What: On a generally happy day for stock market investors, shares of dry bulk shipper DryShips (NASDAQ:DRYS) are looking especially ebullient today, posting a 3% gain that's four times the rise on the broader Nasdaq Composite Index (NASDAQINDEX:^IXIC).
So what: What's behind DryShips' strong performance? A few things: First and foremost, the same news that's driving the Nasdaq higher -- that new Fed chief Janet Yellen's is telling Congress that she will stick to Ben Bernanke's easy-money policy, and take it slow on any "tapering" of bond buying.
"The work of making the financial system more robust has not yet been completed," Yellen told Congress today. And until that work has been completed, chances are good that the Fed will continue pumping liquidity into the system -- and the stock market.
Also having an effect on DryShips, one imagines, is the fact that the Baltic Dry Index of shipping prices for bulk goods is inching up -- again. The BDI hit 1,096 today, up a good half-percent over yesterday's close. As a proxy for DryShips' prospects going forward, that's good news for DryShips.
Third and finally, TheStreet.com reported today that DryShips' oil drilling subsidiary Ocean Rig UDW (NASDAQ:ORIG) has succeeded in postponing repayment of $1.8 billion in loan repayments that were soon to come due, giving the subsidiary some relief from credit pressures.
Now what: That last bit is good news for DryShips, but the company's not safely back in port just yet. Ocean Rig had to roll over its $1.8 billion in term loans for $1.9 billion in new debt -- so while repayment has been postponed till at least Q3 2020, the company's overall debt load has actually increased. Overall, Ocean Rig's financial situation still looks unsound, as it's carrying more debt on its books than its own market cap.
Meanwhile, DryShips proper hardly has the cleanest of balance sheets. Valued at $1.5 billion, the shipper carries $5.3 billion in debt on its books, with barely $500 million on hand with which to repay it -- and DryShips has debt, equal to twice its cash on hand, coming due in just over seven months.
Management assures investors that it will be able to repay its debt "for the next 12 months" through a combination of "cash we generate from our operations" and "future debt or equity issuances." But given that DryShips currently has no free cash flow whatsoever -- it actually burned through nearly $1.1 billion over the past 12 months -- what management's statement really translates to is: We might be able to postpone paying our debts for one year, if our lenders are generous.
Because without free cash flow, the chances of DryShips actually paying the debt down are nil.