On a day when the Dow Jones Industrial Average
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
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
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.
The best way to track the latest developments surrounding the companies mentioned above is to add them to our free My Watchlist feature:
- Add Frontline to My Watchlist.
- Add Overseas Shipholding Group to My Watchlist.
- Add Ship Finance International to My Watchlist.
- Add Teekay to My Watchlist.
- Add SeaDrill to My Watchlist.
- Add DryShips to My Watchlist.
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