maz's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/40001/comments http://seekingalpha.com/article/174788-has-buffett-lost-his-mind?source=feed#comment-773442 773442
Cap & Trade would benefit BNI far more than its likely loss of coal traffic - which in any case would not be disastrous - you can't switch electricity generating coal power plants overnight and they are around 50% of total.

OTOH cap & trade puts rail at enormous advantages over trucks so bring it on I say

Long term this looks good but I reckon Greenwald is right in the next 5 or even 10 years - BNI will not improve Berkshire's results much (except you could say that earning a pittance on billions in cash is a poor alternative) & you'd have to adjust Berkshire's valuation downward if that's all you considered. But this is still a long term triple play imo

1. Oil prices go up long term because of excess demand over supply - regardless of currency
2. Oil prices go up as the US$ devalues because they are quoted in US$.
3. Rail stands to benefit from any cap & trade or other climate change legislation.

#3 might end up being the biggest benefit. In Europe rail is used on much shorter distances than in the US because of much higher (2x) gas prices, congestion and a much stronger environmental lobby & we can expect these trends to eventually hit the US imo

So I'd agree short term he's outta his mind but long term he's got it right & the trouble is that investors don't want to look one year ahead never mind 10 :-) ]]> Mon, 23 Nov 2009 11:21:19 -0500
Cap & Trade would benefit BNI far more than its likely loss of coal traffic - which in any case would not be disastrous - you can't switch electricity generating coal power plants overnight and they are around 50% of total.

OTOH cap & trade puts rail at enormous advantages over trucks so bring it on I say

Long term this looks good but I reckon Greenwald is right in the next 5 or even 10 years - BNI will not improve Berkshire's results much (except you could say that earning a pittance on billions in cash is a poor alternative) & you'd have to adjust Berkshire's valuation downward if that's all you considered. But this is still a long term triple play imo

1. Oil prices go up long term because of excess demand over supply - regardless of currency
2. Oil prices go up as the US$ devalues because they are quoted in US$.
3. Rail stands to benefit from any cap & trade or other climate change legislation.

#3 might end up being the biggest benefit. In Europe rail is used on much shorter distances than in the US because of much higher (2x) gas prices, congestion and a much stronger environmental lobby & we can expect these trends to eventually hit the US imo

So I'd agree short term he's outta his mind but long term he's got it right & the trouble is that investors don't want to look one year ahead never mind 10 :-) ]]> http://seekingalpha.com/article/174796-healthcare-reform-is-it-worthwhile-can-we-afford-it?source=feed#comment-773340 773340
National healthcare will cost all taxpayiong Americans about 10% more of their annual income - doesn't matter whether that comes from direct taxes, value added taxes on goods & services, taxes on "rich", taxes or penalties on employers or rising insurance premiums (which must happen even to a federal option if you widening insurance to those who currently can't afford it).

Take a look at income tax bands in Canada & compare that to the US -

The highest federal rate is 29% above C$126,264. It's 26% above $81,452.

Each Province has different tax bands & rates. For example British Columbia charges 14.7% above C$99,588 & is in the middle of the pack. In addition we have a value added tax (both a federal & provincial one) that currently is set at a combined 12% although some items are exempted from one or both taxes.]]> Mon, 23 Nov 2009 10:57:00 -0500
National healthcare will cost all taxpayiong Americans about 10% more of their annual income - doesn't matter whether that comes from direct taxes, value added taxes on goods & services, taxes on "rich", taxes or penalties on employers or rising insurance premiums (which must happen even to a federal option if you widening insurance to those who currently can't afford it).

Take a look at income tax bands in Canada & compare that to the US -

The highest federal rate is 29% above C$126,264. It's 26% above $81,452.

Each Province has different tax bands & rates. For example British Columbia charges 14.7% above C$99,588 & is in the middle of the pack. In addition we have a value added tax (both a federal & provincial one) that currently is set at a combined 12% although some items are exempted from one or both taxes.]]> http://seekingalpha.com/article/172387-a-slightly-sweetened-deal-should-be-good-for-cadbury?source=feed#comment-754066 754066
I follow Cadbury closely and think that absent a second bidder you have hit the nail on the head. In my opinion the current bid will not succeed for two reasons; the most important is that at 717p per share it is simply too low; the second is the proportion of Kraft shares at nearly 60% of the bid. Warren Buffett may be correct that it is a full value because Kraft shares are undervalued but Cadbury investors don't want stodgy old Kraft shares. Trouble for Kraft is they don't have enough cash or can't raise more debt on reasonable terms after the Danone deal.

Even 800p and 50/50 cash/shares may not get it done in a hostile bid but at least that's $53.50 per ADS and may get some to nibble. Media reports of top Cadbury investors wanting 900p ($60 per ADS) "before they get their calculators out" are probably just beating the bushes to drum up higher bids. I also think the reported Sanford Bernstein estimate of 860p ($57 per ADS) and 1020p ($68 per ADS) based on the Mars/Wrigley deal numbers are too optimistic for the reasons you state - the market has changed and Cadbury is not Wrigley!

On the topic of another bidder it could be that one will emerge now that Kraft has finally made a formal offer. I base this on the idea that potential suitors did not have to rush in before Kraft made their bid formal. Even now I think that we are only in the early stages of a long process.

It will be interesting following along.

Discl; I do not own Kraft or Cadbury shares]]> Tue, 10 Nov 2009 13:11:52 -0500
I follow Cadbury closely and think that absent a second bidder you have hit the nail on the head. In my opinion the current bid will not succeed for two reasons; the most important is that at 717p per share it is simply too low; the second is the proportion of Kraft shares at nearly 60% of the bid. Warren Buffett may be correct that it is a full value because Kraft shares are undervalued but Cadbury investors don't want stodgy old Kraft shares. Trouble for Kraft is they don't have enough cash or can't raise more debt on reasonable terms after the Danone deal.

Even 800p and 50/50 cash/shares may not get it done in a hostile bid but at least that's $53.50 per ADS and may get some to nibble. Media reports of top Cadbury investors wanting 900p ($60 per ADS) "before they get their calculators out" are probably just beating the bushes to drum up higher bids. I also think the reported Sanford Bernstein estimate of 860p ($57 per ADS) and 1020p ($68 per ADS) based on the Mars/Wrigley deal numbers are too optimistic for the reasons you state - the market has changed and Cadbury is not Wrigley!

On the topic of another bidder it could be that one will emerge now that Kraft has finally made a formal offer. I base this on the idea that potential suitors did not have to rush in before Kraft made their bid formal. Even now I think that we are only in the early stages of a long process.

It will be interesting following along.

Discl; I do not own Kraft or Cadbury shares]]> http://seekingalpha.com/article/133131-why-is-the-market-ignoring-american-express-s-bad-report?source=feed#comment-686665 686665
How are your $24.50 short positions doing today :-)]]> Tue, 22 Sep 2009 17:31:01 -0400
How are your $24.50 short positions doing today :-)]]> http://seekingalpha.com/article/162100-discover-financial-quite-solid-results-all-things-considered?source=feed#comment-685602 685602
$381m is the loan loss provision for owned loans for the quarter. Including managed loans the figure is $924.4m for the quarter.

For the last twelve months owned loan provisions are around $2.6 to $2.7 billion so the lower figure for this month might indicate conservative reserving in prior quarters. Managed basis loan loss provisions are around $4.5 billion over the last 12 months

That figures to be about right. Managed loans are $51 billion and relatively unchanged throughout the period. $4.5b/$51b works out to around 8.82% - a tad higher than the 8.39% charge-off rate. Of course the two are not entirely comparable because of timing but it's a reasonable indicator that the company is adequately reserved if they are expecting charge-offs to rise to 8.5 to 9.0% in the next quarter.

The press release said the quarter's loan loss provisions were UP $873 from last year and down $154 million from the previous. Provisions for the quarter alone were $924 million and the balance sheet had ]]> Mon, 21 Sep 2009 19:33:31 -0400
$381m is the loan loss provision for owned loans for the quarter. Including managed loans the figure is $924.4m for the quarter.

For the last twelve months owned loan provisions are around $2.6 to $2.7 billion so the lower figure for this month might indicate conservative reserving in prior quarters. Managed basis loan loss provisions are around $4.5 billion over the last 12 months

That figures to be about right. Managed loans are $51 billion and relatively unchanged throughout the period. $4.5b/$51b works out to around 8.82% - a tad higher than the 8.39% charge-off rate. Of course the two are not entirely comparable because of timing but it's a reasonable indicator that the company is adequately reserved if they are expecting charge-offs to rise to 8.5 to 9.0% in the next quarter.

The press release said the quarter's loan loss provisions were UP $873 from last year and down $154 million from the previous. Provisions for the quarter alone were $924 million and the balance sheet had ]]> http://seekingalpha.com/article/162097-cadbury-is-confident-beyond-2011?source=feed#comment-682610 682610 Fri, 18 Sep 2009 12:17:47 -0400 http://seekingalpha.com/article/149260-automatic-data-processing-better-suited-to-survive-this-downturn-than-its-competitors?source=feed#comment-595245 595245
A big key for Paychex & ADP is the inflation/deflation debate. Right now they are both earning very little off customer float and their own cash because interest rates are so low & a deliberate policy to preserve capital & maintain liquidity. Paychex interest income is less than half long term average on $4 billion cash (float + own cash). If you believe we're in for Japan like deflation this will continue for many years. If you believe that at some time - may be 2, 3 or 4 years - inflation will really take hold then these guys will get a big boost]]> Mon, 20 Jul 2009 12:44:31 -0400
A big key for Paychex & ADP is the inflation/deflation debate. Right now they are both earning very little off customer float and their own cash because interest rates are so low & a deliberate policy to preserve capital & maintain liquidity. Paychex interest income is less than half long term average on $4 billion cash (float + own cash). If you believe we're in for Japan like deflation this will continue for many years. If you believe that at some time - may be 2, 3 or 4 years - inflation will really take hold then these guys will get a big boost]]> http://seekingalpha.com/article/149674-bed-bath-to-go-above-and-beyond-barron-s?source=feed#comment-595104 595104
It doesn't make sense - cash is a balance sheet item and earnings - the 'E' in P/E - are an accrual item on the income statement.

What you are saying is that the $4 per share in cash and zero debt has no effect on the share price. Don't know about you but zero debt cash rich companies are worth a premium to me.]]> Mon, 20 Jul 2009 11:24:49 -0400
It doesn't make sense - cash is a balance sheet item and earnings - the 'E' in P/E - are an accrual item on the income statement.

What you are saying is that the $4 per share in cash and zero debt has no effect on the share price. Don't know about you but zero debt cash rich companies are worth a premium to me.]]> http://seekingalpha.com/article/133131-why-is-the-market-ignoring-american-express-s-bad-report?source=feed#comment-478244 478244
Right now Amex has a rapidly declining managed portfolio (owned + securitized loans) partly due to an intentional credit tightening by AXP and also due to a large reduction in spending - both of which are good in the short term imo as they will lead to first a stabilizing & then a reduction in charge-offs as underwriting is improved.

The reduction in total loans outstanding obviously affect the net interest income adversely but we also need to plug in the interest margin (which increased) and the charge-offs. Achieving a balance is important for the long term. But overall net interest income is usually no more than one-third of Amex business.

Of course transaction volume affects fee income but the discount % remains pretty steady. Fees for other banks issuing Amex cards are still increasing & of course here they don't take the credit risk.

The shares may not be worth what many thought they were last year but I would be far more concerned if the company's liquidity position were challenged than a few quarters of extremely high charge-offs. I don't think the liquidity position is in danger & in the current low short term interest environment both AXP & DFS are raking in low cost (to the companies) deposits which should further improve interest margins. Talk of paying back the government shows pretty much what AXP thinks of their liquidity position.

You certainly may be right that the share price could fall back -may be into the teens - and therefore you could make money shorting in the short term but this is no Citi or BAC and I think you are focusing too narrowly on the charge-off rates]]> Sun, 26 Apr 2009 17:12:43 -0400
Right now Amex has a rapidly declining managed portfolio (owned + securitized loans) partly due to an intentional credit tightening by AXP and also due to a large reduction in spending - both of which are good in the short term imo as they will lead to first a stabilizing & then a reduction in charge-offs as underwriting is improved.

The reduction in total loans outstanding obviously affect the net interest income adversely but we also need to plug in the interest margin (which increased) and the charge-offs. Achieving a balance is important for the long term. But overall net interest income is usually no more than one-third of Amex business.

Of course transaction volume affects fee income but the discount % remains pretty steady. Fees for other banks issuing Amex cards are still increasing & of course here they don't take the credit risk.

The shares may not be worth what many thought they were last year but I would be far more concerned if the company's liquidity position were challenged than a few quarters of extremely high charge-offs. I don't think the liquidity position is in danger & in the current low short term interest environment both AXP & DFS are raking in low cost (to the companies) deposits which should further improve interest margins. Talk of paying back the government shows pretty much what AXP thinks of their liquidity position.

You certainly may be right that the share price could fall back -may be into the teens - and therefore you could make money shorting in the short term but this is no Citi or BAC and I think you are focusing too narrowly on the charge-off rates]]> http://seekingalpha.com/article/131886-why-is-pepsico-buying-its-bottlers?source=feed#comment-471166 471166
Still whether accretive (I think it will be marginally accretive but will not give a good ROI) or defensive it would appear to be a reasonable move by the company.]]> Tue, 21 Apr 2009 11:16:20 -0400
Still whether accretive (I think it will be marginally accretive but will not give a good ROI) or defensive it would appear to be a reasonable move by the company.]]> http://seekingalpha.com/article/129536-credit-card-issuers-and-processors-how-they-re-faring-in-the-crisis?source=feed#comment-453446 453446
If FAS 140 eventually (2010) makes credit card companies take ABS on the balance sheet that will be a big event - $20 billion for DFS and $29b for AXP - the write-downs and additional reserving required will make both companies look poor and challenge Tier 1 capital adequacy - that's why you see lot's of cash on the books as both companies are in defensive mode & quite rightly so. If it doesn't happen then both companies will look really good on a Tier 1 capital basis - currently 17.1% for DFS. If the ABS were on the balance sheet that figure would be around 8.5 to 9%]]> Mon, 06 Apr 2009 11:44:21 -0400
If FAS 140 eventually (2010) makes credit card companies take ABS on the balance sheet that will be a big event - $20 billion for DFS and $29b for AXP - the write-downs and additional reserving required will make both companies look poor and challenge Tier 1 capital adequacy - that's why you see lot's of cash on the books as both companies are in defensive mode & quite rightly so. If it doesn't happen then both companies will look really good on a Tier 1 capital basis - currently 17.1% for DFS. If the ABS were on the balance sheet that figure would be around 8.5 to 9%]]> http://seekingalpha.com/article/128228-michael-hall-natural-gas-is-a-victim-of-its-own-success?source=feed#comment-443692 443692 Sat, 28 Mar 2009 20:53:30 -0400 http://seekingalpha.com/article/127908-meet-the-top-10-low-carbon-footprint-vehicles-of-2009?source=feed#comment-441003 441003
Also a big key here is the the split of highway/city driving. Many living in urban areas doing the morning/afternoon commute in traffic everyday can have up to 80% city driving & in those circumstances the hybrid will kill any gas/diesel car on mpg.

Nearly all of the taxis Vancouver, Canada are switching to Prius for precisely this reason.
]]> Thu, 26 Mar 2009 11:06:01 -0400
Also a big key here is the the split of highway/city driving. Many living in urban areas doing the morning/afternoon commute in traffic everyday can have up to 80% city driving & in those circumstances the hybrid will kill any gas/diesel car on mpg.

Nearly all of the taxis Vancouver, Canada are switching to Prius for precisely this reason.
]]> http://seekingalpha.com/article/125853-the-15-most-cash-rich-companies?source=feed#comment-429259 429259
You make the classic mistake of assuming that all debt is equal but it isn't. Debt on GM's balance sheet is completely different from that at a utility company (like Berkshire's Mid-American which holds 90% of Berkshire's debt. All utilities are funded with debt because of the royalty like stream of their revenues. This makes complete sense as debt funding is a heckuva lot cheaper than equity & the revenue streams are preductable way into the future. Contrast that with tech companies that have to re-invent themselves every 5 years or so or lose their revenue streams - they have to be very careful about using debt & need cash to invest in new ideas or acquire new ideas.

Also it is important to know interest coverage & leverage ratios - net debt in isolation is a pretty useless measurement


On Mar 13 02:35 PM mkreisel wrote:

> If we include debt, things look very differently:
>
> Ticker, debt, net cash
> XOM, 9425, 22582
> CSCO, 6848, 22683
> AAPL, 0, 25647
> BRKA, 36882, -11343
> PFE, 17283, 7272
> TM, 118626, -95745
> MSFT, 0, 20298
> GOOG, 0, 15846
> RDSA, 23269, -8081
> WYE, 11739, 2806
> IBM, 99925, -21018
> JNJ, 11825, 957
> INTC, 1988, 9855
> HPQ, 20458, -9203
> ORCL, 10238, 408
>
> Now things look quite different!
>
> In addition, many companies are burdened with massive pension obligations,
> the stuff that did GM and Bethlehem Steel in. For example, IBM has
> 19452 million on its balance sheet; XOM 20729 million.
>
> BRKA also has a maximum of 67 billion derivatives exposure, including
> 37 billion in equity index puts, 19 billion in CDS, and 18 billion
> in muni bond insurance.
>
> PFE has just squandered its cash horde on that panic deal with WYE.
> When the deal closes for good, PFE will have a monstrous debt load
> and very little cash left.
>
> So if you really like company with lots of cash, AAPL, CSCO, MSFT,
> GOOG, INTC, and XOM are your best choices.]]> Tue, 17 Mar 2009 11:41:54 -0400
You make the classic mistake of assuming that all debt is equal but it isn't. Debt on GM's balance sheet is completely different from that at a utility company (like Berkshire's Mid-American which holds 90% of Berkshire's debt. All utilities are funded with debt because of the royalty like stream of their revenues. This makes complete sense as debt funding is a heckuva lot cheaper than equity & the revenue streams are preductable way into the future. Contrast that with tech companies that have to re-invent themselves every 5 years or so or lose their revenue streams - they have to be very careful about using debt & need cash to invest in new ideas or acquire new ideas.

Also it is important to know interest coverage & leverage ratios - net debt in isolation is a pretty useless measurement


On Mar 13 02:35 PM mkreisel wrote:

> If we include debt, things look very differently:
>
> Ticker, debt, net cash
> XOM, 9425, 22582
> CSCO, 6848, 22683
> AAPL, 0, 25647
> BRKA, 36882, -11343
> PFE, 17283, 7272
> TM, 118626, -95745
> MSFT, 0, 20298
> GOOG, 0, 15846
> RDSA, 23269, -8081
> WYE, 11739, 2806
> IBM, 99925, -21018
> JNJ, 11825, 957
> INTC, 1988, 9855
> HPQ, 20458, -9203
> ORCL, 10238, 408
>
> Now things look quite different!
>
> In addition, many companies are burdened with massive pension obligations,
> the stuff that did GM and Bethlehem Steel in. For example, IBM has
> 19452 million on its balance sheet; XOM 20729 million.
>
> BRKA also has a maximum of 67 billion derivatives exposure, including
> 37 billion in equity index puts, 19 billion in CDS, and 18 billion
> in muni bond insurance.
>
> PFE has just squandered its cash horde on that panic deal with WYE.
> When the deal closes for good, PFE will have a monstrous debt load
> and very little cash left.
>
> So if you really like company with lots of cash, AAPL, CSCO, MSFT,
> GOOG, INTC, and XOM are your best choices.]]> http://seekingalpha.com/article/121118-q4-holdings-of-bruce-berkowitz-robert-rodriguez-and-mohnish-pabrai?source=feed#comment-393743 393743 Wed, 18 Feb 2009 13:12:33 -0500 http://seekingalpha.com/article/121118-q4-holdings-of-bruce-berkowitz-robert-rodriguez-and-mohnish-pabrai?source=feed#comment-393739 393739
"We made this move because we cannot see how the company can replicate its past stellar performance given its current size and the age of its key personnel."

In the meantime Pfizer has gone from 10.26% to 18.73% so you could say he was selling Berkshire to buy Pfizer and other healthcare companies.

He also added to Leucadia, Sears and Canadian Natural Resources - companies run by very able capital allocators. So may be he's switching to younger & smaller :-)

]]> Wed, 18 Feb 2009 13:11:40 -0500
"We made this move because we cannot see how the company can replicate its past stellar performance given its current size and the age of its key personnel."

In the meantime Pfizer has gone from 10.26% to 18.73% so you could say he was selling Berkshire to buy Pfizer and other healthcare companies.

He also added to Leucadia, Sears and Canadian Natural Resources - companies run by very able capital allocators. So may be he's switching to younger & smaller :-)

]]> http://seekingalpha.com/article/120680-canada-vs-u-s-whose-banks-are-safer?source=feed#comment-390738 390738
The pecentages are well down from their highs but still range 15 - 20% for most. BNS has least US exposure.

Overall the banks will contract further imo as the Canadian economy is inextricably linked to the US and government coffers have recently been filled by high commodity prices (one example gas tax for cars is a % not a fixed dollar/litre - many other royalties/taxes are % based). So just as the revenues drop the government has a massive increase in spending & will run deficits for several years. This will mean eventual inflation - may be two years off just when the economy starts to show life.

Canuck banks benefited hugely from the recent financial bubble. For example: From 1995 through 2005 Royal Bank's ROE averaged between 14.3% and 17.9% - respectable figures for any bank. Contrast this to 2006 & 2007 where ROE ballooned to an exceptional 22.4% and 23.3% - some 40% above the long run average. No surprise that the trailing twelve months is now 16.4% and as with almost all bubbles we can expect a substantially lower than average figure to follow.

]]> Mon, 16 Feb 2009 13:39:33 -0500
The pecentages are well down from their highs but still range 15 - 20% for most. BNS has least US exposure.

Overall the banks will contract further imo as the Canadian economy is inextricably linked to the US and government coffers have recently been filled by high commodity prices (one example gas tax for cars is a % not a fixed dollar/litre - many other royalties/taxes are % based). So just as the revenues drop the government has a massive increase in spending & will run deficits for several years. This will mean eventual inflation - may be two years off just when the economy starts to show life.

Canuck banks benefited hugely from the recent financial bubble. For example: From 1995 through 2005 Royal Bank's ROE averaged between 14.3% and 17.9% - respectable figures for any bank. Contrast this to 2006 & 2007 where ROE ballooned to an exceptional 22.4% and 23.3% - some 40% above the long run average. No surprise that the trailing twelve months is now 16.4% and as with almost all bubbles we can expect a substantially lower than average figure to follow.

]]> http://seekingalpha.com/article/119353-dryships-the-time-to-buy-is-now?source=feed#comment-382364 382364
But besides dodgy management the risks here are huge and a few days of the BDI moving upward isn't going to help much - a it can easily go back down again but more importantly counter-parties to those long term charters are in a world of hurt right now. Watch for re-negotiated and cancelled charters. It makes more sense for some charteres to cancel & pay the cancellation fee than continue with rates from a supercharged bygone era.

The article is extremely well researched as are the author's replies (nothing like Dear Debra who wouldn't answer any post!) but it is pretty much like a scientific approach which rationalizes a complex situation by saying the "unthinkable" is unlikely to happen 99% of the time & then comes the black swan.

I don't think DRYS risk of bankruptcy is only 1% - it is very highly leveraged and this isn't the last capital raising that they'll need to get through the recession. They can't raise more debt so they'll either dilute shareholders further or try to sell assets at distressed prices - neither is appealing to me.

The biggest RED flag should be the related party dealings where DRYS gets the shaft compared to going market rates whether it be prices paid for ship management, prices paid for buying ships or the staggering break-up fees when DRYS doesn't have cash.

This company needs liquidity & the rights issue isn't going to be enough. Wait till those spot charters end and the first time charter gets cancelled

I have no position long or short nor do I intend to

Wish I had shorted wwhen I posted on the Debra Debacle :-)]]> Tue, 10 Feb 2009 11:08:05 -0500
But besides dodgy management the risks here are huge and a few days of the BDI moving upward isn't going to help much - a it can easily go back down again but more importantly counter-parties to those long term charters are in a world of hurt right now. Watch for re-negotiated and cancelled charters. It makes more sense for some charteres to cancel & pay the cancellation fee than continue with rates from a supercharged bygone era.

The article is extremely well researched as are the author's replies (nothing like Dear Debra who wouldn't answer any post!) but it is pretty much like a scientific approach which rationalizes a complex situation by saying the "unthinkable" is unlikely to happen 99% of the time & then comes the black swan.

I don't think DRYS risk of bankruptcy is only 1% - it is very highly leveraged and this isn't the last capital raising that they'll need to get through the recession. They can't raise more debt so they'll either dilute shareholders further or try to sell assets at distressed prices - neither is appealing to me.

The biggest RED flag should be the related party dealings where DRYS gets the shaft compared to going market rates whether it be prices paid for ship management, prices paid for buying ships or the staggering break-up fees when DRYS doesn't have cash.

This company needs liquidity & the rights issue isn't going to be enough. Wait till those spot charters end and the first time charter gets cancelled

I have no position long or short nor do I intend to

Wish I had shorted wwhen I posted on the Debra Debacle :-)]]> http://seekingalpha.com/article/115968-would-you-pay-1-000-for-this-book?source=feed#comment-380152 380152
Apart from some who just want it for their library, Klarman's "Margin of Safety" should be looked at in the way Klarman looks at a prospective investment. What price is it, what's its value and what catalyst will make the market price higher in the future.

Determining the value might be difficult but I'm pretty sure it will go up in price over the long term as those buying & hoarding the book in their libraries will make available copies scarcer in the future.

Also I don't think a reprint would have any effect on the price of the first edition - see fine (no markings essentially) First Editions of Security Analysis which go for almost 50 times the price of a new book.

I actually bought a really good copy in 2005 for $500 and I can say that its current value beats most stock investments made over the same period. The only marking now is that it's signed by Klarman. At the moment I'm not selling but should I fall on hard times the value is still there

First Edition Security Analysis, Intelligent Investor & Margin of Safety are collectibles in the same way you can collect anything else whether it be art, wine, other books Elvis memorabilia etc

And in that light the book is worth at least $1,000

Make sure you get a copy that has got a previous owner's highlighting, margin notes etc etc. ]]> Sun, 08 Feb 2009 16:22:44 -0500
Apart from some who just want it for their library, Klarman's "Margin of Safety" should be looked at in the way Klarman looks at a prospective investment. What price is it, what's its value and what catalyst will make the market price higher in the future.

Determining the value might be difficult but I'm pretty sure it will go up in price over the long term as those buying & hoarding the book in their libraries will make available copies scarcer in the future.

Also I don't think a reprint would have any effect on the price of the first edition - see fine (no markings essentially) First Editions of Security Analysis which go for almost 50 times the price of a new book.

I actually bought a really good copy in 2005 for $500 and I can say that its current value beats most stock investments made over the same period. The only marking now is that it's signed by Klarman. At the moment I'm not selling but should I fall on hard times the value is still there

First Edition Security Analysis, Intelligent Investor & Margin of Safety are collectibles in the same way you can collect anything else whether it be art, wine, other books Elvis memorabilia etc

And in that light the book is worth at least $1,000

Make sure you get a copy that has got a previous owner's highlighting, margin notes etc etc. ]]> http://seekingalpha.com/article/118433-2009-s-house-of-pain-consumer-loans-and-credit-card-debt?source=feed#comment-376881 376881
However, most of these low rates came about in times of a) really low funding rates for cc companies; b) really charge-off rates by consumers; and c) some insanely low rates to attract new business.

With average charge off rates heading for 10% and funding costs increasing it is not surprising that single digit interest and teaser rates will be a thing of the past.

These companies have to survive & their barely doing it at present]]> Thu, 05 Feb 2009 10:37:14 -0500
However, most of these low rates came about in times of a) really low funding rates for cc companies; b) really charge-off rates by consumers; and c) some insanely low rates to attract new business.

With average charge off rates heading for 10% and funding costs increasing it is not surprising that single digit interest and teaser rates will be a thing of the past.

These companies have to survive & their barely doing it at present]]> http://seekingalpha.com/article/117821-verizon-a-great-buying-opportunity-barron-s?source=feed#comment-373507 373507 Mon, 02 Feb 2009 13:00:13 -0500 http://seekingalpha.com/article/116673-dryships-looks-good-even-without-its-dividends?source=feed#comment-369513 369513
Even her assertions of earnings topping $10 this year don't seem realistic & info available from the company on 23rd January indicated a loss of around $7 to $8 for Q4 which when added to positive earnings in the first 3 quaters comes out somewhere around $9.

Standard & Poor's Cap IQ analysts are forecasting $3.60 in earnings for 2009 but I'll bet they will be negative - no chance of profit returning this year

You can't take analyst estimates seriously as some don't update their estimates very quickly - heck one is even projecting a share price of $60 - the guy forecasting $5 is closer to the mark imo]]> Thu, 29 Jan 2009 02:03:14 -0500
Even her assertions of earnings topping $10 this year don't seem realistic & info available from the company on 23rd January indicated a loss of around $7 to $8 for Q4 which when added to positive earnings in the first 3 quaters comes out somewhere around $9.

Standard & Poor's Cap IQ analysts are forecasting $3.60 in earnings for 2009 but I'll bet they will be negative - no chance of profit returning this year

You can't take analyst estimates seriously as some don't update their estimates very quickly - heck one is even projecting a share price of $60 - the guy forecasting $5 is closer to the mark imo]]> http://seekingalpha.com/article/116673-dryships-looks-good-even-without-its-dividends?source=feed#comment-369507 369507
Investment in our shares involves a high degree of risk.

The abrupt and dramatic downturn in the drybulk charter market, from which we derive the large majority of our revenues, has severely affected the drybulk shipping industry and has harmed our business. The BDI fell 94% from May 2008 through December 2008, and there is no indication that the drybulk charter market will experience any significant recovery over the next several months. These circumstances, which result from the economic dislocation worldwide and the disruption of the credit markets, have had a number of adverse consequences for drybulk shipping, including, among other things:


● an absence of financing for vessels;
● no active second-hand market for the sale of vessels;
● extremely low charter rates, particularly for vessels employed in the spot market;
● charterers' seeking to renegotiate the rates for existing time charters; and
● widespread loan covenant defaults in the drybulk shipping industry.


Two of our leading banks, which collectively held $751.8 million of our indebtedness as of December 31, 2008, have notified us that we are in breach of certain financial covenants contained in our loan agreements, and we have been in communication with another lender that currently holds $650 million of our outstanding indebtedness regarding breach of loan covenants. Currently, we are in discussions with these and other lenders for waivers and amendments of certain financial and other covenants contained in our loan agreements. Given the depressed charter market, the values of our vessels could fall even further and be below our outstanding debt. If we are unable to obtain waivers or covenant amendments from our banks, our lenders could accelerate our indebtedness and foreclose on our vessels. In addition, if conditions in the drybulk charter market remain depressed, we may seek to restructure our outstanding indebtedness.

Accordingly, your investment in our shares could lose most or all of its value. Please read the risk factors described herein, in the base prospectus and in the documents incorporated by reference herein.

The drybulk carrier charter market has continued to deteriorate since October 2008, which has adversely affected our revenues, earnings and profitability and our ability to comply with our loan covenants.

The BDI declined from a high of 11,793 in May 2008 to a low of 663 in December 2008, which represents a decline of 94%. The BDI fell over 70% during the month of October alone. Over the comparable period of May through December 2008, the high and low of the Baltic Panamax Index and the Baltic Capesize Index represent a decline of 96% and 99%, respectively. The decline in charter rates is due to various factors, including the lack of trade financing for purchases of commodities carried by sea, which has resulted in a significant decline in cargo shipments, and the excess supply of iron ore in China, which has resulted in falling iron ore prices and increased stockpiles in Chinese ports. The decline in charter rates in the drybulk market also affects the value of our drybulk vessels, which follows the trends of drybulk charter rates, and earnings on our charters, and similarly, affects our cash flows, liquidity and compliance with the covenants contained in our loan agreements.


We currently employ 12 vessels in the spot market with their charters scheduled to expire in the next ninety days, by which time we will have to negotiate new employment for all of these 12 vessels in the currently very depressed charter market. In addition, two of our vessels are employed on time charters and one of our vessels is employed on a bareboat charter at rates that adjust with the BDI. If the very low charter rates in the drybulk market continue through any significant period in 2009, this would have an adverse effect on our revenues, profitability, cash flows and our ability to comply with the financial covenants in our loan agreements. In such a situation, unless our lenders are willing to provide waivers of covenant compliance or modifications to our covenants, our lenders could accelerate our debt and we could face the loss of our vessels.

We have received notices from certain of our lenders that we are in breach of certain financial covenants contained in our loan agreements and are currently in discussions with these and other lenders for waivers and amendments of certain financial and other covenants contained in our loan agreements, and if we are not successful in obtaining such waivers and amendments, our lenders may declare an event of default and accelerate our outstanding indebtedness under the relevant agreement, which would impair our ability to continue to conduct our business.

Our loan agreements require that we maintain loan to value ratios ranging from 120% to 200% of the total amount outstanding under the relevant agreement. The current low drybulk charter rates and drybulk vessel values have affected our ability to comply with these covenants. In addition, if the value of our vessels deteriorates significantly, we may have to record an impairment adjustment to our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital. We have received notices from certain of our lenders that we are not in compliance with our loan to value covenants and we are currently in discussions with these and other lenders for waivers and amendments of certain financial and other covenants contained in our loan agreements. There can be no assurance that we will be successful in obtaining such waivers and amendments.

If we are not in compliance with our financial covenants, and are unable to obtain waivers, our lenders could require us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, or they could accelerate our indebtedness, which would impair our ability to continue to conduct our business. In addition, if we are unable to obtain waivers, we may be required to reclassify all of our indebtedness as current liabilities, which would be significantly in excess of our cash and other current assets. In addition, we may be unable to obtain a report of our independent registered public accounting firm relating to our annual audited financial statements without a “going concern” qualification, which may trigger further defaults under our loan agreements.

If our indebtedness is accelerated, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose their liens.

If we receive waivers and/or amendments to our loan agreements, our lenders may impose additional operating and financial restrictions on us and/or modify the terms of our existing loan agreements.

Our lenders may impose the following restrictions that limit our ability to, among other things:


● pay dividends to investors,


● make capital expenditures,


● incur additional indebtedness, including through the issuance of guarantees,


● create liens on our assets, and/or


● drop below certain minimum cash deposits, as defined in our credit facilities.


Therefore, our ability to engage in some corporate actions may be restricted. In addition to the above restrictions, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness. We may be required to use a significant portion of the net proceeds from this offering to repay a portion of our outstanding indebtedness. These potential restrictions and requirements may limit our ability to pay dividends to you, finance our future operations, make acquisitions or pursue business opportunities.

We are dependent upon key management personnel, particularly our Chairman, Chief Executive Officer and Interim Chief Financial Officer, Mr. George Economou.


Our continued operations depend to a significant extent upon the abilities and efforts of our management team, particularly our Chairman, Chief Executive Officer and Interim Chief Financial Officer, Mr. George Economou. The loss of Mr. Economou’s service to our Company could adversely affect our discussions with our lenders and management of our fleet during this difficult economic period and, therefore, could adversely affect our business prospects, financial condition and results of operations. We do not currently, nor do we intend to, maintain "key man" life insurance on any of our personnel, including Mr. Economou.


The failure of our counterparties to meet their obligations under our time charter agreements could cause us to suffer losses or otherwise adversely affect our business.

Twenty of our vessels are currently employed under time charters, while three of our vessels are currently employed on bareboat charter, with 11 customers, with 85% of our revenues for the nine months ended September 30, 2008 generated from 30 customers chartering our drybulk carriers. The ability and willingness of each of our counterparties to perform its obligations under a time charter agreement with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the drybulk shipping industry and the overall financial condition of the counterparties. In addition, in depressed market conditions, there have been reports of charterers, including some of our charterers, renegotiating their charters or defaulting on their obligations under charters and our customers may fail to pay charterhire or attempt to renegotiate charter rates. The time charters on which we deploy 20 of the vessels in our fleet provide for charter rates that are significantly above current market rates. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters would be at lower rates given currently decreased charter rate levels, particularly in the drybulk carrier market. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and comply with covenants in our credit facilities.

We may be unable to fulfill our obligations under our agreements to acquire one vessel and to complete the construction of five newbuilding drybulk vessels that are expected to be delivered to us in 2009 and 2010.

We currently have contracts to acquire one vessel and to complete the construction of five newbuilding vessels, for which we will be required to procure additional financing of approximately $280.5 million. Our ability to obtain financing in the current economic environment, particularly for the acquisition of drybulk vessels, which are experiencing low charter rates and depressed vessel values, is limited and unless there is an improvement in our cash flow from operations and we are successful in obtaining debt financing, we may not be able to complete these transactions and we could lose our deposit money, which amounts to $70.6 million for the drybulk carriers as of January 26, 2009 and we may incur additional liability and costs.



S-11
----------------------...



If the spin off of our subsidiary, Primelead Shareholders Inc., is delayed or does not occur, we will have significant additional indebtedness and payment obligations relating to the two drillships under construction that it will acquire.

Prior to or concurrently with the spin off of our subsidiary, Primelead Shareholders, which now owns the stock of Ocean Rig ASA, it will acquire (i) our existing subsidiary, DrillShips Investment, which has contracts for construction of the two drillships, Hulls 1865 and 1866, to be delivered in July 2011 and September 2011, respectively, and (ii) DrillShips Holdings, an entity not currently owned by us, which has contracts for construction of Hulls 1837 and 1838, to be delivered in December 2010 and March 2011, respectively, in exchange for 25% of the then-outstanding shares of Primelead Shareholders. Drillships Holdings is controlled by clients of Cardiff, including Mr. Economou. Due to the disruptions in the credit markets worldwide and weakness in the energy sector, we do not expect to complete the spin off until the second half of 2009. If the spin off is delayed or does not occur, we will retain liability for the $173.4 million of indebtedness for Hulls 1865 and 1866 already incurred to finance payments made under the drillship newbuilding contracts, with no newbuilding installment payments due within the next year and $1.2 billion of newbuilding installment payments due thereafter. We have signed contracts to purchase two additional newbuilding ultra-deep water drillships, identified as Hulls 1837 and 1838, for which there are $1.1 billion in remaining installment payments. Financing has not been arranged for these installment payments. If the spin off does not occur, we currently anticipate that we will not close our acquisitions of Hulls 1837 and 1838. This indebtedness would be in addition to the indebtedness we have incurred and will incur to finance our drybulk fleet and its operations, would adversely affect our ability to comply with our loan covenants and service our indebtedness and would adversely impact our profitability and cash flows. If for any reason we fail to take delivery of the two newbuilding drillships, Hulls 1865 and 1866, we could lose our deposit money, which amounts to $430.8 million as of January 26, 2009.

An impairment of goodwill and intangible assets could reduce our earnings.

At September 30, 2008, our balance sheet reflected approximately $692.6 million of goodwill associated with the acquisition of Ocean Rig ASA. Goodwill is recorded when the purchase price of a business exceeds the fair market value of the tangible and separately measurable intangible net assets. U.S. generally accepted accounting principles require us to test goodwill for impairment on an annual basis or when events or circumstances occur indicating that goodwill might be impaired. Long-lived assets such as intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If we determine that any of our goodwill or intangible assets were impaired, we would be required to take an immediate charge to earnings with a correlative effect on our equity and balance sheet leverage as measured by debt to total capitalization.

We cannot be assured that we will be able to raise equity and debt financing sufficient to meet our future capital and operating needs.

We expect that the net proceeds of this offering will be $487.2 million; however we cannot assure you that we will be able to sell such amount of common shares. Furthermore, even if we raise these net proceeds, we cannot be assured that the proceeds will be sufficient to meet our capital and operating needs, particularly if the charter rates in the drybulk charter market remain low for a prolonged period of time. Based on an assumed offering price of $11.40 per share, which was the last reported closing price of our common shares on the Nasdaq Global Select Market on January 26, 2009, this offering of $500 million of our common shares would result in an offer and sale of 43,859,649 common shares. While we have recently sold 27.05 million common shares since October 2008 and are offering up to $500 million of our common shares pursuant to this prospectus supplement, we may have to attempt to sell additional shares in the future to satisfy our capital and operating needs. As our working capital deficit continues to grow, lenders may be unwilling to provide future financing or will provide future financing at significantly increased rates. If we sell shares in the future, the prices at which we sell these future shares will vary, and these variations may be significant. Purchasers of the shares we sell pursuant to future offerings, as well as our existing shareholders, will experience significant dilution if we sell these future shares at prices significantly below the price at which previous shareholders invested.



S-12
----------------------...



Our board of directors has determined to suspend the payment of cash dividends as a result of market conditions in the international shipping industry, and until such market conditions improve, it is unlikely that we will reinstate the payment of dividends.

As previously mentioned, in light of a lower freight rate environment and a highly challenged financing environment, our board of directors, beginning with the fourth quarter of 2008, has suspended our common share dividend. Our dividend policy will be assessed by the board of directors from time to time. The suspension allows us to preserve capital and use the preserved capital to capitalize on market opportunities as they may arise. Until market conditions improve, it is unlikely that we will reinstate the payment of dividends. In addition, other external factors, such as our lenders imposing restrictions on our ability to pay dividends under the terms of our loan agreements, may limit our ability to pay dividends. Further, we may not be permitted to pay dividends if we are in breach of the covenants contained in our loan agreements.


The continued steep decline in the price of crude oil may affect the revenues that we are able to earn from our drilling rigs and the rates we are able to negotiate for our newbuilding drillships.

The price of crude oil is volatile and has continued to fall sharply over the past few months despite significant reductions in crude production announced by OPEC. Changes in crude oil prices often affect oil exploration and drilling activities that, in turn, drive changes in the contract rates for oil drilling equipment, such as deep sea oil rigs and drillships, or, possibly, the suspension of exploration and drilling programs. Such changes and any such suspension could affect the rates which we receive for these rigs when their contracts expire, with the result that we will recognize less revenue from their operations. The employment contract for the Leiv Eiriksson, which currently earns $517,000 per day, expires in September 2009. We have not yet secured subsequent employment for the Leiv Eiriksson after the current contract expires. The contract for the Eirik Raude, which earns $637,000 on average over the contract period per day, expires in October 2011. The counterparty to the contract, Tullow Oil, has an option through March 31, 2009 to extend the contract for one or two additional years. Similarly, were the spin off of our subsidiary, Primelead Shareholders Inc., not to occur, and if the price of crude oil were to fall, we may not be able to negotiate charter agreements for the four newbuilding drillships that are scheduled to be delivered to us in 2010 through 2011 at attractive rates or at all. If the spin off does not occur, we currently anticipate that we will not close the acquisition of the additional two newbuilding drillships identified as Hulls 1837 and 1838.


Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008, the frequency of piracy incidents has increased significantly, particularly in the Gulf of Aden off the coast of Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million. If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones, as the Gulf of Aden temporarily was in May 2008, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.


United States tax authorities could treat us as a "passive foreign investment company," which could have adverse United States federal income tax consequences to United States holders

A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income." United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.


S-13
----------------------...





Based on our method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not constitute "passive income," and the assets that we own and operate in connection with the production of that income do not constitute passive assets.


There is, however, no direct legal authority under the PFIC rules addressing our proposed method of operation. Accordingly, no assurance can be given that the United States Internal Revenue Service, or IRS, or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.


If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States tax consequences. Under the PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders, as discussed below under “Taxation – United States Federal Income Tax Considerations – United States Federal Income Taxation of Holders – United States Federal Income Taxation of United States Holders”), such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of our common shares. See "Taxation – United States Federal Income Tax Considerations – United States Federal Income Taxation of Holders – United States Federal Income Taxation of United States Holders “ for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.


We may have to pay tax on United States source shipping income, which would reduce our earnings.


Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel-owning or -chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.


We expect that we and each of our subsidiaries qualify for this statutory tax exemption and we have taken and intend to continue to take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. Due to the factual nature of the issues involved, it is possible that our tax-exempt status or that of any of our subsidiaries may change.


If we or our subsidiaries are not entitled to this exemption under Section 883 for any taxable year, we or our subsidiaries could be subject for those years to an effective 2% (i.e., 50% of 4%) United States federal income tax on our gross shipping income attributable to transportation that begins or ends, but that does not both begin and end, in the United States. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.


Our subsidiaries that engage in drilling activities may be subject to taxation in the jurisdictions in which they conduct activities.


Our subsidiaries that provide services relating to drilling may be subject to taxation in the jurisdictions in which such activities are conducted. Such taxation would result in decreased earnings available to our shareholders.

The spin off of our subsidiary, Primelead Shareholders Inc., may have adverse tax consequences to shareholders.

The proposed spin off of our subsidiary, Primelead Shareholders Inc., may be a taxable transaction to our shareholders depending upon their country of residence. As a result, a shareholder may recognize gain and be subject to tax as a result of receiving shares of Primelead Shareholders Inc. in the spin off, notwithstanding that cash had not been received. In addition, after the spin off, Primelead Shareholders Inc. may be treated as a passive foreign investment company, which would have adverse United States federal income tax consequences to a United States holder of shares of Primelead Shareholders Inc. Under the passive foreign investment company rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of shares of Primelead Shareholders Inc., as if the excess distribution or gain had been recognized ratably over the shareholder's holding period in such shares.

]]> Thu, 29 Jan 2009 01:48:34 -0500
Investment in our shares involves a high degree of risk.

The abrupt and dramatic downturn in the drybulk charter market, from which we derive the large majority of our revenues, has severely affected the drybulk shipping industry and has harmed our business. The BDI fell 94% from May 2008 through December 2008, and there is no indication that the drybulk charter market will experience any significant recovery over the next several months. These circumstances, which result from the economic dislocation worldwide and the disruption of the credit markets, have had a number of adverse consequences for drybulk shipping, including, among other things:


● an absence of financing for vessels;
● no active second-hand market for the sale of vessels;
● extremely low charter rates, particularly for vessels employed in the spot market;
● charterers' seeking to renegotiate the rates for existing time charters; and
● widespread loan covenant defaults in the drybulk shipping industry.


Two of our leading banks, which collectively held $751.8 million of our indebtedness as of December 31, 2008, have notified us that we are in breach of certain financial covenants contained in our loan agreements, and we have been in communication with another lender that currently holds $650 million of our outstanding indebtedness regarding breach of loan covenants. Currently, we are in discussions with these and other lenders for waivers and amendments of certain financial and other covenants contained in our loan agreements. Given the depressed charter market, the values of our vessels could fall even further and be below our outstanding debt. If we are unable to obtain waivers or covenant amendments from our banks, our lenders could accelerate our indebtedness and foreclose on our vessels. In addition, if conditions in the drybulk charter market remain depressed, we may seek to restructure our outstanding indebtedness.

Accordingly, your investment in our shares could lose most or all of its value. Please read the risk factors described herein, in the base prospectus and in the documents incorporated by reference herein.

The drybulk carrier charter market has continued to deteriorate since October 2008, which has adversely affected our revenues, earnings and profitability and our ability to comply with our loan covenants.

The BDI declined from a high of 11,793 in May 2008 to a low of 663 in December 2008, which represents a decline of 94%. The BDI fell over 70% during the month of October alone. Over the comparable period of May through December 2008, the high and low of the Baltic Panamax Index and the Baltic Capesize Index represent a decline of 96% and 99%, respectively. The decline in charter rates is due to various factors, including the lack of trade financing for purchases of commodities carried by sea, which has resulted in a significant decline in cargo shipments, and the excess supply of iron ore in China, which has resulted in falling iron ore prices and increased stockpiles in Chinese ports. The decline in charter rates in the drybulk market also affects the value of our drybulk vessels, which follows the trends of drybulk charter rates, and earnings on our charters, and similarly, affects our cash flows, liquidity and compliance with the covenants contained in our loan agreements.


We currently employ 12 vessels in the spot market with their charters scheduled to expire in the next ninety days, by which time we will have to negotiate new employment for all of these 12 vessels in the currently very depressed charter market. In addition, two of our vessels are employed on time charters and one of our vessels is employed on a bareboat charter at rates that adjust with the BDI. If the very low charter rates in the drybulk market continue through any significant period in 2009, this would have an adverse effect on our revenues, profitability, cash flows and our ability to comply with the financial covenants in our loan agreements. In such a situation, unless our lenders are willing to provide waivers of covenant compliance or modifications to our covenants, our lenders could accelerate our debt and we could face the loss of our vessels.

We have received notices from certain of our lenders that we are in breach of certain financial covenants contained in our loan agreements and are currently in discussions with these and other lenders for waivers and amendments of certain financial and other covenants contained in our loan agreements, and if we are not successful in obtaining such waivers and amendments, our lenders may declare an event of default and accelerate our outstanding indebtedness under the relevant agreement, which would impair our ability to continue to conduct our business.

Our loan agreements require that we maintain loan to value ratios ranging from 120% to 200% of the total amount outstanding under the relevant agreement. The current low drybulk charter rates and drybulk vessel values have affected our ability to comply with these covenants. In addition, if the value of our vessels deteriorates significantly, we may have to record an impairment adjustment to our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital. We have received notices from certain of our lenders that we are not in compliance with our loan to value covenants and we are currently in discussions with these and other lenders for waivers and amendments of certain financial and other covenants contained in our loan agreements. There can be no assurance that we will be successful in obtaining such waivers and amendments.

If we are not in compliance with our financial covenants, and are unable to obtain waivers, our lenders could require us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, or they could accelerate our indebtedness, which would impair our ability to continue to conduct our business. In addition, if we are unable to obtain waivers, we may be required to reclassify all of our indebtedness as current liabilities, which would be significantly in excess of our cash and other current assets. In addition, we may be unable to obtain a report of our independent registered public accounting firm relating to our annual audited financial statements without a “going concern” qualification, which may trigger further defaults under our loan agreements.

If our indebtedness is accelerated, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose their liens.

If we receive waivers and/or amendments to our loan agreements, our lenders may impose additional operating and financial restrictions on us and/or modify the terms of our existing loan agreements.

Our lenders may impose the following restrictions that limit our ability to, among other things:


● pay dividends to investors,


● make capital expenditures,


● incur additional indebtedness, including through the issuance of guarantees,


● create liens on our assets, and/or


● drop below certain minimum cash deposits, as defined in our credit facilities.


Therefore, our ability to engage in some corporate actions may be restricted. In addition to the above restrictions, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness. We may be required to use a significant portion of the net proceeds from this offering to repay a portion of our outstanding indebtedness. These potential restrictions and requirements may limit our ability to pay dividends to you, finance our future operations, make acquisitions or pursue business opportunities.

We are dependent upon key management personnel, particularly our Chairman, Chief Executive Officer and Interim Chief Financial Officer, Mr. George Economou.


Our continued operations depend to a significant extent upon the abilities and efforts of our management team, particularly our Chairman, Chief Executive Officer and Interim Chief Financial Officer, Mr. George Economou. The loss of Mr. Economou’s service to our Company could adversely affect our discussions with our lenders and management of our fleet during this difficult economic period and, therefore, could adversely affect our business prospects, financial condition and results of operations. We do not currently, nor do we intend to, maintain "key man" life insurance on any of our personnel, including Mr. Economou.


The failure of our counterparties to meet their obligations under our time charter agreements could cause us to suffer losses or otherwise adversely affect our business.

Twenty of our vessels are currently employed under time charters, while three of our vessels are currently employed on bareboat charter, with 11 customers, with 85% of our revenues for the nine months ended September 30, 2008 generated from 30 customers chartering our drybulk carriers. The ability and willingness of each of our counterparties to perform its obligations under a time charter agreement with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the drybulk shipping industry and the overall financial condition of the counterparties. In addition, in depressed market conditions, there have been reports of charterers, including some of our charterers, renegotiating their charters or defaulting on their obligations under charters and our customers may fail to pay charterhire or attempt to renegotiate charter rates. The time charters on which we deploy 20 of the vessels in our fleet provide for charter rates that are significantly above current market rates. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters would be at lower rates given currently decreased charter rate levels, particularly in the drybulk carrier market. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and comply with covenants in our credit facilities.

We may be unable to fulfill our obligations under our agreements to acquire one vessel and to complete the construction of five newbuilding drybulk vessels that are expected to be delivered to us in 2009 and 2010.

We currently have contracts to acquire one vessel and to complete the construction of five newbuilding vessels, for which we will be required to procure additional financing of approximately $280.5 million. Our ability to obtain financing in the current economic environment, particularly for the acquisition of drybulk vessels, which are experiencing low charter rates and depressed vessel values, is limited and unless there is an improvement in our cash flow from operations and we are successful in obtaining debt financing, we may not be able to complete these transactions and we could lose our deposit money, which amounts to $70.6 million for the drybulk carriers as of January 26, 2009 and we may incur additional liability and costs.



S-11
----------------------...



If the spin off of our subsidiary, Primelead Shareholders Inc., is delayed or does not occur, we will have significant additional indebtedness and payment obligations relating to the two drillships under construction that it will acquire.

Prior to or concurrently with the spin off of our subsidiary, Primelead Shareholders, which now owns the stock of Ocean Rig ASA, it will acquire (i) our existing subsidiary, DrillShips Investment, which has contracts for construction of the two drillships, Hulls 1865 and 1866, to be delivered in July 2011 and September 2011, respectively, and (ii) DrillShips Holdings, an entity not currently owned by us, which has contracts for construction of Hulls 1837 and 1838, to be delivered in December 2010 and March 2011, respectively, in exchange for 25% of the then-outstanding shares of Primelead Shareholders. Drillships Holdings is controlled by clients of Cardiff, including Mr. Economou. Due to the disruptions in the credit markets worldwide and weakness in the energy sector, we do not expect to complete the spin off until the second half of 2009. If the spin off is delayed or does not occur, we will retain liability for the $173.4 million of indebtedness for Hulls 1865 and 1866 already incurred to finance payments made under the drillship newbuilding contracts, with no newbuilding installment payments due within the next year and $1.2 billion of newbuilding installment payments due thereafter. We have signed contracts to purchase two additional newbuilding ultra-deep water drillships, identified as Hulls 1837 and 1838, for which there are $1.1 billion in remaining installment payments. Financing has not been arranged for these installment payments. If the spin off does not occur, we currently anticipate that we will not close our acquisitions of Hulls 1837 and 1838. This indebtedness would be in addition to the indebtedness we have incurred and will incur to finance our drybulk fleet and its operations, would adversely affect our ability to comply with our loan covenants and service our indebtedness and would adversely impact our profitability and cash flows. If for any reason we fail to take delivery of the two newbuilding drillships, Hulls 1865 and 1866, we could lose our deposit money, which amounts to $430.8 million as of January 26, 2009.

An impairment of goodwill and intangible assets could reduce our earnings.

At September 30, 2008, our balance sheet reflected approximately $692.6 million of goodwill associated with the acquisition of Ocean Rig ASA. Goodwill is recorded when the purchase price of a business exceeds the fair market value of the tangible and separately measurable intangible net assets. U.S. generally accepted accounting principles require us to test goodwill for impairment on an annual basis or when events or circumstances occur indicating that goodwill might be impaired. Long-lived assets such as intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If we determine that any of our goodwill or intangible assets were impaired, we would be required to take an immediate charge to earnings with a correlative effect on our equity and balance sheet leverage as measured by debt to total capitalization.

We cannot be assured that we will be able to raise equity and debt financing sufficient to meet our future capital and operating needs.

We expect that the net proceeds of this offering will be $487.2 million; however we cannot assure you that we will be able to sell such amount of common shares. Furthermore, even if we raise these net proceeds, we cannot be assured that the proceeds will be sufficient to meet our capital and operating needs, particularly if the charter rates in the drybulk charter market remain low for a prolonged period of time. Based on an assumed offering price of $11.40 per share, which was the last reported closing price of our common shares on the Nasdaq Global Select Market on January 26, 2009, this offering of $500 million of our common shares would result in an offer and sale of 43,859,649 common shares. While we have recently sold 27.05 million common shares since October 2008 and are offering up to $500 million of our common shares pursuant to this prospectus supplement, we may have to attempt to sell additional shares in the future to satisfy our capital and operating needs. As our working capital deficit continues to grow, lenders may be unwilling to provide future financing or will provide future financing at significantly increased rates. If we sell shares in the future, the prices at which we sell these future shares will vary, and these variations may be significant. Purchasers of the shares we sell pursuant to future offerings, as well as our existing shareholders, will experience significant dilution if we sell these future shares at prices significantly below the price at which previous shareholders invested.



S-12
----------------------...



Our board of directors has determined to suspend the payment of cash dividends as a result of market conditions in the international shipping industry, and until such market conditions improve, it is unlikely that we will reinstate the payment of dividends.

As previously mentioned, in light of a lower freight rate environment and a highly challenged financing environment, our board of directors, beginning with the fourth quarter of 2008, has suspended our common share dividend. Our dividend policy will be assessed by the board of directors from time to time. The suspension allows us to preserve capital and use the preserved capital to capitalize on market opportunities as they may arise. Until market conditions improve, it is unlikely that we will reinstate the payment of dividends. In addition, other external factors, such as our lenders imposing restrictions on our ability to pay dividends under the terms of our loan agreements, may limit our ability to pay dividends. Further, we may not be permitted to pay dividends if we are in breach of the covenants contained in our loan agreements.


The continued steep decline in the price of crude oil may affect the revenues that we are able to earn from our drilling rigs and the rates we are able to negotiate for our newbuilding drillships.

The price of crude oil is volatile and has continued to fall sharply over the past few months despite significant reductions in crude production announced by OPEC. Changes in crude oil prices often affect oil exploration and drilling activities that, in turn, drive changes in the contract rates for oil drilling equipment, such as deep sea oil rigs and drillships, or, possibly, the suspension of exploration and drilling programs. Such changes and any such suspension could affect the rates which we receive for these rigs when their contracts expire, with the result that we will recognize less revenue from their operations. The employment contract for the Leiv Eiriksson, which currently earns $517,000 per day, expires in September 2009. We have not yet secured subsequent employment for the Leiv Eiriksson after the current contract expires. The contract for the Eirik Raude, which earns $637,000 on average over the contract period per day, expires in October 2011. The counterparty to the contract, Tullow Oil, has an option through March 31, 2009 to extend the contract for one or two additional years. Similarly, were the spin off of our subsidiary, Primelead Shareholders Inc., not to occur, and if the price of crude oil were to fall, we may not be able to negotiate charter agreements for the four newbuilding drillships that are scheduled to be delivered to us in 2010 through 2011 at attractive rates or at all. If the spin off does not occur, we currently anticipate that we will not close the acquisition of the additional two newbuilding drillships identified as Hulls 1837 and 1838.


Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008, the frequency of piracy incidents has increased significantly, particularly in the Gulf of Aden off the coast of Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million. If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones, as the Gulf of Aden temporarily was in May 2008, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.


United States tax authorities could treat us as a "passive foreign investment company," which could have adverse United States federal income tax consequences to United States holders

A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income." United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.


S-13
----------------------...





Based on our method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not constitute "passive income," and the assets that we own and operate in connection with the production of that income do not constitute passive assets.


There is, however, no direct legal authority under the PFIC rules addressing our proposed method of operation. Accordingly, no assurance can be given that the United States Internal Revenue Service, or IRS, or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.


If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States tax consequences. Under the PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders, as discussed below under “Taxation – United States Federal Income Tax Considerations – United States Federal Income Taxation of Holders – United States Federal Income Taxation of United States Holders”), such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of our common shares. See "Taxation – United States Federal Income Tax Considerations – United States Federal Income Taxation of Holders – United States Federal Income Taxation of United States Holders “ for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.


We may have to pay tax on United States source shipping income, which would reduce our earnings.


Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel-owning or -chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.


We expect that we and each of our subsidiaries qualify for this statutory tax exemption and we have taken and intend to continue to take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. Due to the factual nature of the issues involved, it is possible that our tax-exempt status or that of any of our subsidiaries may change.


If we or our subsidiaries are not entitled to this exemption under Section 883 for any taxable year, we or our subsidiaries could be subject for those years to an effective 2% (i.e., 50% of 4%) United States federal income tax on our gross shipping income attributable to transportation that begins or ends, but that does not both begin and end, in the United States. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.


Our subsidiaries that engage in drilling activities may be subject to taxation in the jurisdictions in which they conduct activities.


Our subsidiaries that provide services relating to drilling may be subject to taxation in the jurisdictions in which such activities are conducted. Such taxation would result in decreased earnings available to our shareholders.

The spin off of our subsidiary, Primelead Shareholders Inc., may have adverse tax consequences to shareholders.

The proposed spin off of our subsidiary, Primelead Shareholders Inc., may be a taxable transaction to our shareholders depending upon their country of residence. As a result, a shareholder may recognize gain and be subject to tax as a result of receiving shares of Primelead Shareholders Inc. in the spin off, notwithstanding that cash had not been received. In addition, after the spin off, Primelead Shareholders Inc. may be treated as a passive foreign investment company, which would have adverse United States federal income tax consequences to a United States holder of shares of Primelead Shareholders Inc. Under the passive foreign investment company rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of shares of Primelead Shareholders Inc., as if the excess distribution or gain had been recognized ratably over the shareholder's holding period in such shares.

]]> http://seekingalpha.com/article/116673-dryships-looks-good-even-without-its-dividends?source=feed#comment-369499 369499
"Why doesn't the article mention the debt load? Especially since we are in a credit crunch - what is the re-financing risk here? $2.9 billion in debt is not a fun place to be for a company with a marketcap around $500 million. How does this company raise capital in this environment?

I think that there is a real chance of insolvency here and certainly that risk can not be ignored. But my real reason for running as far away as possible has to do with the related party business connections. "

It raises funds by further diluting existing shareholders - I hope some sold today before this debacle. $500 million would mean at least 50 million shares although I note that the November filing they sold 25 million for $167 million - in other words they sold at a discount to market to get it done. Add this to the breaching of debt covenants on around half ther loans.

You should read the filing it has a lot of info (don't think that Debra read one!) Here's the stuff on spot charters

" The general decline in the drybulk carrier charter market has resulted in lower charter rates for some of our vessels exposed to the spot market and our time charters and bareboat charter linked to the BDI. Specifically, we have 12 vessels trading in the spot market that are currently exposed to the downturn in the drybulk charter rates, five newbuilding drybulk carriers that we expect will operate on spot charters when delivered in 2009 to 2010, as well as two vessels on time charter and one vessel on bareboat charter at rates that adjust with the BDI. The duration of our spot charters is between 60 and 90 days. Eleven spot charters expire in the period January 28, 2009 through February 28, 2009. Should drybulk charter rates continue to decline or remain at their current low level, our charter revenue with respect to these vessels will remain low or decline even further.

In addition, the general decline in the drybulk carrier charter market has resulted in lower drybulk vessel values. We previously entered into contracts for the sale of the M/V La Jolla, the M/V Paragon and the M/V Toro for an aggregate purchase price of $190.4 million. Due to the steep decline in the drybulk market, we do not expect to deliver these vessels to the sellers. As a result, we will retain the current indebtedness on these vessels. Only the M/V Toro is chartered, and therefore we will have to seek employment for the vessels M/V Paragon and M/V La Jolla at the current low charter rates in the spot market."

The company has 12 vessels on spot, 20 on time charters and 3 on bareboat charters - 2 vessels are unfixed. 11 spot charters due in the next month & this is really bad because they will either be fixed at really low rates or possibly remain unfixed. None of the time charters are up before 2011 & most longer than that.

This should make you run = Economou gets the cash & you don't!

"Cancellation of Purchases of Four Panamax Vessels

We previously entered into separate agreements to acquire four Panamax vessels, including two newbuildings, for an aggregate purchase price of $400 million, from companies beneficially owned by George Economou, our Chairman, Chief Executive Officer and Interim Chief Financial Officer. In December 2008, we agreed to cancel these transactions in exchange for a cash payment by us of $105.0 million in addition to the sellers’ retaining the deposits totaling $55.0 million we previously paid for the four vessels. The vessels were: (i) a 75,228 dwt Panamax vessel built in 2008, (ii) a 75,204 dwt Panamax vessel built in 2007, (iii) a 75,000 dwt Panamax vessel under construction in China scheduled to be delivered during the fourth quarter of 2008 and (iv) a 75,000 dwt Panamax vessel under construction in China scheduled to be delivered during the first quarter of 2009. As part of the termination agreement, we will have the exclusive option to purchase the abovementioned four Panamax drybulk carriers on an en bloc basis at a fixed purchase price of $160.0 million. The exclusive purchase option granted to us by the selling companies will terminate on December 31, 2009. The agreement was negotiated and approved by a committee consisting of the independent members of our board of directors.




Cancellation of Purchases of Nine Capesize Vessels


In October 2008, we agreed to purchase nine Capesize drybulk carriers for consideration aggregating $1.17 billion, consisting of 19.4 million of our common shares and the assumption of an aggregate of $470.4 million in debt and future commitments. The sellers were clients of Cardiff Marine Inc., including affiliates of George Economou, our Chairman, Chief Executive Officer and Interim Chief Financial Officer, and unaffiliated parties. In light of the considerable decrease in asset values of the nine Capesize vessels, we have reached an agreement with the sellers to cancel this transaction. The consideration to cancel the transaction will consist of the issuance of 6.5 million of our common shares to entities that are unaffiliated with us nominated by the third-party sellers, which will be subject to a six month lock-up period. The consideration received by entities controlled by George Economou will consist solely of 3.5 million warrants with strike prices, depending on the relevant tranches, of between $20 to $30 per share. Each warrant entitles the holder to purchase one share of our common stock. The warrants will vest over an 18-month period and will expire after five years. This transaction has been approved by the independent members of the board of directors and is subject to negotiation and execution of definitive documentation.


Disposal of Three Capesize Newbuildings


In July 2007 and April 2008, we entered into separate agreements to acquire three Capesize newbuildings from unaffiliated third parties for an aggregate purchase price of $364.0 million. We have agreed to transfer our interests in the owning companies of these vessels to an entity that is not affiliated with us. In connection with this transfer of interest, the sellers will release us and our relevant subsidiaries from the purchase agreements for these vessels. This release reduces our aggregate obligations in the amount of $364.0 million in exchange for a total consideration of $116.4 million. The consideration consists of $36.4 million in deposits toward the acquisition of the three vessels already made by us, $30.0 million in cash that has been paid to the purchaser, and two additional tranches of $25.0 million each payable to the purchaser within 30 and 60 days, respectively. The two additional tranches may be paid in cash or, at our option, by issuing 2.6 million shares of our common stock for each tranche.


Cancellation of Vessel Sale


On March 15, 2008, we entered into a memorandum of agreement to sell the M/V Delray (ex M/V Lacerta), a 1994 built, 71,862 dwt Panamax drybulk carrier, to an unaffiliated third party for a sale price of $55.5 million. The sale will not close due to the buyer’s repudiation of its obligations under the memorandum of agreement. A deposit on the vessel in the amount of $5.6 million was made by the buyer. We intend to pursue all legal remedies against the buyer.


Sale of Vessel


In November 2008, we delivered the M/V Tonga, a 1984 built, 66,798 dwt Panamax drybulk carrier, to her new owners for the sale price of $3.8 million, resulting in a loss of $3.0 million.


Suspension of the Payment of Dividends


In light of a lower freight rate environment and a highly challenged financing environment, our board of directors, beginning with the fourth quarter of 2008, has suspended our common share dividend. Our dividend policy will be assessed by the board of directors from time to time. The suspension allows us to preserve capital and use the preserved capital to enhance our liquidity. The payment of dividends to our shareholders in the future is subject to limitations imposed by our lenders."


Debra your credibility is shot - just a little research could have found this out]]> Thu, 29 Jan 2009 01:43:23 -0500
"Why doesn't the article mention the debt load? Especially since we are in a credit crunch - what is the re-financing risk here? $2.9 billion in debt is not a fun place to be for a company with a marketcap around $500 million. How does this company raise capital in this environment?

I think that there is a real chance of insolvency here and certainly that risk can not be ignored. But my real reason for running as far away as possible has to do with the related party business connections. "

It raises funds by further diluting existing shareholders - I hope some sold today before this debacle. $500 million would mean at least 50 million shares although I note that the November filing they sold 25 million for $167 million - in other words they sold at a discount to market to get it done. Add this to the breaching of debt covenants on around half ther loans.

You should read the filing it has a lot of info (don't think that Debra read one!) Here's the stuff on spot charters

" The general decline in the drybulk carrier charter market has resulted in lower charter rates for some of our vessels exposed to the spot market and our time charters and bareboat charter linked to the BDI. Specifically, we have 12 vessels trading in the spot market that are currently exposed to the downturn in the drybulk charter rates, five newbuilding drybulk carriers that we expect will operate on spot charters when delivered in 2009 to 2010, as well as two vessels on time charter and one vessel on bareboat charter at rates that adjust with the BDI. The duration of our spot charters is between 60 and 90 days. Eleven spot charters expire in the period January 28, 2009 through February 28, 2009. Should drybulk charter rates continue to decline or remain at their current low level, our charter revenue with respect to these vessels will remain low or decline even further.

In addition, the general decline in the drybulk carrier charter market has resulted in lower drybulk vessel values. We previously entered into contracts for the sale of the M/V La Jolla, the M/V Paragon and the M/V Toro for an aggregate purchase price of $190.4 million. Due to the steep decline in the drybulk market, we do not expect to deliver these vessels to the sellers. As a result, we will retain the current indebtedness on these vessels. Only the M/V Toro is chartered, and therefore we will have to seek employment for the vessels M/V Paragon and M/V La Jolla at the current low charter rates in the spot market."

The company has 12 vessels on spot, 20 on time charters and 3 on bareboat charters - 2 vessels are unfixed. 11 spot charters due in the next month & this is really bad because they will either be fixed at really low rates or possibly remain unfixed. None of the time charters are up before 2011 & most longer than that.

This should make you run = Economou gets the cash & you don't!

"Cancellation of Purchases of Four Panamax Vessels

We previously entered into separate agreements to acquire four Panamax vessels, including two newbuildings, for an aggregate purchase price of $400 million, from companies beneficially owned by George Economou, our Chairman, Chief Executive Officer and Interim Chief Financial Officer. In December 2008, we agreed to cancel these transactions in exchange for a cash payment by us of $105.0 million in addition to the sellers’ retaining the deposits totaling $55.0 million we previously paid for the four vessels. The vessels were: (i) a 75,228 dwt Panamax vessel built in 2008, (ii) a 75,204 dwt Panamax vessel built in 2007, (iii) a 75,000 dwt Panamax vessel under construction in China scheduled to be delivered during the fourth quarter of 2008 and (iv) a 75,000 dwt Panamax vessel under construction in China scheduled to be delivered during the first quarter of 2009. As part of the termination agreement, we will have the exclusive option to purchase the abovementioned four Panamax drybulk carriers on an en bloc basis at a fixed purchase price of $160.0 million. The exclusive purchase option granted to us by the selling companies will terminate on December 31, 2009. The agreement was negotiated and approved by a committee consisting of the independent members of our board of directors.




Cancellation of Purchases of Nine Capesize Vessels


In October 2008, we agreed to purchase nine Capesize drybulk carriers for consideration aggregating $1.17 billion, consisting of 19.4 million of our common shares and the assumption of an aggregate of $470.4 million in debt and future commitments. The sellers were clients of Cardiff Marine Inc., including affiliates of George Economou, our Chairman, Chief Executive Officer and Interim Chief Financial Officer, and unaffiliated parties. In light of the considerable decrease in asset values of the nine Capesize vessels, we have reached an agreement with the sellers to cancel this transaction. The consideration to cancel the transaction will consist of the issuance of 6.5 million of our common shares to entities that are unaffiliated with us nominated by the third-party sellers, which will be subject to a six month lock-up period. The consideration received by entities controlled by George Economou will consist solely of 3.5 million warrants with strike prices, depending on the relevant tranches, of between $20 to $30 per share. Each warrant entitles the holder to purchase one share of our common stock. The warrants will vest over an 18-month period and will expire after five years. This transaction has been approved by the independent members of the board of directors and is subject to negotiation and execution of definitive documentation.


Disposal of Three Capesize Newbuildings


In July 2007 and April 2008, we entered into separate agreements to acquire three Capesize newbuildings from unaffiliated third parties for an aggregate purchase price of $364.0 million. We have agreed to transfer our interests in the owning companies of these vessels to an entity that is not affiliated with us. In connection with this transfer of interest, the sellers will release us and our relevant subsidiaries from the purchase agreements for these vessels. This release reduces our aggregate obligations in the amount of $364.0 million in exchange for a total consideration of $116.4 million. The consideration consists of $36.4 million in deposits toward the acquisition of the three vessels already made by us, $30.0 million in cash that has been paid to the purchaser, and two additional tranches of $25.0 million each payable to the purchaser within 30 and 60 days, respectively. The two additional tranches may be paid in cash or, at our option, by issuing 2.6 million shares of our common stock for each tranche.


Cancellation of Vessel Sale


On March 15, 2008, we entered into a memorandum of agreement to sell the M/V Delray (ex M/V Lacerta), a 1994 built, 71,862 dwt Panamax drybulk carrier, to an unaffiliated third party for a sale price of $55.5 million. The sale will not close due to the buyer’s repudiation of its obligations under the memorandum of agreement. A deposit on the vessel in the amount of $5.6 million was made by the buyer. We intend to pursue all legal remedies against the buyer.


Sale of Vessel


In November 2008, we delivered the M/V Tonga, a 1984 built, 66,798 dwt Panamax drybulk carrier, to her new owners for the sale price of $3.8 million, resulting in a loss of $3.0 million.


Suspension of the Payment of Dividends


In light of a lower freight rate environment and a highly challenged financing environment, our board of directors, beginning with the fourth quarter of 2008, has suspended our common share dividend. Our dividend policy will be assessed by the board of directors from time to time. The suspension allows us to preserve capital and use the preserved capital to enhance our liquidity. The payment of dividends to our shareholders in the future is subject to limitations imposed by our lenders."


Debra your credibility is shot - just a little research could have found this out]]> http://seekingalpha.com/article/116673-dryships-looks-good-even-without-its-dividends?source=feed#comment-368798 368798
You really you have to be kidding here - I can't believe that you were so naive as to believe that the dividend was safe here and I'm not saying this because the dividend is cut - You can't rely on net income, EPS, or P/E for judging whether the dividend was safe. Even the $300m+ cash on hand is dwarfed by $2.9 billion in debt and of course now much has to be spent on cancellation fees. A girls best friend might be dividends or diamonds, but any wise girl looks at just WHO is giving her diamonds or paying the dividend. Down below you'll see what I mean

As one who has been in the ship industry for over 40 years let me tell you that the last 3 years was a "super-blip" in the BDI which boosted ALL drybulk shipping companies. This company went from 4 ships 4 years ago to its present fleet size and has just been an opportunist imo

The shipping cycle is very well known & this time we will be down for a very long time. Guess what all those shipping companies were doing? - ordering new ships hand over fist to take advantage of all the dry bulk goods needed to fire China & India's rapidly growing industries - projections for which only had continuing super growth. Even if growth had continued instead of reversing the BDI would have come down as supply eventually outstripped demand - it ALWAYS does

Instead the dry bulk shipping industry is being hit with a double whammy - increasing supply of tonnage (those new ships are still coming off the stocks) and a retreating demand.

DryShips has been hit far worse than most because it focusses on the spot market - that is mostly single voyage charters and short term time charters. This strategy produces enormous profits when the BDI is high but is crushing when the BDI is low. Companies that charter vessels will naturally use their bareboat chartered (typically 15 year charters) and long term time charter vessels first as they are already committed to pay the charter rates. So vessels on spot charter take the lowest rates IF they can get work.

Yes I know that in the last couple of years DryShips has put a significant portion of its ships into long term charters but even those are not safe. I've seen this movie before - as the spot rates go so far down below the long term rates it is advantageous for the charterer to incur the penalties for early cancellation. Even worse they may not have any work for the vessels and in that case cancellation is certain. The worst case scenario is that the charterer goes bankrupt and hands the ships back with no cancellation fees paid - Anyone remember when esteemed (certainly more so than DryShips) Japanese company Sanko Steamships went bankrupt? They had a fleet of 200 ships mostly on bareboat charters - the company I worked for - Orient Overseas Lines had 4 brand spanking new ships on bareboat charter to Sanko - guaranteed money right? The cancellation nearly drove OOL to the brink because of the liquidity problem this caused

DryShips has walked away from 12 new Capesize (large dry bulk ships) and incurred a $36m loss on pre-payments, $30m in additional payments and must either pay a further $50m or issue 2.6 million shares. Great management? - I don't think so

I wouldn't get into bed with this management - take a look at this deal. To cancel an order for a further 9 Capesize vessels the company has agreed to issue a further 6.5 million shares and 3.5 million out-of-the-money warrants. Because Drybulk's CEO Economou is the seller of these ships guess who gets to benefit???? If you look at Excel Marine Carriers cancellation agreements you will see that they got away with little more than the pre-payment fees.

WHY DOES DRYSHIPS PAY SO MUCH FOR CANCELLATIONS?

It's certainly prudent to cancel huge capex committments when you know that you won't have the money but whose plan was it to build so many ships?

How long before Dryships reports a loss? Also while we are at it why would a company that is expected to make $5+ in net income this year suspend its dividend - I'll tell you why - because it doesn't have the cash to pay it & won't have the cash any time soon. Instead of looking at EPS take a look at the company's free cash flow which is almost always negative because of the high capex requirements of shipping - that tends to be okay when the market is on the upswing but not too hot now.

Why doesn't the article mention the debt load? Especially since we are in a credit crunch - what is the re-financing risk here? $2.9 billion in debt is not a fun place to be for a company with a marketcap around $500 million. How does this company raise capital in this environment?

I think that there is a real chance of insolvency here and certainly that risk can not be ignored. But my real reason for running as far away as possible has to do with the related party business connections.

The fleet is managed by an Economou company Cardiff Marine & I very much doubt that DryShips is enjoying competitive rates. Secondly Cardiff also manages Economou's privately owned fleet so which one is likely to get preference - I'm not talking about explicit instructions to favor one over the other but a natural human tendency to justify actions which may be to the detriment of the publicly quoted company

I still can't get over how naive this article is. If I owned shares I'd sell now]]> Wed, 28 Jan 2009 12:56:07 -0500
You really you have to be kidding here - I can't believe that you were so naive as to believe that the dividend was safe here and I'm not saying this because the dividend is cut - You can't rely on net income, EPS, or P/E for judging whether the dividend was safe. Even the $300m+ cash on hand is dwarfed by $2.9 billion in debt and of course now much has to be spent on cancellation fees. A girls best friend might be dividends or diamonds, but any wise girl looks at just WHO is giving her diamonds or paying the dividend. Down below you'll see what I mean

As one who has been in the ship industry for over 40 years let me tell you that the last 3 years was a "super-blip" in the BDI which boosted ALL drybulk shipping companies. This company went from 4 ships 4 years ago to its present fleet size and has just been an opportunist imo

The shipping cycle is very well known & this time we will be down for a very long time. Guess what all those shipping companies were doing? - ordering new ships hand over fist to take advantage of all the dry bulk goods needed to fire China & India's rapidly growing industries - projections for which only had continuing super growth. Even if growth had continued instead of reversing the BDI would have come down as supply eventually outstripped demand - it ALWAYS does

Instead the dry bulk shipping industry is being hit with a double whammy - increasing supply of tonnage (those new ships are still coming off the stocks) and a retreating demand.

DryShips has been hit far worse than most because it focusses on the spot market - that is mostly single voyage charters and short term time charters. This strategy produces enormous profits when the BDI is high but is crushing when the BDI is low. Companies that charter vessels will naturally use their bareboat chartered (typically 15 year charters) and long term time charter vessels first as they are already committed to pay the charter rates. So vessels on spot charter take the lowest rates IF they can get work.

Yes I know that in the last couple of years DryShips has put a significant portion of its ships into long term charters but even those are not safe. I've seen this movie before - as the spot rates go so far down below the long term rates it is advantageous for the charterer to incur the penalties for early cancellation. Even worse they may not have any work for the vessels and in that case cancellation is certain. The worst case scenario is that the charterer goes bankrupt and hands the ships back with no cancellation fees paid - Anyone remember when esteemed (certainly more so than DryShips) Japanese company Sanko Steamships went bankrupt? They had a fleet of 200 ships mostly on bareboat charters - the company I worked for - Orient Overseas Lines had 4 brand spanking new ships on bareboat charter to Sanko - guaranteed money right? The cancellation nearly drove OOL to the brink because of the liquidity problem this caused

DryShips has walked away from 12 new Capesize (large dry bulk ships) and incurred a $36m loss on pre-payments, $30m in additional payments and must either pay a further $50m or issue 2.6 million shares. Great management? - I don't think so

I wouldn't get into bed with this management - take a look at this deal. To cancel an order for a further 9 Capesize vessels the company has agreed to issue a further 6.5 million shares and 3.5 million out-of-the-money warrants. Because Drybulk's CEO Economou is the seller of these ships guess who gets to benefit???? If you look at Excel Marine Carriers cancellation agreements you will see that they got away with little more than the pre-payment fees.

WHY DOES DRYSHIPS PAY SO MUCH FOR CANCELLATIONS?

It's certainly prudent to cancel huge capex committments when you know that you won't have the money but whose plan was it to build so many ships?

How long before Dryships reports a loss? Also while we are at it why would a company that is expected to make $5+ in net income this year suspend its dividend - I'll tell you why - because it doesn't have the cash to pay it & won't have the cash any time soon. Instead of looking at EPS take a look at the company's free cash flow which is almost always negative because of the high capex requirements of shipping - that tends to be okay when the market is on the upswing but not too hot now.

Why doesn't the article mention the debt load? Especially since we are in a credit crunch - what is the re-financing risk here? $2.9 billion in debt is not a fun place to be for a company with a marketcap around $500 million. How does this company raise capital in this environment?

I think that there is a real chance of insolvency here and certainly that risk can not be ignored. But my real reason for running as far away as possible has to do with the related party business connections.

The fleet is managed by an Economou company Cardiff Marine & I very much doubt that DryShips is enjoying competitive rates. Secondly Cardiff also manages Economou's privately owned fleet so which one is likely to get preference - I'm not talking about explicit instructions to favor one over the other but a natural human tendency to justify actions which may be to the detriment of the publicly quoted company

I still can't get over how naive this article is. If I owned shares I'd sell now]]> http://seekingalpha.com/article/114868-why-is-bill-ackman-siding-with-borders-group?source=feed#comment-367766 367766
I expect much better from Seeking Alpha]]> Tue, 27 Jan 2009 12:55:10 -0500
I expect much better from Seeking Alpha]]> http://seekingalpha.com/article/116144-why-goobay-makes-sense?source=feed#comment-366157 366157
And eBay minus Skype & PayPal at $0?? You need to give your head a shake. Even if it were to decline 10% a year to zero it would be still worth the enormous cash flows it produces & I dare say eBay marketplace is not in a complete run-off situation even if auctions are declining.


]]> Mon, 26 Jan 2009 01:56:35 -0500
And eBay minus Skype & PayPal at $0?? You need to give your head a shake. Even if it were to decline 10% a year to zero it would be still worth the enormous cash flows it produces & I dare say eBay marketplace is not in a complete run-off situation even if auctions are declining.


]]> http://seekingalpha.com/article/112998-robert-rosenkranz-get-the-rating-agencies-out-of-the-regulatory-process?source=feed#comment-345769 345769 Sun, 04 Jan 2009 17:48:02 -0500 http://seekingalpha.com/article/111283-chesapeake-energy-back-from-the-dead?source=feed#comment-332572 332572
Your comment makes absolutely no sense whatsoever - in a pump & dump scheme the CEO would surely have benefited from selling a vast number of shares in the $60 & $70 range. Instead he sold none & eventually had 95% of his shares taken in a margin call.

Also anyone that invests in energy could tell you that what you are looking at in the charts is another period with very low short term O&G prices.

The share price will follow short term NG prices just as every other natty out there. The value of the assets is not determined by short term prices.
]]> Wed, 17 Dec 2008 19:04:11 -0500
Your comment makes absolutely no sense whatsoever - in a pump & dump scheme the CEO would surely have benefited from selling a vast number of shares in the $60 & $70 range. Instead he sold none & eventually had 95% of his shares taken in a margin call.

Also anyone that invests in energy could tell you that what you are looking at in the charts is another period with very low short term O&G prices.

The share price will follow short term NG prices just as every other natty out there. The value of the assets is not determined by short term prices.
]]> http://seekingalpha.com/article/108422-here-comes-a-consumer-killer?source=feed#comment-318248 318248
Citi's action is rational as no credit card company should be charging 7.2% unless it is a short term teaser rate. With long term charge-offs averaging 5% and current ones set to top 7% why on earth would they stay at 7.2%?]]> Mon, 01 Dec 2008 13:07:08 -0500
Citi's action is rational as no credit card company should be charging 7.2% unless it is a short term teaser rate. With long term charge-offs averaging 5% and current ones set to top 7% why on earth would they stay at 7.2%?]]>