Should DryShips Be a Trump Stock or Something Else Entirely?

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It is no secret that many stocks and many sectors have risen sharply after the surprising victory of Donald Trump to be the next president of the United States. Many others have fallen as they would have been deemed larger victors under a Hillary Clinton presidency.

It seems odd that a questionable company like DryShips Inc. (NASDAQ: DRYS) would be up so much in the past week, and it seems even more odd that some investors would consider it a Trump stock. After a trading halt, we even have word of a securities sale now, and there may be more things at work here than can easily be explained.

When you get crazy and zany moves, sometimes stocks get halted by the exchange they are listed on. That’s what happened with DryShips. Nasdaq announced on Wednesday that trading in DryShips was halted for “additional information requested” from the company at a last price of $73.00. Most halts are under the “news pending” category, but a request for information halt can last for quite some time. It turns out that exchanges do not like to see their trading clients get caught up in situations that have exponential moves on questionable reasoning. The Nasdaq announcement even said:

Trading will remain halted until DryShips Inc. has fully satisfied Nasdaq’s request for additional information.

A week ago, DryShips reported its quarterly financial results. It generated a $5.2 million loss in the third quarter, which was a loss of $7.70 per share. The Greek company had revenue of $12.1 million in the quarter. DryShips also had negative Adjusted EBITDA of $7.9 million for the period. Nothing sounds great there.

On November 1, 2016, there was also a one-for-15 reverse split. That action sent shares from $0.31 magically up to $4.65. Short sellers often sell ahead of, into and after reverse stock splits. This stock did not close above $4.65 until closing at $5.10 on November 9, then shares went on a tear to close at $11.90, then $13.60, then $42.86 and ultimately at $73.00 on November 15, before being halted on November 16.

The company said last week that it is was in active discussions with its lenders in an effort to restructure its bank facilities. What stood out here was that DryShips said that three of these bank facilities have matured and that it has not made the final balloon installment. DryShips even said that the company elected to suspend principal and interest payments due under the remaining bank facilities to preserve cash liquidity.

Some investors may be considering that the Baltic Dry Index has risen. DryShips even publishes the levels of the Baltic Dry Index. Bloomberg shows in its Baltic Dry chart that the index has risen from 798.00 on October 27 to 870 on November 7 — and that was 1,065 on November 14 and was seen at 1,145 on November 16.

Now the company has issued new information that may keep its books clean while diluting holders. DryShips announced on Thursday morning that it has entered into a securities purchase agreement with Kalani Investments for the sale of $20 million in new securities, which could grow to $100 million in total if preferred warrants get exercised in full.

DryShips said that Kalani is an entity organized in the British Virgin Islands and that it is not affiliated with the company. What is being sold is as follows:

  • 20,000 newly designated Series E-1 Convertible Preferred Shares
  • Preferred warrants to purchase 30,000 Series E-1 Convertible Preferred Shares
  • Preferred warrants to purchase 50,000 newly designated Series E-2 Convertible Preferred Shares,
  • Prepaid warrants to initially purchase an aggregate of 372,874 common shares (with the number of common shares issuable subject to adjustment as described therein), and 100 common shares

Kalani is entitled to receive 10,000 common shares but is electing to receive 100 common shares, and the prepaid warrant will be immediately exercisable for 9,900 common shares.

DryShips said:

The gross proceeds from the sale of the securities will be approximately $20 million. The Company may further receive up to an aggregate of $80 million if all of the preferred warrants are exercised, for total proceeds of $100 million. The Company intends to use the net proceeds from the sale of the offered securities for general corporate purposes and/or to repay indebtedness under one or more of our existing credit facilities and/or to repay indebtedness incurred under the Revolving Facility with Sifnos Shareholders Inc., an entity controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, although the Company has no present agreements to do so.

As it stood on Thursday morning (November 17), DryShips was set to reopen for trading at 10:30 a.m. Eastern Time.