market folly

At the Value Investing Congress today, Vladimir Jelisavcic of hedge fund Longacre Fund Management gave a presentation entitled "DryShips Convertible Bonds: Dislocation & Deep Value Opportunity".

Be sure to check out all of our notes from the Value Investing Congress.


Vladimir Jelisavcic (Longacre Fund): DryShips (DRYS) Convertible Bonds

Embedded below is his full slideshow presentation:



He gave a presentation on the distressed debt of DryShips (DRYS), saying that the company's drillships are valuable unique vessels and that capital expenditure in deepwater drilling continues to grow.

Dryships: originally a dry bulk vessel company, owns 46 dry bulk ships, 12 tankers, and 9 ultra deep-water rigs (not all completed). The rigs are the driver of the business, as dry bulk shipping business declines. Tight market for the newest ultra-deep drill ships. Booked for next 2 years.

Key point of thesis is demand is high and supply tight for these rigs, and DRYS owns several. Says day rates are expected to rise, which has led some owners to hold off their supply to wait for better deals. $15/share price x 130M is $2B mkt cap, gets to $5B EV. So about $637M value per drilling units, a discount to recent $800M-1B per unit private market value based on recent transactions.

Convertibles also attractive, he didn’t put too much time into the numbers. Showed the converts chart- collapsing. He figures they have 166% asset coverage. He believes that DRYS 5% convertibles are a good investment.

The dry bulk shipping sector has been beatdown lately, but Jelisavcic argues there's fundamental value there. He also pointed out that DRYS owns 75% of Ocean Rig (ORIG). ORIG has a market capitalization of $2 billion and DRYS has a market cap of $1 billion.


Q&A Session:

What happened to corporate bond market? He says hedge funds own 15% of the securities, compared to only 3% of stocks, and they sell out very quickly.


About Vladimir Jelisavcic: He co-founded Longacre Fund Management in 1998 with John Brecker and Steven Weissman. They were previously members of the high-yield group at Bear Stearns. It's worth noting that Longacre recently announced they'd be winding down some of their funds by the end of the year, though they will still manage certain products.


You can view our notes from the Value Investing Congress for the rest of the hedge fund manager presentations.