Dynagas LNG Partners LP — 2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. The financial statements are prepared under U.S. GAAP and were audited by Ernst & Young, which issued an unqualified opinion. Management reported effective disclosure controls and internal control over financial reporting.
Business context
The Partnership owns and operates six LNG carriers, all employed under multi-year time charters. Its principal charterers are SEFE, Yamal and Equinor. Management says capital allocation is focused on debt repayment and balance-sheet strength; future growth depends on access to financing on acceptable terms.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Voyage revenue | $131.7 million | $137.7 million |
| Operating income | $45.3 million | $64.6 million |
| Net income | $54.0 million | $53.3 million |
| Net income per common unit | $1.15 | $1.14 |
| Net cash from operating activities | $57.3 million | $79.6 million |
| Net cash used in investing activities | $3.6 million | None |
| Net cash used in financing activities | $70.8 million | $57.6 million |
| Adjusted EBITDA | $89.5 million | $97.0 million |
| Time charter equivalent rate | $61,660 per day | $61,684 per day |
| Fleet utilization | 100% | 100% |
Revenue declined 4.4%, primarily because scheduled dry-dockings reduced revenue-earning days and variable hire from the two Yamal vessels was lower. Operating income fell as revenue declined and the Partnership incurred $12.8 million of dry-docking and special-survey costs; those costs were zero in 2021. Operating expenses were broadly stable, while interest and finance costs rose 30.4% to $27.9 million as average borrowing rates increased. Net income included a $33.7 million non-cash fair-value gain on the interest-rate swap and a $2.1 million debt-extinguishment gain, so reported net income exceeded operating income.
At year-end, total assets were $947.7 million, including vessels, net, of $825.1 million. Gross long-term debt was $499.9 million, down from $567.0 million. Cash and cash equivalents were $48.6 million; restricted cash was $31.3 million, for total cash and restricted cash of $79.9 million. Working capital was positive $4.0 million, versus a $13.8 million deficit in 2021. The company reported compliance with its debt covenants at December 31, 2022.
Distributions, debt and liquidity
- No common-unit distributions were paid in 2022; the credit facility prohibits common distributions while borrowings remain outstanding. The Partnership paid $11.6 million in preferred-unit distributions during the year. Preferred distributions are also subject to restrictions if a facility default occurs.
- The $675 million senior secured facility bears interest at U.S. LIBOR plus 3.00%, is secured by the six vessels and matures in September 2024. Scheduled principal payments shown at year-end were $48.0 million in 2023 and $451.9 million in 2024, including the large maturity payment.
- A swap fixed the facility’s three-month LIBOR component at 0.41% on notional amounts tracking the debt amortization schedule through maturity. It does not qualify for hedge accounting, so fair-value movements affect earnings.
- After year-end, on March 27, 2023, the Partnership prepaid $31.3 million from the cash collateral account, reducing the facility’s balloon payment and eliminating the requirement to maintain that amount in the account. This subsequent transaction is not reflected in the December 31, 2022 balance sheet.
- The interest-free $30 million revolving facility from the Sponsor remained undrawn and was scheduled to expire November 14, 2023.
Outlook, commentary and key risks
- As of April 21, 2023, estimated contracted revenue backlog was approximately $1.0 billion, including $0.13 billion of variable hire tied to Yamal operating costs. The estimate assumes full utilization, excludes charter extension options and may vary with off-hire, actual operating costs, cancellations or early termination.
- Average remaining charter duration was approximately 6.3 years. In December 2022, the Partnership agreed a new three-year charter for Arctic Aurora with Equinor, expected to begin in September 2023 immediately after its existing charter.
- Charterer concentration is substantial: SEFE represented 43% of 2022 revenue, Yamal 41% and Equinor 16%. Yamal-related sanctions, counterparty performance or disruption to Russian LNG trades could affect a material portion of revenue. The filing said sanctions in force at the report date had not expressly prohibited the Partnership’s LNG shipping or adversely affected its charters.
- The $451.9 million of debt scheduled for 2024 makes refinancing or repayment a material liquidity issue. The filing warns that refinancing may not be available on acceptable terms; covenant breaches could restrict preferred distributions and expose vessels to enforcement.
- Three steam-turbine vessels completed dry-docking and ballast-water treatment system installation in 2022. The remaining three vessels were scheduled for dry-docking and installation in 2023, creating cost and off-hire exposure.
- Management stated that available funding and expected operating cash flow should cover fleet operations, working capital, debt service and required preferred distributions for at least the next twelve months. This is a forward-looking assessment, not a guarantee.
- Other material risks include interest-rate and LIBOR-to-SOFR transition uncertainty, vessel values and charter rates, operating and maintenance costs, environmental regulation and emissions-related capital needs, and reliance on an affiliated Manager. Management reported no material adverse financial impact from COVID-19 as of year-end.
Most important facts for investors to verify
- Whether the Partnership can refinance or repay the large 2024 facility maturity, and the resulting impact on liquidity and distributions.
- Current covenant compliance, available unrestricted cash, and the treatment and release of restricted cash after the March 2023 prepayment.
- Whether all three scheduled 2023 dry-dockings and ballast-water system installations were completed on time and within budget.
- Current status of Yamal charters, sanctions exposure and the charterers’ ability to perform; also verify the concentration of revenue by customer.
- The assumptions behind the $1.0 billion backlog, particularly variable Yamal hire, utilization, options and the effect of potential off-hire or termination.
- The sustainability and terms of preferred distributions, and confirmation that common distributions remain barred while facility borrowings are outstanding.
- The effect of the swap’s non-cash fair-value gains on reported earnings versus operating cash generation.