Arne Blystad-backed Songa Container is facing up to a potential breach of a bond covenant as it warned of charterer "distress" in the coronavirus crisis.
The Norwegian boxship owner it will be affected by an uncertain market, delays in shipyards with regards to scrubber retrofits and potential uncertainty over payments of outstanding receivables.
There is also the possibility of "charterers coming into financial distress", as well as challenges if crew members are hit by the virus.
"As a consequence of this there is a risk of a potential breach of the group’s financial covenants in the loan agreement," the company said.
"At the time of preparation of the annual accounts, assuming a continued market scenario of weak container charter rates and low spreads obtainable on the fuel spreads, it is the opinion of the company that it will go in breach with the minimum cash covenant under the bond terms unless additional equity is raised or other adaptions are made."
Compliant so far
Songa stressed it was in compliance with the financial bond covenants as of 29 April.
This means the company's vessel loan-to-value is below 75% and that the group meets the minimum cash requirement of 5% of the outstanding bond, equal to $6.5m.
In March, the shipowner banked $5m in extra cash from shareholders including Blystad through a private share placement.
Management is monitoring the situation and continuously follows the development of the cash position, Songa added.
"The management [is] continuously considering the need of capital from the existing shareholders to ensure sufficient liquidity reserves for the operation of the group," the company said.
"How the outbreak will affect the assumption of going concern will depend on how long this situation will last, what measures the authorities will take, and how the aforementioned risks will actually affect the company."
Despite the Covid-19 threat, it believes there is hope for a recovery due to reduced vessel speeds, ships out of service for retrofitting, a historically low orderbook and stronger demand growth in the feeder segments than the container market as a whole.
Still committed to scrubbers
The shipowner is fitting scrubbers to most of its 15 ships.
The capex programme has been set back by the increase in off-hire experienced, predominantly coming from delays at the shipyards and increased waiting and positioning time needed prior to entering into a shipyard, it said.
But it added it was "determined to conclude" the programme as long as it remains commercially and practically viable.
"The positive interest from the charter market remains supportive of this strategy," it added.
The $5m March capital increase outstripped its fourth quarter loss of $4.29m, which compared to a deficit of $1.59m in 2018.
Arctic Securities analyst Alexander Jost had earlier said he expected Songa's liquidity to fall from $5.4m in the first quarter to $3.4m by the third, resulting in a $5.5m shortfall with $19m in capital expenditure on the books.
"Songa had a thin liquidity buffer during [the first and second quarters] when taking into account the minimum cash covenant of $6.5m," Jost wrote.
