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, 2016 (Interim Unaudited)
Business Overview: A growth-oriented limited partnership owning and operating LNG carriers. As of August 5, 2016, the fleet consisted of six vessels, all employed on multi-year time charters with major energy companies (BG Group/Shell, Gazprom, Statoil, Yamal). The Partnership maintains a contracted revenue backlog of approximately $1.5 billion with an average remaining duration of 10.1 years.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 |
|---|---|---|
| Voyage Revenues | $85,379 | $71,171 |
| Operating Income | $51,727 | $43,014 |
| Net Income | $34,101 | $29,181 |
| Adjusted EBITDA | $70,202 | $55,635 |
| Net Cash from Operating Activities | $53,299 | $40,636 |
| Time Charter Equivalent (TCE) Rate | $76,845 | $77,160 |
| Fleet Utilization | 100% | 98% |
| Total Debt (Outstanding) | $738,750 | $688,333 |
| Cash and Cash Equivalents | $57,248 | $12,456 |
| Available Liquidity | $112,200 | N/A |
Note: Available liquidity as of June 30, 2016, includes cash and a $30 million revolving credit facility.
Material Changes vs. Prior Period
- Fleet Expansion: The Partnership acquired the Lena River in December 2015, increasing the fleet from 5 to 6 vessels. This drove a 20.0% increase in voyage revenues and a 25.9% increase in depreciation.
- Profitability: Net income increased by $4.9 million (16.9%) to $34.1 million, primarily due to the additional revenue-generating days from the new vessel.
- Debt Levels: Total debt increased by approximately $50 million to $738.8 million, driven by a $200 million term loan facility utilized to finance the Lena River acquisition. Interest and finance costs rose by $3.6 million (25.7%).
- Cash Flow: Operating cash flow increased by $12.7 million (31.2%) to $53.3 million. Investing activities used $37.2 million, primarily for the repayment of the Sponsor's credit financing related to the vessel acquisition.
Guidance, Outlook, and Risks
Outlook and Distributions:
- The Board declared a quarterly cash distribution of $0.4225 per common and subordinated unit for Q2 2016, paid on July 19, 2016.
- A distribution of $0.5625 per Series A Preferred Unit was declared for the period ending August 11, 2016.
- Management anticipates generating sufficient cash from operations over the next 12 months to fund operations, debt service, and minimum distributions.
Risks and Contingencies:
- Yamal LNG Project: Charters for the Lena River and Yenisei River with Yamal are subject to important conditions. Failure to satisfy these conditions could result in cancellation or amendment, preventing the realization of contracted revenues.
- Market Conditions: Risks include fluctuations in charter rates, LNG market trends, global economic slowdowns, and currency/interest rate volatility.
- Counterparty Risk: Reliance on major charterers (BG Group/Shell, Gazprom, Statoil, Yamal) and the performance of their obligations.
Investor Verification Checklist
- Yamal Charter Conditions: Verify the status of the conditions precedent for the Lena River and Yenisei River charters with Yamal, as these represent a significant portion of the revenue backlog.
- Debt Covenants: Confirm continued compliance with financial covenants, specifically the interest coverage ratio and asset coverage ratio, given the increased debt load.
- Charter Expirations: Review the timeline for the Clean Energy charter expiring in April 2017 and the re-chartering strategy for the Ob River and Amur River in 2028.
- Optional Vessel Acquisitions: Assess the likelihood and financing terms for acquiring the four remaining "Initial Optional Vessels" and the five "Optional JV Interests" from the Sponsor.
- Related Party Transactions: Review the terms of the management agreements with Dynagas Ltd., including the daily management fee increases and potential termination fees.