It's been a perfect storm for shorts of DryShips (NASDAQ:DRYS): A bad dry shipping rate environment, an even worse Panamax ship environment, plunging oil prices causing DRYS's Ocean Rig UDW (NASDAQ:ORIG) shares to plunge, and bad dilution. In my previous DRYS article entitled DryShips Is In A World Of Hurt: Avoid, I stated among other things (emphasis added),
"DryShips has debt problems. Big debt problems. But CFO Ziad Nakhleh assured investors in, "We have said all along that it's not a question of whether we can execute the refinancing. It's a question of how we can refinance it as cheaply as possible."
Now it may be a question of "whether" instead of how cheap for the $700 million debt due Dec. 1. According to this report, "Sources are skeptical about whether such a funding is appropriate for the dry bulk carrier's capital structure or for investor portfolios." Failure to come up with a solution could mean either liquidation or bankruptcy."
Since then the "how cheaply" became expensive - highly dilutive expensive. It added something in the neighborhood of 50% more to the diluted share count, but I stated at the time, "The financing was much needed to assure DryShips' short-term survival." Then on Dec. 1, DRYS issued a short press release in after hours simply saying "it has repaid all remaining principal and interest of its 5% Convertible Notes due 2014, in accordance with the terms of the notes and the indenture governing the notes." The next day the stock rallied on the "news" by as much as 8% even while most other dry shipping companies took a bath that day due to a continued nearly-daily plunge in dry shipping rates. If I had owned DRYS or if I owned it now, I would use the bounce to unload my shares of DRYS since the fundamentals for DRYS have only gotten weaker (from falling rates), not stronger, despite the "news" that was widely anticipated.
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