DryShips Inc. Plunges After Amending its Credit Facility

What happened

Shares of DryShips (NASDAQ: DRYS  ) slumped on Monday and were down 10% at 11:15 a.m. EDT. The culprit was the announcement that it amended its credit facility with a company controlled by its founder and CEO.

So what

Earlier this year DryShips entered into a three-year, $200 million revolving credit facility with Sifnos Shareholders, which is an entity controlled by its CEO. That agreement completed the company's financial restructuring by providing it with liquidity to make acquisitions. That said, the company agreed to secure the facility with all its present and future assets except one, which serves as collateral for another facility.

LPG tanker at sea.

Image source: Getty Images.

At that time the company owned just 13 dry bulk carriers and six offshore supply vessels. However, since then it has acquired 14 more ships, which up until now also served as collateral for that credit facility. Since the ships were collateral, it limited the company's ability to access bank debt to finance these new vessels, which is why it has issued so much equity this year.

That leads to Monday's news of the company has amending its credit facility. As part of the amendment, its ships no longer secure the facility, which will free up that collateral, enabling the company to access bank debt to finance acquisitions. Further, the company has extended the maturity from three years to five years. That said, the company does have to pay a $2 million amendment fee and a higher interest rate.

Now what

While this transaction frees up collateral and increases liquidity, it also likely means DryShips will start tapping bank debt to refinance recent acquisitions or make new deals. That has the market worried the company would start piling on new debt, which proved disastrous in the past. Clearly, investors don't think that DryShips has learned any lessons from its past mistakes.

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4/28/2017 4:00 PM
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DryShips CAPS Rating: *

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