Webber: Bulk balance sheets need restructuring work.

Wells files a reminder

Bankruptcy filings remain a risk among some of Wall Streets best known dry-cargo shipowners despite a rally in share prices at the start of 2013, Wells Fargo says.

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.


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