Business Context and Reporting Period
Company: Genco Shipping & Trading Limited (GS&T)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: GS&T is a Marshall Islands corporation engaged in the ocean transportation of drybulk cargoes worldwide. As of July 29, 2009, the fleet consisted of 33 vessels (7 Capesize, 8 Panamax, 4 Supramax, 6 Handymax, 8 Handysize) with an average age of 6.8 years. The company primarily operates vessels under time charters.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 | Three Months Ended June 30, 2009 | Three Months Ended June 30, 2008 |
|---|---|---|---|---|
| Revenues | $190,351 | $196,242 | $93,701 | $104,572 |
| Operating Income | $108,401 | $156,103 | $53,252 | $70,817 |
| Net Income | $78,859 | $134,886 | $37,617 | $60,899 |
| EBITDA | $150,000 | $189,925 | $73,884 | $88,840 |
| Earnings Per Share (Diluted) | $2.51 | $4.58 | $1.20 | $2.03 |
| Cash and Cash Equivalents (Balance Sheet) | $228,764 | $124,956 | N/A | |
| Long-Term Debt | $1,173,300 | $1,173,300 | N/A | |
| Net Cash Provided by Operating Activities | $109,760 | $131,627 | N/A |
Operational Metrics (Six Months Ended June 30, 2009):
- Fleet Utilization: 98.8% (vs. 99.3% in 2008)
- Average Time Charter Equivalent (TCE) Rate: $32,724 per day (vs. $38,419 in 2008)
- Daily Vessel Operating Expenses: $4,743 (vs. $4,328 in 2008)
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 3.0% for the six months ended June 30, 2009, compared to the prior year. This was driven by lower charter rates (TCE rates down 14.8%) despite a larger fleet (ownership days increased 13.4%).
- Profitability Drop: Net income decreased 41.5% to $78.9 million for the six-month period. This decline is attributed to lower revenues, higher operating expenses due to fleet expansion, and increased interest expense.
- Expense Increases:
- Depreciation & Amortization: Increased 28.4% to $41.9 million due to the larger fleet.
- Interest Expense: Net interest expense rose to $29.3 million (from $22.4 million) due to higher outstanding debt and an increased Applicable Margin (2.00%) following the 2009 Amendment to the credit facility.
- Vessel Operating Expenses: Increased 24.3% to $27.5 million, primarily due to higher crewing/insurance costs and the operation of more Capesize vessels.
- Dividend Suspension: No dividends were declared for the quarter ended June 30, 2009, compared to $1.00 per share in the same period in 2008. This suspension is required under the 2009 Amendment to the credit facility until the company satisfies the collateral maintenance covenant.
Guidance, Outlook, Risks, and Contingencies
- Credit Facility Amendment: On January 26, 2009, the company amended its 2007 Credit Facility. The amendment waived the collateral maintenance covenant (requiring vessel value to be 130% of borrowings) until compliance is restored. Consequently, dividends and share repurchases are suspended. The facility is subject to quarterly reductions of $12.5 million starting March 31, 2009.
- Legal Proceedings: The vessel Genco Cavalier was chartered to Samsun Logix Corporation, which filed for bankruptcy protection in South Korea. The charter was repudiated due to non-payment, and the vessel has been re-chartered. The company is pursuing legal options for unpaid hire.
- Investment Impairment: The company holds an investment in Jinhui Shipping and Transportation Limited. While deemed other-than-temporarily impaired in Q4 2008 (resulting in a $103.9 million charge), no further impairment was recognized in the first half of 2009. The investment value increased to $35.4 million as of June 30, 2009.
- Future Acquisitions: The company expects to acquire two remaining Capesize vessels (Genco Maximus and Genco Claudius) in Q3 and Q4 2009, funded by the credit facility and cash flow.
- Market Risks: The company faces risks related to global economic downturns, freight rate volatility, and potential charterer defaults. Piracy risks in the Gulf of Aden have led to the stationing of armed guards on some vessels.
Key Facts for Investor Verification
- Covenant Compliance: Verify the company's ability to satisfy the collateral maintenance covenant to resume dividend payments and share repurchases.
- Charter Expirations: Review the schedule of charter expirations (27 of 33 vessels have charters expiring between August 2009 and October 2012) and the risk of re-chartering at lower rates in a soft market.
- Debt Servicing: Monitor the impact of the mandatory quarterly debt reductions ($12.5 million) and the increased interest margin (2.00%) on future cash flows.
- Legal Recovery: Track the outcome of the arbitration/legal proceedings against Samsun Logix Corporation regarding unpaid hire for the Genco Cavalier.
- Investment Valuation: Monitor the fair value of the Jinhui investment for potential future impairment charges if market conditions deteriorate.