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Strategies & Market Trends : The Bird's Nest -- Ignore unavailable to you. Want to Upgrade?

To: clutterer who wrote (13359)	2/12/2009 9:05:26 AM
From: clutterer	Respond to of 15232

also doing a spinoff...."DryShips (DRYS) has had problems with its credit lately. It has refused to take delivery of Capesize vessels (and has cancelled many future deliveries). DRYS has had to pay a stiff price for all of this. It has cancelled its dividend. It has, however, been able to renegotiate its credit with Bank of Piraeus (BPIRF.PK) to restructure two loan facilities totaling $220 million, with $164.9 million currently outstanding. Under the terms of the deal, outstanding repayments will be reduced by roughly 47% in 2009 and by 21% in 2010. The deal also includes a covenant waiver through Jan. 1, 2011. DRYS has made a shelf registration to sell $500M worth of its shares purportedly to help shore up its credit situation. This will no doubt cause share value dilution. I have talked to investor relations at DRYS. They say there is no set timeline on the sale of these shares. They will inform shareholders when the shares are sold. The shares have fallen as a result from the recent $13-$15 range to their current price of approximately $6. They were as low as the high $4 range at one point. This begs the question, why buy now? The answer is twofold. First, nothing has dramatically changed in the DRYS shipping business. It is still a great value. The ship deliveries that were cancelled were cancelled to cut back on CAPEX for the near future. This is something nearly every company is doing in these hard times. The money raised from the share sale will likely be used to retire debt (or make further acquisitions). The money from these shares is going to be used to make the company more financially stable. The BDI has been going up steadily on increased demand from China, due to its infrastructure heavy stimulus package (and a possible second infrastructure package). The imminent approval of the US stimulus package is likely exerting an indirect effect also. The BDI stands at 1642 with the capesize spot price at $30,001. It has risen consistently for the past two months. Second, DRYS has announced that it is planning to spin off its Ocean Rig holdings as a new company by issuing shares as a dividend to its shareholders. The regular dividend has been cancelled. However, I have not heard that this dividend has been cancelled. The proposed spin off was supposed to occur in Q1 of 2009. However, I have confirmed with DRYS’ Investor Relations that the spin off has now been delayed until 2H 2009. Its format is best described by the DRYS announcement, After we file all appropriate documents with the SEC, and once approved, we will spin-off the entity to our shareholders as a dividend. We hope to do so in the fourth quarter of 2008 or in the first quarter of 2009. This is not an IPO, as we will not raise any new equity. Simply, each shareholder in DryShips, as of the record date, will end up owning a share in DryShips and a share in the new spun-off entity, which they can then keep or sell on a U.S stock exchange, and the market will then determine the ultimate value of those shares. At the time of the spin off announcement, DRYS made the following estimate about the likely value of the new entity’s stock. Using several methodologies, it was estimated that the total equity value of Primelead would be between $2.55 billion and $2.80 billion, which if correct, and taking into account the 100% owned by DryShips and divided by the 63 million shares should result in a common stock price of $30 to $31 for the spun-off entity. As we showed in our recent presentation, if you assume a daily rate in excess of $675,000 per drillship, you get an EBITDA level which after applying a multiple of 5, which is the current market, you get an Enterprise Value of $900 million per drillship, or $5.4 billion for all six units. Taking out the net debt of this entity you get an equity value of about 2.7 billion. 75% of this value ($30-$31 per share) goes to the 63 million shares owned by DryShips shareholders post closing and post spin off. DRYS itself will retain a 25% interest in Ocean Rig (according to Investor Relations at DRYS). Note that RIG trades at a 1.15 book multiple. DO trades at a price to book ratio of 2.67. NE trades at a P/B of 1.39. The Ocean Rig entity’s Price/Book ratio is likely to be higher than the average of the lower two values above."{