Star Bulk Carriers Corp. current report, Q3 FY2009

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Business Context and Reporting Period

Company: Star Bulk Carriers Corp. (Nasdaq: SBLK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter and First Half ended June 30, 2009
Business Overview: Global shipping company focused on dry bulk cargoes (iron ore, coal, grain, etc.). As of August 12, 2009, the fleet consisted of 12 vessels (4 Capesize, 8 Supramax) with a total capacity of 1,106,253 DWT. The company is headquartered in Athens, Greece.

Key Financial Metrics

Second Quarter 2009 (vs. Q2 2008)

  • Revenue: $32.4 million (down from $59.2 million).
  • Operating Result: Loss of $1.0 million (vs. income of $33.2 million).
  • Net Income/Loss: Loss of $3.4 million ($0.06 per share) (vs. income of $31.6 million).
  • EBITDA: $14.9 million (vs. $45.4 million).
  • Adjusted EBITDA: $15.5 million (vs. $29.7 million).
  • Average TCE Rate: $30,019 per day (vs. $46,068 per day).
  • Fleet Utilization: 98.9%.

First Half 2009 (vs. H1 2008)

  • Revenue: $77.5 million (down from $100.9 million).
  • Operating Income: $24.2 million (vs. $50.9 million).
  • Net Income: $19.0 million ($0.31 per share) (vs. $48.3 million).
  • EBITDA: $55.7 million (vs. $71.9 million).
  • Adjusted EBITDA: $43.3 million (vs. $43.9 million).
  • Average TCE Rate: $32,591 per day (vs. $41,749 per day).
  • Fleet Utilization: 98.5%.

Liquidity and Balance Sheet (as of June 30, 2009)

  • Cash and Restricted Cash: $35.95 million (Cash position cited by CFO as $64.5 million in commentary, likely including restricted cash of $27.51 million).
  • Senior Debt: $272 million (Current portion: $56.98 million; Long-term: $215.03 million).
  • Net Debt: Approximately 26% of fixed assets.
  • Operating Cash Flow (H1 2009): $42.1 million.
  • Investing Cash Flow (H1 2009): Used $25.5 million (primarily increase in restricted cash).
  • Financing Cash Flow (H1 2009): Used $22.6 million (loan repayments).

Material Changes vs. Prior Period

  • Revenue Decline: Driven by lower charter rates and 46 scheduled dry-docking days for the vessel Star Ypsilon in Q2.
  • Expense Increases: Total expenses rose due to a larger fleet (12 vessels vs. 10.6 average in Q2 2008), higher crewing/insurance costs, and increased depreciation (up ~30% in Q2, ~50% in H1).
  • Cost Controls: General and Administrative (G&A) expenses decreased significantly (35% in Q2, 15% in H1) on a total basis, and 34-42% on a per-vessel basis due to economies of scale.
  • Non-Cash Items: Q2 2009 included a $1.0 million loss from amortization of fair value of time charters (vs. $17.1 million gain in Q2 2008). H1 2009 included a $10.9 million non-cash gain on time charter agreement termination.

Guidance, Outlook, and Management Commentary

  • Dividend: The company declared a dividend of $0.05 per share for Q2 2009, becoming the first shipping company to declare a dividend after a suspension.
  • Financial Strength: Management cites a strong cash position and low debt level as strategic advantages to navigate market volatility.
  • Debt Repayment Schedule: Remaining principal repayments are approx. $23 million (2009), $60 million (2010), and $32 million (2011), reducing to ~$25 million thereafter.
  • Capital Expenditures: No other capital expenditure commitments noted.
  • Outlook: Expect cash reserves to continue growing due to high contract coverage on the fleet.
  • Risks: Forward-looking statements highlight risks including fluctuations in charter rates, vessel values, bunker prices, drydocking costs, and global economic conditions.

Investor Verification Checklist

  • Dividend Sustainability: Verify the ability to maintain dividend payments given the Q2 operating loss and reliance on cash reserves.
  • Restricted Cash: Confirm the nature and release conditions of the $27.5 million in restricted cash (related to loan waivers and FFAs).
  • Vessel Sale: Monitor the sale of the Star Alpha (contracted at $19.85 million, expected delivery December 2009) and its impact on fleet size and revenue.
  • Charter Rate Exposure: Assess the impact of the significant drop in TCE rates ($30k vs $46k in Q2) on future profitability as contracts expire.
  • Debt Covenants: Review loan agreements to ensure compliance with covenants given the shift from net income to net loss in Q2.