DryShips, Going, Going, Concern (DRYS)

DryShips Inc. (NASDAQ: DRYS) is trading down hard today on a note from the accountants.  The company’s auditors have a “going concern” noted in the annual report on the company’s Ocean Rig ASA unit.  DryShips filed its 2008 Annual Report and the audit opinions of Deloitte, Hadjipavlou, Sofianos and Cambanis regarding the 2008 financial statements of DryShips and the audit opinion of Ernst & Young regarding the 2008 financial statements of its wholly-owned subsidiary, Ocean Rig ASA, were unqualified.  But the opinions include an explanatory “going concern” paragraph  in the statement.

This note is as follows: “The accompanying consolidated financial statements for the year ended December 31, 2008, have been prepared assuming that the Company will continue as a going concern. As discussed… the Company’s inability to comply with financial covenants under its current loan agreements as of December 31, 2008, difficulties in meeting its financing needs, its negative working capital position, and other matters discussed in Note 3 raise substantial doubt about its ability to continue as a going concern…”

DryShip’s CEO said that the “going concern” note is the result of its previously announced reclassification of $1.8 billion of long-term debt as current. Specifically noted was, “With the proactive approach already taken to reduce $2 billion in capital expenditures, the confidence of our three main lenders with whom we are in close ongoing discussions, secured revenues of over $2.4 billion in the next three years from drybulk time charters and offshore drilling contracts and the recent equity infusion of $380 million through the ATM Equity Offering share issuance program, we have repositioned DryShips for the long-term and remain ahead of the curve.”

Traders aren’t biting for any of the explanation.  Shares are down 16% at $4.89 on active trading.  So far this stock  has seen a range of $4.77 to $5.04 today.

JON C. OGG
March 30, 2009