- Genco Shipping's real debt deadline is 11 days away.
- Potential bankruptcy still looms.
- Past statements from management don't offer much hope.
What a crazy day it was yesterday for Genco Shipping & Trading (GNK). First the stock started off green. Around midday the New York Post reported that the shipping company is about to file bankruptcy. It quoted a source close to the situation as saying, "There is no chance it doesn't file."
Genco missed a debt payment last month. Following the New York Post report predicting bankruptcy and citing this missed debt payment, Genco got crushed falling 23% during the market session.
Then - surprise! - Genco filed an 8K with the SEC stating that it had made the $3.1 million debt (interest) payment yesterday, the last day within the 30 day window grace period. Investors loved the news, and Genco rallied as much as 50% in the after hours session.
While the $3.1 million debt payment is nice, that's the least of Genco's problems right now. As of September 30, Genco had $1.9 billion in liabilities, much of that comes due on March 31 in just 11 days!
As of September 30, the debt amount subject to default was $1.3 billion from a pool of creditors.
Genco has been in negotiations with its lenders for leniency for the better part of the last year and have gotten nowhere in terms of a final agreement. From Genco's last 10Q filing with the SEC:
In the current drybulk rate environment, we anticipate it is probable that we will be unable to make required payments under our credit facilities commencing March 31, 2014 unless we obtain modifications to or waivers of the terms of these facilities.
The conference call that followed offered little hope. When asked about the debt negotiations, Chief Financial Officer John C. Wobensmith added, "There are still a lot of banks with their own balance sheet issues who are going to have different views from some of the banks that have strong balance sheets." It doesn't sound like Genco's lenders are eager to bend.
One would think if Genco was serious about successfully negotiating with its lenders, it wouldn't have waited until the last minute to make a paltry $3.1 million interest payment. Genco is obviously negotiating from a position of severe weakness rather than strength. It would be one thing if it was a single creditor. Instead, the negotiations require getting several individual unrelated creditors to all agree on a plan while each creditor has his own self interest in mind. The easiest plan of action might be to simply eliminate the common shareholder with a bankruptcy filing and put the creditors in as the new owners and maybe even a new IPO.
Extreme caution is advised.
Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.