DryShips Secures Loan Amendments to Help Right Operations

NEW YORK ( The Deal) -- As DryShips ( DRYS) works to restructure $5.4 billion in debt, the heavily leveraged ship operator has succeeded in securing amendments to a $1.9 billion term loan held by its healthier subsidiary, Ocean Rig UDW.

The Athens-based dry bulk carrier said on Feb. 7 that Ocean Rig, its offshore drilling subsidiary, has refinanced its $1.8 billion Term Loan B package for $1.9 billion in similar B term loans that will mature no earlier than the third quarter of 2020.

The smaller portion of the original Term Loan B package was set to mature during the third quarter of 2016, while the larger portion was due during the first quarter of 2021.

According to data from Bloomberg Finance, one new $821 million senior secured B term loan will bear interest at Libor plus 500, but its maturity date is undisclosed. Another new B secured term loan, for $1.075 billion, is set to mature on March 31, 2021, and will also bear interest at Libor plus 500.

That maturity extension to 2021 provides some relief for loss-ridden DryShips, which projected a brisk debt payment schedule for the coming years in its financial report for the nine months ended Sept. 30. At that time, DryShips reported $1.08 billion due by Sept. 30, 2014; $759 million by Sept. 30, 2015; and $1.36 billion by Sept. 30, 2016.

As of Sept. 30, DryShips had $506.2 million in cash and cash equivalents and $172.3 million in restricted cash.

The company said in its financial report, filed Nov. 5, "We believe that we will be able to satisfy our liquidity needs for the next 12 months with the cash we generate from our operations and proceeds from future debt or equity issuances."

But DryShips also warned, "We are currently in negotiations with our lenders to obtain waivers of our covenant breaches and extend our existing waivers of covenant breaches, or to restructure the affected debt."

The shipper said it has breached debt covenants including its interest coverage ratio covenant.

As it continues its restructuring talks, DryShips also hopes to raise about $986.5 million in new debt or equity financing to pay for six new ships that it has ordered: four Panamax ships and two drillships.

The company is working with sales agent Evercore Group LLC on a sale of up to $200 million in common stock. DryShips had suspended the stock sale on Dec. 5, but resumed it on Dec. 31.

Cyprus-based Ocean Rig, an offshore drilling contractor, has performed better than its parent, which has been battered by a prolonged downturn in the dry bulk shipping sector. DryShips holds 59.4% of Ocean Rig's stock.

In addition to its $1.9 billion term loan package, Ocean Rig has $800 million in first-lien 6.5% notes due Oct. 1, 2017 (announced Sept. 13, 2012); $500 million in 9.5% senior unsecured notes due Apr. 26, 2016 (announced on Apr. 6, 2011); and a $1.35 billion senior secured Term Loan DD (announced July 1, 2012).

Unlike its parent company, Ocean Rig was in compliance with all debt covenants at Sept. 30.

Hedge funds have taken a position in DryShips' $700 million in 5% senior unsecured notes due Dec. 1, 2014 (announced Nov. 20, 2009). Brigade Capital Management LLC, which focuses on high-yield and distressed debt, is the largest holder listed by Bloomberg Finance, with a 12.64% stake. Event-driven hedge fund Davidson Kempner Management LLC comes in second with 11.62%. Blackstone Group LP is in third place with 9.12%.

Those notes were trading at discount of 98.25 cents on the dollar on Monday.

DryShips also has a $460 million senior secured term loan due May 31, 2016 (signed on March 31, 2006) bearing interest at Libor plus 100, and a $98 million second-lien secured term loan bearing interest at Libor plus 243.

DryShips' debt-to-assets ratio stands at 49.4%, according to Bloomberg Finance's data.

The company recorded $9.58 billion in assets, including $1.07 billion in current assets, at Sept. 30, and $5.76 billion in liabilities, including $1.46 billion in current liabilities. Those liabilities include a total of $5.4 billion in debt.

DryShips reported revenues of $1.06 billion for the nine months ended Sept. 30, a 14.4% improvement on its $927.27 in revenues during the same period in 2012.

Despite the revenue boost, its net loss widened by 41.5% to $189.77 million, compared to a $134.14 million loss during the first nine months of 2012.

Ocean Rig improved its revenues by 17% to $834.79 million compared to $712.15 million for the first nine months of 2012.

On those revenues, the company narrowed its nine-month loss to $23.66 million, compared to $61.32 million for the same period during the previous year.

Officials from DryShips and Ocean Rig could not be reached for a comment.

Ocean Rig operates a fleet of 11 offshore ultra deepwater drilling units, consisting of two ultra deepwater semisubmersible drilling rigs and nine ultra deepwater drillships, one of which is scheduled to be delivered to the company during 2014 and two of which are scheduled to be delivered during 2015.

The company is listed on Nasdaq under the symbol ORIG. Its shares closed at $16.72 on Monday, with a market capitalization of $2.2 billion.

DryShips owns 42 drybulk carriers, including 12 Capesize, 28 Panamax, and two Supramax ships, and also 10 tankers, comprising six Suezmax and four Aframax ships.

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