Rickmers Maritime: DPU slashed; LTV waiver negotiations continue.

Auditor adds emphasis of matter. Rickmers Maritime (RMT)'s 2Q09 results were in line with expectations, barring a US$7.5m provision (on top of a US$3.5m provision in 4Q08) for impairment on vessel Maersk Djibouti, at risk for redelivery in February 2010. RMT has repaid a total of US$4.2m of loans in 1H09. The auditor issued an emphasis of matter, citing material uncertainty that "may cast doubt on the [trust's] ability to continue as a going concern".

DPU down 72% QoQ. The Board has declared a distribution of 0.6 US cents per unit for the quarter, down 73% YoY and 72% QoQ. This is equivalent to an annualized yield of roughly 6%. The sponsor will defer (but not waive) its right to its share of the distribution of over US$841,374. Including the sponsor's deferral, RMT saves nearly US$7.4m compared to 1Q09 within the trust. This is relatively small, in our opinion, but nonetheless significant: 1) it is highly unproductive to pay out much-needed cash in the face of financial covenant concerns and a large funding gap; 2) more importantly, it serves as an important good-faith gesture to RMT's lenders.

LTV issue unresolved, deposit payment delayed. RMT's attempts to obtain loan-to-value covenant waivers from its lenders, which began in 1Q09, are still ongoing - to our disappointment. The manager could not provide an approximate timeline for the negotiations. LTV covenants affect both existing loans and RMT's ability to drawdown on committed facilities for the three outstanding Hanjin vessels. RMT has started negotiations with banks to refinance a US$130m top-up facility maturing in April 2010. The manager said it is also in negotiations with all stakeholders (including the shipyard; the charterer; and lenders) on the unfunded US$711.6m Maersk vessels due in 2010. Payment of a US$20m deposit on two of the Maersk vessels has been delayed while discussions are ongoing. RMT has also appointed an independent financial advisor and investment bankers.

Price inadequate reflection of risk. No DPU guidance has been given. RMT's lenders may demand loan amortization in exchange for LTV waivers, which would cut into cash available for distribution. An equity issue may also be needed in the next 12 months to part-finance the Maersk vessels. We do not expect a big upward revision in DPU until at least some of these issues are resolved. In our opinion, the current unit price does not adequately reflect the risks associated with investing in RMT. Maintain SELL with S$0.39 fair value.

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