Genco Shipping & Trading Limited — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unless otherwise noted, financial figures below are in U.S. dollars and millions. The company owns and operates drybulk vessels; at quarter-end its fleet comprised 51 vessels with approximately 4.77 million deadweight tons of capacity.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Voyage revenue | $87.5 | $103.8 | $260.1 | $280.8 |
| Operating loss | $(15.7) | $(7.8) | $(142.2) | $(36.0) |
| Net loss | $(21.1) | $(14.6) | $(159.7) | $(56.9) |
| Net loss per share | $(0.50) | $(0.35) | $(3.81) | $(1.36) |
| EBITDA (non-GAAP) | $0.0 | $10.5 | $(93.5) | $18.9 |
Q3 fleet-average time charter equivalent (TCE) was $11,456 per day, down 2.0% year over year; nine-month TCE was $9,307 per day, down 1.0%. Q3 fleet utilization fell to 96.2% from 98.9%. The filing does not present a single reported margin measure; operating loss was $15.7 million on $87.5 million of Q3 revenue.
- Cash flow: Nine-month operating cash flow was $16.0 million, versus $28.8 million a year earlier. Investing activities provided $12.3 million, compared with $31.8 million used in 2019; financing activities used $29.8 million. Cash, cash equivalents and restricted cash totaled $160.8 million at period-end, down $1.5 million from year-end 2019.
- Liquidity: Unrestricted cash was $136.2 million and restricted cash was $24.5 million. Current assets were $222.4 million and current liabilities $113.7 million. Management cited a minimum liquidity requirement of approximately $36 million and said resources were expected to fund at least the next 12 months if drybulk rates did not decline significantly.
- Debt: Principal debt outstanding was $475.4 million, compared with $495.8 million at December 31, 2019. The balance sheet showed $80.6 million of current debt and $384.1 million of long-term debt net of financing costs. No availability remained under either credit facility at quarter-end. The company reported compliance with both facilities’ financial covenants.
- Impairments: Vessel impairment expense was $21.9 million in Q3 and $134.7 million for the first nine months, versus $12.2 million and $26.1 million, respectively, in 2019. Nine-month impairment included write-downs on ten Handysize vessels and several Supramax vessels.
Material changes and management commentary
- Q3 revenue declined 15.7% year over year, mainly reflecting fewer vessels and weaker minor-bulk vessel revenue; stronger Capesize revenue partly offset the decrease. Nine-month revenue declined 7.4%.
- The nine-month net loss widened substantially, primarily because vessel impairment charges rose to $134.7 million. Q3 net loss also increased despite lower operating expenses, as higher impairment more than offset the reduction in other costs.
- Management said drybulk rates improved from mid-May through Q3, led by Capesize demand and China’s iron ore imports. It also noted a pullback in Capesize spot earnings by late October and uncertainty over whether the recovery would continue.
- The company continued its fleet-renewal program. It sold the Baltic Wind and Baltic Breeze in Q3; the Baltic Jaguar and Genco Bay sales closed in October. Additional Supramax vessel sales were agreed or expected in Q4. Certain sale proceeds remain restricted for 360 days and may have to be used for debt prepayment if eligible replacement collateral is not added.
Outlook, risks and contingencies
- No formal earnings or revenue guidance was provided. Management’s liquidity outlook depends on drybulk rates not declining significantly; it warned that a severe market deterioration could threaten debt service and capital-expenditure capacity.
- COVID-19 effects remain uncertain. Port and travel restrictions caused crew-change delays, vessel deviations, off-hire time and added costs; renewed restrictions or weaker global trade could further harm rates, operations, cash flows and vessel values.
- Debt is floating-rate and unhedged. Management estimated that a 1 percentage-point LIBOR increase would have added $3.8 million to interest expense for the nine-month period. Credit facilities require collateral vessel values of at least 135% of outstanding principal; falling vessel values could require added collateral, loan prepayment or a waiver.
- Quarterly dividends were reduced from $0.175 to $0.02 per share for 2020. A $0.02 dividend for Q3 was announced after quarter-end, with an expected aggregate payment of approximately $0.8 million. Future dividends remain subject to board discretion, cash generation, legal requirements and credit-agreement limits.
- IMO 2020 sulfur rules raised fuel-cost exposure for vessels without scrubbers. The 17 Capesize scrubber installations were completed; the rest of the fleet used compliant low-sulfur fuel. The company also expected drydocking and ballast-water-treatment expenditures, including estimated costs of $3.0 million and $1.1 million, respectively, for the remainder of 2020.
- Management reported no known legal proceedings expected to have a material effect and no material off-balance-sheet arrangements. It concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Key facts investors should verify
- Whether drybulk freight rates and China-led demand remain strong enough to support management’s conditional 12-month liquidity assessment.
- Cash available after scheduled quarterly debt amortization of approximately $20.2 million beginning December 31, 2020, capital spending, and dividends.
- Compliance with collateral-maintenance tests as vessel values change, and whether restricted vessel-sale proceeds are used for replacement collateral or debt prepayment.
- Further impairment exposure, particularly for Supramax vessels whose projected cash flows management said were relatively close to carrying values.
- The completion, proceeds and expected sale losses for vessels scheduled for disposition, along with COVID-related crew, port, off-hire and operating-cost impacts.
- The sustainability of the $0.02 quarterly dividend given cash generation, debt restrictions and board discretion.