Business Context and Reporting Period
Company: Diana Shipping Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: December 2006 (Filing Date: December 13, 2006)
Subject: Disclosure of a Facility Agreement dated November 6, 2006, entered into by wholly-owned subsidiaries Bikini Shipping Company Inc. and Eniwetok Shipping Company Inc. with Fortis Bank.
Key Financial Metrics and Facility Terms
The filing details a new financing facility rather than historical operating results. Key financial terms include:
- Loan Facility: Up to US$60,200,000 to be drawn in eight advances to finance ship construction.
- Guarantee Facility: Up to US$36,451,100 to issue bank guarantees for the 2nd, 3rd, and 4th installments of shipbuilding contracts.
- Interest Rate: LIBOR plus a margin ranging from 0.65% to 0.85% per annum, dependent on the Group's Leverage Ratio.
- Fees: Arrangement fee of US$60,204; commitment commission of 0.10% per annum on undrawn amounts; guarantee commission equal to the applicable margin.
- Repayment Date: December 31, 2010, or upon delivery of the vessels, whichever is earlier.
- Financial Covenants (Corporate Guarantee):
- Liquidity: Minimum US$400,000 in liquid funds per fleet vessel.
- Net Worth: Minimum US$150,000,000 and must exceed 25% of Total Assets.
Material Changes and Asset Acquisition
The filing discloses the execution of agreements to acquire two new vessels, representing a material expansion of the company's fleet:
- Vessel 1 (Bikini Ship): 177,000 dwt bulk carrier (Hull No. H1107). Contract Price: US$60,200,000.
- Vessel 2 (Eniwetok Ship): 177,000 dwt bulk carrier (Hull No. H1108). Contract Price: US$60,200,000.
- Builders: China Shipbuilding Trading Company, Limited and Shanghai Waigaogiao Shipbuilding Co., Ltd.
- Security: The facility is secured by a pre-delivery security assignment of the shipbuilding contracts and refund guarantees, a corporate guarantee from Diana Shipping Inc., and a pledge over a Cash Collateral Account.
Outlook, Risks, and Contingencies
Management Commentary & Outlook: The filing indicates a strategic move to expand the fleet with two new bulk carriers, financed through a dedicated loan facility. The company has secured refund guarantees from the Export-Import Bank of China to mitigate construction risks.
Risks and Contingencies:
- Construction Risk: The loan is contingent on construction milestones (steel cutting, keel-laying, launching). Failure to meet these milestones could trigger default.
- Refund Guarantee Risk: The facility relies on the validity of refund guarantees issued by the Export-Import Bank of China. Any repudiation or cancellation of these guarantees constitutes an Event of Default.
- Financial Covenant Risk: The company must maintain strict Net Worth and Liquidity ratios. Breach of these covenants allows the bank to increase the interest margin or declare an Event of Default.
- Ownership Restrictions: The agreement restricts changes in beneficial ownership; less than 20% ownership by the two disclosed families would trigger a default.
Investor Verification Checklist
- Verify the current construction status of Hull Nos. H1107 and H1108 against the milestones required for loan drawdowns.
- Confirm the validity and registration of the Refund Guarantees with the State Administration for Foreign Exchange (SAFE) in China.
- Review the most recent audited financial statements to ensure compliance with the US$150 million Net Worth and liquidity covenants.
- Monitor the Leverage Ratio to determine if the interest margin will remain at the base 0.65% or increase to 0.75%/0.85%.
- Check for any material adverse changes in the business or financial condition of the Group since the semi-annual statements for the period ended June 30, 2006.