Genco Shipping & Trading Limited — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. Unaudited consolidated results include Baltic Trading, which Genco controls through voting rights. Amounts are U.S. dollars; financial statement figures are in thousands unless noted.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $54.4 million | $94.3 million | $177.2 million | $295.1 million |
| Operating income (loss) | ($20.2) million | $23.3 million | ($43.1) million | $88.7 million |
| Net income (loss), consolidated | ($42.0) million | $1.4 million | ($108.9) million | $23.4 million |
| Net income (loss) attributable to Genco | ($38.4) million | $1.6 million | ($99.3) million | $25.1 million |
| Basic and diluted EPS | ($0.90) | $0.04 | ($2.40) | $0.71 |
| EBITDA, company-defined non-GAAP | $18.4 million | $57.9 million | $70.4 million | $191.8 million |
| Fleet-average TCE per day | $9,119 | $16,447 | $10,218 | $17,935 |
- Voyage revenue fell 42.7% in Q3 and 40.3% year to date. Management attributed the decline chiefly to lower charter rates and additional planned drydock off-hire; Baltic Trading also earned less from lower spot rates.
- Operating expenses rose 5.1% in Q3 and 6.8% year to date despite lower revenue. Daily vessel operating expense averaged $4,956 in Q3 and $5,040 year to date, up 6.1% and 7.1%, respectively.
- Operating margins were approximately negative 37% in Q3 and negative 24% year to date, versus approximately positive 25% and 30% in the comparable 2011 periods. Net interest expense was $21.5 million in Q3 and $64.8 million year to date.
Cash flow, balance sheet and debt
- For the first nine months, operating cash flow was negative $4.0 million, versus positive $121.3 million in 2011. Investing cash outflow was $3.2 million, versus $100.4 million; financing cash outflow was $132.9 million, largely reflecting debt prepayments and repayments.
- Cash and cash equivalents declined to $87.8 million at September 30 from $228.0 million at year-end 2011; restricted cash was $10.2 million. Current assets were $113.4 million and current liabilities $28.3 million.
- Long-term bank debt was $1.413 billion and convertible notes had a $109.7 million carrying value ($125 million principal); total debt on those carrying-value bases was approximately $1.523 billion. The balance sheet also included $13.2 million of long-term interest payable and $2.7 million of lease obligations.
- Total assets were $2.895 billion and total equity $1.309 billion at quarter-end. Vessel carrying values exceeded lender covenant valuations for every vessel; the average gap was $22.3 million per vessel.
Material changes, outlook and risks
- August 2012 lender amendments: Financial covenant waivers for the 2007, $100 million and $253 million facilities were extended through December 31, 2013. Genco prepaid $99.9 million across the facilities, deferred scheduled amortization through 2013, and introduced a quarterly cash sweep of excess cash above $100 million in specified pledged accounts to repay the 2007 facility. The 2007 facility margin increased from 2% to 3%; additional collateral and other restrictions also apply. Genco reported covenant compliance as of September 30.
- Genco completed a February equity offering of 7.5 million shares, receiving $49.9 million net. Its share count increased, and no Genco dividend was declared. Dividends and repurchases remain restricted; cash dividends are prohibited through December 31, 2013 under the amended agreements.
- Management said internally generated cash flow should fund fleet operations and working capital for the next 12 months. However, it warned that prolonged weak drybulk rates could threaten covenant compliance after waivers expire; further waivers, financing or vessel sales may be needed, and success is not assured. A roughly 6% decline from the relevant August collateral valuation could put the $100 million facility’s collateral covenant at risk.
- Management attributed weak rates to vessel supply growth and negative sentiment about emerging-market growth, partly offset by record scrapping. It cited Chinese iron-ore restocking and improved sentiment as signs of relative rate improvement; the BDI was 916 on November 8. This is commentary, not formal earnings guidance.
- Disclosed risks include drybulk rate and demand volatility, new vessel supply, charterer performance, operating and drydock costs, interest-rate exposure, vessel collateral values and access to financing. A 1% LIBOR increase was estimated to raise interest expense by $8.6 million for the nine-month period, considering unhedged debt. Five swaps totaling $356.2 million remained outstanding, with an $18.9 million liability.
- Unusual items included $826,000 of nine-month expense for ceasing use of an office lease, representing estimated remaining rent net of sublease income and deferred rent. Management reported no known legal proceeding expected to have a material effect. After quarter-end, Baltic Trading declared a $0.01-per-share dividend.
Most important facts for investors to verify
- Whether weak charter rates persist and how quickly expiring charters can be renewed at rates that support operating cash flow and debt service.
- Cash availability after the required cash sweep, debt-service obligations and covenant restrictions; confirm the specific conditions and milestones for covenant waivers and compliance.
- Current lender vessel valuations, collateral headroom and the potential effect of further vessel-value declines.
- Debt terms and future payments, including the 2007 facility’s 1.25% fee payable at maturity or repayment, interest-rate exposure and the 2015 convertible-note maturity.
- Actual drydock costs and off-hire, and whether management’s 12-month liquidity assessment remains valid under continued weak rates.