DryShips Management Discusses Q3 2012 Results - Earnings Call Transcript
November 15, 2012 3:50 PM ET
Q3 2012 Earnings Call
November 15, 2012 9:00 am ET
Ziad Nakhleh - Chief Financial Officer
George Economou - Chairman, Chief Executive Officer and President
Michael Webber - Wells Fargo Securities, LLC, Research Division
Keith Mori - Barclays Capital, Research Division
Salvatore Vitale - Sterne Agee & Leach Inc., Research Division
Thank you for standing by, ladies and gentlemen, and welcome to the DryShips Conference Call on their Third Quarter 2012 Financial Results.
We have with us Mr. George Economou, Chairman and Chief Executive Officer; Mr. Ziad Nakhleh, Chief Financial Officer of the company. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, November 15, 2012.
Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and/or other statements, which are other than statements of historical facts.
Please take a moment to read the Safe Harbor statement on Page 2 of the slide presentation. Risks and uncertainties are further described in the report filed by DryShips with the U.S. Securities and Exchange Commission.
And I'll pass the floor to Mr. Nakhleh. Please go ahead, sir.
Thank you. Good morning. For the third quarter -- I'm on Slide 4. For the third quarter of 2012, DryShips posted a U.S. GAAP net loss of $51.3 million or $0.13 per share, which includes class survey cost for the Eirik Raude of $16.8 million, certain noncash non-recurring items totaling $18.3 million relating to the full repayment of Ocean Rig's $1.04 billion DNB-led facility and finally mark-to-market gains on interest rate swaps of $3.7 million.
Our shipping segments continued to be cash-flow negative as a result of drybulk vessels coming off lucrative charters and spot market rates hovering around historic lows. The bright spots for the quarter are positive EBITDA of $141 million and cash provided by operations, mainly fueled by our offshore segment. For the remainder of this presentation, we'll be primarily focusing on our shipping segments' operations. For additional information on our drilling segment, please refer to Ocean Rig's third quarter presentation available on www.oceanrig.com.
Slide 5. Our capital structure as of the end of September, 2012 is satisfactory, as evidenced by a 53% gross debt-to-capitalization and 41% net debt-to-capitalization ratios. Our gearing will be negatively impacted once we execute and draw down on the Ocean Rig's $1.35 billion facility, as well as other financings for our shipping fleet.
We have close to $1 billion of cash on our balance sheet. Of that cash flow, approximately $670 million is being financed at Ocean Rig level our free cash balance, i.e. this is the cash we have access to, as of September 30, 2012, was $131 million. Only a de minimis level of cash is with banks in Greece.
Slide 6. Here, we present our Drybulk newbuilding program, which is more or less unfinanced. All these vessels are being built in China, and thus, we are reaching out to Chinese lenders, including ECAs, policy banks and leasing companies, to secure some level of financing. Progress is slow on this front.
Liquidity is critical for DryShips, and we are working with the shipyards to optimize our newbuilding program. Discussions with the yard include deferral of payments and deliveries, discounts and zealous credit, among other items. These are challenging times, so we expect this process to be tough and drawn out. However, we believe we can reach some kind of solution with the yards.
We caution that we have CapEx due in 2013 amounting to $253 million, most of which is unfinanced.
Slide 7. On this slide, we present our Tanker CapEx, which tankers are all being built at Samsung Heavy Industries in Korea. In October, we signed a loan agreement with ABN AMRO, Korea Development Bank and Korea Trade Insurance Corporation, or KSURE, for a $107.7 million senior secured term loan facility to finance 3 tankers -- Alicante, Mareta and Bordeira. As you can see, our Tanker newbuilding program is nearly fully financed, and this reflects the seriousness of local lenders to finance Korean shipyards. We caution that while only 2 vessels remain unfinanced, their remaining CapEx amounts to approximately $140 million payable in 2013.
Slide 8. This slide details our secured debt profile of the Drybulk and Tanker segments as of September 30, 2012. Our shipping segment has approximately $300 million amortization of secured bank debt through to December 31, 2014. And this does not even include offshore debt.
On top of this, we'll have the maturity of our $700 million convertible bond in December of 2014. The final point is that we want -- the final point we want to make is that we estimate the fair market value of all of our vessels at the end of September to be around $1.1 billion, while the shipping debt, including convertible bond, amount to about approximately $1.7 billion.
On to Slide 9. We continue to perform under all our loan agreements, in that we mean payments of principal and interest, and have no issues with any of our lenders. However, we are in technical breach of VMC clauses in certain loan facilities. As of September 30, 2012, the total of such VMC shortfalls amounted to approximately $96 million. We are in discussion with the affected lenders to remedy such breaches by way of waivers, cash prepayments or cash collateral or finally by pledging Ocean Rig shares.
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