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The Case For An Additional Dividend Cut And Share Buyback At Navios Maritime Partners

Navios Maritime Partners stock is cheap, but for good reason.

The company must restore its creditworthiness and cash position.

The company should cut dividends, pay down debt and repurchase its shares.

Navios Maritime Partners (NYSE:NMM) units are in a tailspin. The stock is down nearly 85% since August of 2014, but took a stupendous and tremendous nosedive starting in October of 2015, when the shares dropped from $8 to about $3. A loss of 65% in a little over a month is breathtaking - so what caused it? Is the stock market simply overreacting, and if so, to what?

The most obvious explanation for the stock price collapse is that the company cut its annual dividend from $1.77 a share to $.85 a share. Just one quarter ago, the company had repeatedly stated that it was "committed" to a minimum distribution of $1.77 through 2016 - the sudden reversal of that commitment seems to have led the market to believe that the company's financial position has taken a rapid and alarming turn for the worse. Indeed, the company's debt is now rated as speculative "junk" grade by Moody's and S&P - which is not altogether surprising given that the company's most recent balance sheet shows cash of about $33m, but current liabilities (including long-term debt coming due currently) of nearly twice that amount ($51.2m). Just one quarter ago, the company's cash balance was roughly equal to its current liabilities, and one year ago, the company had enough cash to pay all of its current debts three times over. Not only has the company been overspending, but it's been doing so at an alarming rate over the last year. Cutting the dividend to shore up cash wasn't only prudent - it was probably required in order for NMM to remain solvent without having to tap into its line of credit.

The cycle of borrowing to fund spending, while distributing all profits to shareholders, is coming to an end whether the company wants it or not. NMM must now get its financial house in order, and quickly before 2018 comes. Looming in the not too distant future, the company has over $411m of debt coming due in 2018 and at a junk bond rating. Rolling that debt over would be extremely expensive. If shipping rates remain low, rolling that debt over may not even be possible. This is an existence-ending proposition, and the company would be wise to get in front of the problem now while it still can.

Fortunately, the company made the tough...


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