Business Context and Reporting Period
Company: Dynagas LNG Partners LP (Dynagas)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2014 (Unaudited)
Business Overview: Dynagas is a growth-oriented limited partnership owning and operating liquefied natural gas (LNG) carriers. As of November 24, 2014, the fleet consisted of five LNG carriers with an average age of 4.9 years. The vessels are employed on multi-year time charters with major energy companies including BG Group, Gazprom, and Statoil. The Partnership completed its IPO in November 2013 and a follow-on offering in June 2014.
Key Financial Metrics
| Metric (in thousands, except per unit) | Nine Months Ended Sept 30, 2014 | Nine Months Ended Sept 30, 2013 |
|---|---|---|
| Voyage Revenues | $70,713 | $64,002 |
| Operating Income | $42,450 | $41,392 |
| Net Income | $35,241 | $34,606 |
| Adjusted EBITDA | $56,054 | $47,220 |
| Net Cash from Operating Activities | $55,836 | $36,394 |
| Net Cash Used in Investing Activities | $(404,448) | $- |
| Net Cash from Financing Activities | $353,995 | $(25,732) |
| Total Debt (Long-term + Current) | $580,000 | $214,085 |
| Cash and Cash Equivalents | $11,060 | $5,677 |
| Available Liquidity (Cash + Sponsor Facility) | $65,100 | N/A |
| Earnings Per Unit (Common) | $1.14 | $1.59 |
| Cash Distributions Per Unit | $1.12 | $- |
Material Changes vs. Prior Period
- Fleet Expansion: The fleet grew from 3 vessels to 5 vessels following the acquisition of the Arctic Aurora (June 2014) and Yenisei River (September 2014) from the Sponsor for an aggregate consideration of $492.5 million.
- Revenue Growth: Voyage revenues increased 10.5% to $70.7 million, driven by the partial operation of the two newly acquired vessels and higher cash-basis revenues on the Clean Force.
- Expense Increases:
- Vessel operating expenses rose to $11.2 million (from $9.1 million) due to the larger fleet.
- General and administrative expenses increased significantly to $1.4 million (from $0.1 million) due to costs associated with being a public company.
- Depreciation increased 15.4% to $11.7 million due to fleet expansion.
- Debt Structure: Total debt increased to $580.0 million. The Partnership refinanced its previous credit facility with a new $340.0 million Senior Secured Revolving Credit Facility and issued $250.0 million in Senior Unsecured Notes due 2019.
- Capital Raising: Completed a follow-on public offering of 5.52 million common units in June 2014, raising net proceeds of approximately $120.5 million.
Guidance, Outlook, and Risks
Outlook and Management Commentary:
- Revenue Backlog: As of November 24, 2014, the contracted revenue backlog was approximately $705.2 million with an average remaining contract duration of 5.3 years.
- Distributions: The Board approved an increase in the quarterly cash distribution to $0.39 per unit (effective Q3 2014), a 6.8% increase over the minimum quarterly distribution of $0.365.
- Capital Expenditures: Estimated annual maintenance and replacement capital expenditures are $14.4 million ($3.4 million for drydocking and $10.9 million for vessel replacement).
- Future Acquisitions: The Partnership retains the right to purchase up to five additional "Optional Vessels" from the Sponsor within 24 months of their delivery.
Risks and Contingencies:
- Charter Counterparty Risk: Revenue is dependent on the performance of charterers (BG Group, Gazprom, Statoil). Early termination or renegotiation could materially affect results.
- Market Conditions: Exposure to fluctuations in charter rates upon contract expiration, global economic slowdowns, and LNG market trends.
- Debt Covenants: The Partnership must maintain specific financial ratios (e.g., interest coverage ratio of at least 3.0x, minimum liquidity of $24.0 million) under its credit facilities. Failure to comply could restrict distributions.
- Operational Risks: Potential for off-hire days due to maintenance, dry-docking, or accidents, which reduce revenue.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the 3.0x interest coverage ratio and $24.0 million minimum liquidity requirement under the 2014 Credit Facility.
- Charter Expirations: Review the specific expiration dates for the Clean Energy (April 2017) and Ob River (September 2017) to assess re-chartering risks.
- Related Party Transactions: Confirm the terms of the Omnibus Agreement regarding the purchase of remaining Optional Vessels and the valuation methodology used for the recent acquisitions.
- Counterparty Concentration: Note that two charterers (BG Group and Gazprom) accounted for 89% of revenues in the nine months ended September 30, 2014.
- Capital Needs: Assess the sufficiency of operating cash flows to fund the $14.4 million annual estimated maintenance and replacement capital expenditures alongside debt service.