Genco tip bears fruit

Genco Shipping & Trading is about to test Wall Street’s appetite for bulker stocks with a follow-on equity offering in which it hopes to bank nearly $60m.

Nokta's prediction was precise.

“Genco intends to use the net proceeds from the offering for general corporate purposes,” it told investors in a statement Wednesday.

The US bulker owner’s share price plummeted 9.87% before bottoming out at $7.40 in after hours trading as the market digested news of the fundraiser, which was unveiled a day after the company surprised the street with a small fourth-quarter profit.

Today’s move may not come as a surprise as an equity analyst from Dahlman Rose made TradeWinds headlines earlier in the day when he told clients that Genco would likely issue new equity in order to provide it with reduced financing fees and more flexibility.

In a note tied to the company’s fourth-quarter earnings report, Omar Nokta attributed a reduced cash balance of $229.4m to bank loan pre-payments of $62.5m following a covenant waiver agreement forged in December.

“Genco has at least $131m in debt repayments due in 2012 and $215m in 2013, which is likely to be funded from its cash position,” he added. “The covenant waiver requires Genco to pay a fee of 200 bps annually (around $27m) on its $1.4bn facility, which can be halved should Genco issue $50m of new equity.”

Morgan Stanley, Deutsche Bank Securities and Jefferies & Company are acting as joint book-running managers for the proposed offering, which many expect to be priced by tomorrow morning.

Printable version Newsletter sign up