Tuesday, July 5, 2011

Top Ships revisited in recent bulker sale

Top Ships recently sold the 'Astrale' for US$ 23 mio, which seems low compared to the recent sale of a sister vessel. They bought this unit in August 2007 for US$ 72 mio (peak boom-era prices) in hopes of diversification to dry cargo in response to massive losses that they were taking on the tanker fleet. This company became a penny stock. I was among the first to signal the risks in an article in April 2008. Events so far appear to have vindicated my views.

The original TOPS IPO was sponsored by Cantor Fitzgerald with Hibernia taking a significant share. It was considered the work of Anthony Argyropoulos, who was then working at DvB Bank after leaving Jefferies. He sold the deal to Marc Blazer at Cantor later joining Cantor himself. Everyone considered the deal a breakthrough proving that Wall Street access to shipping issues was open to all.

The proximate cause for the decline to the company was a lease finance deal with DvB bank for a large portion of its fleet and a massive dividend payout to shareholders. This weakened the company financially and left a highly leveraged fleet. A downturn in the tanker market in 2007 put them into operating losses, causing a signficant drop in share price.

The company management reacted by doubling up on a bulk carrier expansion plan that was badly timed at the peak of the dry cargo boom. They did not have liquidity for such massive asset expansion so they financed it by short term loans that would be repaid with a follow-on share offering. Unfortunately, the subprime crisis in the fall 2007 hit Wall Street and their efforts to raise capital proved difficult with a succession of public and private offerings at ever deeper discounts. TOPS had to sell assets for liquidity to make the bulker transaction work.

This angered one of their major hedge fund investors, who requested the company to appoint two directors of their choosing to the BoD. The company refused flatly and the investor started a shareholder activist action with the SEC.

"Tradewinds" published an article referring to my work on the company, which angered TOPS. Later the publication wrote a retraction, claiming that I misspoke but not referring to anything specific. They were wrong. My warnings were reflected in subsequent analyst questions.

At a very early stage in the game, TOPS found themselves with covenant violations. They sold off a large portion of their Suezmax fleet at a critical moment in 2008 just prior the fall meltdown. Other problems continued to plague them such as covering CAPEX needs for their product tanker newbuildings for which they ultimately covered by bareboat chartering the vessels. Ultimately senior board members left them. Their CFO resigned.

It is difficult to see where TOPS is heading these days. We hope they make a comeback for sake of their weary investors.

No comments:

Post a Comment