Star Bulk Carriers Corp. — FY 2015 Form 20-F
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report, not a standalone fourth-quarter report; the supplied text does not provide a clear set of Q4-only financial results. Financial statements are prepared under U.S. GAAP.
Business context
Star Bulk owns and operates dry-bulk carriers transporting commodities including ore, coal, grain and fertilizer. The 2014 Oceanbulk, Pappas and Excel transactions substantially expanded the fleet. In 2015 the company operated an average of 69.35 vessels, compared with 28.88 in 2014. Its business remained heavily exposed to spot, short-term time and voyage charter rates amid a severe dry-bulk downturn.
Financial and operating results
Amounts below are U.S. dollars; financial statement amounts are in millions unless otherwise noted.
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total revenue, including management fees | $234.3 | $147.4 |
| Voyage revenue | $234.0 | $145.0 |
| Operating income (loss) | $(425.6) | $(1.4) |
| Net income (loss) | $(458.2) | $(11.7) |
| Basic and diluted loss per share | $(2.34) | $(0.20) |
| Operating cash flow | $(14.6) | $12.8 |
| Investing cash flow | $(397.5) | $(437.1) |
| Financing cash flow | $534.2 | $456.7 |
- Charter performance: Average daily time-charter-equivalent (TCE) rate fell 34% to $8,063 from $12,161. Fleet utilization was 88%, versus 86% in 2014.
- Costs and margins: Voyage expenses were $72.9 million, vessel operating expenses $112.8 million, dry docking $15.0 million and depreciation $82.1 million. Average daily vessel operating expense declined 11% to $4,475. The filing reports a $425.6 million operating loss; it does not present a single adjusted operating margin that removes impairment and other unusual items.
- Unusual charges: The company recorded a $322.0 million impairment charge, including vessel and newbuilding sale-related write-downs and a $102.6 million impairment from its year-end recoverability analysis. It also recorded a $20.6 million loss on vessel sales and a $3.3 million net loss on derivative instruments.
- Cash and liquidity: Year-end cash and cash equivalents were $208.1 million, including $150.0 million of required, unrestricted minimum liquidity; legally restricted cash was approximately $14.0 million. Working capital was positive $85.1 million, versus a $5.8 million deficit in 2014. Cash increased mainly through equity and debt financing while operating cash flow was negative.
- Debt: At December 31, 2015, loans and the 8% senior notes totaled $911.7 million; capital lease obligations were $79.5 million, for approximately $991.3 million of combined debt and lease obligations. The $50 million unsecured notes mature in November 2019. Most bank debt bears floating LIBOR-based rates.
- Debt covenant and liquidity exposure: Vessel-value declines caused security coverage ratio shortfalls under certain facilities. Required coverage was 110%–140%, while calculated ratios ranged from 91%–133%. A $14.3 million potential shortfall was classified as current debt. The company said no lender had issued a notice requiring a remedy as of year-end and that it otherwise complied with covenants.
- Equity and dividends: Two 2015 share offerings raised approximately $417.8 million net. Shares outstanding increased from 109.4 million at year-end 2014 to 219.1 million at year-end 2015. No 2015 dividends were paid; debt agreements restricted distributions.
Material changes versus the prior period
- Revenue rose with fleet growth, but lower charter rates reduced TCE from $12,161 to $8,063. Net loss widened sharply, principally because of impairment and vessel-sale losses.
- Operating cash flow turned negative, while cash and working capital improved through substantial equity and debt financing.
- Average daily operating costs fell through claimed scale efficiencies, but total operating, voyage, dry-docking and depreciation expenses increased with the larger fleet.
- Cash proceeds from equity offerings increased the share count substantially. The company also sold operating vessels and agreed to sell several newbuildings, while negotiating lower prices and delayed payments with shipyards.
Outlook, risks and contingencies
- Market outlook: Management described freight rates as historically low and cited a BDI of 471 in December 2015 and an all-time low of 290 in February 2016. It expected scrapping, fewer orders and vessel conversions could reduce supply and support a medium-term rate recovery. This is management’s view, not assured guidance.
- Funding and construction: As of February 29, 2016, the company reported ten newbuilding vessels with expected total payments of $471.8 million, $112.1 million already paid, $291.6 million of secured-debt commitments and $175.8 million of cash. It said it expected liquidity to cover 2016 needs, but also warned that weak rates could require more vessel sales or financing. Delivery delays, financing availability and covenant compliance remain material risks.
- Subsequent actions: The filing describes agreed-in-principle shipyard price reductions of $64.5 million and deferral of $187.7 million of 2016 capital expenditures to 2017–2018, subject to final documentation. The company also agreed in principle to terminate two shipbuilding contracts without further capital expenditure obligations, subject to definitive documentation, and reached an in-principle extension of a Commerzbank facility to October 2018.
- Other key risks: Spot-rate and vessel-value volatility; refinancing and floating-rate exposure; possible further impairment; environmental and safety compliance costs; counterparty and construction risks; currency movements; sanctions and geopolitical disruption; and conflicts of interest involving significant shareholders and related parties.
- Contingencies: A shareholder derivative/class action challenging the Oceanbulk and Excel transactions was dismissed in full in February 2016, but the plaintiff appealed. A Spanish pollution-related fine remained partly subject to adjudication, with no amount accrued for that case. An arbitration concerning engine failure on Star Polaris had produced a partial award finding shipyard liability, but damages were unquantified and further proceedings or appeal remained pending.
- Reporting and controls: The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of December 31, 2015.
Important facts for investors to verify
- Reconcile year-end debt and capital-lease obligations with subsequent borrowing, repayments, asset sales and the reported February 2016 debt balance.
- Check the status of security-coverage shortfalls, lender waivers or remedies, liquidity covenants and the Commerzbank refinancing amendment.
- Verify that shipyard price reductions, payment deferrals and contract terminations were finalized, and confirm remaining capital commitments and financing availability.
- Review vessel-sale proceeds and losses against carrying values, and assess whether further impairment or asset sales may be necessary under prevailing freight and vessel values.
- Track charter coverage, realized TCE rates, utilization and cash operating costs; distinguish annual results from Q4-only performance, which the filing text does not clearly provide.
- Assess the impact of share dilution, restrictions on dividends, and related-party arrangements, including charter-brokerage and management services.
- Monitor the shareholder-litigation appeal, the unresolved pollution fine and the Star Polaris arbitration, as well as the company’s sanctions and compliance disclosures.