What Do They Know?

Despite positive signs of economic growth emanating out of China and deliveries still slipping, two of the most market savvy owners engaged in what we considered some conservative chartering activity last week.

During its second quarter earnings announcement, Pankaj Khanna announced that DryShips had fixed 12 Panamax bulkers for $16,000 per day for two years in a strategic move designed to secure its cash flows in any given environment, particularly in light of recent market volatility. The logic is impeccable when you consider that $1.1 billion in revenue has been locked in for the next 2 1/2 years with a resulting fleet coverage as follows:
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Genco Does the Deed

On Monday, Genco Shipping & Trading announced that it had amended its ten-year $1.4 billion credit facility led by DnB NOR and Bank of Scotland. Under the terms of the agreement, the collateral maintenance requirement will be waived until such time that Genco is in a position to satisfy the covenant and is in compliance with all of its financial covenants. Genco will continue to be able to borrow the undrawn portion of the facility during the waiver period and expects to use this capacity to partially fund the three remaining Capesize vessels, which are expected to be delivered this year, with the balance coming from internally generated cash flow.

The quid pro quo for the concession involves increased pricing and, not unsurprisingly, accelerated repayment. Amounts borrowed under the amended credit facility begin to reduce on March 31, 2009 at $12.5 million per quarter, which will increase to 3.5% of the amount outstanding for each quarter after March 31, 2012 until repaid in full at maturity. The loan will bear interest LIBOR + 2%, an increased spread of 1.2%. There is also an increase in the commitment commission payable to each lender from 0.20% to 0.70% per annum of the daily average unutilized commitment of such lender.

In addition to the increased pricing, Genco has agreed to suspend dividends and its stock buyback program immediately. Both can be reinstated once Genco can represent that it is in a position to again satisfy the collateral maintenance agreement and is able to meet the criteria outlined in the credit facility to engage in these two activities. There are no further restrictions on cash.

It is all about preserving cash.

Hard Numbers

Moving from the theoretical to the concrete, the following examples illustrate the real cost of today’s crises:

Genco Bites the Bullet
On Tuesday, Genco Shipping & Trading (“Genco”) made the correct but painful decision to cancel the previously announced acquisition of six dry bulk newbuildings, including three Capesize and three handysize vessels, from Lambert Navigation et.al., at an aggregate purchase price of $530 million. As part of the agreement, the sellers will retain the deposits totaling $53 million. The three Capesize vessels and three Handysize vessels are being constructed in the Daehan and Jinse shipyards in South Korea, with deliveries commencing in the 4th quarter 2008 (two Handysize) through 2009.

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Back to the Future – Genco’s New Credit Facility

On Monday, Genco Shipping & Trading announced it had received a bank commitment for a new $320 million senior secured amortizing term loan facility. Underwritten by Nordea Bank Finland Plc, Bayerische Hypo- und Vereinsbank AG, Sumitomo Mitsui Banking Corporation and DnB NOR Bank ASA, the five year facility is subject to definitive documentation.

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