DryShips Said to Sweeten $700 Million Bond Offering

DryShips Inc. is seeking to sweeten terms of a $700 million bond offering after running into resistance from investors, according to two people with knowledge of the transaction.

Investors looking at the deal, which would refinance debt maturing in December, asked the Athens-based dry-bulk carrier to offer a 12 percent yield for the notes after the value of collateral backing the securities fell, said the people, who asked not to be named because the marketing process is private.

Yields on junk bonds are rising this week, even as those on higher-rated debt decline. The yield on the Bank of America Merrill Lynch US High Yield Index rose to 6.43 percent yesterday from 6.35 percent at the end of last week, while investment-grade issues fell to 3.03 percent from 3.14.

Junk, or high-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and BBB- at Standard & Poor’s. DryShips, which isn’t rated by either company, is ranked four levels below investment grade by the Bloomberg Default Risk function, indicating a 2.5 percent risk of default over the coming year.

The proposed bonds are to be secured by a lien on the common stock of the DryShips unit Ocean Rig UDW Inc., according to marketing material for the debt sale filed Oct. 1 with the U.S. Securities and Exchange Commission. Ocean Rig shares have plunged 17 percent since that date to $12.86, according to data compiled by Bloomberg.

Paul Lampoutis, a spokesman for DryShips at Capital Link, didn’t immediately return a call and e-mail seeking comment. Todd Decker, a spokesman for Sterne Agee & Leach Inc., the underwriter of the bond deal, didn’t return a telephone call and e-mail seeking comment.

DryShips $700 million of 5 percent convertible notes due in December were quoted at 98 cents on the dollar yesterday, Bloomberg data show. The conversion price on the securities is $6.90. DryShips’s shares have fallen 59 percent this year to $1.91.
Source: DryShips Inc.