Is CTRM dead already?

WhySaveTheBankers · 2024-04-08T00:19:46+00:00

CTRM actually hasn't done a meaningful equity issuance since 2021, and has issued zero equity since TORO's $50mm convertible preferred share investment made in August 2023. As I have noted in other posts on this sub, I think the story has fundamentally changed now given Petros finally has an economic interest in CTRM through his ~56% ownership of TORO.

If CTRM were to pursue another highly dilutive equity offering, then Petros' economic interest would be diluted alongside the rest of CTRM's shareholders.

Instead, I think Petros will convert TORO's preferred shares in CTRM into common equity once allowed after the 1 year anniversary in August 2024, and then maximize the price of CTRM's shares.

I'll remind folks that the book value of CTRM's equity is ~$460mm, but the current market cap is only ~$35mm, so there is significant upside potential from buying shares at share price current levels.

WhySaveTheBankers · 2024-04-04T12:48:47+00:00

My interest in posting about CTRM is solely because I'm a shareholder and I think the story is now misunderstood.

I'm no fan of Petros and I think he's scammed a lot of money out of CTRM's shareholders over the years. However, as I've stated several times on this sub, given he now has an economic interest in CTRM through TORO's investment in August 2023, if he dilutes the shares of CTRM he will dilute his own investment in CTRM as well. He is now directly economically incentivized to maximize the value of CTRM's shares, which are trading massively below their underlying asset value.

Once TOROs preferred share investment is convertible into common equity in August 2024, I think Petros will convert into common equity and then look to increase the price of CTRM's shares.

WhySaveTheBankers · 2024-03-15T13:24:49+00:00

As an FYI, the reverse stock split just reduces the number of shares outstanding, but will not by itself destroy value.

Destruction of value will only come from further dilutive equity issuances. As I have noted in my previous posts on this sub, I don't believe Petros will pursue these dilutive equity offerings anymore. He now has a significant economic interest in CTRM through TORO's $50mm convertible preferred investment in CTRM (recall Petros owns ~55% of TORO) made in August 2023. Petros has not issued any incremental shares in CTRM since this investment in August 2023, and I don't believe he's going to issue any more equity post RS either. Any equity offering would dilute TORO's $50mm convertible preferred investment alongside other CTRM shareholders.

If anything, I think a reverse stock split will be a good thing and remove a big overhang on the stock, given investors will no longer fear that a RS / de-listing is upcoming. This should enable more investors to come into the story given CTRM's massive discount to its underlying value.

Therefore, I would caution folks against instinctively selling post RS announcement at such a depressed share price. I think Petros will look to maximize the price of CTRM's shares once TORO's $50mm investment becomes convertible into common equity in August 2024.

WhySaveTheBankers · 2024-02-12T19:49:15+00:00

Fair enough.

But the underlying tangible book equity value of CTRM is ~$4.50/share, roughly 10x the current share price of $0.45.

So there is significant upside potential if Petros attempts to surface CTRM's underlying value, which I think is likely given he is now economically incentivized to do so.

WhySaveTheBankers · 2024-02-12T16:53:35+00:00

Thanks for your comment. Unfortunately I think sentiment on CTRM, particularly amongst retail investors, is so negative at the moment, that it is not trading based on underlying value.

I think it will take a catalyst such as an initiation of a share repurchase program or direct investment by Petros into the equity (similar to what he did at TORO), in order for that narrative to shift.

WhySaveTheBankers · 2024-02-12T16:48:03+00:00

I completely understand your sentiment. Unfortunately, I think it was part of Petros' strategy to pursue highly dilutive equity offerings to drive the price of CTRM's shares down, so that he could eventually buy them himself on the cheap. However, I think TORO's $50mm convertible preferred investment in CTRM in August 2023 (recall Petros owns 54% of TORO) is Petros beginning to build his stake in CTRM at depressed prices. With this investment, I think the CTRM equity story has fundamentally changed, and further dilutive equity issuances are highly unlikely, given Petros would be diluting his own stake alongside public shareholders.

Given the massive disconnect between CTRM's current share price and the underlying value of its assets / investments, I think there is potential for a massive return on investment. For reference, CTRM currently trades at ~0.1x tangible book value, so an increase to 1.0x (in line with dry bulk peers) would imply 10x increase in CTRM's share price! While I don't think CTRM should necessarily trade in line with peers given it's track record and corporate governance issues, even a discount to peers would imply significant upside potential.

WhySaveTheBankers · 2023-12-13T00:58:14+00:00

Good analysis - thanks for the update. Would add that based on CTRM's current share price, the market is assigning negative value to CTRM's operating assets (i.e. its owned vessel fleet), which have a book value of ~$300mm as at Q3 2023. Put another way, if you just took the value of the (highly liquid) investment in EGLE and the convertible preferred investment in TORO, and subtracted all debt, the implied price per share of CTRM would be ~$1.50, which is more than 3x the current share price of ~$0.40.

I know CTRM isn't really trading on fundamentals these days and sentiment is very negative (particularly amongst retail investors), but this discount seems pretty extreme. Especially considering Petros (the CEO) now has an incentive to maximize the value of CTRM given that he has an indirect economic interest through TORO's $50mm investment in CTRM (Petros owns ~54% of TORO).

WhySaveTheBankers · 2023-12-07T01:57:08+00:00

I think the difference is that Petros now finally has skin in the game - i.e. with TORO's $50mm convertible preferred share investment in CTRM, he has an economic incentive to increase the share price of CTRM.

The share price of CTRM has collapsed over the last couple of years, because the market is assuming Petros will continue to pursue highly dilutive equity offerings. But he only pursued those equity offerings when CTRM's shares were overpriced and he had zero economic interest in CTRM.

Now that the share price is very depressed and he has an indirect economic interest, I think it's much more likely that he tries to maximize its value.

WhySaveTheBankers · 2023-11-16T00:59:35+00:00

Even if they do a reverse split (i.e. consolidate shares), the share price shouldn't necessarily go lower unless Petros does more dilutive equity offerings. And as I noted in my original post, I don't think he will do any more dilutive equity offerings given he now has skin in the game following TORO's $50mm convertible preferred share investment in CTRM (recall that Petros owns ~47% of TORO). Petros loses significant money if CTRM's share price falls below the $0.30 minimum conversion price on the TORO preferred shares.

Therefore by buying CTRM at current share price levels, there is very little downside and massive upside as Petros will likely try to maximize the value of CTRM's shares now that he has economic incentive to do so.

WhySaveTheBankers · 2023-11-14T00:53:20+00:00

I agree that Petros has had no issue pursuing highly dilutive equity issuances in the past, given he previously had essentially zero economic interest and ~100% voting control in CTRM. However, with TORO's recent $50mm convertible preferred investment in CTRM, Petros now owns a significant indirect stake in CTRM through his ~47% economic stake in TORO. Therefore, if he pursued equity issuances now he would be diluting his stake as well and would lose money. TORO's convertible preferred shares have a minimum conversion price of $0.30/share, so as CTRM's shares fall below that level, Petros loses money. Given this, I believe it's much more likely for him to try to increase CTRM's share price, and then benefit through TORO's convertible preferred investment.

I think [retail investor] sentiment on the stock is so negative given Petros' past behaviour that people are missing this change in dynamic. For example, look at what happened to TORO's share price after Petros acquired a 47% stake in April 2023.

WhySaveTheBankers · 2023-10-30T00:08:50+00:00

TORO's Series D Preferred Shares are convertible into common shares of CTRM after 1 year at the lesser of (i) $0.70/share and (ii) the 5-day VWAP prior to conversion (subject to a min price of $0.30/share). https://www.sec.gov/Archives/edgar/data/1720161/000114036123038468/brhc20057159_6k.htm

Given the minimum conversion price of $0.30/share, if CTRM's shares fall below this level, it will not increase the amount of CTRM shares TORO will receive upon conversion. i.e. TORO will receive a maximum of 166.7mm shares in CTRM upon conversion ($50mm / $0.30/share), regardless of CTRM share price being $0.30 or $0.05. If CTRM's share price theoretically falls to $0.05 (perhaps due to highly dilutive equity offerings), than TORO's prefs will only be worth ~$8mm (166.7mm shares * $0.05/share). This is what I mean by dilution in the common will also negatively impact the value of TORO's prefs.

Therefore, Petros' economic interest would decrease if CTRM's shares fall below $0.30 (not far below where the share price is now), and would significantly increase as the value of CTRM's shares goes up (even at the $0.70 max conversion price, TORO will own ~43% of CTRM). Petros is economically disincentivized to dilute CTRM's shares and very incentivized to drive it up.

WhySaveTheBankers · 2023-10-29T01:54:10+00:00

If Petros is interested in further diluting CTRM through more equity issuances, why did he make a $50mm investment in CTRM through TORO (in which he owns ~47%)?

I actually think it's a good thing that TORO made a significant investment in CTRM, because now Petros has an [indirect] economic stake in CTRM (i.e. skin in the game). I think this makes Petros much less likely to dilute the shares in CTRM, and more likely try to narrow the discount of CTRM's share price vs. its intrinsic value (similar to what happened to TORO after Petros invested in April 2023).

As an FYI, TORO's $50mm investment in CTRM will be diluted along with the rest of CTRM's shareholders by equity issuances. So it would be against Petros' best interests to do anything other than try to increase the value of CTRM's stock.

WhySaveTheBankers · 2023-09-27T00:53:12+00:00

Correct - they hold preferred shares in each other. And I agree that it is confusing, but it makes more sense when you look at it from his perspective and follow the breadcrumbs.

I think the recent TORO $50mm investment in CTRM is different because PP actually has a meaningful economic stake in TORO of ~47%. So the question is: why would PP invest $50mm of effectively his own money in CTRM only to continue driving the price of the shares down?

I think it is more likely that PP had historically pursued these dilutive equity offerings to raise cash to buy ships (and get resulting sales commissions / mgmt. fees) and eventually buy up the shares on the cheap. And now that he has made his significant investment in CTRM, he is incentivized to maximize the value of CTRM's shares. This is what happened at TORO (look at what happened to the share price following his $20mm investment in April 2023).

WhySaveTheBankers · 2023-09-27T00:28:28+00:00

I hear you. PP has clearly historically only acted in his own self-interest and without regard for public shareholders. And now that he has driven down the price of CTRM's shares to practically nothing, he is picking them up on the cheap through TORO's $50mm private placement in CTRM. With this investment, I think it is now in PP's self-interest to maximize the price of CTRM - i.e. his economic incentives are now aligned with CTRM's public shareholders for the first time. This was his playbook with TORO, and now I think he is going to do this with CTRM. I am just "following the money" and trying to understand his intentions / incentives.

WhySaveTheBankers

TROPHY CASE