Starting in 2011 FRO has made several strategic moves to place FRO in a more conservative position. While recovery may be many quarters, even many years in the future, in my opinion bankruptcy for the company is nowhere in the near term future.
From FRO's 1st Quarter release:
Strategy and Outlook
The Board sees a challenging supply / demand situation for the tanker market where the combined VLCC and Suezmax fleet between 2004 and 2012 increased by 98 percent without being backed by a similar increase in demand
. Frontline will continue to remain cautious and focus its resources on the present activities until a clearer sign of recovery can be seen in the tanker market.
Following the restructuring completed in December 2011, the cash break even rates for the Company were substantially reduced for the period 2012-2015*
, creating a downside protection for the Company.
As part of the restructuring, the Company obtained agreements with its major counterparties to reduce the gross charter payment commitments under existing chartering arrangements. Frontline will, however, compensate charter counterparties with 100 percent of any difference between the renegotiated rates and the actual market rate up to the original contract rates. Some of the counterparties will receive some additional compensation for earnings achieved above original contract rates. The TCEs earned in the in the first quarter of 2012 were above the renegotiated rates and Frontline recorded cash sweep expense of $14.9 million in the quarter. The main part of this relates to the amended charter parties with Ship Finance.
The development in the first quarter and so far in the second quarter has been stronger than the Board anticipated at the beginning of the year. Based on results achieved so far in the quarter and the current outlook the Board expects the operating result in the second quarter to be better than in the first quarter.
*The Company estimates average total cash cost breakeven rates for 2012 on a TCE basis for VLCCs and Suezmax tankers of approximately $24,100 and $17,500, respectively.
I have very small amounts of SB, BALT, and NAT and will very slowly accumulate over the next few years, just buying a few shares during hard sell offs, once maybe twice per year. Rates will pick up if the pace of shipping picks up, but IMO there will be no major longer term improvement in the industry until the rate deletions begins to outpace new deliveries. I guess a few major bankruptcies and some consolidation could achieve a similar result.