Diana Containerships: A Difficult But Necessary Decision to Scrap MAERSK MADRID

M/V Maersk Madrid. Photo Diana Containerships

By Lambros Papaeconomou

Diana Containerships Inc. (DCIX) announced today that it has agreed to sell the 1989-built MAERSK MADRID for demolition for a sale price of approximately $8.8 million before commissions.

At the outset, this might appear as a setback for the fledgling company.  The company had purchased the vessel less than two years ago for $22.5 million.  The carrying value for the vessel as of December 31st 2012 was $19.9 million according to the company’s annual report filed with the SEC.  On this basis, I expect Diana Containerships to book an accounting loss of $11 million during the second quarter of 2013.

But on a cash-flow basis, the company has fared much better or, to be exact, less worse.  Diana Containerships had purchased the vessel with a two-year leaseback above-market charter at a gross rate of $21,450 per day.  Assuming a market rate of $8,000, the company was able to generate approximately $10 million of additional operating cash flow during the past two years.

Against adverse freight market conditions, and with MAERSK MADRID about to be redelivered from its lucrative two year charter,  the company made a difficult but prudent decision to scrap one of its older vessels.

About the Author

Lambros Papaeconomou is with NYFEX Asset Management LLC, providing equity research for the shipping industry.

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