Last week, United Maritime Corporation (NASDAQ: USEA) or “United” completed its spin-off from Seanergy Maritime Holdings Corporation (SHIP) or “Seanergy” at “Pursue a diversified business model and greater exposure to different shipping segments“.
The company wasted no time growing its fleet and Monday announcement there “accretive“purchase of four used vessels for a total purchase price of $79.5 million:
- two Aframax tankers built in 2006 and
- two LR2 product tanks built in 2008
Indeed, charter rates have been decent for Aframax crude and product tankers over the past few months, so these vessels should start generating significant cash flow for the company very soon.
That said, LR2 product tankers are likely to be due for their 15-year special survey next year, while crude carriers will also be due for dry-docking for their 17.5-year interim survey.
Unlike its peers Imperial Petroleum (IMPP, IMPPP) and OceanPal (OP), the company has actually managed to significantly expand its fleet without diluting common shareholders:
Cash used to fund the acquisition is expected to include $5.0 million in proceeds received from United’s former parent Seanergy Maritime Holdings Corp., which agreed to purchase an additional 5,000 Series C preferred shares of United.
United has secured a Letter of Commitment from M/V Gloriuship’s existing lender to finance 80% of the purchase price of the fleet of four tankers. The $63.6 million facility will have an 18-month term, bear interest at a fixed rate of 7.90% per annum and be amortized in 3 quarterly installments averaging $4.0 million, followed a balloon of $51.6 million payable at maturity. Repayments will begin nine months after the loan is drawn.
United have also received a letter of commitment from the same lender to refinance the Gloriuship-backed loan with a current outstanding amount of $4.95 million, through a new $14 million loan facility.
The new facility will have a term of 18 months, will bear interest at a fixed rate of 7.90% per annum, down from the current rate of 10.5%, and will be amortized in 3 quarterly installments of 1.0 million each, followed by a lump sum payment of $11.0 million payable at maturity.
In short, the oil quartet will be financed as follows:
Given the rather short duration of the new credit facilities provided by EnTrust Global, the company will need to arrange refinancing or raise new capital in the not too distant future.
Additionally, the issuance of additional 6.5% Dilution Protected Series C Convertible Preferred Shares will provide former parent Seanergy with a decent opportunity to claw back up to 29.9% of the company on the cheap. if the dilution caused the common stock price to fall as seen at its peers Imperial Petroleum and OceanPal.
Although the transaction does not have a direct impact on the net asset value (“NAV”), the debt service obligations have increased quite significantly, especially when considering the quarterly installments which will begin on next year.
As of Monday’s close, United common stock was trading at a rather moderate 35% discount to estimated net asset value, well ahead of former parent company Seanergy and closest oil tankers Imperial Petroleum and Performance Shipping ( PSHG).
At current share price levels, the United Maritime spin-off represents a one-time dividend of approximately $0.06 to Seanergy shareholders.
Given United’s stated intention to expand its fleet and the requirement to refinance the new EnTrust Global credit facilities by the end of next year, I strongly expect the company to raise new equity as soon as possible.
Given the high valuation relative to the company’s closest peers and the likelihood of substantial dilution going forward, investors should avoid the stock or consider selling existing positions.
That said, with only 1.5 million common shares currently outstanding, I would strongly advise against going short at this point, as the stock could be taken for another round by the buoyant crowd at any time, quite similar to last week.