Broken boats, a soaring dollar and an abandoned deal to buy 10 million units of Clearwater Seafoods Income Fund added up to a miserable trading session for North America's largest shellfish company yesterday.
Clearwater units plunged to a 52-week low on the Toronto Stock Exchange, losing more than 50 per cent of their value before recovering slightly to end the day down $1.90 to $3.55.
Late Tuesday, the Bedford, N.S.-based trust suspended distributions for the rest of the year.
Yesterday morning, parent firm Clearwater Fine Foods Inc., also of Bedford, cancelled a planned bid for 10 million of the fund's units.
"We knew there'd be a strong reaction by the market," said chief executive officer Colin MacDonald. "The market generally overreacts to bad news."
Clearwater, which fishes for lobster, scallops and clams said it did not have enough cash to continue to pay investors. In the first half of the year, the company distributed more cash than it generated. It says it won't be able to make up the shortfall in the second half.
Cash distributions totalled 42 cents a unit in the first six months of the year. Clearwater said income available for distribution totalled only 17 cents a unit.
Mr. MacDonald said the strong dollar "continued to hammer" the company's export business. He also cited unexpected maintenance costs on four of the company's 20 fishing vessels. Two new boats were sent for repairs, causing a surprise drop in revenue. "It's like buying a new TV that goes on the blink half-an-hour after you have it home."
Soaring energy costs have also added to the woes, he said. "We've had fuel kick us in the ass."
In August, Mr. MacDonald and his brother in law, Clearwater chairman John Risley, unveiled a proposed bid for up to 10 million Clearwater units through their holding company Clearwater Fine Foods. It was widely viewed then as a $60-million dollar vote of confidence in an operation that had just released dismal second-quarter results. Analysts said the bid helped buoy Clearwater's unit price.
"The possibility of a bid is what provided artificial support," said analyst Chris Rankin at Canaccord Capital Inc.
Mr. MacDonald declined to comment on the cancelled bid. In a written statement, Mr. Risley blamed, "the significant change that has occurred in the income fund market since our bid was announced."
Last month, Ottawa launched a review of the income trust sector and suspended advance tax-rulings for companies looking to convert.
© The Globe and Mail
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