Following disappointing China PMI data and a collapse in US ISM Manufacturing imports data, the fact that The Baltic Dry Index has collapsed to fresh record lows will hardly be a surprise to many. However,as Deutsche Bank warns, a “perfect storm” is brewing in the dry bulk industry, as year-end improvements in rates failed to materialize, which indicates a looming surge in bankruptcies.
And US Manufacturing imports suggest things are getting worse, not better…
Which leads Deutsche Bank to warn of…A Perfect Storm BrewingThe improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we’ve had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of “for sale” tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.
Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values
The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.
Full article: A “Perfect Storm Is Coming” Deutsche Warns As Baltic Dry Falls To New Record Low (Zero Hedge)