DryShips in breach of loan covenants

Share prices for George Economou's dry bulk (and now also drillship) operation DryShips (NASDAQ: DRYS) plunged after the company yesterday revealed: "Two of our leading banks, which collectively held $751.8 million of our indebtedness as of December 31, 2008, have notified us that we are in breach of certain financial covenants contained in our loan agreements, and we have been in communication with another lender that currently holds $650 million of our outstanding indebtedness regarding breach of loan covenants. Currently, we are in discussions with these and other lenders for waivers and amendments of certain financial and other covenants contained in our loan agreements. Given the depressed charter market, the values of our vessels could fall even further and be below our outstanding debt. If we are unable to obtain waivers or covenant amendments from our banks, our lenders could accelerate our indebtedness and foreclose on our vessels. In addition, if conditions in the drybulk charter market remain depressed, we may seek to restructure our outstanding indebtedness."

The admission came in an SEC filing in connection with a shelf registration statement for the offer and sale of up to $500,000,000 of DryShips common share. In a similar move last year the filed a prospectus supplement relating to the offer and sale of up to 25,000,000 common shares. That resulted in the issue and sale of a total of 24,980,300 the net proceeds of which were $167.1 million after deducting expenses of the offering.

Besides revealing the breach of loan covenants, the SEC filing also discloses various headaches with the proposed spin off to shareholders of DryShips' interests in subsidiary, Primelead Shareholders, which owns the stock of Ocean Rig ASA. The $650 million of indebtedness about which DryShips has "been in communication with another lender" would seem to be the $650 million still outstanding of $800 million borrowed to partly finance the Ocean Rig acquisition.

READ THE SEC FILING HERE