What a difference four years has made for Diana Shipping in its relations with key lenders.
For much of the last market trough in 2016, Diana was locked in what some termed “a game of chicken” with the banks as it tried to work out refinancing terms, well after other public owners had successfully restructured their debt.
While the market ultimately went Diana’s way and allowed an amicable resolve, there were some awkward moments.
Seamless and painless
Contrast that with this week, when Diana announced refinancings and amendments with lenders that appear to have seamlessly — and relatively painlessly — pushed out loan maturities and principal payments in the current slack coronavirus-hit market.
The smooth cooperation has raised a question with equity analysts: is it reflective of how lenders will deal with liquidity issues of dry bulk owners in this go around, or more a one-off related to Diana’s relatively strong balance sheet?
The answer was not exactly clear in Diana’s earnings call this week. But it might have leaned to the latter.
“We have done a very good job here because we didn't decrease our cash position,” Diana chief strategy officer Ioannis Zafirakis said. “We have [been able] to improve these positions materially without spending any money.”
The New York-listed owner of 41 bulkers pushed back the maturity on two ABN Amro loans due in March next year with a new $52.9m loan from the bank that will mature in June 2024.
The Greek company also extended the maturity on a loan facility with BNP Paribas by 2.5 years to May 2024.
Extended maturities
By extending the maturities, Diana was able to reduce loan payments that would have been due next year by about $90m.
The owner now has about $40m of amortisation due in the rest of this year and $57m in 2021, against a cash position of $102m at 30 June.
“That was good work, in three months' time,” offered Clarksons Platou analyst Omar Nokta in a comment to Zafirakis.
The revamp also drew the attention of Stifel analyst Ben Nolan, who said in a client note that even at Diana’s low $4.4m of operating cash flow last quarter, “the company has 10 quarters of liquidity”.
Nolan also praised the accomplishment on the call, before asking, “the market in general, has there been any change in the way that banks are approaching or making capital available or refinancing available given kind of the uncertainty that we see?”
Zafirakis did not especially encourage the notion.
“I can say that the banks that we talked to, I have seen no change in the way they're looking at things,” he said.
Surprise approach
“And they were, I would say, surprised when we approached them in order to implement our strategy as regards their refinancing. Their first reaction is, ‘but why do you want to do that? Are you prepared to pay 50 basis points more in order to do that?’ They didn't understand.”
A source close to the bank dealings told TradeWinds that Diana is indeed paying a slightly higher margin and a commitment fee or transaction fee for the new lendings, as would be customary.
However, fees would have been paid for a new loan in any case, so that is seen as a wash item.
"The amounts paid overall are nothing fantastic — it's $500,000 or even less," the source said.
Amortisation schedules remain the same, he added.
The interest rate was not addressed in the earnings release. So it was left in question, as was the broader issue of bank attitudes in Covid-19 times.
“I’m not surprised that Diana didn’t have much trouble with their lenders, but they are likely one of the better positioned dry bulk companies from a liquidity and leverage perspective,” Nolan said in reply to a query from TradeWinds.
“I was really trying to see if there was a read through for the rest of the industry. At least from [Zafirakis’] answers there is not. I guess that is not terribly surprising, as banks may have lived through worse. But there is no guarantee that the worst is behind us or that it couldn’t stay bad for a protracted period of time.”
“So I guess on both points there was no definitive revelation,” he said.
