=DJ Shippers Dn After Auditors Issue DryShips Going-Concern Note
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By Kejal Vyas
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--DryShips Inc. (DRYS) stock tumbled more than 18% Monday after the shipper said its auditors included a "going concern" paragraph in its federal filing due to worries about the company's ability to meet its debt covenants.
Shares of the Athens-based company recently traded down $1.05, or 18%, to $4.81.
Shares of competitors Genco Shipping & Trading Ltd. (GNK), Eagle Bulk Shipping Inc. (EGLE), and Diana Shipping Inc. (DSX) also fell more than 11% recently amid a broad decline for U.S. equities.
In its annual F-20 filing, DryShips' auditor, a Greek affiliate of Deloitte, said the financial statements for 2008 were "prepared assuming that the company will continue as a going concern" but indicated significant doubts about its ability to do so, citing a negative working capital position and difficulties meeting financial needs.
In response, Chief Executive George Economou, said the concerns stem from a reclassification of $1.8 billion of long-term debt as current, and said it has already taken measures to shore up its financial position. The company has reduced $2 billion in capital expenditures, secured $2.4 billion in revenue in the next three years from contracts and had a recent equity infusion of $380 million.
The news comes as no surprise to investors in the industry which have been dealing with companies' risk of default for some time, said Jefferies analyst Douglas J. Mavrinac.
Shipping companies across the board have been out looking for waivers from lenders on upcoming debt covenants as the industry continues to reel from weakened demand and declining shipping rates.
In another sign of a weak near-term outlook for shipping companies, the Baltic Dry Index, a key measure of hauling prices of various dry products, edged down 32 points to 1646 Monday.
Lenders have already been fairly flexible in negotiating waivers with shipping companies, since few banks have been willing to foreclose on companies' fleets. Among them, DryShips has received waivers for a little more than a third of its $3 billion of debt.
In a conference call last week, Economou said "within the next couple of months max, we will have agreed with the majority, meaning in terms of loans over 75% or 80% of our lenders, for the waivers."
The delay in securing waivers is because DryShips has more than 20 lenders, analysts said.
"We think it's just a matter of time when they'll get waivers on the remaining debt," Mavrinac of Jefferies said, adding that Monday's sell-off is a response from "a market that's just churning on headlines, at the moment."
-By Kejal Vyas, Dow Jones Newswires; 201-938-5460; kejal.vyas@dowjones.com
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