After recently publishing a piece on Top Ships (TOPS) signing a deal with Yorkville Advisors to sell up to US$ 200 mio in new shares as part of a US$ 500 mio shelf registration, Tradewinds is now reporting that the company auditors - Deloitte, Hadjipavlou, Sofianos and Cambanis - have raised "substantial doubts" about the ability of Top Ships to continue. They point to the company's negative working capital position, minimum asset cover ratios and other loan covenants on more than $342 mio in debt, nearly US$ 290 mio of which has been declared current because of the covenant breaches because the breaches impact other loans with so-called cross-default provisions.
TOPS has been one of the weakest Greek listed shipping issues and the worst performer in the tanker sector. Last year, QVT - the leading institutional shareholder in the group - filed an activist petition, calling for the nomination of two independent BoD members. TOPS management strongly objected and prevailed over them.
At the time, TOPS was overextended in a diversification into bulk carriers that they booked in 2007 at top of the market prices. They had hoped to finance this operation by raising additional capital and took out bridge debt financing that was to be repaid by the new equity money. As the subprime crisis broke out, the capital markets turned against them, so their attempts in December 2007 and spring 2008 did not lead to anticipated results. This resulted in share dilution and they made some asset sales to complete the operation.
QVT was unhappy with company performance and rebuffed by TOPS management, but it has held on to its holdings, taking even deeper losses. During the winter this year, TOPS shares were briefly at penny levels, but since then they have improved and are trading at US$ 1.90 - US$ 2 range.
To the credit of TOPS management, they subsequently did some timely and substantive restructuring in 2008, unwinding onerous ship leases and de-leveraging by selling most of their aging Suezmax fleet to Frontline (FRO) shortly before all hell broke loose in the fall financial crisis. Earlier in the summer, they covered their newbuilding commitments for a series of Dwt 51.000 product carriers by leasing them out on bareboat charter to the D'Amico group for seven years. TOPS carries the counterparty default risk on this operation, but they have covered their operating risk.
The issue is whether TOPS has sufficient investor credibility to pull off their plans to raise fresh capital in current market conditions. They seem wary of an ATM issue - perhaps in part because of their experience with activist shareholders - and the climate has hardened recently on ATM operations. So perhaps they are hoping for a private placement. The pricing is open question as TOPS investors were badly burned in a discounted PIPE placement in the spring last year at US$ 7 per share.
I would not rule out success at this point. TOPS has proved resourceful in the past and management has managed to turn around recent company performance to a profit position from previous losses. The auditors' comments apply to many shipping companies these days, but other companies like DRYS have raised capital whilst in senior lender negotiations on technical default.
TOPS remains a speculative play and possible future takeover target.
TOPS has been one of the weakest Greek listed shipping issues and the worst performer in the tanker sector. Last year, QVT - the leading institutional shareholder in the group - filed an activist petition, calling for the nomination of two independent BoD members. TOPS management strongly objected and prevailed over them.
At the time, TOPS was overextended in a diversification into bulk carriers that they booked in 2007 at top of the market prices. They had hoped to finance this operation by raising additional capital and took out bridge debt financing that was to be repaid by the new equity money. As the subprime crisis broke out, the capital markets turned against them, so their attempts in December 2007 and spring 2008 did not lead to anticipated results. This resulted in share dilution and they made some asset sales to complete the operation.
QVT was unhappy with company performance and rebuffed by TOPS management, but it has held on to its holdings, taking even deeper losses. During the winter this year, TOPS shares were briefly at penny levels, but since then they have improved and are trading at US$ 1.90 - US$ 2 range.
To the credit of TOPS management, they subsequently did some timely and substantive restructuring in 2008, unwinding onerous ship leases and de-leveraging by selling most of their aging Suezmax fleet to Frontline (FRO) shortly before all hell broke loose in the fall financial crisis. Earlier in the summer, they covered their newbuilding commitments for a series of Dwt 51.000 product carriers by leasing them out on bareboat charter to the D'Amico group for seven years. TOPS carries the counterparty default risk on this operation, but they have covered their operating risk.
The issue is whether TOPS has sufficient investor credibility to pull off their plans to raise fresh capital in current market conditions. They seem wary of an ATM issue - perhaps in part because of their experience with activist shareholders - and the climate has hardened recently on ATM operations. So perhaps they are hoping for a private placement. The pricing is open question as TOPS investors were badly burned in a discounted PIPE placement in the spring last year at US$ 7 per share.
I would not rule out success at this point. TOPS has proved resourceful in the past and management has managed to turn around recent company performance to a profit position from previous losses. The auditors' comments apply to many shipping companies these days, but other companies like DRYS have raised capital whilst in senior lender negotiations on technical default.
TOPS remains a speculative play and possible future takeover target.
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