K-Sea In Rough Water

For the first quarter, K-Sea Transportation Partners L.P. reported lower operating results across the board largely reflecting market conditions in the Jones Act trades as well as an impairment charge attributed to an earlier than planned phase out of its single hulls vessels. Based upon its performance, the company cut its dividend from $0.77 to $0.45, a reduction of approximately 58%, and has proactively begun discussions with its banks with respect to potential breaches of covenants in its loan agreements, which may occur by the end of the 2nd or 3rd quarter. The intention is to amend the affected covenants.

As is the case with dividend payers in general and full payout models in particular, the impact of the dividend reduction was substantial with the stock trading down on the day of the announcement to $14 from the prior day close of $22.45, a 37.6% fall. The shares continue to trend downward trading in the $11 to $12 range and are currently yielding 15.6%. The impact of the decline was in all likelihood magnified by the company’s stellar record of increasing distributions over the past 5+ years.