Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2018
Filing Date: March 22, 2019
Business Overview: Owner and operator of six liquefied natural gas (LNG) carriers with an aggregate capacity of approximately 914,000 cubic meters. The fleet is primarily employed on long-term time charters.
Key Financial Metrics
| Metric (in thousands, except per unit) | Q4 2018 | Q4 2017 | Full Year 2018 | Full Year 2017 |
|---|---|---|---|---|
| Voyage Revenues | $31,019 | $34,452 | $127,135 | $138,990 |
| Net Income / (Loss) | $(924) | $5,625 | $3,613 | $17,339 |
| Adjusted Net Income | $1,292 | $7,559 | $16,325 | $33,731 |
| Adjusted EBITDA | $21,587 | $26,919 | $96,094 | $107,545 |
| Distributable Cash Flow | $5,522 | $11,793 | $32,984 | $49,922 |
| Loss / Earnings per Common Unit | $(0.10) | $0.11 | $(0.11) | $0.27 |
| Adjusted Loss / Earnings per Common Unit | $(0.04) | $0.16 | $0.24 | $0.74 |
Liquidity and Debt (as of Dec 31, 2018):
- Free Cash: $109.9 million
- Available Liquidity: $139.9 million (includes $30.0 million unused revolving credit facility)
- Total Indebtedness: $722.8 million (gross of unamortized deferred loan fees)
- Debt Due Within One Year: $254.8 million (includes $250 million unsecured notes maturing Oct 2019)
- Working Capital: Deficit of $159.8 million (due to current classification of 2019 Notes)
Material Changes vs. Prior Period
Revenue Decline: Voyage revenues decreased 10.0% in Q4 2018 compared to Q4 2017. This was driven by:
- Lower charter rates on the Arctic Aurora and Ob River following contract rollovers.
- 16.85 off-hire days for the Lena River due to scheduled dry-docking and special survey.
Profitability Impact: Net loss of $0.9 million in Q4 2018 compared to net income of $5.6 million in Q4 2017. Adjusted EBITDA decreased 19.8% primarily due to lower revenues. Distributable Cash Flow decreased 53.2% to $5.5 million.
Cost Increases: Interest and finance costs rose 10.4% to $13.1 million due to increased U.S. Libor rates affecting the Term Loan B facility. Conversely, vessel operating expenses decreased slightly due to crew cost efficiencies.
Capital Structure: Completed a $55.0 million public offering of Series B Preferred Units in October 2018, netting $53.0 million in proceeds.
Guidance, Outlook, and Risks
Management Commentary: CEO Tony Lauritzen stated earnings were in line with expectations. The fleet maintains a revenue backlog of approximately $1.4 billion with an average contract duration of 10 years. The Lena River is expected to commence a 15-year charter with Yamal LNG in Q3 2019.
Refinancing Focus: The primary focus is refinancing $250 million in unsecured notes due in October 2019. Management is exploring various options but provided no assurance of the outcome.
Distribution Reduction: The quarterly cash distribution for common units was reduced to $0.0625 per unit for Q4 2018, down from $0.25 in prior quarters.
Risks and Contingencies:
- Refinancing Risk: Uncertainty regarding the refinancing of the $250 million notes maturing in October 2019.
- Contract Conditions: Certain time charter contracts with Yamal are subject to conditions that, if not met, could result in cancellation.
- Market Conditions: Exposure to fluctuations in charter rates, vessel values, and interest rates (Libor).
Key Facts for Investor Verification
- Refinancing Status: Verify the progress and terms of the refinancing for the $250 million notes due October 2019.
- Liquidity Coverage: Confirm that the $139.9 million in available liquidity is sufficient to cover the $254.8 million in debt due within one year, considering the working capital deficit.
- Yamal Charter Commencement: Monitor the start date of the 15-year charter for the Lena River with Yamal LNG, expected in Q3 2019.
- Distribution Sustainability: Assess the long-term sustainability of the reduced common unit distribution ($0.0625) given the decline in Distributable Cash Flow.
- Interest Rate Exposure: Evaluate the impact of rising U.S. Libor rates on future interest costs for the variable-rate Term Loan B.