As a ship's captain, I stand ready to lend assistance to any vessel in distress. As an investor, though, I am motoring full-speed away from this sinking dry bulk shipper.
DryShips (Nasdaq: DRYS ) , once the high-flying darling of the dry bulk sector, struck an iceberg within a sea of debt last week and has been taking on water ever since. Just one week after announcing drastic measures to reduce capital expenditures and slashing its dividend, DryShips keel-hauled investors by announcing it was in breach of debt covenants with two of the company's many creditors, and that it plans to raise $500 million through a new stock issue.
The news sent the stock diving toward the ocean floor, and performed no favors for the remainder of the dry bulk group. DryShips jettisoned more than half its market value. Eagle Bulk Shipping (Nasdaq: EGLE ) shares shed more than 20%, while larger competitor Genco Shipping & Trading (NYSE: GNK ) is down more than 10% since the announcement.
With unrelenting weakness in the Baltic Exchange Dry Index, and continued tightness in global credit markets, the deafening wake-up call from DryShips last week reminds Fools that risk assessment within industry remains in a complex state of flux. Eagle Bulk Shipping's aggressive plan to build more than 30 ships looked like a great growth opportunity last summer, but as commodity demand tanked in subsequent months, several of those constructions have been placed on hold. Likewise, a rapidly changing world forced me to reconsider previously bullish stances on both Navios Maritime (NYSE: NM ) and Excel Maritime Carriers (NYSE: EXM ) .
Many Fools saw reasons for concern on the horizon well before they materialized for DryShips. Fellow Fool contributor Rich Smith offered DryShips as his pick for the world's scariest stock way back in October 2007. CAPS All-Star abitare nailed the call in June of 2008, pointing to Chairman and CEO George Economou's now-infamous quote about American investors and their willingness to capitalize his ventures. Longtime Fool TMFEldrehad issued a warning in July, feeling seasick after reviewing more comments from Economou that just didn't add up. By the time I voiced my concerns in November, based upon DryShips' frightening debt burden, Fools had already been warned.