SAY Goodbye to Dryships
Abandon ship! Abandon Ship! Man Overboard!
CEO and Board Members First!
CAPS may have have missed Saytam (SAY) but CAPS nailed this one.
"Two of our leading banks, which collectively held $751.8 million of our indebtedness as of December 31, 2008, have notified us that we are in breach of certain financial covenants contained in our loan agreements, and we have been in communication with another lender that currently holds $650 million of our outstanding indebtedness regarding breach of loan covenants. Currently, we are in discussions with these and other lenders for waivers and amendment of certain financial and other covenants contained in our loan agreements. .. These restrictions may limit our ability to, among other things, pay dividends, make capital expenditures and/or incur additional indebtedness, including through the issuance of guarantees. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness. We may be required to use a significant portion of the proceeds from future equity offerings to repay a portion of our outstanding indebtedness. If our lenders declare an event of default, our lenders have the right to accelerate our outstanding indebtedness under the relevant agreement and foreclose the liens on the vessels mortgaged thereunder."
"While we have recently sold 27.05 million common shares since October 2008, we may have to sell additional shares in the future to satisfy our capital and operating needs.
In case you are wondering 27.05 million is over 50% of the shares outstanding.
They have also suspended the dividend indefinitely.
It's getting just pounded in After Market (down 20% of this writing). I don't like their chances of survival.
CAPS gave you plenty of warning on this one
you have to know when a guy like TMFEldrehad is willing to lose 1000 points on one pick that it is with conviction
" Okay, it's time I finally entered a pitch for this stock. I initially made this pick as a result of TMFOtter's pitch - but since I'm getting absolutely slaughtered so far (score well below -500, and getting worse lately as of this writing) I thought Fools might want to know why I haven't ended the pain yet.
Here's a little example of why:
Economou says DryShips' management owns 47% of its shares and that helps generate enough cash flow.
Huh? How, exactly, does the fact that management owns shares help generate cash flow? Silly me, I guess I always thought cash flow was generated by the business - you know, shipping stuff. Think the ships, or the people who hire the ships, care who owns the shares?
But it goes on.
"We do not intend to sell shares," he said. This means the company can put a big part of equity back into buying vessels. Economou added: "We can deliver more money for every dollar invested in the company."
Okay, I like to think I'm a relatively bright guy, but I'm left scratching my head here. How does not selling shares translate into more equity with which to buy more ships? If management sells shares, or doesn't, the same amount of equity remains within the company. Of course selling shares in a secondary offering will result in more equity with which to buy ships, but that's not what he's saying - he's saying not selling shares translates into more equity. I need some Dramamine, because my head feels like it's spinning from trying to understand this.
I could end there, but I won't.
During the summer of 2006, when rates declined, DryShips' stock price fell to less than 9 a share, one-fifth of its current price near 54.
Economou says people's reaction to the volatility of the market was harder to deal with than the lower rate itself.
"When the market is low, people tend to panic," he said. "Investors and bankers are less willing to listen to the company." Borrowing money during the period was particularly difficult, he says.
Oh, now I get it. Never mind that rates declined at the time and the company's fortunes are closely tied to the spot market rates. We should all just be sheep and listen to the company!
DryShips is also looking for a chief financial officer from outside the company, but within the industry, he says. Its CFO resigned in May.
Pure speculation on my part, but maybe the CFO left because he got too confused all the time by trying to figure out what in the heck Economou was saying. I know I sure did.
Source for quotes: http://biz.yahoo.com/ibd/070713/newamer.html?.v=1 "
and then of course there is Abitare's legendary scathing pitch (and you its avet bad situation if both Abitare and Eldrehad agree as they invest very differently)
" It was surreal. When someone asked why he was doing the deal, here–now, he actually said, basically, ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’”
CEO Dryship, George Economou
The secondary offerings, plus the testing of the stupidity aka enthusiasm of the market with another "drybulk" shipper. Safe Bulkers (SB), a company with a record of FOUR EMPLOYEES! Unlike DRYS which has TWO EMPLOYEES! LOL!
Here is my post from 20 May 08.
I am not in the "dry bulk" industry. I have done my share of world traveling and I have never seen a shortage of ships. There are always plenty of ships parked outside the port waiting/hoping for a charter. If there was a temporary shortage, it is going to be cured by the severe recession in bound to the US and a slow down in the US' debt ridden, over leveraged, “consumption based” economy. ( ref Consumer Sentiment: Is the Worst Yet To Come?) The ships that are being built or utilized currently are getting ready to be parked and transformed to barnacle rust collectors. Many of their owners will cash out and file bankruptcy (George Economou's Alpha shipping, again?).
There is a reason many Top Fools gave Dryships an Underperform. You can take your pick of article and realize how funny this company is.
Nathan Vardi 02.25.08, 12:00 AM ET
World's Scariest Stock: DryShips
Dryships’ Debut Shows Speculation,
Liquidity Trumping Experience
“It was surreal. When someone asked why he was doing the deal, here–now, he actually said, basically, ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’”
There is a major commodity bubble. When it pops the first to get taken out will be the leveraged, cash short and the stupid, which includes many in the "Drybulk" sector.
Many think “drybulk shipping” is a commodity play. It is a consumption/transportation play. As the consumption, spending, construction slows so will this sector. Many of these shippers were single digit stocks three years ago, they will return there once the bubble burst.
A highlight from: Curious George
"Who are my investors? Computer models, hedge funds and some institutions that go in and make $10 and get out." So much for consensus. DryShips has been operating with two employees (Economou, 54, and his internal auditor) since his chief financial officer quit in May, the second to split in three years. The company's fleet is managed by Cardiff, 70% owned by Economou, which gets more than $7 million a year for its troubles.
"A family business, this. Economou's two former wives own a total 15% of DryShips. Chryssoula Kandylidis, his sister, holds 30% of Cardiff Marine. With proceeds from its initial offering, DryShips bought six ships that had recently been picked up by Kandylidis. Five were sold at cost, but DryShips paid his sister a $3 million fee. Economou says she made very little money on the deal and bore great risk.
Kandylidis' son, Antonios Kandylidis, is also in this cozy network. The 30-year-old Antonios is the founder and largest shareholder in OceanFreight (nasdaq: OCNF - news - people ), which raised $218 million when it went public on the Nasdaq last year. Cardiff helped OceanFreight pick up its first dry-bulk vessels, helps manage that fleet and shares office space with OceanFreight.
A rocky maiden voyage. OceanFreight had to clarify its reporting in October, announcing third-quarter earnings per share were really 7 cents as opposed to the 11 cents it had advertised a day earlier. In December Antonios fired his chief executive, who says he intends to sue for wrongful termination. Then OceanFreight's chief financial officer quit; Antonios took over both the executive roles. Within days of the fuss OceanFreight announced it was buying the first of two tankers privately owned by Economou for $112 million."
Of interest also many dry bulk shippers are unloading shares on the stupid:
Secondary Offerings, Debt, and Defaults
Minyanville Professor David Nelson and Minyan Peter were talking about secondary offerings today. Let's take a look.
Professor Nelson: Shipping Secondaries
One by one the Dry Bulk Shippers are reporting blow out quarters. However, another pattern seems to be developing under the surface. Shortly after reporting and getting a big bump from the EPS reports, they've been announcing secondary's. Last week it was TBS International (TBSI) and this morning it's Genko Shipping (GNK). "
All I have to say is "Safebulkers" and Seanergy are probably not far behind if the leader is this bad off. Careful shorting ay of these, they are prone towild swings. They may have very violent death throes.
Props to Abitare and Eldrehad and all the rest who called it out for what it is!