Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2020
Business Overview: The Partnership owns and operates a fleet of six high-specification LNG carriers. All vessels are currently employed on multi-year time charters with major energy companies (Gazprom, Equinor, Yamal). The company is currently focused on debt repayment and balance sheet strength rather than fleet expansion due to elevated costs of equity capital.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 |
|---|---|---|
| Voyage Revenues | $68,384 | $62,220 |
| Operating Income | $31,869 | $27,902 |
| Net Income | $13,394 | $2,824 |
| Net Income (Common Unitholders) | $7,605 | $(2,954) |
| Adjusted EBITDA | $47,870 | $42,591 |
| Net Cash from Operating Activities | $26,836 | $16,144 |
| Total Debt (Gross) | $639,000 | $663,000 |
| Cash & Restricted Cash | $63,261 | $112,912 |
| Fleet Utilization | 99.5% | 97.2% |
| Time Charter Equivalent (TCE) Rate | $61,148 | $56,251 |
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased by 10.8% ($6.7 million) primarily due to higher revenues from the vessel Lena River following its delivery to a multi-year contract in July 2019.
- Profitability: Net income surged to $13.4 million from $2.8 million, driven by higher operating income and a significant reduction in interest costs.
- Interest Costs: Interest and finance costs decreased by 41.6% ($10.9 million) due to lower weighted average interest rates and reduced interest-bearing debt following refinancing.
- Derivative Loss: The Partnership recognized a $3.4 million unrealized loss on a new interest rate swap entered in May 2020 to hedge LIBOR exposure. This was a non-cash item not present in the prior period.
- Depreciation: Increased by 5.3% due to a change in the accounting estimate for scrap rates effective October 2019.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Strategy
Management is prioritizing debt repayment and balance sheet strength. While the Partnership has options to acquire three additional "Optional Vessels" from its Sponsor, current unit price levels are not conducive to funding these acquisitions via equity. The company maintains a revenue backlog of approximately $1.17 billion with an average remaining contract duration of 8.1 years.
Risks and Contingencies
- Concentration Risk: As of June 30, 2020, three charterers accounted for 100% of revenues (45%, 40%, and 15% respectively).
- COVID-19 Impact: The filing notes potential volatility in commodity markets and global economic activity due to the pandemic, though no significant operational impact was reported to date.
- Legal Proceedings: A putative class action lawsuit filed in May 2019 regarding alleged false statements about charter agreements and distribution sustainability remains pending; the Partnership intends to vigorously defend against it.
- LIBOR Transition: Risks associated with the discontinuance of LIBOR after 2021 on debt referencing this rate.
Unusual Items
- Interest Rate Swap: Entered into a floating-to-fixed swap in May 2020 covering 100% of the $675 Million Credit Facility. The swap did not qualify for hedge accounting, resulting in a $3.4 million mark-to-market loss recognized in the period.
- Distributions: No cash distributions were paid to common unitholders during the period due to restrictions in the $675 Million Credit Facility while borrowings are outstanding. Preferred unitholders (Series A and B) continued to receive scheduled distributions.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the $675 Million Credit Facility covenants, specifically the minimum liquidity requirement of $50 million (currently met with $50 million restricted cash).
- Charter Concentration: Assess the risk exposure to the top three charterers (Gazprom, Equinor, Yamal) who represent the entirety of revenue.
- Derivative Exposure: Monitor the impact of the new interest rate swap on future earnings volatility, given it is not designated as a hedge.
- Optional Vessel Acquisition: Review the financial feasibility of exercising options to purchase the three remaining Optional Vessels from the Sponsor, given the current suspension of common unit distributions.
- Legal Status: Track the status of the pending class action lawsuit filed in 2019.