Deutsche Bank’s Amit Mehrotra Diana Shipping Inc. (NYSE: DSX) downgraded the rating on the company from Hold to Sell, while lowering the price target from $4.00 to $1.50.

Cash Burn Concerns

The downgrade in the rating follows the company’s recent rechartering announcements and a meeting with the COO and CFO on March 8.

Mentioning that Diana Shipping’s negative cash flows were more severe than earlier expected, Mehrotra now expects the company to burn $175 million in 2016 and $100 million in 2017, “reflecting the significant step down in dry bulk rates ytd and exacerbated by DSX's period chartering strategy.”

“We do not believe DSX has the liquidity and/or leverage profile to absorb such a hit, most likely necessitating near/mid-term debt relief,” the analyst said.

Diana Shipping has cash worth $170 million and more than 70 percent LTV, reflecting lower asset values and net debt having doubled over the past two years, with management having invested during the downturn.

Positive Outcome Likely

“Importantly, we are confident in DSX’s ability to absorb operating-related cash burn, implying the company is most in need of relief related to the timing of debt repayments,” the Deutsche Bank report stated.

The analyst believes, however that management would be successful in negotiating a positive outcome with lenders, although the discussions were likely to be rendered tougher due to Diana Shipping’s best-in-class status.

Mehrotra expects the company to remain “best positioned in a recovery scenario, although the overhang is negative for the near/mid-term outlook for shares.”