January 22, 2009
DryShips suspends dividends
DryShips Inc. (NasdaqGS:DRYS) today said that it expected to report a fourth quarter net loss of between $380.6 million and $431.4 million and that "during this period of lower freight rates and an impaired credit market" it will suspend dividend payments on its common stock.
DryShips also reported the disposal of three Capesize newbuildings, and cancellation of the acquisition of nine Capesize vessels (including five newbuildings). It says the moves will its capital expenditure commitments by over $1.5 billion in initial transaction value.
DryShips Inc. owns a fleet of 43 drybulk carriers comprising seven Capesize, 29 Panamax, two Supramax and five newbuilding drybulk vessels with a combined deadweight tonnage of over 3.4 million tons, two ultra deep water semi-submersible drilling rigs and two ultra deep water newbuilding drillships.
Disposal of Three Capesize Newbuildings
DryShips has agreed to transfer its interests in the owning companies of three Capesize newbuildings to an entity that is not affiliated with DryShips. The sellers will release DryShips and its relevant subsidiaries from the purchase agreements for these vessels. This release reduces DryShips' aggregate obligations in the amount of $364 million in exchange for a total consideration of $116.4 million.
The consideration consists of $36.4 million in deposits toward the acquisition of the three vessels already made by DryShips, $30.0 million in cash that has been paid to the purchaser, and two additional tranches of $25.0 million each payable to the purchaser within 30 and 60 days respectively. The two additional tranches may be paid in cash or, at the option of company, by issuing 2.6 million shares of DryShips common stock for each tranche.
Cancellation of Nine Capesize Vessels
DryShips agreed to purchase nine Capesize drybulk carriers in October 2008 for an aggregate purchase price of $1.17 billion from clients of Cardiff Marine Inc. including affiliates of George Economou, the company's Chairman and CEO and third parties consisting of 19.4 million of the company's common shares and the assumption of an aggregate of $478.3 million in debt and future commitments.
In light of the considerable decrease in the asset values of the nine Capesize vessels, DryShips has reached an agreement with the sellers to cancel this transaction.
The consideration to cancel the transaction will consist of the issuance of 6.5 million shares to entities that are unaffiliated with the company nominated by the third-party sellers, which will be subject to a six month lock-up period.
DryShips says that the consideration received by entities controlled by George Economou will consist solely of 3.5 million "out of the money" warrants. Each warrant entitles the holder to purchase one share of Dryships common stock. These warrants will have a cost of $0.01 and will have strike prices, depending on the relevant tranches, of between $20 to $30 per share. The warrants will vest over an 18 month period and will expire after five years. This transaction has been approved by the independent members of the Board of Directors and is subject to customary documentation provisions.
George Economou, Chairman and CEO of DryShips, commented:
"We have worked diligently to find innovative solutions to dramatically reduce our capital expenditures and do so while minimizing the use of cash. In each transaction, counterparts are willing to take either some or all of their consideration in the form of DryShips equity securities. We believe these transactions enhance shareholder value, as the value recaptured from the cancelled transactions is dramatically higher than the consideration to be delivered by us for the cancellation. We believe the transactions will allow us to strengthen our balance sheet and help us capture future opportunities. Taking into account these transactions, DryShips' remaining contractual 2009 capital expenditures is reduced to $149.6 million, excluding payments scheduled for our newbuilding drill ships. The affiliated sellers have foregone considerable value in the cancelled nine Capesize transaction and their consideration has been structured to be well aligned with other common shareholders as they will realize value only if the share price of DryShips moves up significantly from current levels as the exercise prices of the warrants they will receive range from $20 to $30 per share."
Suspension of Dividend
Board of Directors, beginning with the fourth quarter of 2008, has suspended the Company's common share dividend. The Company's dividend policy will be assessed by the Board of Directors from time to time. The suspension allows the Company to preserve capital and use the preserved capital to capitalize on market opportunities as they may arise.
Fourth Quarter 2008 Preliminary Results
For the fourth quarter of 2008 DryShips expects to report on a consolidated basis:
-- TCE Revenues between $184.2 million and $208.7 million;
-- Net Income before Other Items between $34.7 million and $39.3 million, or between $0.63 and $0.71 on a per share basis; and
-- Net Loss between $380.6 million and $431.4 million, or between $6.89 and $7.81 on a per share basis.
Other Items include the following:
-- Unrealized Mark-to-Market Interest Rate Swap Loss of approximately $177.0 million;
-- Previously announced cancellation fee for the cancellation of the previously announced four Panamax vessels of approximately $160.0 million; and
-- Provision for disposal of the three Capesize newbuildings of approximately $116.4 million.
The numbers above are consolidated to include the results for the wholly owned subsidiary Ocean Rig ASA. In addition, the company is presently evaluating whether an impairment write down to the goodwill associated with the acquisition of Ocean Rig is required. Such an impairment has not been included above. The accounting treatment for the cancellation of the nine Capesize vessels mentioned above has also not been included.
Mr. Economou commented: "Our preliminary results reflect lower revenues due to the weakness of the drybulk market in the fourth quarter and charges associated with strategic initiatives undertaken by DryShips to reduce its capital expenditure commitments. We believe that with the improvements in the freight markets in 2009 and given the corrective measures we have taken, we are well prepared to face the challenges in 2009 and ultimately we expect to be able to take advantage of opportunities resulting from the disruption in the drybulk market."
Appointment of New Director
Mr. Angelos Papoulias resigned from our Board of Directors for personal reasons effective December 19, 2008. The Board of Directors has appointed Mr. Evangelos Mytilinaios to the Board of Directors as an independent director. Evangelos Mytilinaios, 58, has extensive experience in the shipping industry having served as senior executive at the Peraticos and Inglessis Group of Companies, which is involved in the drybulk and tanker sectors. He presently heads a diversified group of companies spanning tourism and real estate development in Greece and the United Kingdom. After attending the Athens University of Economics, Mr. Mytilinaios started his career joining and then heading his family's aluminum production enterprise, Evangelos Mytilinaios A.E., one of the largest aluminum product manufacturers in Greece.
DryShips Inc., based in Greece, is an owner and operator of drybulk carriers that operate worldwide. As of the day of this release, DryShips owns a fleet of 43 drybulk carriers comprising seven Capesize, 29 Panamax, two Supramax and five newbuilding drybulk vessels with a combined deadweight tonnage of over 3.4 million tons, two ultra deep water semi-submersible drilling rigs and two ultra deep water newbuilding drillships.