Genco Shipping & Trading Limited — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company operates a global drybulk shipping fleet and reported one business segment. At quarter-end, it had 43 vessels with approximately 4.57 million dwt.
Financial performance
Amounts below are U.S. dollars; financial statement figures are shown in millions unless otherwise noted.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Voyage revenue | $155.3 | $87.5 | $363.9 | $260.1 |
| Operating income (loss) | $65.4 | ($15.7) | $107.9 | ($142.2) |
| Net income (loss) | $57.1 | ($21.1) | $91.2 | ($159.7) |
| Diluted EPS | $1.34 | ($0.50) | $2.14 | ($3.81) |
| EBITDA, non-GAAP | $75.3 | $0.0 | $145.4 | ($93.5) |
| Fleet-average TCE per day | $29,287 | $11,456 | $20,761 | $9,307 |
Q3 operating and net margins were approximately 42% and 37%, respectively; nine-month margins were approximately 30% and 25%. These results reflect sharply higher freight rates. Fleet utilization was 98.1% in both the quarter and nine-month period, versus 96.2% and 97.3%, respectively, in 2020.
- Cash flow: Nine-month operating cash flow was $135.0 million, compared with $16.0 million in 2020. Investing used $77.3 million, mainly for four Ultramax acquisitions and deposits on two newbuildings; financing used $156.9 million, primarily reflecting debt repayments and refinancing-related costs. Cash, cash equivalents and restricted cash declined by $99.2 million to $80.5 million. Unrestricted cash was $80.2 million at quarter-end.
- Balance sheet and liquidity: Total assets were $1.177 billion and equity was $830.7 million. Gross debt was $305.0 million, down from $449.2 million at December 31, 2020; current debt was zero. Current assets of $142.5 million exceeded current liabilities of $42.6 million. The company reported $137.5 million of availability under its new credit facility and compliance with its financial covenants.
- Debt refinancing: On August 31, the company refinanced its prior facilities with a five-year, $450 million senior secured facility maturing August 3, 2026. It drew $350 million at closing and recorded a $4.4 million loss on debt extinguishment. The facility includes quarterly commitment reductions, collateral and liquidity covenants, and permits dividends subject to covenant compliance and no default.
Material changes and operating developments
- Q3 revenue rose 77.4%; nine-month revenue rose 39.9%. Management attributed the improvement to higher rates for major and minor bulk vessels, partially offset by operating fewer vessels.
- Q3 fleet-average TCE increased 155.6% year over year. Major-bulk TCE rose 89.2%, and minor-bulk TCE rose 212.4%. Voyage expenses increased in Q3, while nine-month voyage and vessel operating expenses declined partly because of the smaller fleet.
- Average daily vessel operating expense rose 17.6% in Q3 to $5,833 and 15.5% for the nine-month period to $5,286. Management cited COVID-related crew costs and disruptions. Charter-hire expense also increased with higher rates and more chartered-in days.
- No vessel impairment was recorded in 2021, compared with $21.9 million in Q3 2020 and $134.7 million in the first nine months of 2020. The comparison materially affects the year-over-year improvement in operating results.
- The company acquired four Ultramax vessels during Q3 for a combined purchase price of approximately $91.2 million, funded with cash. Two additional newbuild Ultramax vessels are expected in January 2022; $17.7 million of deposits had been paid, with $40.8 million remaining due at delivery.
- A 50%-owned ship-management joint venture with Synergy Marine was formed in September and consolidated by Genco; its financial effect in the period was immaterial. Management said it expects greater operational oversight and possible efficiency and cost benefits over time.
Outlook, risks and contingencies
- Management said strong drybulk earnings supported liquidity, but its ability to fund operations for at least 12 months assumes rates do not decline significantly. It warned that a significant market deterioration could constrain debt service and capital commitments.
- Rates reached decade highs during 2021, but Capesize rates had fallen from post-quarter peaks. Management cited easing iron ore exports, lower congestion and reduced Chinese output, partly offset by increased coal shipments. Results remain sensitive to global activity, China, commodity trade flows, fleet supply and freight rates.
- The company’s value strategy prioritizes debt reduction and fleet renewal, with a dividend formula based on operating cash flow less debt repayments, drydocking capital expenditures and a discretionary reserve. A $0.15-per-share quarterly dividend was declared November 3, 2021, payable on or about November 22. Future dividends remain discretionary and subject to cash, legal, credit-agreement and board constraints.
- COVID-19 creates uncertainty around demand, crew changes, port access, operating costs and vessel operations. Management expects elevated crew expenses and cited possible deviations, delays and additional travel, testing and quarantine costs.
- Floating-rate debt exposes the company to interest-rate changes. Three interest-rate caps covered $200 million of notional debt; management estimated that a 1% LIBOR increase would have increased nine-month interest expense by $3.0 million.
- After quarter-end, the Genco Provence was sold for $13.25 million less commission. $5.6 million of net proceeds was restricted for 360 days for possible replacement-vessel collateral or, otherwise, loan prepayment. The filing identifies ordinary-course legal claims but no proceedings believed to be material. It also flags uncertain tax-law changes, U.S.-China tensions, and potential shipping-route disruption.
Important facts for investors to verify
- Whether elevated freight rates and TCE levels persist, particularly following the post-quarter decline in Capesize rates.
- Cash generation and covenant headroom under the new credit facility, including collateral values, minimum liquidity and scheduled debt reductions.
- Funding for the two January 2022 newbuild deliveries and planned drydock, ballast-water-system and fuel-efficiency expenditures.
- The sustainability and calculation of dividends under the new formula, including the board’s discretionary reserve and any market or credit restrictions.
- The extent and duration of COVID-related crew, operating and logistical costs, and the effectiveness and economics of the ship-management joint venture.