Genco Shipping & Trading Limited — Q2 2016 Form 10-Q
Business and period. The filing covers the quarter and six months ended June 30, 2016. Genco operates a global drybulk fleet; management reported 69 vessels with approximately 5.1 million deadweight tons and an average age of 9.6 years. The unaudited results include Baltic Trading, which became wholly owned in July 2015, so prior-period comparisons reflect a different ownership and noncontrolling-interest presentation. Dollar amounts below are in millions except per-share and daily-rate data.
Financial results and key metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $31.9 | $34.6 | $52.8 | $69.0 |
| Operating loss | $(100.8) | $(46.2) | $(147.7) | $(120.0) |
| Net loss attributable to Genco | $(110.7) | $(40.3) | $(165.1) | $(78.8) |
| Net loss per share | $(15.32) | $(6.67) | $(22.87) | $(13.03) |
| Operating cash flow | Not provided separately | Not provided separately | $(41.2) | $(29.8) |
| Fleet-average TCE per day | $4,618 | $5,065 | $3,622 | $5,021 |
At June 30, cash and cash equivalents were $56.7; restricted cash was $19.8. Current assets were $103.6 and current liabilities $577.1, implying negative working capital of approximately $473.6. Debt principal was $561.7, less $8.4 of issuance costs; the full $553.3 net debt balance was classified current. Total assets were $1.530 billion and equity $951.8 million. The filing does not report a conventional gross or operating margin; operating results included substantial vessel impairments.
Changes versus prior comparable periods
- Q2 revenue decreased 7.9%; first-half revenue decreased 23.5%. Management attributed the declines chiefly to weaker spot-market rates.
- Fleet-average TCE declined 8.8% in Q2 and 27.9% in the first half. Utilization was 99.4% in Q2 and 98.8% for the first half, slightly above the respective 2015 periods.
- Q2 included a $67.6 million impairment on nine vessels considered likely to be scrapped. First-half vessel impairments totaled $69.3 million, versus $35.4 million in 2015. A separate $2.7 million impairment was recorded on the Jinhui investment.
- Interest expense rose to $7.0 million in Q2 from $4.7 million and to $14.1 million for the first half from $9.0 million, primarily reflecting newer facilities and related financing-cost amortization.
- G&A and management fees fell to $13.9 million in Q2 and $26.7 million for the first half, mainly due to lower noncash compensation and the absence of prior-year merger expenses. This was partly offset by financing-related costs.
- Cash declined $64.4 million during the first half, from $121.1 million to $56.7 million. Investing activities provided $3.7 million; financing activities used $26.9 million, mainly for scheduled debt repayments.
Liquidity, outlook, risks and unusual items
- Going concern: Management stated that recurring operating losses, negative working capital, weak freight rates and vessel values, and covenant pressures raise substantial doubt about Genco’s ability to continue as a going concern.
- Debt and covenant exposure: Lenders had waived or modified significant collateral-maintenance and leverage covenants, generally through September 30, 2016; certain 2014 Term Loan Facility waivers extended to October 15, subject to Sinosure approval. The company said it was probable that it would fail certain covenants within the next 12 months. Cross-default provisions could accelerate debt, and substantially all assets are pledged.
- Proposed refinancing and equity: A commitment letter contemplated a senior secured facility of up to $400 million to refinance specified facilities. Borrowing was conditional, including on at least $125 million of satisfactory equity financing and amendments to other facilities. Equity commitments described in the filing totaled approximately $62.5 million and were conditional. A definitive purchase agreement or registration statement for equity financing was required by August 15, 2016 under the amended commitment letter.
- Potential actions and risk: Management cited refinancing, further lender waivers, asset sales, reduced or delayed capital spending, additional equity or debt, strategic alternatives, or potentially Chapter 11 as possible responses; it could not assure that any would be achieved. It considered post-waiver cash and covenant compliance at risk.
- Fleet and revenue outlook: No full-year earnings or rate guidance was provided. Minimum contracted time-charter revenue, based on vessels committed as of August 1, was $12.6 million for the rest of 2016 and $2.5 million for 2017; this excludes spot-market and pool earnings and profit sharing. Estimated drydocking costs were $7.4 million for the second half of 2016 and $15.6 million for 2017.
- Other notable items: The company recorded the nine-vessel impairment based on anticipated scrapping under the refinancing commitment terms and scrapped the Genco Marine in May. A one-for-ten reverse stock split took effect July 7, 2016. On August 9, the company entered additional waivers for the 2014 Term Loan Facilities, subject to Sinosure approval by August 19. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the required equity financing, definitive refinancing documentation, and amendments to other credit facilities were completed on time and on acceptable terms.
- Whether lender waivers—including required Sinosure approval—remained effective, and the resulting covenant and cross-default status after the waiver periods.
- Available unrestricted cash, cash burn, debt-service requirements, and whether liquidity remained above applicable minimums.
- Whether expected vessel scrapping or sales occurred, the proceeds realized, and the effect on collateral values, fleet capacity, and future earnings.
- Subsequent charter rates and employment, given the sharp decline in first-half TCE and the limited contracted-revenue disclosure.