Wednesday, October 29, 2008
Britannia Bulk at risk of default
By Robert Wright in London
Published: October 28 2008 19:28 | Last updated: October 28 2008 19:28
Britannia Bulk, which specialises in moving coal from the Baltics to the UK, could be the first quoted shipping company to face insolvency during the present slump. The New York-listed company said there was a “very high risk” it would default on its loan agreements.
The announcement sent shares in Britannia, which operates 60 to 70 vessels, down 85.8 per cent to $0.27. The company was hoping for an agreement with its lenders to restructure its debt but if it failed would consider liquidation, seeking protection from lenders or other protection under bankruptcy laws.
In a statement, the company said: “In either case... it is unlikely that the company’s shareholders would realise much, if any, value.”
The company only listed its shares in June, at $15 a share, valuing its equity at $404m.
Britannia is one of many operators of ships for carrying products such as coal, wheat and iron ore which is facing difficulties because of a fall in short-term cargoes and charter rates. The Baltic Dry Index, which measures short-term charter rates, has fallen 91.7 per cent from its peak on May 20.
Industrial Carriers of Ukraine, a large private company, has already been forced into insolvency by the crisis.
Some owners are also struggling to pay for vessels they had chartered at high rates hoping to charter them on for still more.
Britannia attributed its problems mainly to its activities in the forward freight agreements market, which acts as a hedge against future shipping costs and hedges for the costs of its fuel, known as bunker fuel.
The company had normally bought FFAs only as a hedge for specific work in which its ships were engaged. Since July, however, it appeared that because some FFAs had not been bought to hedge specific positions, the company had been more exposed to falling freight rates and difficult market conditions than it would normally have experienced, it said.
Its hedges for the cost of bunker fuel, meanwhile, were for a far higher price level than the one prevailing since the oil price fell.
An additional problem is that the covenants for a $170m loan the company took out in July set a minimum value for the ships against which it was secured. The vessels involved are now expected to be revalued, which means that the company would have to put up additional collateral.
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