GM PBK - Cutting through all of the noise, DRYS reported a $20 million loss for Q1.
TCE = $2978
Expenses = $4817
per day, per ship Operating income then was ($2978 - $4817) = -$1839
Not a lot to cover OpEx let alone CapEx and any bank loan payments.
So on its face, which is all most people are looking at, this is not a good deal. I've noted before that Q1 would not look good and it didn't. Q2 will look better and may eke out a small OpEx profit. It still won't be enough to cover debt payments - and we see that in the 5/19 announcement:
"Bank Update / Liquidity
The Company is presently engaged in discussions with its lenders for the restructuring of its debt facilities.
Three of these bank facilities have matured and the Company has not made the final balloon installment. For
the remaining bank facilities, the Company has elected to suspend principal and interest payments to preserve
cash liquidity. "
Can DRYS negotiate a beneficial repayment plan with lenders? This seems to be the primary question to be answered. GE has very good relationships with the banking community, but does DRYS? Perhaps another question is do the lenders want the ships or the repayment? If they take on the ships they will automatically loose money. If they renegotiate with GE/DRYS they would get their money back, just delayed by a few years. I am optimistic on this point and expect to hear something positive in the next few weeks.
For some time now I have been predicting 2017 as the year for significant improvement in the dry bulk industry. There are a few reasons for this:
Based on 2014 numbers and a structural change in demand, I have been using a 5% reduction of tonnage as a required target in order to restore health to the industry.
EOY 2014 Cape tonnage: 308,057,765
EOY 2014 PMax tonnage: 193,238,005
After 5% reduction:
Cape tonnage: 292,654,877
PMax tonnage: 183,576,105
Obviously this 5% reduction did not take place immediately. 17 months later though give newbuilding and scrapping activities, Cape tonnage has been reduced by 0.43 % while PMax has increased by 0.75%.
2 additional factors come into play, of course, normal attrition/replacement and changes in demand. Consider the normal economic life of a ship is ~25 years. Ships at or beyond that age can be expected to be scrapped. The IMF expects worldwide GDP to increase somewhere around 3.3% this year alone. I believe them to be optimistic again this year and the number will be closer to 2.1-2.3%. In my calculations I am using a 2% growth factor in dry bulk demand. Overlaying this from 2014 and netting out newbuilding and scrapping activities leads me to a slow recovery over the next 18 months or so. Towards the end of 2017, demand will begin to accelerate beyond shipping supply. 2018 through 2019 should prove to be fun years to be in shipping stocks.
How does all of this relate to DRYS? Well, I believe vessel valuations will begin to increase quarter to quarter, shipping rates will continue their choppy, but upward move, and that DRYS will be able to negotiate new balloon payments. These factors will begin moving DRYS pps to some place above $4 by year end (conservatively). Announcing a refinancing plan may get us their much faster.
The risk, and it cannot be ignored, is that DRYS will not be able to refinance and the lenders will call the loans and essentially take the ships.
