UBS Downgrades Star Bulk Carriers To Sell Amid 'Cash Burn Concerns'

• Star Bulk Carriers Corp SBLK shares have been declining steadily in 2015 and are down 71 percent year-to-date.
• UBS analyst Spiro M. Dounis downgraded the rating on the company from Neutral to Sell, while reducing the price target from $3.50 to $1.50.
• Depletion of cash burns and the need for a dilutive equity offering by the company are the main concern areas, Dounis stated.

Significant debt repayments and high cost bare boat financing are expected to lead to depletion of all Star Bulk Carriers’ current cash balance by end-2017, analyst Spior Dounis mentioned.

“In our view, the company has successfully closed the funding gap; however, we do not expect the new assets to generate a sufficient return that will allow the company to repay debt from operations alone,” Dounis wrote.

The analyst believes that the company will need to make a $154 million equity offering in late 2017 to maintain the minimum liquidity levels as mandated by its existing debt covenants.

Dounis expects only a modest recovery in bulker rates, with Newcastlemaxes likely to increase from just over $11,000/d in 2016 to $14,100/d by 2019. He added that declining iron ore and coal demand in China are expected to restrict the recovery process.

Only a significant increase in freight rates could allow Star Bulk Carriers to reduce cash burn, the UBS report stated, while adding, “We estimate a 48% increase in rates above our forecast would eliminate cash burn in future years.”

Although the company can generate liquidity by selling existing vessels, cancelling contracts, pushing out deliveries and reducing capex, it has already used most of these options, Dounis pointed out.