Genco Shipping & Trading Limited — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. Genco operates drybulk vessels worldwide; reported consolidated results include Baltic Trading, which Genco controls through voting power despite holding a 13.97% economic interest at quarter-end. Unless stated otherwise, amounts below are U.S. dollars.
Financial performance
- Q3 revenue: $59.4 million, up 9.2% year over year. Voyage revenue rose 9.3% to $58.6 million.
- Q3 results: Operating loss was $13.4 million versus $20.2 million; net loss was $37.0 million versus $42.0 million. Loss attributable to Genco was $35.0 million, or $0.81 per share, versus $38.4 million, or $0.90 per share.
- Nine-month revenue and results: Revenue was $145.7 million, down 17.8%. Operating loss increased to $70.9 million from $43.1 million; net loss increased to $137.9 million from $108.9 million. Loss attributable to Genco was $128.6 million, or $2.98 per share, versus $99.3 million, or $2.40 per share.
- Operating indicators: Fleet-average time charter equivalent (TCE) was $9,882 per day in Q3, up 8.4%; for the first nine months it was $8,141 per day, down 20.3%. Fleet utilization was 99.3% in Q3 and 99.4% year to date. Nine-month non-GAAP EBITDA was $42.6 million, down from $70.4 million.
- Interest and cash flow: Interest expense was $23.1 million in Q3 and $65.9 million for nine months. Nine-month operating cash flow was negative $24.6 million; investing cash flow was negative $41.5 million; financing cash flow was positive $103.0 million. Cash and cash equivalents ended at $109.5 million, compared with $72.6 million at year-end 2012.
Financial position and material changes
- At September 30, total assets were $2.84 billion and total equity was $1.23 billion. Current assets were $152.5 million against current liabilities of $1.48 billion, reflecting a substantial working-capital deficit.
- Debt under credit facilities totaled $1.436 billion; the 5.00% convertible notes had $125.0 million principal and a $114.6 million carrying value. Most credit-facility debt and the notes were classified as current because management considered future covenant noncompliance probable. This accounting classification does not itself constitute a waiver or default.
- Unrestricted cash was $109.5 million; restricted cash totaled $10.15 million. Genco’s principal facilities require a $39.8 million minimum cash balance, excluding Baltic Trading cash. The filing states that the minimum-cash covenant had not been waived.
- Interest-rate swaps had $306.2 million aggregate notional and a $9.3 million liability at quarter-end, down from $16.1 million at December 31, 2012. A 1% increase in LIBOR was estimated to increase nine-month interest expense by $8.4 million, based on unhedged debt.
- Baltic Trading raised net proceeds of approximately $21.6 million in May and $59.5 million in September through equity offerings. It also acquired two Handysize vessels for $41.0 million, funded partly with offering proceeds and $22.0 million of new debt.
Management outlook, risks, and unusual items
- Management said it was probable the company would be unable to make required credit-facility payments beginning in the quarter ending March 31, 2014 without amendments or waivers. It also expected probable noncompliance with leverage and interest-coverage covenants when waivers expire, and possible noncompliance with minimum-cash requirements at or after that date.
- The next scheduled amortization payments under the principal Genco facilities were $55.2 million in Q1 2014. The company was in lender discussions and might seek waivers, refinancing, new debt or equity, asset sales, reduced or delayed capital expenditure, or restructuring; there was no assurance these actions would be available or successful. A default could make some or all debt immediately due and could trigger defaults under the notes or swaps.
- After quarter-end, Baltic Trading agreed to buy two Capesize vessels for $103.0 million, expected to be delivered in Q4 2013. Financing was not secured as of the filing; Baltic Trading was negotiating commercial bank financing. Failure to perform could lead to forfeited deposits or additional damages.
- Management attributed Q3 improvement mainly to stronger Capesize and Panamax rates, the two new Handysize vessels, and fewer planned drydockings. Year-to-date deterioration reflected weaker charter rates across most vessel classes. Management cited continued excess vessel supply, while noting improved cargo demand and slower fleet growth. No formal earnings guidance was provided.
- Minimum contracted time-charter revenue as of November 1 was $9.7 million for the remainder of 2013 and $7.1 million for 2014; these figures exclude pool and spot-market-related employment where rates could not be estimated.
- Genco suspended its dividends and share repurchases under facility restrictions. Baltic Trading declared a subsequent $0.02-per-share dividend, expected to total about $0.9 million.
Important facts for investors to verify
- Whether Genco obtains timely lender waivers or amendments, and the terms, conditions, and duration of any relief.
- Cash available for Genco’s debt service, compliance with the unwaived minimum-cash covenant, and the ability to meet the $55.2 million Q1 2014 amortization.
- Whether Baltic Trading secures financing and closes the $103.0 million Capesize vessel purchases, and how the acquisitions affect consolidated leverage and liquidity.
- Drybulk rates, vessel appraisals and collateral-covenant headroom; the filing notes that collateral values were substantially below vessel carrying values.
- Charter renewals and realized TCE rates, particularly as many Genco charters were scheduled to expire between November 2013 and November 2015.