2007

Top Tankers Repurchase Vessels, Improve Cash Flow

Earlier this week Top Tankers announced they would reacquire four Suezmax tankers sold in 2006 in a sale/leaseback transaction. Although the price was unnamed, Cantor Fitzgerald analyst Natasha Boyden estimates the transaction to be in the range of $200- $215 million based on current second hand vessel prices. Top Tankers will fund the acquisition with 70% debt resulting in expected lease payments to decline substantially and depreciation and interest expense to rise. Cantor Fitzgerald raises their 2007 and 2008 EPS estimates to $(0.10) from $(0.390) and $(0.24) from $(0.44), respectively. Their adjusted their EBITDA now estimates to $55 million (from $27 million) for 2008. The new estimates do not take into account management’s recent proposal to execute a 2:1 reverse stock split.

Top Tankers has also announced that they have entered into an agreement to terminate a bareboat charter for the Handymax vessel “Invincible” after the sale of the vessel from its lessors to a third party. The company will benefit from the sale, which will bring in $2.6 million in the second quarter of 2007.Ms. Boyden and Cantor Fitzgerald feel Top Tankers are taking a step in the right direction with these transactions but note that costly lease arrangements still remain on five of the company’s leased back Suezmax tankers. Still, the company’s over-all break-even rate for its Suezmax tankers has improved to around $23,000 per vessel/day as opposed to the $29,000 per vessel/day before the vessel reacquisitions. The tanker industry is both cyclical and volatile, which may lead to reductions and volatility in charter rates and asset values.While analysis of supply and demand factors can help provide near term guidance, market conditions are difficult to predict and single events often affect price, demand, production, and transport of crude oil and petroleum products.

This is only an excerpt of Market Commentary – 05/31/2007

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