NMM

Business Context and Reporting Period

Company: Navios Maritime Partners L.P.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2014
Business Overview: Navios Partners is an international owner and operator of dry cargo vessels, including Panamax, Capesize, Ultra-Handymax, and Post-Panamax container vessels. The fleet is primarily chartered under long-term time charters. As of March 31, 2014, the fleet consisted of 30 vessels (28 owned, 2 chartered-in).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 14.4% to $57.5 million, driven by the acquisition of new vessels (Navios Joy, Navios Harmony, five container vessels, Navios La Paix, and Navios Sun). Available fleet days increased from 1,890 to 2,668.
• Rate Decline: Despite revenue growth, the Time Charter Equivalent (TCE) rate decreased to $20,785 per day from $26,244 in the prior year.
• Non-Recurring Income: "Other income" surged to $30.0 million (from $0.04 million) due to a $31.0 million cash compensation received for the termination of credit default insurance with a third-party insurer.
• Depreciation Spike: Depreciation and amortization more than doubled to $43.7 million, primarily due to a $22.0 million accelerated amortization of the Navios Pollux favorable lease intangible and depreciation on new vessel acquisitions.
• Interest Expense: Interest expense increased 192.3% to $7.0 million due to a higher weighted average interest rate (4.67% vs 2.69%) and a significantly larger average outstanding loan balance ($537.5 million vs $278.3 million).

Guidance, Outlook, and Risks

• Capital Raising: In February 2014, the company completed a public offering of 6.325 million common units, raising net proceeds of approximately $104.5 million to fund fleet expansion.
• Distributions: The Board authorized a quarterly cash distribution of $0.4425 per unit for Q1 2014, payable May 13, 2014. The minimum quarterly distribution target is $0.35 per unit.
• Liquidity: The company maintains a shelf registration for up to $500 million in securities, with approximately $390.6 million available. Management believes cash flows from operations will meet short-term liquidity needs for at least 12 months.
• Risks: Key risks include fluctuations in charter rates, demand for dry bulk vessels, and credit risk from counterparties. The company terminated its third-party credit default insurance but maintains a supplemental agreement with Navios Holdings for up to $20 million coverage.
• Related Party Transactions: Significant management fees ($12.0 million) and administrative expenses are paid to Navios Holdings subsidiaries. Related parties accounted for approximately 10.7% of total revenues in Q1 2014.

Investor Verification Checklist

• Insurance Termination Impact: Verify the sustainability of earnings without the $30 million one-time insurance termination gain and the adequacy of the new $20 million supplemental coverage from Navios Holdings.
• Debt Covenants: Confirm continued compliance with credit facility covenants, specifically the EBITDA to interest expense ratio (minimum 5.00:1) and loan-to-value ratios, given the high debt load ($532 million).
• Rate Environment: Assess the impact of the declining TCE rate ($20,785) on future profitability as older charters expire and are renewed in a potentially softer market.
• Depreciation Volatility: Review the accounting treatment of the $22 million accelerated amortization to understand its effect on future non-cash expense profiles.
• Counterparty Concentration: Monitor exposure to top charterers (Hyundai Merchant Marine, Cosco Bulk Carrier, Navios Corporation) which collectively represented over 45% of Q1 2014 revenues.