Contact Information: Company Contact: Fariyal Khanbabi Chief Financial Officer Tel. +44 (0)20 7264 4900 Investor Relations / Media: Paul Lampoutis Vice President Capital Link, Inc. Tel. (212) 661-7566 E-mail: britanniabulk@capitallink.com
Britannia Bulk Holdings Inc. Provides Operational and Financial Update
| Source: Britannia Bulk Holdings Inc.
LONDON--(Marketwire - October 28, 2008) - Britannia Bulk Holdings Inc. (the "Company") (NYSE : DWT ), an international provider of dry bulk shipping and maritime logistics
services with a focus on transporting dry bulk commodities in and out of
the Baltic region, is hereby providing an update on significant financial
and operational matters prior to the Company's upcoming release of
unaudited financial and operational results for the three month and the
nine month periods ended September 30, 2008.
Expected Third Quarter 2008 Financial Trends
While the Company has not yet concluded the review of its financial results
for the three months ended September 30, 2008, the Company expects to
announce a significant net loss for the period compared to the net income
achieved during the second quarter of 2008. The Company believes that the
expected loss will have resulted from the substantial decreases in dry bulk
charter rates that occurred during the period, exacerbated by the Company's
increase in chartered-in capacity during the same period and its entry into
the forward freight agreements ("FFAs") and a bunker fuel hedge more fully
described below.
Update on Third Quarter 2008 Operational Difficulties
Chartered-In Vessels. Historically the Company has chartered-in vessels to
increase its overall dead weight tonnage capacity and enhance its service
offering to customers. During the three months ended September 30, 2008
the Company increased its chartered-in capacity at a time when the demand
for dry bulk shipping capacity decreased significantly. This decrease
continued throughout the third quarter of 2008 and dry bulk charter rates
fell substantially during the same period. As a result, the charter rates
the Company achieved during the three months ended September 30, 2008 for
its chartered-in vessels were less than the rates the Company paid to
secure many of these vessels, resulting in significant losses.
Forward Freight Agreements. A Forward Freight Agreement ("FFA") is an
agreement to pay the difference between a current price and the future
price of moving a product from one location to another, or for the future
price of hiring a ship over a period of time. FFAs are used by ship-owners
and charterers as means of protecting themselves against the volatility of
freight rates. For example, a ship-owner would typically sell FFAs to
hedge against falling freight rates. Similarly, a charterer would
typically buy FFAs to fix shipping costs. Positions in FFAs can be closed
out by buying or selling opposing positions.
The Company has historically entered into dry bulk FFAs as economic hedges
relating to identifiable ship or cargo positions and as economic hedges of
transactions expected to be carried out in the normal course of its
shipping business. None of the Company's FFA derivatives qualify for hedge
accounting; therefore, the net changes in derivative assets and liabilities
are reflected in current period operations. In the past, the Company has
entered into FFA contracts to provide a fixed number of theoretical voyages
at fixed rates, with such contracts generally ranging from one month to one
year and settling monthly based on a published index. For such contracts,
the Company recognizes monthly realized gains or losses from FFAs
concurrently with monthly cash settlements. In addition, unrealized gains
or losses on the FFAs are recorded in the Company's statement of operations
under "gains on forward freight agreements." Entering into FFAs can lead
to material fluctuations in the Company's reported net income on a period
to period basis.
Since July 2008, the Company bought FFAs that appear not to have been
purchased to hedge identifiable ship or cargo positions. This resulted in
the Company being more exposed to the falling charter rates and reduced
overall demand for dry bulk shipping services than it would have been if
its historic practice of using FFAs as economic hedges had been followed.
In marking these FFAs to market, the Company expects to recognize a
significant realized loss for the three months ended September 30, 2008.
Cash settlement of such FFAs is scheduled to commence in the fourth quarter
of 2008 and continue into 2009.
An independent committee of the Company's Board of Directors has resolved
to retain an external advisor to assist it in determining how the Company
came to enter into these FFAs.
Bunker Fuel Hedge. If the Company's vessels are time-chartered out to
third parties, the charterer pays for the bunker (fuel and oil). In such
instance, any inflationary pressure on the cost of bunker fuel does not
affect the Company's results of operations. If, however, the Company's
vessels are employed under contracts of affreightment ("COAs") or spot
charters, the freight rates it receives are generally sensitive to the
price of bunker fuel. A rise in bunker costs can sometimes have a negative
temporary effect on the Company's results since freight rates generally
adjust upwards only after bunker fuel prices settle at a higher level. To
mitigate the risk of this temporary effect, and in light of recent
substantial movements in the price for bunker fuel, the Company has in the
past entered into hedging arrangements whereby it purchased a fixed
quantity of bunker fuel, calculated against identifiable COAs, at a fixed
price to be delivered over a specified period of time. Bunker fuel hedges
are designated as cash flow hedges for accounting purposes and,
accordingly, unrealized gains or losses resulting from changes in fuel
prices are recorded in other comprehensive income (loss), a component of
stockholders' equity.
In the three months ended September 30, 2008, the Company entered into a
bunker fuel hedge which is currently uncompetitive because it is hedged to
prices which are significantly above the current market price of bunker
fuel. As a result, the Company currently estimates that its aggregate
bunker fuel hedging losses for the three months ended September 30, 2008
will be significant.
Board Discussions with Company Management
In response to the severe financial difficulties the Company is
experiencing, the Board is currently conducting extensive discussions with
the Company's management team to identify and implement any necessary
changes. While discussions and resulting changes are ongoing, the Board
has recently imposed a number of cash conservation and cost reduction
measures on the Company and has limited management's ability to conduct
daily sales and purchases and hedging activities, including entering into
any new FFAs or bunker fuel hedge arrangements, without specific Board
approval.
Engagement of Outside Corporate Advisors
The Company has engaged AlixPartners, a leading corporate advisory firm, to
assist the Company's management in discussions and negotiations with the
Company's lenders and trade counterparties and to address the Company's
current financial and liquidity issues. Representatives of AlixPartners
are working with management to immediately implement measures to conserve
cash and reduce costs. AlixPartners is expected to have an integral role
in helping the Company address key issues with its lenders and trade
counterparties.
Ongoing Discussions with Secured Term Loan Facility Lenders
On May 23, 2008, the Company's wholly owned subsidiary, Britannia Bulk Plc,
as borrower (the "Borrower"), entered into a US $170.0 million term loan
facility with Lloyds TSB Bank Plc and Nordea Bank Denmark A/S (the
"Facility"), which Facility is secured by twenty two vessels in the
Company's owned fleet. Approximately US $158.0 million is currently
outstanding under the Facility. The Company has guaranteed the Facility
and, pursuant to the terms of the guaranty, the Company is subject to
certain financial covenants, including a minimum liquidity covenant. In
addition, the Facility contains a collateral cover requirement pursuant to
which the Borrower may be required to provide additional collateral or make
repayments under the Facility if updated valuations of five of the vessels
securing the Facility reflect that the fair market value of such vessels
has dropped below required levels. In addition, such updated valuations
will be used in the calculation of certain of the financial covenants.
The Company is not currently in violation of its financial covenants.
Although no such violations currently exist, severe adverse market
conditions and the severe financial difficulties currently being
experienced by the Company (as well as a revaluation of its fleet) have
resulted in a very high risk of a future violation of one or more financial
covenants in the near term. If such violations occur and the Company is
unable to cure such violations or obtain waivers within the applicable cure
periods to the extent available, such violations will constitute an event
of default under the Facility. Similarly, adverse market conditions have
resulted in a material risk that the lenders may require additional
collateral or repayments of the Facility under the collateral cover
requirement. A failure to satisfy such collateral cover requirement or
make the required payments within 30 days of request by the lenders to do
so will also constitute an event of default under the Facility.
Additionally, the lenders may assert that certain insolvency events or
material adverse changes have occurred. The occurrence of such events
would also constitute events of default. If an event of default occurs,
and the Company believes there is a very high risk of that occurring, the
lenders would accelerate the due date for the payment of all of the
outstanding indebtedness under the Facility, exercise remedies as a secured
creditor with respect to the vessels and other collateral securing the
Facility and offset cash balances on account with the lenders.
The Company is in discussions with the lenders under the Facility regarding
its current severe financial difficulties and the possibility that events
of default may occur under the Facility. There can be no assurance that a
resolution of the issues surrounding the Facility will be reached. The
Company is considering its alternatives if it is unable to reach an
accommodation with the lenders, including liquidation or protection under
applicable bankruptcy or insolvency laws.
In either case (an accommodation with the lenders or a liquidation,
administration or bankruptcy), it is unlikely that the Company's
shareholders would realize much, if any, value.
No Payment of Third Quarter Dividend
As a result of its current financials, the Company has determined that it
will not pay a dividend on its common shares for the quarter ended
September 30, 2008. While the timing and amount of any future dividend
payments will depend on future earnings, financial condition, capital
requirements and such other factors as the Board may consider relevant at
such future date, the Company does not expect to pay a dividend in the
foreseeable future.
ABOUT BRITANNIA BULK HOLDINGS INC.
Britannia Bulk Holdings Inc. is an international provider of drybulk
shipping and maritime logistics services with a focus on transporting
drybulk commodities in and out of the Baltic region. The current owned
fleet consists of 22 vessels, including 13 drybulk vessels, five of which
are ice-class, five ocean going ice-class barges, and four ice-class tugs.
The Company also charters-in additional vessels to increase its overall
deadweight tonnage capacity and enhance its service to its customers. As
at June 30, 2008, the number of chartered-in drybulk vessels under the
Company's control was 53, 9 of which were ice-class.
Forward Looking Statement
This press release contains forward-looking statements (as defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended) concerning future events
and the Company's growth strategy and measures to implement such strategy;
including expected vessel acquisitions and entering into further time
charters. Words such as expects, intends, plans, believes, anticipates,
hopes, estimates, and variations of such words and similar expressions are
intended to identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, no assurance can be given that such expectations will prove
to have been correct. These statements involve known and unknown risks and
are based upon a number of assumptions and estimates that are inherently
subject to significant uncertainties and contingencies, many of which are
beyond the control of the Company. Actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ materially include, but are not
limited to changes in the demand for dry bulk vessels and container ships,
competitive factors in the market in which the Company operates; risks
associated with operations outside the United States; and other factors
listed from time to time in the Company's filings with the Securities and
Exchange Commission. The Company expressly disclaims any obligations or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with respect thereto or any change in events,
conditions or circumstances on which any statement is based.
Contact:
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