Business context and reporting period
Dynagas LNG Partners LP filed an audited Form 20-F for the fiscal year ended December 31, 2019; this is an annual report, not a standalone fourth-quarter filing. The Marshall Islands partnership owns and operates six LNG carriers, all employed under time charters. Its financial statements are prepared under U.S. GAAP.
Management said it was prioritizing debt repayment and balance-sheet strength rather than fleet expansion, given the high cost of equity capital. As of April 16, 2020, the fleet’s estimated contracted revenue backlog was $1.23 billion, including $0.17 billion of variable hire tied to operating costs; average remaining charter duration was about 8.5 years. These estimates exclude charter extensions and assume full utilization.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Voyage revenue | $130.9 million | $127.1 million |
| Operating income | $59.9 million | $53.0 million |
| Net income | $3.6 million | $3.6 million |
| Net income attributable to common unitholders | Loss of $7.9 million | Loss of $4.0 million |
| Loss per common unit | $0.22 | $0.11 |
| Adjusted EBITDA (non-GAAP) | $90.4 million | $96.1 million |
| Operating cash flow | $43.2 million | $43.0 million |
| Cash and restricted cash at year-end | $66.2 million | $109.9 million |
| Gross long-term debt | $663.0 million | $722.8 million |
Revenue rose 3.0%; operating margin was approximately 45.8%, while net margin was approximately 2.8%. Adjusted EBITDA declined about 6.0%. The fleet’s TCE rate increased to $58,535 per day from $57,972, while utilization decreased to 98.5% from 100%.
Vessel operating expenses increased 13.6% to $28.4 million, and daily operating expense rose to $12,946 from $11,435. Dry-docking and special survey costs were nil in 2019, compared with $7.4 million in 2018. Interest and finance costs increased 16.0% to $58.6 million. Net cash used in financing was $86.9 million; investing cash flow was nil.
At December 31, 2019, current assets were $18.2 million and current liabilities were $64.6 million, a working-capital deficit of $46.5 million. Of $66.2 million in cash and restricted cash, $50.0 million was restricted under the credit facility, leaving $16.2 million in cash and cash equivalents.
Material changes versus the prior comparable period
- Revenue increased, but management said cash revenue excluding non-cash items decreased $1.8 million. Lower charter revenue from the Ob River and Arctic Aurora and the Lena River’s positioning period were partly offset by charter contributions from the Clean Energy and Yenisei River.
- Operating income improved despite higher vessel operating, general and administrative, and management costs. The absence of 2018 dry-docking costs was a significant year-over-year benefit.
- Net income remained $3.6 million, as higher operating income was largely offset by higher interest and finance costs. The 2019 costs included $7.5 million in write-off of deferred financing fees following refinancing.
- The Partnership refinanced its Term Loan B and 2019 Notes with a five-year, $675 million senior secured facility. Debt declined by $59.8 million year over year, and the 2019 Notes were repaid at maturity.
- Common-unit distributions were reduced to $0.0625 per unit for each of the first two 2019 payments, then suspended under the new facility. The facility prohibits common distributions while borrowings remain outstanding. Preferred distributions continued, subject to no event of default.
Outlook, risks, contingencies and unusual items
- Debt and liquidity: The $675 million facility bears interest at LIBOR plus 3.00%, requires at least $50 million in a restricted collateral account, and has financial covenants. Scheduled principal payments are $48 million annually for 2020–2023, followed by a $471 million balloon in 2024. The Partnership reported compliance with covenants at year-end and said expected resources should meet obligations for at least the next 12 months. Its prior going-concern doubt, linked to the 2019 Notes maturity, was resolved following the refinancing.
- Interest-rate exposure: All $663 million of debt was exposed to floating rates, with no interest-rate swaps in place. A 1 percentage-point increase in LIBOR was estimated to reduce 2019 net income by about $5.3 million. The filing also highlights LIBOR transition risk.
- Charterer concentration: 2019 revenue came from four charterers: Gazprom 47%, Yamal 31%, Equinor 16%, and another major energy company 6%. Charter termination, nonpayment, sanctions, or force majeure could materially affect cash flow.
- COVID-19 and market conditions: The filing said there had been no significant operational impact on the Partnership as of the report date, but the financial and operating effect could not be estimated. Management cited uncertain LNG demand, commodity-market volatility, operating disruption, and tighter financing access as risks; no quantified forecast was provided.
- Regulatory and maintenance costs: The filing identifies ballast-water treatment and emissions rules as potential costs. It states that all six vessels did not yet comply with updated ballast-water guidelines, and that future dry-dockings may be longer and costlier due to ballast-water system installation. No vessel was scheduled for dry-docking in 2020.
- Asset valuation and accounting estimate: Two vessels were tested for impairment because third-party valuations were below carrying values; no impairment was recorded. The Partnership reduced its estimated vessel scrap rate, lowering 2019 net income by $0.3 million and increasing loss per common unit by $0.01; the estimate change adds approximately $1.4 million to annual depreciation going forward.
- Litigation: A putative securities class action, amended in September 2019, alleges misleading statements about charter agreements and the sustainability of distributions, among other claims. A motion to dismiss was fully briefed but undecided at the filing date; damages sought were unspecified. Management said it intended to defend the case.
- Related parties: The Manager is owned by the Partnership’s Chairman. The Partnership incurred about $8.2 million for fleet management in 2019, plus executive and administrative service fees. The Sponsor owned approximately 44% of common units; the credit facility requires it to retain at least 30%.
Most important facts for investors to verify
- Whether the Partnership continues to meet the $50 million restricted-cash requirement and other credit covenants, and how it plans to fund the 2024 balloon payment.
- Whether operating cash flow can cover debt service, preferred distributions, and vessel maintenance while common distributions remain prohibited.
- Charter performance, renewal and termination terms, counterparty credit quality, and the accuracy and collectability of the $1.23 billion backlog, particularly its variable-hire component.
- Actual costs and timing for ballast-water treatment and other environmental compliance work, including future dry-dockings.
- Developments in the securities class action, LIBOR transition, COVID-19 impacts, and any changes to vessel valuations or impairment assessments.