Somewhat like the United States, Genco Shipping & Trading (GNK -1.16%) is running out of time, facing a credit crisis and debt ceiling of its own. It has four months and change, until the end of the first quarter of 2014, to get its creditors off its back. Failure puts Genco at risk of default -- with all the potential consequences that come with it.

Genco Shipping & Trading reported its third-quarter results on Nov. 6. Its press release and conference call gave an extremely detailed, optimistic view of the dry shipping industry. Although it was quite encouraging, the company failed to voluntarily update its debt situation. Only in its 10-Q, and when pressed in its question and answer session of its conference call, did it discuss its liquidity crisis.

Ticking debt clock
The company's credit facilities face debt payments due beginning on March 31, 2014. Genco Shipping & Trading notes in its 10-Q filing that it doesn't have the money nor will it likely have the money to pay them. In addition, it may be in violation of certain financial collateral terms and conditions or covenants with its lenders at that time.

Genco Shipping & Trading desperately needs its lenders to either modify its debt agreements or waive its obligations (such as delayed payment deadlines). If the lenders don't bend, some or all of its debt will be declared immediately due, making Genco's assets subject to foreclosure if that debt's not paid in full. Foreclosure in this instance likely means shareholders are wiped out, and the lenders become the new owners of the company.

DryShips' lenders bent, so why wouldn't Genco's?
DryShips, (DRYS), another dry shipping company in a similar debt situation, was recently successful in its negotiations. On Oct. 30, one its lenders from a more than $600 million credit facility agreed to "relax various financial covenants up till the end of 2014." This basically gives DryShips another year stay of execution.

As part of its agreement, DryShips put up more shares of its ownership in public company Ocean Rig as collateral. Since DryShips' Ocean Rig shares are worth more than $1 billion, it's not surprising that its lenders accepted them as collateral.

Genco Shipping & Trading owns 6.1 million shares of public company Baltic Trading Limited (NYSE: BALT). Baltic Trading appears to have a bright future as the rate environment improves. It is growing its fleet, has positive cash flow, pays a dividend, and had a small net loss last quarter that could turn profitable with just a modest increase in rates. This means Baltic Trading may make a potentially lucrative investment for Genco down the road -- but here and now, the shares are only worth $25 million or $30 million. This is not a lot to appease the holders of hundreds of millions in debt.

Conference call clues
In the conference call, Genco couldn't and wouldn't give details on how its discussions with lenders were going. However, it did drop a few potential clues.

When asked whether lenders were responding to the industry's improving environment, Chairman Peter C. Georgiopoulos immediately said, "I think they're still conservative."

CFO John C. Wobensmith then mentioned that it depends on the bank, because some banks still have internal balance sheet issues themselves. That doesn't sound very promising, either. To me, it suggests that Genco is not pleased with one or more of its lenders and the direction the discussions is going.

Later in the Q&A, Wobensmith mentioned, "We are in the middle of having discussions on restructuring the balance sheet." This was the first time in all the conference calls this year that anybody at Genco referred to Genco's debt-negotiation situation using the word "restructuring." It may be a bit of a reach, but if there were simple waivers coming, you would think Wobensmith wouldn't have used the word "restructuring."

The good news is, in the best-case scenario, some sort of restructuring deal may in the process of being hammered out that is very favorable to Genco Shipping & Trading shareholders. The bad news is, in the worst-case scenario, bankruptcy filings are sometimes called "restructuring."

Foolish final thoughts
If Genco is able to forestall its lenders, shareholders will remain intact. If the lenders won't budge or the terms become devastating, it could be over for shareholders. Look for further clues on Genco's debt talks in its filings and conference calls. Follow the rate environment, because a positive or negative change in rates could influence negotiations.

Finally, if Genco Shipping does announce a new deal with its lenders, make sure you quickly study its terms so that they are favorable to shareholders. As just two examples, if it involves heavy dilution or new substantially increased interest rates, it may be bad news for shareholders.