Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Three and six months ended June 30, 2017
Filing Date: September 6, 2017
Business Overview: Dynagas is a master limited partnership owning and operating a fleet of six liquefied natural gas (LNG) carriers. The fleet operates primarily on fixed multi-year time charters, providing revenue visibility independent of commodity price fluctuations.
Key Financial Metrics
| Metric (in thousands, except per unit) | 3 Months Ended June 30, 2017 |
6 Months Ended June 30, 2017 |
|---|---|---|
| Voyage Revenues | $31,975 | $71,067 |
| Operating Income | $8,734 | $30,627 |
| Net Income / (Loss) | $(5,181) | $7,731 |
| Adjusted Net Income | $4,220 | $19,125 |
| Adjusted EBITDA | $22,921 | $54,192 |
| Distributable Cash Flow | $8,200 | $26,834 |
| Net Cash from Operating Activities | $11,400 (Q2 only) | $29,568 |
| Cash and Cash Equivalents | $74,311 (as of June 30, 2017) | |
| Total Indebtedness | $730,000 (as of June 30, 2017) | |
| Available Liquidity | $104,300 (as of June 30, 2017) | |
| Loss / Earnings per Common Unit | $(0.19) | $0.09 |
| Adjusted EPS (Common) | $0.07 | $0.43 |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased 25.0% year-over-year for the quarter (from $42.6M to $32.0M) and 16.8% for the six-month period. This was driven by scheduled off-hire days for three vessels undergoing dry-docking and class surveys, lower utilization of the Clean Energy on the spot market, and reduced charter rates on two vessels.
- Net Loss vs. Profit: The Partnership reported a net loss of $5.2M for the quarter compared to net income of $17.0M in the same period of 2016. This swing was primarily due to lower revenues and increased costs.
- Increased Expenses:
- Dry Docking: $4.9M in scheduled class survey and dry dock costs were incurred in Q2 2017 (none in Q2 2016).
- Interest Costs: Interest and finance costs rose 57.7% to $13.7M, driven by a new $480M Term Loan B facility and a one-off $2.6M write-off of deferred loan fees from refinancing.
- Operating Expenses: Vessel operating expenses increased 12.4% due to technical maintenance for the three vessels in dry dock.
- Adjusted Metrics: Adjusted EBITDA decreased 34.6% to $22.9M, and Distributable Cash Flow decreased 63.7% to $8.2M for the quarter, reflecting the impact of the off-hire periods and higher financing costs.
Guidance, Outlook, and Management Commentary
- CEO Commentary: Management stated results were within expectations, noting the temporary impact of dry-docking three vessels. The surveys were completed efficiently (approx. 15 days per vessel), with the next cycle expected in 5 years.
- Vessel Employment:
- Clean Energy: Currently on short-term charters until delivery to Gazprom in July 2018 for an 8-year charter.
- Contract Coverage: As of September 5, 2017, the fleet was 84% contracted for 2017 and 75% contracted for both 2018 and 2019.
- Backlog: Contracted revenue backlog is approximately $1.49 billion with an average remaining contract duration of 10.2 years.
- Financing: In May 2017, the Partnership refinanced existing facilities with a $480M Senior Secured Term Loan B due in 2023. This improved the balance sheet, resulting in a working capital surplus of $52.7M.
- Distributions:
- Common Units: $0.4225 per unit (paid July 18, 2017).
- Series A Preferred Units: $0.5625 per unit (paid August 14, 2017).
- Risks: Key risks include reliance on a limited number of charterers, fluctuations in charter rates, vessel breakdowns, and potential disruption of shipping routes. Certain contracts with Yamal Trade Pte. are subject to conditions that could lead to cancellation.
Investor Verification Checklist
- Refinancing Impact: Verify the long-term interest rate implications of the new $480M Term Loan B versus the repaid facilities.
- Off-Hire Schedule: Confirm the completion of dry-docking for the Clean Energy, Ob River, and Amur River and their return to revenue-generating status.
- Spot Market Exposure: Assess the duration and rate stability of the short-term charters for the Clean Energy prior to the 2018 Gazprom delivery.
- Liquidity Position: Monitor the $104.3M available liquidity against upcoming debt maturities and capital expenditure reserves.
- Contract Conditions: Review the specific conditions attached to the Yamal Trade Pte. contracts that could affect the $1.49B revenue backlog.