Star Bulk Carriers Corp. — FY 2012 Form 20-F
Reporting period: Year ended December 31, 2012. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear Q4-only financial results. Financial statements are prepared under U.S. GAAP. Unless stated otherwise, amounts below are U.S. dollars.
Business context
Star Bulk owns and operates drybulk vessels carrying commodities including iron ore, coal and grain. At year-end it operated 14 vessels; its 2012 average fleet was 14.19 vessels. The fleet comprised Capesize and Supramax carriers, with 97% utilization. Seven vessels were on medium- to long-term charters and seven were considered exposed to the spot market because of short charter durations. The company also earned fees managing third-party vessels.
Key financial metrics
| Metric | FY 2012 / Dec. 31, 2012 | Prior comparable period |
|---|---|---|
| Total revenue | $86.2 million, including $85.7 million voyage revenue | $107.1 million in 2011 |
| Operating result | Loss of $306.9 million | Loss of $64.8 million in 2011 |
| Net result | Loss of $314.5 million; loss per share $58.32 | Loss of $69.6 million; loss per share $14.69 in 2011 |
| Time charter equivalent (TCE) | $15,390 per day | $19,989 per day in 2011 |
| Operating cash flow | $19.0 million | $50.6 million in 2011 |
| Investing cash flow | Provided $25.5 million | Used $122.3 million in 2011 |
| Financing cash flow | Used $46.6 million | Provided $74.0 million in 2011 |
| Cash and restricted cash | $13.0 million unrestricted cash; $18.9 million restricted cash | $15.1 million and $29.7 million, respectively, at 2011 year-end |
| Total debt | $224.1 million, including $28.8 million current and $195.3 million long-term | $266.1 million at 2011 year-end |
| Total assets / stockholders’ equity | $354.7 million / $116.7 million | $717.9 million / $434.2 million at 2011 year-end |
| Working capital | Deficit of $4.5 million | Deficit of $20.8 million in 2011 |
Material changes versus 2011
- Voyage revenue fell about 20%, and TCE declined about 23%, reflecting weaker charter rates despite a larger average fleet.
- Net loss widened substantially, principally because of a $303.2 million non-cash vessel impairment charge, compared with $62.0 million of impairment in 2011. The 2012 charge covered all eight Supramax vessels and the oldest Capesize vessel, Star Sigma.
- Cash from operations declined by $31.6 million. The company attributed the decrease mainly to lower TCE rates and higher fleet-related operating costs.
- Total debt declined by about $42.0 million. Investing cash flow turned positive, including proceeds from the Star Ypsilon sale, lower restricted cash and insurance recoveries.
- Fleet utilization decreased from 99% to 97%. Daily vessel operating expense decreased from $5,642 to $5,361, while total vessel operating expense rose with the larger fleet.
Outlook, financing, risks and unusual items
- Management outlook: Management stated that cash and expected operating cash flow should cover liquidity needs over the following 12 months, while warning that continued depressed drybulk conditions could adversely affect results. No specific earnings or revenue guidance is provided.
- Debt amendments and conditions: The company negotiated covenant relief and payment deferrals with lenders after reporting covenant noncompliance at September 30, 2012. It reported compliance with amended covenants at year-end. The arrangements included higher interest margins, cash-sweep provisions, restrictions on dividends and required equity increases; several terms were subject to definitive documentation and specified conditions. The filing describes commitments to raise equity, including $30 million under certain facilities and at least $20 million under the HSH arrangement.
- Dividends: The company paid $3.6 million in dividends during 2012. Amended loan terms prohibit dividends until the applicable restrictions expire or other lender conditions are satisfied; the filing identifies restrictions extending at least through 2014 under certain facilities.
- Charter and market exposure: Management cited oversupply of vessels and weak, volatile freight rates. Eleven vessel charters were identified as expiring in 2013, exposing the company to renewal rates that could be lower. Four charterers accounted for 67% of 2012 voyage revenue.
- Operational disruption: Star Polaris incurred 191 off-hire days after bottom damage and engine failure, reducing revenue by approximately $3.1 million. Insurance reimbursements were received, with additional amounts still being pursued.
- Asset values and sale: Management estimated year-end charter-free vessel market value at $241.0 million versus carrying value of $291.2 million, a $50.2 million difference for identified vessels. Star Ypsilon was sold in March 2012 at a loss of $3.2 million. Star Sigma was agreed for sale in March 2013 for approximately $9.0 million less commission, with delivery expected in April 2013.
- Other risks and contingencies: Exposure includes variable-rate debt tied to LIBOR, foreign-exchange movements, customer and counterparty credit risk, environmental regulation, vessel incidents and litigation. A Spanish pollution-related administrative matter remained unresolved; the company said it could not estimate exposure and had not accrued an amount.
- Reporting and controls: The independent auditor issued an unqualified opinion on the 2012 financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of year-end.
Important facts for investors to verify
- Whether all lender amendments became definitive and whether required equity raises, cash sweeps and management-fleet targets were met.
- Current unrestricted and restricted liquidity, debt maturities, covenant headroom and the practical effect of dividend restrictions.
- Charter renewals and realized rates for vessels whose contracts expired or were due to expire in 2013, plus the concentration of revenue among major charterers.
- Vessel valuations and impairment assumptions, including charter rates, utilization, operating costs and residual values used in the $303.2 million charge.
- Final Star Sigma sale proceeds and use of proceeds, and the status of outstanding insurance recoveries and the Spanish administrative matter.
- Standalone fourth-quarter 2012 results, which are not clearly stated in the supplied filing text.