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, 2014 (Unaudited)
Business Overview: The Partnership is engaged in the seaborne transportation of liquefied natural gas (LNG). As of June 30, 2014, the fleet consisted of four vessels: Clean Energy, OB River, Clean Force, and the newly acquired Arctic Aurora. The Partnership completed a follow-on public offering in June 2014 and acquired the Arctic Aurora from its Sponsor, Dynagas Holding, for $235.0 million.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|
| Voyage Revenues | $41,872 | $42,444 |
| Operating Income | $25,092 | $27,268 |
| Net Income | $21,247 | $22,728 |
| Net Cash from Operating Activities | $33,158 | $17,728 |
| Net Cash Used in Investing Activities | ($209,562) | $0 |
| Net Cash from Financing Activities | $190,350 | ($17,728) |
| Cash and Cash Equivalents (End of Period) | $19,623 | $0 |
| Total Debt (Long-term + Current) | $335,000 | $214,085 |
| Weighted Avg. Common Units Outstanding | 15,381,464 | 6,735,000 |
| Earnings Per Unit (Common) | $0.74 | $1.04 |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by approximately 1.3% to $41.9 million, primarily due to a one-time non-cash charge of $908,000 related to the acceleration of a time-charter contract with BG Group and the commencement of a new 13-year charter with Gazprom.
- Asset Expansion: Fixed assets increased significantly from $453.2 million to $655.9 million following the acquisition of the Arctic Aurora for $235.0 million (recorded at $209.6 million net of deemed dividend).
- Debt Refinancing: The Partnership refinanced its existing $214.1 million facility with a new $340.0 million senior secured revolving credit facility with Credit Suisse. Total debt increased to $335.0 million.
- Capital Raise: The Partnership completed a follow-on offering of 5.52 million common units, raising net proceeds of approximately $120.6 million.
- Operating Cash Flow: Net cash provided by operating activities increased by 87% to $33.2 million, driven by changes in working capital and unearned revenue.
Guidance, Outlook, and Risks
- Charter Commitments: As of June 30, 2014, the Partnership has secured future minimum contractual charter revenues of $638.8 million through 2028, including a 13-year time charter with Gazprom for the Clean Force.
- Distribution Increase: On July 31, 2014, the Board approved an increase in the quarterly cash distribution of $0.025 per unit (annualized increase of $0.10), effective for the quarter ending September 30, 2014.
- Debt Covenants: The new credit facility requires maintaining total consolidated liabilities below 65% of adjusted total assets, an interest coverage ratio of at least 3.0x, and minimum liquidity of $24.0 million.
- Related Party Transactions: The Partnership relies on Dynagas Ltd. (owned by the Chairman) for technical and commercial management. Management fees and commissions are significant expenses, and the Sponsor retains a 44.0% equity interest.
- Future Financing: The Partnership filed a preliminary prospectus in August 2014 to offer up to $250.0 million in Senior Notes.
Investor Verification Checklist
- Charter Exposure: Verify the concentration risk with two major charterers (Gazprom and BG Group) accounting for 99% of revenues in the prior period.
- Debt Service: Confirm the ability to meet the new $340 million facility covenants, specifically the 3.0x interest coverage ratio and 65% debt-to-asset ratio, given the increased leverage.
- Related Party Fees: Review the impact of management fees ($1.4 million for the period) and the 1.25% commercial commission on net income.
- Asset Valuation: Assess the valuation of the Arctic Aurora acquisition and the $25.5 million preferential deemed dividend recorded to the Sponsor.
- Liquidity Position: Monitor the $24.0 million minimum liquidity requirement against the current cash balance of $19.6 million plus restricted cash of $24.0 million.