Will Ebiefung

About the Author Will Ebiefung

Will Ebiefung studied finance and accounting at the University of Tennesee. He works as a freelance investment analyst focusing on equities with market caps below $100 million. In addition to writing, Will is a full-time investor focusing on web properties and debt-based securities.

DryShips Inc. (DRYS): Dealing with the Devil


DryShips Inc. (NASDAQ:DRYS) soars over 200% to $1.85 per share! – Oh wait, it’s just a stock split. And investors have been fleeced once again.

This time, to add insult to injury, Economou has reached an agreement with himself – through Sifnos Shareholders – that ends up putting even more money in his pockets at the expense of DryShips’ bagholders.

It looks like Economou is building up the DryShips fleet so he can sell the entire fleet when vessel prices rise; a clause in the credit agreement allows him to rake in 30% of all realized profits of such transactions through Sifnos.

On April 10, 2017, DryShips released a statement amending its secured revolving credit facility, stating quote:

As part of the amendment, the Sifnos Facility will cease to be secured by all of the Company’s present and future assets, and the maturity will be extended from 3 years to 5 years.

The previously announced ability of Sifnos to participate in realized asset value increases of the collateral base in a fixed percentage of 30% will be maintained and will now be documented under a separate contract.

Sifnos will receive an amendment fee of $2.0 million and the margin over LIBOR of the Sifnos Facility will be increased by 100bps to 650bps. ”

The press release claims this amendment was decided DryShips’ board of directors. The firm’s CFO, Mr. Anthony Kandylidis, further states, quote:

We are very excited by the commitment is shown by Mr. George Economou to free up collateral which will assist DryShips in its efforts to access bank debt financing for the first time since November 2014. This should increase our available liquidity and allow us to pursue further acquisitions.

Dealing with the Devil

George Economou’s behavior is so brazen and bizarre that it’s difficult to not feel a sense grudging respect for the guy. Like a bank robber in an old Western film, the controversial Greek billionaire does what he pleases and dares anyone to stop him.

As it stands, Economou is able to exert an inordinate amount of power over DryShips because, not only is he the company’s CEO, but he is also his creditor. To this end, he owns the majority of DryShip’s debt, a revolving credit facility, and he was able to acquire this debt for pennies on the dollar.

The debt is held by an entity called Sifnos Shareholders which is directly affiliated with Economou. This new amendment alters the terms of this arrangement to the benefit of Sifnos and detriment of shareholders.

Not only does the deal extend the maturity of the Sifnos credit facility, but it gives Sifnos a lump payment of $2 million and increases its interest payments by over 600%.

In characteristic fashion, Economou adds a layer of plausible deniability to his disastrous deal by no longer securing Sifnos’ claims with DryShips’ assets. But note that Sifnos is allowed to enjoy 30% of the realized gains from selling these assets.

Economou likes to throw useless bones to the bagholders. It is unclear if he does this for legal cover or because of his unique sense of humor.

Conclusion

DryShips trades for around $1.86 per share after a 4-for-1 R/S stock split. And the stock will continue to bleed out over the next few weeks.

On top of this, the DryShips board of directors has amended the credit terms with Sifnos Shareholders, an Economou-affiliated entity. These new terms give even more money to the despised Greek billionaire and should remind the market of Sifnos’ claim on 30% of realized profits obtained by selling DryShips assets.

Right now, investing in DryShips makes as much sense as throwing money in a blender.

 

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