General Maritime Secures Crucial Credit Lifeline

General Maritime (NYSE: GMR  ) is struggling hard to stand the test of time. The global provider of seaborne energy transportation services has signed an agreement with Oaktree Capital Management for a credit facility of $200 million. That should prompt a sigh of relief from the company's investors, who feared for the company's liquidity.

The backstory
General Maritime approached several banks and financial institutions to refinance its 2005 credit facility. In addition to its $200 million new credit facility, and as part of its ongoing efforts to shore up its cash needs, General Maritime has also announced plans to enter into a revolving credit facility of $550 million in April 2011, as part of a collective effort to restore greater liquidity at the company.

The company, known for its quality operations and strong customer relationship with big oil companies such as ExxonMobil (NYSE: XOM  ) , Chevron (NYSE: CVX  ) , and ConocoPhillips (NYSE: COP  ) , is walking on a knife's edge. Financial imbalances have left the company in perilously precarious straits. The new influx of cash certainly helps to reassure General Martitime's customers that their products will continue to get where they need to go.

Financials speak
BP
's Gulf oil spill and the crisis in the Middle East have affected General Maritime's operations a great deal, but despite that, the company registered revenue growth in 2010 -- $387 million, up from $350 million in 2009. However, increasing costs have weighed on the company's bottom line. In 2010, it reported a net loss of $216.7 million or $3.02 per share, sharply greater than its loss of $12 million or $0.22 per share in 2009. In short, investors have good reason to feel disappointed.

Higher depreciation and amortization costs and greater asset writedowns also helped contribute to General Maritime's higher losses. The company's mounting long-term debts -- estimated at $1.02 billion at present -- have fueled concerns about liquidity issues, especially with most of that debt coming due in the next 12 months. The interest coverage ratio has also declined from 3.8 in 2009 to 1.1 in 2010, implying that General Maritime is having trouble meeting its interest expenses. Investors fear that these issues could hinder the company's future growth.

To mitigate some of those concerns, General Maritime is now leaning on a credit facility (several, really) to square off its near-term debts. For the time being, that would somewhat relieve liquidity-related worries. Nevertheless, the company needs to work hard to bring its liquidity position back on track before it's too late.

The Foolish outlook
Global oil demand, which had declined post-recession is expected to rise again as the economic recovery gathers steam. This could help bolster General Maritime's voyage revenues. However, competition to win contracts with its major customers should remain fierce. Healthier customers like Frontline (NYSE: FRO  ) , with its own heavy (but not immediately due) debt burden, could capitalize on General Maritime's current weakness for their own benefit.

It's pretty impressive that the company has come up with new strategies to strengthen its liquidity position. However, investors need to keep an eye on General Maritime's fundamental strength.

Fool contributor Anupama Pattanaik doesn't hold shares of any of the companies mentioned in the article. Chevron is a Motley Fool Income Investor pick. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (15)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 05, 2011, at 9:28 PM, psl8er wrote:

    Your reporting on General Maritime is out of date and innacurate. Go check exactly what Oaktree has dome and the restructured bank debt and the follow-on equity issue.

    The equity has been seriously watered down and will only go lower. This is an out of court bankruptcy reconstruction which renders the equity powerless and worthless.

  • Report this Comment On April 05, 2011, at 11:19 PM, 1caflash wrote:

    I increased my investment in PRGN on 4-5-11 by about 1,800 shares. I prefer Paragon's method of trying to "get through the rough seas" better than GMR's. PRGN has also paid a steady dividend for the previous nine quarters. Paragon is in my DRIP.

  • Report this Comment On April 06, 2011, at 1:15 PM, keny2bq wrote:

    good 'plus & minus' analysis. i wonder how their fleet factors into their future prospects. it sounds like it is a creatively run co.; how did they get into this mess tho? i am hoping for the best!

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