, on certain spot market-related time charters or in vessel pools trading in the spot market. Our goal is to provide shareholders with the opportunity to invest in a company with a strategic focus on the drybulk spot market which utilizes little to no leverage and seeks to distribute regular dividends based on earnings.
Business Strategy
Our strategy is to employ a profitable fleet of drybulk vessels in the spot market and to grow our business through accretive vessel acquisitions.
As detailed below, our strategy largely relies on blending certain complementary elements of vessel employment with a capital structure that supports our operations. For example, we believe that by focusing on the drybulk spot market and seeking to pay quarterly dividends, we provide equity investors with the opportunity to gain exposure to the trends of the drybulk shipping industry, and are attractive to investors.
We believe that by relying primarily on equity financing, we will be in a better position to withstand the volatility of the spot market and will have more cash available to pay dividends than if we relied primarily on debt financing. Key elements of our business strategy include:
Deploy our vessels in the spot market.
We seek to provide shareholders with the opportunity to invest in a company with a strategic focus on the drybulk spot market by deploying our vessels on voyage or time charters or in vessel pools that are related to the spot market. The spot market is volatile and holds the potential for significant increases or decreases in shipping rates over time. Upward movements in spot rates have the potential to increase our revenues, and we will have opportunities to take advantage of these upswings by not locking our vessels into long-term, fixed-rate time charters.
Conversely, our revenues may decline if the spot market does, and we will not benefit from the stabilizing effect of fixed-rate time charters.
The spot market may be affected by whether the global economy declines or recovers, particularly with respect to economies outside the United States such as China and India, which have been the primary drivers of drybulk trade in recent years.
Further, while economic health is one factor influencing demand, supply of drybulk vessels is also an important factor affecting spot market rates. An undersupply of drybulk vessels could lead to higher spot market rates despite weak economic conditions, while an oversupply of drybulk vessels could lead to lower spot market rates despite strong economic conditions. Because we generate virtually all of our revenues in U.S. Dollars, the current weakness of the U.S. Dollar does not affect our revenues; however, as we may incur certain costs in other currencies, the weakness of the U.S. Dollar could affect our business if these costs are significant.
Return a substantial portion of our cash flow to shareholders through quarterly dividends.
We intend to pay quarterly dividends to our shareholders approximately equal to our net income minus cash capital expenditures for vessels, other than vessel acquisitions and related expenses plus non-cash compensation.
See "Our Dividend Policy." As we intend to primarily finance future vessel acquisitions through equity financing as well as internally generated cash flow and to maintain little to no leverage, we expect our cash flow to be sufficient to support quarterly dividends. By paying dividends in this manner, our goal is to make our common stock more attractive to investors to enhance our ability to conduct equity financings, which we intend to use primarily for our financing needs. Our board of directors has declared a dividend of $0.16 per share for the second quarter of 2010, which represents our first full quarter of operation.
Maintain a strong balance sheet.
We believe that primarily using equity to finance our business will strengthen our balance sheet to help offset the volatility risk of trading our vessels in the spot market. We also believe that focusing on equity rather than debt financing will help us capitalize on opportunities if the spot market improves as well as reduce the impact debt covenant restrictions and scheduled debt payments would have on our business if the spot market declines.
In our view, this strategy is suited to the current global economic downturn, given the ongoing restricted flow of credit, and we intend to pursue this strategy whether the global economic downturn persists or abates. However, our use of equity rather than debt financing may result in substantial dilution to our shareholders.
Strategically expand the size of our fleet.
We intend to acquire modern, high-quality drybulk carriers through timely and selective acquisitions of vessels in a manner that is accretive to our earnings and cash flow.
We currently view Capesize, Panamax, Supramax and Handysize vessel classes as providing attractive return characteristics but will evaluate all classes of drybulk vessels for potential acquisition. A key element of our acquisition strategy is to pursue vessels at attractive valuations relative to the valuation of our public equity. In the current market, asset values in the drybulk shipping industry are at cyclically low levels. We believe that these circumstances present an opportunity for us to seek to grow our fleet at favorable prices.
Operate a high-quality fleet.
We maintain a modern, high-quality fleet that meets or exceeds stringent industry standards and complies with charterer requirements through our technical managers' comprehensive maintenance program. In addition, our technical managers maintain the quality of our vessels by carrying out regular inspections, both while in port and at sea.
Maintain low-cost, highly efficient operations.
Under the Management Agreement, Genco coordinates and oversees the technical management of our fleet and utilizes qualified third-party independent technical managers. We believe that Genco is able to do so at a cost to us that is lower than what could be achieved by performing the function in-house. Genco's management team actively monitors and controls vessel operating expenses incurred by the independent technical managers by overseeing their activities.
Capitalize on our management's experience and reputation.
We intend to continue to capitalize on the reputation of the management at Genco and our company for high standards of performance, reliability and safety, and maintain strong relationships with major international charterers and other owners, many of whom consider the reputation of a vessel owner and operator when entering into charters and asset sales.
We believe that the track record of Genco's management team improves our relationships with high quality shipowners, charterers and financial institutions, many of which consider reputation to be an indicator of creditworthiness.
Our Dividend Policy
We have adopted a dividend policy to pay a variable quarterly dividend equal to our Cash Available for Distribution, which represents net income less cash expenditures for capital items related to our fleet other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous quarter, subject to any additional reserves our board of directors may from time to time determine are required for the prudent conduct of our business, taking into account contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of Marshall Islands law.
Dividends will be paid equally on a per-share basis between our Common Stock and our Class B Stock. Declaration and payment of dividends is at the discretion of our board of directors, and there can be no assurance that we will not reduce or eliminate our dividend. Please read "Our Dividend Policy and Restrictions on Dividends" and "Risk Factors" for a more detailed description of the calculation of Cash Available for Distribution and various factors that could reduce or eliminate our ability to pay dividends. Our board of directors has declared a dividend of $0.16 per share for the second quarter of 2010.
Labels: baltic dryshippers, baltic trading, equities
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