Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three and six months ended June 30, 2019 (Unaudited)
Filing Date: September 27, 2019
Business Overview: Owner and operator of six LNG carriers employed on multi-year charters. As of September 26, 2019, the fleet had 100% contracted time charter coverage for 2019 and 2020, with a revenue backlog of $1.31 billion and an average remaining contract term of 9.0 years.
Key Financial Metrics
| Metric (in thousands, except per unit) | 3 Months Ended June 30, 2019 |
6 Months Ended June 30, 2019 |
|---|---|---|
| Voyage Revenues | $30,817 | $62,220 |
| Net Income | $932 | $2,824 |
| Adjusted Net Income (Non-GAAP) | $771 | $2,502 |
| Adjusted EBITDA (Non-GAAP) | $20,875 | $42,591 |
| Distributable Cash Flow (Non-GAAP) | $4,907 | $10,689 |
| Net Cash from Operating Activities | $6,958 | $16,144 |
| Free Cash (as of June 30, 2019) | $112,912 | |
| Total Indebtedness (as of June 30, 2019) | $720,400 (gross) | |
| Fleet Utilization | 94% | 97% |
| Time Charter Equivalent (TCE) Rate | $55,399/day | $56,251/day |
Material Changes vs. Prior Period
- Net Income: Increased 125% to $0.9 million for the quarter compared to $0.4 million in Q2 2018, primarily due to the absence of $2.2 million in dry-dock and special survey costs incurred in the prior year.
- Adjusted Net Income: Decreased 82.2% to $0.8 million from $4.5 million in Q2 2018, driven by lower revenues on specific vessels and increased operating/financing costs.
- Adjusted EBITDA: Decreased 14.3% to $20.9 million from $24.4 million in Q2 2018.
- Distributable Cash Flow: Decreased 43.7% to $4.9 million from $8.7 million in Q2 2018.
- Operating Expenses: Vessel operating expenses increased to $6.9 million (daily rate $12,630) from $5.9 million (daily rate $10,808) in the prior year quarter.
- Interest Costs: Increased 4.0% to $13.1 million due to higher USD LIBOR rates on variable interest-bearing debt.
Guidance, Outlook, and Material Events
- Refinancing: On September 25, 2019, the Partnership closed a syndicated $675 million senior secured term loan to refinance existing indebtedness. This facility reduces the cost of debt and simplifies the debt structure but prohibits distributions to common unit-holders while borrowings are outstanding.
- Vessel Deployment: The vessel Lena River commenced a multi-year charter with Yamal LNG on July 1, 2019. A 30-day repositioning voyage reduced fleet utilization to 94% for the quarter.
- Contract Backlog: The fleet is fully contracted through 2020, with 92% coverage for 2021. The earliest possible rechartering availability is Q3 2021.
- Distributions:
- Common Units: $0.0625 per unit declared for Q1 2019 (paid). No distribution declared for Q2 2019 due to the new credit facility restrictions.
- Series A Preferred Units: $0.5625 per unit declared/paid for periods ending May 11 and August 11, 2019.
- Series B Preferred Units: $0.546875 per unit declared/paid for periods ending May 21 and August 21, 2019.
- Management Commentary: Management views the refinancing as a strategic realignment to deleverage and build equity value, positioning the company for future growth in robust global LNG markets.
Investor Verification Checklist
- Distribution Suspension: Verify the impact of the new $675 million Credit Facility on future cash distributions to common unitholders, as payments are prohibited while the loan is outstanding.
- Debt Structure: Confirm the terms of the new senior secured term loan, specifically the amortization schedule and interest rate margins compared to the previous Term Loan B.
- Charter Rates: Review the specific charter rates for the Arctic Aurora and Lena River to understand the revenue decline relative to the prior year.
- Operating Costs: Investigate the drivers behind the increased daily vessel operating expenses ($12,630 vs $10,808), particularly for the Yenisei River and Ob River.
- Liquidity Position: Monitor the utilization of the $30 million interest-free revolving credit facility with the Sponsor and the company's ability to meet increased debt amortization requirements.