Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited interim consolidated financial statements for the three-month period ended March 31, 2014.
Business Overview: The Partnership is engaged in the seaborne transportation of liquefied natural gas (LNG) through the ownership and operation of three LNG carriers: Clean Energy, Ob River, and Clean Force. The Partnership completed its initial public offering (IPO) in November 2013.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2014 | Q1 2013 |
|---|---|---|
| Voyage Revenues | $21,009 | $21,168 |
| Operating Income | $12,823 | $13,499 |
| Net Income | $11,029 | $11,207 |
| Net Cash from Operating Activities | $14,529 | $6,797 |
| Cash and Cash Equivalents (End of Period) | $8,768 | $0 |
| Long-Term Debt | $214,085 | $214,085 |
| Weighted Avg. Units (Common) | 14,985,000 | 6,735,000 |
| Earnings Per Unit (Common) | $0.37 | $0.52 |
Liquidity: The Partnership maintained $22.0 million in restricted cash to meet debt covenant requirements. As of March 31, 2014, unused borrowing capacity under the Credit Suisse facility was $43.0 million.
Material Changes vs. Prior Period
- Revenue Stability: Voyage revenues remained relatively flat, decreasing slightly by 0.7% to $21.0 million compared to $21.2 million in Q1 2013.
- Operating Expenses: General and administrative expenses increased significantly to $580,000 from $23,000 in the prior year, largely due to the execution of an executive services agreement with the Manager ($273,000) and post-IPO operational costs.
- Operating Cash Flow: Net cash provided by operating activities more than doubled to $14.5 million from $6.8 million, driven by favorable changes in working capital and unearned revenue.
- Debt Repayment: The Partnership repaid a $5.5 million interest-free loan from a related party in January 2014. Long-term debt remained constant at $214.1 million.
- Distributions: The Partnership paid a cash distribution of $0.365 per unit ($11.0 million total) for Q1 2014, compared to no distributions in the prior year period.
Outlook, Risks, and Subsequent Events
- Arctic Aurora Acquisition: On April 17, 2014, the Partnership entered into a Share Purchase Agreement to acquire the Arctic Aurora, an ice-class LNG carrier, for $235 million. The deal is subject to closing conditions and financing, including a new $340 million credit facility and a potential public offering.
- New Charter Contract: On April 17, 2014, the Partnership secured a 13-year time-charter contract with Gazprom for the vessel Clean Force, expected to generate approximately $313.0 million in gross revenues. This follows an amendment to the previous charter with BG Group to expire in July 2015.
- Debt Covenants: The Partnership is in compliance with all financial covenants, including maintaining a minimum liquidity of $22.0 million and an interest coverage ratio of at least 3.0 times.
- Risks: The business is subject to standard shipping industry risks, including market volatility, fuel costs, and regulatory changes. The acquisition of the Arctic Aurora is contingent on securing necessary funding.
Investor Verification Checklist
- Acquisition Financing: Verify the status of the $340 million credit facility commitment and the potential public offering required to fund the $235 million Arctic Aurora purchase.
- Charter Revenue Security: Confirm the terms and security of the new 13-year Gazprom charter for Clean Force and the transition from the BG Group charter.
- Related Party Transactions: Review the ongoing management fees and executive services fees paid to Dynagas Ltd. (the Manager), which is owned by the Chairman's family.
- Debt Covenants: Monitor compliance with the Credit Suisse facility covenants, specifically the 65% debt-to-market-value ratio and minimum liquidity requirements.
- Distribution Policy: Assess the sustainability of the $0.365 per unit quarterly distribution given the capital expenditure requirements for the new vessel acquisition.