UPDATE: Bank of America Merrill Lynch Downgrades Capital Product Partners to Underperform, Lowers PO

In a report published Wednesday, Bank of America Merrill Lynch downgraded its rating on Capital Product Partners LP CPLP from Neutral to Underperform, and lowered its price objective from $8.50 to $7. BofA Merrill Lynch noted, “We are downgrading Capital Product Partner's shares (CPLP) to Underperform from Neutral due to the overhang of charterer OSG, as it undergoes a financial restructuring following its November chapter 11 filing. We believe this could ultimately affect the 3 vessels that CPLP has contracted with OSG. While news of OSG's condition is well documented, its recent action to deliver 2 Suezmaxes to owner DHT Maritime and 3 smaller tankers to their respective owners highlight what is likely the beginning of a purge of above-market rate charters. CPLP's 3 vessels (Alexandros, Aristotelis, Aris II) chartered to OSG are all 2008-built 51,000 dwt product tankers; each are on bareboat charters at $13,000/day through late 2017 / mid 2018, representing ~9% of CPLP's revenues. While we are cognizant of a slowly improving market in the product sector and its potential to positively impact the company's 7 recharters in 2013, the loss of the OSG revenue increases the near term risk.” Capital Product Partners LP closed on Tuesday at $6.68.