Dryships in crisis

Indications that things weren’t quite shipshape at bulk commodity carrier Dryships surfaced last week when the company stunned the market with news that it was suspending its dividend and cancelling several new ship orders. The company’s shares shed as much as 30% of their value after management disclosed that it was now in breach of certain financial covenants, and it planned to raise $500 million from an unexpected new stock issue.

Apparently two of the company’s bankers, which are collectively owed about $752 million, recently gave notice that the loans were in breach. Nervousness on the part of lenders is understandable. During the last shipping boom in the mid-1990s, many Greek-owned shipping companies issued junk bonds to finance fleet expansion. The whole thing turned out very badly for investors as 17 out of the 18 Greek issuers defaulted.

Dryships’ problems come at what appears to be the end of a dramatic global shipping boom over the last five years. During this time, more than 20 Greek-controlled ocean-going shipping companies came to market raising billions to finance fleet expansion, with most of that in the form of debt. Signs that the industry had hit rough water were also apparent from the recent cancellation of a major ship purchase order by Genco and the suspension of dividend payments by Eagle and Diana Shipping