DryShips vs. Moby Debt

Call me Ishmael. Under the command of Captain Economou, the battered vessel DryShips (Nasdaq: DRYS  ) continues its singular quest to slay the most ferocious beast of the seven seas: Moby Debt.

Barely escaping with their lives after Moby Debt smashed a gaping hole in the side of their ship, the crew appears to have finally sunk a harpoon into the beast as the latest earnings cross the wires. Excluding special items like the $166 million charge from contract terminations and forfeitures of vessel deposits, DryShips' operations generated more than $47 million in net profit. More importantly, the shipper's liquidity has improved to $1.7 billion over recent months, while looming capital expenditures previously estimated at $2 billion have been wiped out.

DryShips, much like its debt-ridden competitor Excel Maritime Carriers (NYSE: EXM  ) , has managed to stabilize the vessel for now, inspiring some confidence among analysts that further debt waivers will be made available as needed. DryShips' whale-sized $630 million contract with Petrobras (NYSE: PBR  ) for one of its two semi-submersible drillships marked a major turning point. Aside from the mammoth short-term debt burden of $1.97 billion, DryShips' greatest challenge going forward will be to secure similarly favorable contracts for the two new drillships presently under construction. Without contracts in place, financing for the $1.6 billion build-out could prove as elusive as a wily leviathan. With $400 million already on deposit, though, backing out is hardly an attractive option.

Back on the dry bulk side, persistently weak market conditions continue to challenge the entire group. While several operators have thus far been spared the full force of the perfect storm -- thanks to time charters inked before the big collapse in charter rates -- the reality of current spot rates continues to loom larger as more contracts expire. With time charter rates for Panamax vessels now languishing at around $13,000 per day, and the Baltic Dry Index still a full 85% below its May 2008 peak, this sector has yet to find a patch of calm water. Accordingly, DryShips' net voyage revenues fell 59% from the prior-year period to just $89 million.

Like Teck Cominco (NYSE: TCK  ) , which mines the sort of stuff that drybulk vessels carry, DryShips' improved outlook for survival has given investors cause to celebrate. Until fundamental market indicators show a clearer sign of recovering global commodity demand, however, I urge continued caution on the sector, and continue to view Diana Shipping (NYSE: DSX  ) and Navios Maritime (NYSE: NM  ) as the safest vessels at sea.

Further Foolishness:

More than 2,400 CAPS members maintain outperform picks for DryShips. Given the severity of the challenges facing the company, these investors need your help to make the right call. Whatever your perspective on this company, come share your thoughts within The Motley Fool's free CAPS community today.

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Fool contributor Christopher Barker captains yachts somewhat smaller than drybulk carriers. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Diana Shipping. The Motley Fool has a seaworthy disclosure policy.


Read/Post Comments (8) | Recommend This Article (36)

Comments from our Foolish Readers

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  • Report this Comment On May 04, 2009, at 7:41 PM, junky4info wrote:

    Throughout the rear-view mirror, and see the invisible before it is visible!

    The "in demand" drill ships will be leased once they are 6 months from completion, therefore the debt related to them is most probably not an issue.

    Government spending is very reliable, and infrastructure development is on the front burner! Thus, iron ore, coal and bauxite are very likely to be in need of transport.

    DRYS CEO is absolutely competent, whether it be his MIT Education, Business building Acumen, hanging Spot for numerous lucrative years, or his timing locking in long TC prior to the market drop, his victories far out number his losses in the real world of entrepreneurialism!

    DRYS, Ocean Rig, Cardiff, Heidmar, etc demonstrate that George is established and connected, which thus ADDS value to DRYS Shareholders.

    Why is it that EVERY time DRYS rallies, Motley FOOLS consistently bash the stock? It is OBVIOUS that there is a serious and consistent effort to undercut DRYS positive momentum by the leadership at MF, and it is sugar coated so as it might? seem fair and balanced. MF should be an unbiased serice that sticks to positives and negatives, without the "spin!"

  • Report this Comment On May 04, 2009, at 8:33 PM, XMFSinchiruna wrote:

    junky,

    I assure you that is not the case. I'm just one Fool, calling it as I see it.

    Fool on!

  • Report this Comment On May 05, 2009, at 2:52 PM, camistocks wrote:

    Moby debt? Hey c'mon... :-)

    There was a nasty report against Dryships and Captn Economou which was promoted by a couple of short sellers here at CAPS.

  • Report this Comment On May 06, 2009, at 8:05 PM, rebuildingNC wrote:

    That George Economou, he's just dreamy, isn't he Junky? Thanks for the floating of more shares, the exhorbitant contract-breaking fees that went to a family-connected firm... and the quotes attributed to him that essentially deride investors , or perhaps just American investors.

    Debt is one thing, and I can deal with that. I own EXM. I cannot and will not stomach actions that have more than an air and appearance of financial self-dealing and self-interest that have a detrimental effect to all

    The rest of you may be missing another very important lesson from Moby Dick; the captian cared nothing for his crew, and in the end, they were nearly all destroyed. Tread carefully.

  • Report this Comment On May 06, 2009, at 8:34 PM, XMFSinchiruna wrote:

    rebuildingNC,

    Thanks for reading into it. :)

  • Report this Comment On May 06, 2009, at 9:24 PM, imacg5 wrote:

    Read the transcript from the DSX conference call.

    I trust Simeon Palios more than George Economou.

    DSX talks about the reduction in demand for Ore and Coal during 2009. And also predicts a net increase in the Dry Bulk fleet of 10.5%. That's net of cancellations and scrapping.

    They also point out that China is considering ordering more bulkers to help the shipyards, and also that will help the steel makers by keeping freight costs low.

    George can be confident in the demand for drill rigs, but he's just full of it about the future of Dry Bulk.

  • Report this Comment On May 06, 2009, at 9:52 PM, XMFSinchiruna wrote:

    I will, thank you. :)

    I'm long DSX

    There will be stabilization of commodity demand as miners / producers overreach with production cuts, so notwithstanding the potential for further pain ahead (including some failures from among the bunch), I still see the shippers in the best relative position to survive as solid long-term plays.

    If China goes deep with newbuildings, however, that certainly could affect the dynamics. I'll look into that.

  • Report this Comment On May 07, 2009, at 6:25 PM, XMFSinchiruna wrote:

    imacg5,

    Thank you very much for recommending the DSX conference call transcript! I did find it fascinating, and here is my discussion of Diana's earnings and outlook:

    http://www.fool.com/investing/international/2009/05/07/darwi...

    Fools helping Fools! :)

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