Analyst
Michael Webber delivered the sobering reminder to investors at a time when the
peer group is trading up almost 50% this year.
In
a note entitled “Dry Bulk: Hold Your Horses” Webber says Excel Maritime,
Genco, Eagle Bulk and DryShips, some of the best performing stocks in the
sector this year, still face further restructuring challenges.
“We actually think this trade may be
punctuated by a Chapter 11 filing as opposed to a return to broad-based
profitability, and while this idea that multiple players in the dry bulk space
won’t survive is not new, what is new is that the market seems to have forgotten
it,” the analyst said.
Webber notes
Excel, Eagle and Genco are trading up around 74% this year, “despite
significant, and in some cases immediate”, balance sheet or bankruptcy risk.
Excel Maritime
has been working with Miller Buckfire on a restructuring having secured some
debt relief until the end of 2013 and raised some cash from the market.
Webber says the
process is difficult to read but sees “few, if any” positive outcomes for
common equity holders.
Genco is likely
to need some debt relief by the end of next year and given its huge spot
exposure may break some covenants when they are reactivated at the beginning of
2014, the analyst notes.
A further round
of restructuring talks for the owner could begin as early as the middle of this
year, he suggests.
Webber says Eagle
Bulk is in better shape than Genco and Excel given its longer debt runway.
"That said, while that runway is a modest
plus for EGLE on a relative basis, we think the dry bulk recession could
persist well into 2015, with that race against EGLE’s grace period remaining
the biggest long-term variable for the stock,” he added.
DryShips is
battling a $500m capex bill for its dry-cargo newbuildings and is becoming
increasingly exposed to the depressed dry market as long-term contracts end.
Webber believes
the potential sale of shares in drilling arm Ocean Rig leaves the company
better placed to ride out the storm. But he notes the undervalued stock price
for the offshore company means the action would still negative for DryShips’
investors.
