Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Interim Report)
Reporting Period: Six months ended June 30, 2018
Business Overview: A growth-oriented limited partnership owning and operating a fleet of six LNG carriers. As of August 2, 2018, all vessels were employed or contracted for multi-year time charters with major energy companies (Gazprom, Equinor, Yamal). The fleet has an average age of 8.0 years.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|
| Voyage Revenues | $64,796 | $71,067 |
| Operating Income | $29,368 | $30,627 |
| Net Income | $5,191 | $7,731 |
| Adjusted EBITDA | $51,033 | $54,192 |
| Net Cash from Operating Activities | $20,494 | $29,568 |
| Total Debt (Gross) | $725,200 | $727,600 |
| Cash and Cash Equivalents | $57,818 | $67,464 |
| Time Charter Equivalent (TCE) Rate | $59,174 | $65,784 |
Liquidity: As of June 30, 2018, available liquidity was $87.8 million, comprising $57.8 million in cash and $30.0 million in borrowing capacity under a revolving credit facility with the Sponsor.
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by $6.1 million (8.1%) primarily due to lower earnings from the vessel Clean Energy, which operated in the spot market for 166 days in the first half of 2018 compared to a multi-year time charter in the same period of 2017.
- Expense Reductions:
- Voyage expenses decreased by $1.0 million (43.9%) due to reduced bunker consumption and fewer unscheduled repair days.
- Dry-docking costs decreased by $2.4 million (47.5%) as only one vessel (Arctic Aurora) underwent dry-docking in 2018, compared to two vessels in 2017.
- Interest Costs: Interest and finance costs increased by $2.0 million (8.9%) due to higher weighted average interest rates associated with the Term Loan B facility.
- Net Income: Net income attributable to common unitholders decreased from $3.1 million to $1.8 million.
Guidance, Outlook, and Risks
Distribution Policy Change: On April 12, 2018, the Board reduced the quarterly cash distribution on common units from $0.4225 to $0.25 per unit (annualized from $1.69 to $1.00) following a strategic review of the financial profile. Series A Preferred Unit distributions remained at $0.5625 per quarter.
Contract Backlog: As of August 2, 2018, the estimated contracted revenue backlog was approximately $1.44 billion with an average remaining duration of 10.1 years. However, contracts for the Yenisei River and Lena River with Yamal are subject to important conditions that could lead to cancellation.
Key Risks and Contingencies:
- Concentration Risk: As of June 30, 2018, 94% of revenues were derived from three charterers (75%, 19%, and 6%).
- Debt Maturity: $250 million in Senior Notes are due in 2019; the Partnership is evaluating refinancing options.
- Optional Vessels: The deadline to exercise purchase options for four Initial Optional Vessels was extended to December 31, 2018. No financing has been secured for these potential acquisitions.
- Market Conditions: Exposure to LNG market trends, charter rate fluctuations, and global economic slowdowns.
Investor Verification Checklist
- Refinancing Status: Verify progress on refinancing the $250 million Senior Notes due in 2019.
- Yamal Project Conditions: Confirm the status of conditions precedent for the Yenisei River and Lena River charters with Yamal, which represent a significant portion of the backlog.
- Optional Vessel Exercise: Monitor whether the Partnership exercises its options to acquire the four Initial Optional Vessels by the December 31, 2018 deadline.
- Spot Market Exposure: Assess the impact of the Clean Energy vessel transitioning from spot market to a long-term Gazprom charter (commenced July 2018) on future revenue stability.
- Debt Covenants: Confirm continued compliance with financial covenants, specifically the minimum free liquidity requirement of $20.0 million.