Why DryShips Stock Jumped 39% Out of the Gate Monday

By Markets Fool.com


DryShips struck its iceberg last week. Can it get unstuck? Image source: Getty Images.

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What happened

DryShips (NASDAQ: DRYS) stock had an "iceberg moment" last week. After soaring more than 1,500% in a matter of a few days, trading in the stock was suspended, then reopened -- and the stock sank 85% in a day. Today, DryShips made a valiant attempt to get its stock unstuck from the ice, jumping 39% out of the gate in early Monday trading.

The escape attempt failed. As of 11:15 a.m. EST, DryShips stock had given up all its gains, and even shifted into reverse. The stock is now down 11.3%.

So what

DryShips announced Monday morning that it has convinced one of its lenders to write off 50% of the company's outstanding indebtedness, and to accept $10.2 million in payments over the course of the next nine months as "full and final settlement of all of its obligations" to the lender.

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That sounds like great news, and is presumably the reason investors rushed to buy back into DryShips Monday morning. But here's the thing: A 50% writedown in debt obligations would have meant a lot more to DryShips back when it was carrying $4.8 billion in long-term debt (say, seven quarters ago). But according to data from S&P Global Market Intelligence, DryShips only has $200 million in "current portion of long-term debt" currently on its books.

On the one hand, a 50% haircut on its obligations isn't as big a deal today as it once might have been. At the same time, paying $10 million to satisfy $20 million worth of debt, on a $200 million debt load, still only cuts DryShips' remaining obligations by 10%.

Now what

Either way you look at it, this news just isn't a very big deal. DryShips may have less debt now than it did on Friday, but the company is still losing money at the rate of nearly $650 million a year. Debt or no debt, DryShips' days look numbered.

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