Genco Shipping & Trading Limited — Q2 2021 Form 10-Q
Business and period: Unaudited results for the three and six months ended June 30, 2021. Genco transports drybulk cargo worldwide and operated 40 vessels at quarter-end: 17 Capesize, nine Ultramax and 14 Supramax, with approximately 4.37 million dwt capacity.
Key financial metrics
Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions. Margins are calculated from reported figures.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $121.0m | $74.2m | $208.6m | $172.5m |
| Operating income (loss) | $36.2m | ($13.1m) | $42.6m | ($126.5m) |
| Operating margin | 30.0% | (17.7%) | 20.4% | (73.3%) |
| Net income (loss) | $32.0m | ($18.2m) | $34.0m | ($138.6m) |
| Net margin | 26.5% | (24.5%) | 16.3% | (80.3%) |
| Basic EPS | $0.76 | ($0.43) | $0.81 | ($3.31) |
| EBITDA (non-GAAP) | $50.2m | $2.9m | $70.1m | ($93.5m) |
- Cash flow: Six-month operating cash flow was $62.6m, versus cash used of $9.0m in 2020. Investing activities provided $4.2m, versus $0.6m used. Financing activities used $85.2m, primarily reflecting debt repayments. Cash, cash equivalents and restricted cash totaled $161.2m at June 30.
- Liquidity: Unrestricted cash was $116.3m; restricted cash was $44.9m. The $133m facility had $17.3m of revolver availability; there was no availability under the $495m facility. Management said available resources were expected to fund operations for at least 12 months if drybulk rates did not decline significantly.
- Debt: Principal debt was $367.0m, down from $449.2m at December 31, 2020. Balance-sheet current debt was $55.9m and long-term debt, net of financing costs, was $303.7m. The company reported compliance with both facilities’ financial covenants.
- Operating measures: Q2 fleet-average time charter equivalent (TCE) rate rose to $21,137 per day from $6,693; fleet utilization was 98.3%, up from 97.8%. Six-month TCE increased to $16,508 per day from $8,251. Average daily vessel operating expense increased to $5,151 in Q2 from $4,366.
Changes versus the comparable period
- Q2 revenue increased 63.1% year over year, and six-month revenue increased 20.9%, principally due to higher rates across major and minor bulk vessels. Higher rates more than offset operating fewer vessels.
- Q2 net income improved from a loss of $18.2m to income of $32.0m. For the first half, the year-over-year turnaround was also aided by the absence of the $112.8m vessel impairment recorded in 2020.
- Debt principal fell by $82.2m from year-end 2020, including repayment of the remaining scrubber tranche and repayment of the revolver drawdown.
- Ownership days fell 24.4% in Q2 and 22.7% for the first half versus 2020, reflecting vessel sales and fleet changes. Charter-hire expense increased as charter-in rates and days rose.
Outlook, management commentary and risks
- Management described drybulk conditions in Q2 2021 as strong, citing higher global activity, steel production and commodity demand; it noted that Capesize and Supramax spot rates had reached levels not seen since 2010. It cautioned that the recovery’s sustainability is uncertain.
- The company’s announced value strategy prioritizes debt reduction and refinancing, with a stated aim to begin dividends under a new cash-flow-based policy in Q1 2022, based on Q4 2021 results. Dividend amounts remain subject to cash generation, reserves, legal and credit-agreement limits, and board discretion. A $0.10-per-share quarterly dividend was separately declared after quarter-end, payable in August 2021.
- On August 3, 2021, Genco entered into a five-year, up-to-$450m secured facility, intended to refinance the existing facilities. It includes up to $150m in term loans and $300m in revolving commitments. Borrowings remain subject to closing conditions; the company expected $4m–$5m of debt extinguishment costs in Q3 2021.
- Fleet renewal plans included purchases of three Ultramax vessels agreed after quarter-end, one Ultramax purchase and two newbuildings agreed during the quarter, and sales of older vessels. Expected delivery and financing remain subject to transaction completion.
- Management identified COVID-19 effects—including crew-change disruption, port restrictions and additional costs—as ongoing uncertainties. Other risks include volatile drybulk rates and global trade, China-related demand, fuel and crew cost inflation, vessel valuations and collateral covenants, floating-rate debt and LIBOR transition, and regulatory requirements.
- Estimated drydocking, ballast-water-system and fuel-efficiency upgrade costs were $13.8m for July–December 2021 and $16.7m for 2022, excluding other drydock expense items. The filing reported no material legal proceedings or material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the new $450m refinancing closed on expected terms and how it affects borrowing costs, amortization, liquidity and covenant headroom.
- Actual debt reduction, restricted sale proceeds and the amount of cash available after planned vessel acquisitions, drydockings and other capital expenditures.
- Whether elevated TCE rates and vessel utilization persist, particularly given fewer owned vessels and the company’s short-term market exposure.
- Progress on the new dividend policy, including the board’s reserve decisions, credit-facility restrictions and capacity to sustain distributions.
- Delivery, financing and integration of announced vessel purchases, and completion and proceeds from planned vessel sales.
- Developments in COVID-19-related crew rotations and costs, vessel values and collateral tests, interest-rate exposure, and LIBOR replacement arrangements.