DryShips Inc (DRYS) said two of its banks notified the Greek dry bulk carrier that it is in breach of certain financial covenants and it is currently in discussions with its lenders for waivers and amendments to loan covenants.
The company added that it is in talks with another lender that currently holds $650 million of its debt regarding breach of loan covenants.
Speculators seem to ignore these things and as long as it is hot money they like to play... which makes it difficult to short because this type of stock moves 20% in any random direction based on which way the wind is blowing.
Now again, we are in an era where individual stocks mean very little and sectors trade together - the tarnish of one stock stinks up the entire sector. That is illogical on many fronts but it is what it is. Other stocks in dry bulk are being hammered today ... even those that have no covenant issues. Hence we were able to pick up some EXM this AM at nearly 20% off Friday prices.Via Reuters
- Greek dry bulk carrier DryShips Inc (DRYS) said it got a going concern notice from its auditors as the company reclassified $1.8 billion of long-term debt as current.
- Last week, DryShips said it was in discussions with its some of its lenders concerning current breaches of loan covenants, and pending the outcome of such discussions it has reclassified about $1.8 billion in debt as short-term. In a regulatory filing with the U.S. Securities and Exchange Commission, the company said it may not be successful in obtaining covenant waivers or modifications or its lenders may accelerate its indebtedness.
- "If our indebtedness is accelerated, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose their liens," the company said in a regulatory filing.
- However, DryShips said it will generate sufficient cash from operations and proceeds from new equity to satisfy its liquidity needs for the next 12 months.
- "As discussed during our latest conference call, the going concern explanatory paragraph is the result of the previously announced reclassification of $1.8 billion of long-term debt as current," said DryShips CEO George Economou in a news release. "With the proactive approach already taken to reduce $2 billion in capital expenditures, the confidence of our three main lenders with whom we are in close ongoing discussions, secured revenues of over $2.4 billion in the next three years from drybulk time charters and offshore drilling contracts and the recent equity infusion of $380 million through the ATM Equity Offeringsm share issuance program, we have repositioned DryShips for the long-term and remain ahead of the curve."
- In its filing with the SEC, DryShips outlined key reasons for the drybulk shipping market's deterioration in general and DryShips revenue specifically, citing: A lack of trade financing for purchases of commodities carried by sea, causing a sharp drop in cargo shipments. An excess of iron ore in China, leading to lower iron ore prices and increased stockpiles in Chinese ports.
- The company said that continued low charter rates in the drybulk market would harm its revenue, cash flows and ability to comply with covenants in its loan agreements. Should lenders not agree to waive or modify covenants, the filing continued, lenders could accelerate the payments of some debt, and the company could lose vessels.
- Manitowoc Co (MTW) said it was likely to violate some debt covenants in the second half of 2009 as the proceeds from sale of its ice business were lower than expected.
- The diversified manufacturer, which currently meets all covenant requirements, also withdrew its outlook for 2009 expects lower earnings to further increase the risk of covenant violation.
Long Excel Maritime in fund and personal account
10 comments:
Used to own some MTW as they were doing well with global crane demand high (this was a year or two ago). Last year they got into that bidding war with ITW over Enodis and won (or lost, depending on your viewpoint). It ended up being about the worst possible time for that purchase. Just another example of the problems with excess debt. Unfortunate.
TM.. Re DRYS. I read an interview about 2 months ago. The CEO of a Swiss Lending Institution that funds shippers said in effect that many shippers are in breach of their covenants.Their response in light of the current economy is to rewrite the covenants and require either a reduction of cancellation of the company's dividend. As he put it "We seriously do not want to foreclose and own a shipping company. That is not our business."
Hmmm!
Brisky, that is actually a situation a lot of companies are in. Lots of people piled into commercial real estate in 2007 or homes into 2006... all with layers of debt
This is the American way. Using savings to fund purchases? Pshaw! So chinese.
UG,
that is the case in MANY INDUSTRIES
Many homebuilders are in breach but keep getting rewrites of their loans. I suppose banks don't want all that inventory - they already have enough.
If banks were truly following the terms many more corporations would already be sunk, both private and public. I am in awe that a company like Beazer Homes for example lives! :) One of my predictions going into 2008 was a rash of major homebuilder BK filings - I was dead wrong. Because banks are kind and genteel folk.
The Enodis acquisition was one of the worst I have seen. When the credit crisis was becoming clear, this management team decided to leverage further into capital goods for the food and beverage industry? Really? It ranks up there with Quiksilver's acquisition of Rossignol, which essentially bankrupted what was a good company. I think ZQK bought Rossi for like $1B and recently sold for $100mm or something. Now all they have to show for it is a pile of debt. Awesome!!!
RF,
if you ever have some time I'd love to see the bonus situation for the MTW folks in 2008 ... remember everyone is paid nowadays for 'doing something, anything!" not actually paid after seeing how the transaction worked out in 2-4 years.
This is why bonuses and junk should be clawbacked - shareholders continue to be screwed under the "heads we win, tails we still win" compensation structure. No matter how stooopid a move - you win.
ITW can now have Enodis and Manitowoc for much less than they were going to pay for Enodis itself.
On March 18th street insider released the same news for EXM on covenants as they shed 5%.
http://www.streetinsider.com/Special+Reports/After-Hours+Movers:+Oracle+(ORCL)+Higher%3B+PRGN,+CLC,+ARE,+EXM,+NKE+Lower/4498110.html
You sure know how to yo-yo this sector.
The CEO's credibility is slim and none, many are clinging on for the Ocean Rig deal spinoff (your article of May 23rd 2008) but clearly you are in agreement with SeekingAlpha contributor Mark Anthony.
Thanks for the mention you have great memory retention.
As an additional point, 'breach of covenant' doesn't necessarily mean the shipper is in default. A more common breach is that the value of the company has dropped below a point that is contracted.
Absolutely
Many companies are now in breach, and "negotiating furiously" :)
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