Back to top

Analyst Blog

Zacks Equity Research

Overseas Shipholding Suffers Setback

TK FRO

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Credit rating agency Standard and Poor’s (S&P) lowered global energy transportation company Overseas Shipholding Group Inc.’s corporate credit rating. S&P stated that downgraded rating reflects the possibility of a liquidity crisis that the company might face during the early part of next year.

OSG’s long-term corporate credit rating has been reduced to ‘CCC+’ from ‘B-‘coupled with a negative outlook, as the rating firm believes that the company will face cash constraints when its $1.5 billion revolving credit facility is replaced by a smaller facility of $900 million.

Although the New York-based shipping company’s senior unsecured debts credit rating has also being lowered to ‘CCC+’ from ‘BB-', its recovery rating remains unchanged at ‘3’, stating that in case of any default the creditor will be able to recover at least 50–70% of the outstanding amount.     

As of March 31, 2012, OSG had a financial obligation of almost $372.9 million, which included an additional amount of $256.1 million under the existing credit facility, an outstanding $63.6 million debenture and capital commitments of $53.2 million.  Furthermore, the company has a cash balance of $226.7 million and has produced negative cash from operations of $62 million over the last 12 months.              

Currently, the company is facing certain serious problems, which if not dealt with properly may lead to further downgrade in ratings. The company does not generate enough cash from operations to meet its debt and capital obligations. In addition, the company’s revenue is also exposed to spot market rates, which are susceptible to macro-economic concerns, geo-political risks and demand-supply mismatches.

We believe that a continuous rise in fuel demand in the international market coupled with a profitable U.S. domestic shipping business and improving spot market rates bode well for the company. Moreover, if the company manages to raise funds through asset sales or through additional borrowings, it would be in a better position to improve its credibility. However, rivals Frontline Ltd (FRO - Snapshot Report) and Teekay Corp (TK - Snapshot Report) provide stiff competition to OSG.     

The current Zacks Consensus Estimate for Overseas Shipping Group Inc. is pegged at ($1.09) for the second quarter, with a growth rate estimate of 9.48%. For 2012 and 2013, the Zacks Consensus Estimates stand at ($4.80) and ($2.80) with a growth rate of 23.44% and 41.77%, respectively.

Recommendation

Currently, Overseas Shipping Group Inc. has a Zacks #2 Rank, implying a short-term Buy rating on the stock.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GROUP DXYN 15.84 +7.90%
BOFL HOLDING BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%