Genco Shipping & Trading Limited — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing was signed April 7, 2014 and includes material subsequent events through that date. Genco owns and operates drybulk carriers transporting commodities worldwide; results consolidate Baltic Trading, in which Genco held 65.08% of voting power at year-end. Genco’s fleet comprised 53 vessels; Baltic Trading operated 13 vessels at year-end and had contracted for four additional Ultramax newbuildings.
Financial performance and position
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $227.5 million | $226.5 million |
| Operating loss | $66.9 million | $69.3 million |
| Net loss, consolidated | $157.0 million | $157.8 million |
| Net loss attributable to Genco | $147.7 million | $144.9 million |
| EBITDA (non-GAAP) | $83.0 million | $82.5 million |
| Net cash used in operating activities | $3.1 million | $18.8 million |
| Cash and cash equivalents, year-end | $122.7 million | $72.6 million |
| Total debt, year-end | $1,595.9 million | $1,524.4 million |
All figures are consolidated and in U.S. dollars. Year-end restricted cash was an additional $10.2 million. Separately, management reported $74.7 million of cash and cash equivalents, including restricted cash, excluding Baltic Trading and its subsidiaries. The filing does not provide a single unrestricted-cash figure for the consolidated group in this discussion.
Current assets were $165.9 million against current liabilities of $1,481.6 million, a working-capital deficit of approximately $1.316 billion. The large current-liability balance reflects debt and convertible notes classified as current because of anticipated covenant noncompliance and default risks. Interest expense was $88.2 million; the effective rate on debt facilities, including swaps and fees, was 4.70%. No dividends were declared by Genco.
Operating cash flow remained negative. Investing cash outflow was $146.6 million, primarily for vessel purchases and deposits; financing provided $199.8 million, chiefly from Baltic Trading equity offerings and new vessel loans. Consequently, the year-end cash increase was driven by financing, not positive operating cash generation.
Changes versus prior periods
- 2013 revenue increased 0.4% from 2012: higher Baltic Trading revenue, including vessel additions and stronger Capesize spot earnings, largely offset lower rates at Genco.
- Fleet-average time charter equivalent (TCE) declined 1.7% to $9,539 per day; fleet utilization was essentially stable at 99.3%. Average daily vessel operating expense fell 3.2% to $4,875.
- Genco’s attributable net loss widened to $147.7 million from $144.9 million, although consolidated net loss narrowed slightly. Depreciation and interest costs remained substantial.
- Relative to 2011, 2012 was a sharp deterioration: revenue fell 42.3%, fleet-average TCE fell 45.0% to $9,706 per day, and the company shifted from net income to substantial losses.
- Genco’s investment portfolio rose to $77.6 million, primarily from an unrealized gain on Jinhui shares; the filing reported no impairment charge on the investments or vessels in 2013.
Outlook, restructuring and material risks
- Going concern: The auditor’s financial-statement opinion was unqualified but included an explanatory paragraph stating that recurring losses, negative working capital, missed debt amortization and anticipated covenant noncompliance raised substantial doubt about continued operation as a going concern. The statements were prepared on a going-concern basis and do not reflect possible bankruptcy-related adjustments.
- Proposed Chapter 11 restructuring: On April 3, 2014, Genco and supporting creditors entered into a restructuring support agreement contemplating a voluntary Chapter 11 case. The term sheet proposed converting the 2007 Credit Facility and 2010 Notes substantially into reorganized-company equity, extending or replacing other term loans, and a $100 million rights offering. It contemplated cancellation of existing Genco equity, with existing shareholders receiving seven-year warrants representing 6% of new equity at a specified exercise valuation. These terms were proposed, not consummated, and are subject to court, creditor and other conditions.
- Defaults and liquidity: Genco did not make an approximately $48.2 million scheduled March 31, 2014 amortization payment under its 2007 Credit Facility and reported covenant issues across its principal Genco facilities. Waivers and forbearances were extended through April 21, 2014. Genco had also missed a February 2014 interest payment on its 2010 Notes, but paid it March 20, before the applicable grace period expired. Management said available cash and cash collateral were expected to cover near-term minimum needs, but no DIP facility or exit financing commitment had been secured; sufficiency was not assured.
- Approximately 80% of the fleet was exposed to spot-linked rates or spot-market pools. Management expected the early-2014 rate downturn to adversely affect first-quarter results. The BDI averaged 1,206 in 2013 versus a cited ten-year average of 3,264 as of March 31, 2014; management noted that market weakness could persist.
- Charterer concentration is material: 10 charterers generated approximately 83% of 2013 revenue; Cargill, Swissmarine and Pacific Basin accounted for approximately 21%, 19% and 10%, respectively. Genco also disclosed that vessel covenant valuations were below carrying values for most vessels, although impairment testing did not produce an impairment charge.
- For 2014, management budgeted average daily operating expense of $5,250 for Genco vessels and $5,400 for Baltic Trading vessels. Estimated 2014 drydocking costs were $13.6 million for Genco and $5.62 million for Baltic Trading. These are estimates, not earnings guidance.
- Other notable items include Baltic Trading’s 2013 vessel acquisitions and planned $112 million aggregate purchase of four Ultramax newbuildings; a $0.9 million bank guarantee related to an arrested vessel, released pending arbitration; and Samsun’s failure to remit its 2013 settlement installment.
Most important facts for investors to verify
- Whether the Chapter 11 case, restructuring plan, creditor support, $100 million rights offering and exit financing were approved and completed, and the actual recovery and dilution for each security class.
- Current unrestricted liquidity, cash-collateral budget access, near-term debt obligations, covenant/default status and any subsequent financing or asset sales.
- Actual charter rates, fleet employment and operating cash flow after year-end, given the high spot-rate exposure and management’s warning about first-quarter 2014 conditions.
- Whether newbuilding purchases and drydockings were completed, how they were financed, and their effect on liquidity and debt.
- Vessel fair values and impairment assumptions, the realizable value of the Jinhui investment, and resolution of charterer claims and the vessel-arrest arbitration.