Why Genco Shipping (GNK) Is Tanking on Wednesday

NEW YORK (TheStreet) -- Genco Shipping & Trading (GNK) shares are tanking on Wednesday after the deep-sea freighter disclosed that it had entered into a limited waiver of default on its loan agreement.

By early afternoon, shares had slipped 20.6% to $1.43. Trading volume of 4.1 million was nearly three times its three-month daily average.

In the SEC filing, the New York-based business said it had failed to make a scheduled semi-annual interest payment of around $3.1 million on Feb. 17. Under the terms of the indenture, a failure to pay interest does not constitute a default until a grace period of 30 days expires (March 21).

"As a result of the continued weakness in charter rates and required payment of debt obligations of, and expenditures by, the Company, the Company is using the Grace Period to review its financing options and is currently considering various alternatives with respect to the restructuring of its capital structure," the company said in the filing.

"The Company is in discussions with representatives of its secured lenders and certain holders of the Notes concerning a potential restructuring of its indebtedness."

Genco Shipping has retained Blackstone Advisory Partners as financial advisor to give guidance on any potential restructuring.

"There can be no assurance that the Company will be able to successfully resolve its current liquidity situation, that the Company will receive any additional funding from any party, or that the Company will be able to reach agreement with its various secured lenders and other creditors on a consensual restructuring of its capital structure," Genco added in the filing.

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TheStreet Ratings team rates GENCO SHIPPING & TRADING as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate GENCO SHIPPING & TRADING (GNK) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Currently the debt-to-equity ratio of 1.63 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.09, which clearly demonstrates the inability to cover short-term cash needs.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Marine industry and the overall market, GENCO SHIPPING & TRADING's return on equity significantly trails that of both the industry average and the S&P 500.
  • GNK's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 40.13%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Marine industry average. The net income increased by 8.8% when compared to the same quarter one year prior, going from -$38.42 million to -$35.03 million.
  • GENCO SHIPPING & TRADING has improved earnings per share by 10.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GENCO SHIPPING & TRADING swung to a loss, reporting -$3.48 versus $0.72 in the prior year. This year, the market expects an improvement in earnings (-$3.45 versus -$3.48).

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