On a day when the Dow Jones Industrial Average (INDEX: ^DJI) is down less than a percentage point, shares of oil tanker company Frontline (NYSE: FRO) have been eviscerated by nearly half. The 40% collapse, brought on by a Financial Times article claiming a restructuring is unavoidable, has caught other industry mates in its wake. Both Overseas Shipholding Group (NYSE: OSG) and Ship Finance International (NYSE: SFL) have sunk more than 15% on heavy trading volume. Competitor Teekay Tankers (NYSE: TNK) is down 5%, possibly because investors are wary about its own fiscal situation, even though it should benefit if Frontline stumbles.

Essentially, Frontline, beset by a $136 million third-quarter loss, is in danger of breaching its debt covenants early next year. The company's $242 million market cap and $173 million cash on hand is dwarfed by $2.7 billion in debt. Even worse, poor business conditions have exacerbated the problem. According to the Financial Times, a glut of vessels has caused spot rates to be less than half what Frontline needs to break even.

Legendary CEO John Fredricksen still owns roughly 40% of Frontline, so expect him to be aggressive in protecting his investment. Although his attention may be split, I wouldn't expect a refinancing at Frontline to disrupt any of his other multibillion-dollar businesses, like, say, SeaDrill (NYSE: SDRL) and its tasty 9% dividend yield. My optimism doesn't extend to the sustainability of Frontline's 1.4% yield, though.

The sheer number of newbuilds coming online is a pox on all shippers, not just tankers. Fellow Fool Chris Barker prophetically warned about this approaching tsunami years ago. He cited it as a chief reason he favored dry bulk shippers with strong cash positions over those encumbered by high debt loads like DryShips (Nasdaq: DRYS).

At the end of the day, I expect Frontline to survive, and from this lower share price, potentially thrive. The dividend might go away, and the ride will get rougher for shareholders before they see calm. But Frontline historically is well-run and negative gross margins won't plague the industry forever. I wouldn't suggest running out and buying shares, but Frontline certainly deserves careful watching.

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