DryShips Receives Going Concern Note From Auditors

Updated from 11:40 a.m. EDT

DryShips (DRYS Quote) on Monday said it had received a going concern note from its auditors in relation to the company's efforts to reclassify $1.8 billion in debt.

In a note to investors regarding DryShips' Annual Report on Form 20-F filed with the Securities and Exchange Commission, the Greek-based shipper said:

"As discussed in Note 3 to the consolidated financial statements, the Company's inability to comply with financial covenants under its current loan agreements as of December 31, 2008, difficulties in meeting its financing needs, its negative working capital position, and other matters discussed in Note 3 raise substantial doubt about its ability to continue as a going concern."

"As discussed during our latest conference call, the going concern explanatory paragraph is the result of the previously announced reclassification of $1.8 billion of long-term debt as current," said DryShips CEO George Economou in a news release. "With the proactive approach already taken to reduce $2 billion in capital expenditures, the confidence of our three main lenders with whom we are in close ongoing discussions, secured revenues of over $2.4 billion in the next three years from drybulk time charters and offshore drilling contracts and the recent equity infusion of $380 million through the ATM Equity Offeringsm share issuance program, we have repositioned DryShips for the long-term and remain ahead of the curve."

In its filing with the SEC, DryShips outlined key reasons for the drybulk shipping market's deterioration in general and DryShips revenue specifically, citing:

A lack of trade financing for purchases of commodities carried by sea, causing a sharp drop in cargo shipments.

An excess of iron ore in China, leading to lower 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," DryShips wrote in its SEC filing.