Genco Shipping & Trading Limited (NYSE: GNK) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Financial comparisons are primarily with 2019; quarterly data are also disclosed. The company transports drybulk commodities worldwide. The filing was signed February 24, 2021.
Business context
Genco reported one operating segment. At year-end it owned a fleet of 47 vessels; fleet sales and exchanges completed or planned after year-end were expected to leave 39 vessels, with approximately 4.315 million dwt and an average age of about 10.1 years. Its commercial strategy relies substantially on short-term fixtures and spot-market exposure.
Key financial results
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Voyage revenue | $355.6 million | $389.5 million | Down 8.7% |
| Operating loss | $203.3 million | $28.4 million | Loss widened |
| Net loss | $225.6 million | $56.0 million | Loss widened |
| Net loss per share | $5.38 | $1.34 | Loss per share widened |
| EBITDA, non-GAAP | Negative $139.0 million | $44.7 million | Turned negative |
| Cash from operations | $36.9 million | $59.5 million | Down 38.0% |
| Cash from investing | $37.4 million | Used $22.8 million | Improved, mainly vessel-sale proceeds |
| Cash used in financing | $56.9 million | $77.2 million | Lower outflow |
At December 31, 2020, total assets were $1.233 billion, total equity $745.0 million, and total debt (net of deferred financing costs) $439.6 million, down from $482.7 million a year earlier. Principal debt was $449.2 million. Cash and cash equivalents were $143.9 million; restricted cash was $35.8 million, for combined cash, cash equivalents and restricted cash of $179.7 million. The filing reports no availability under either credit facility at year-end.
Fleet-average time charter equivalent (TCE) was $10,221 per day, roughly unchanged from $10,182 in 2019. Major-bulk TCE rose 13.6% to $14,977 per day; minor-bulk TCE declined 13.6% to $7,832. Fleet utilization was 97.1%, versus 97.5%.
Material changes and unusual items
- Vessel impairment charges surged to $208.9 million from $27.4 million. Charges related to 20 Supramax and 10 Handysize vessels and were the principal driver of the substantially larger annual loss. The impairment estimate depends heavily on future charter-rate assumptions; the auditor identified those assumptions as a critical audit matter.
- Revenue fell despite a slight increase in fleet-average TCE, primarily because the company operated fewer vessels. Ownership days declined 9.8% following fleet disposals. Pandemic-related crew-change delays also caused lost earning days and additional voyage costs.
- Genco sold nine vessels during 2020 and entered into further sale agreements. A December 2020 transaction exchanged six older Handysize vessels for three modern Ultramax vessels; the remaining deliveries were completed in the first quarter of 2021. The company also disclosed subsequent sales of additional older vessels.
- Net interest expense decreased to $21.4 million from $27.9 million, mainly due to lower rates and lower debt, partly offset by lower interest income.
- Operating cash flow declined chiefly due to working-capital changes, partly offset by lower drydocking expenditures. Investing cash flow benefited from higher net vessel-sale proceeds and lower scrubber and ballast-water-system expenditures.
Liquidity, debt, dividends and outlook
Management said available capital resources, including $143.9 million of unrestricted cash at year-end, were expected to fund operations for at least 12 months, provided drybulk rates did not decline significantly. It also warned that a significant deterioration in market conditions could put debt service and capital commitments at risk. Scheduled quarterly debt amortization was approximately $20.2 million, beginning December 31, 2020. The facilities mature in 2023 and include minimum-liquidity, working-capital, leverage and collateral-maintenance covenants. Genco reported compliance with covenants at year-end; collateral vessels must be valued at least 135% of the related principal debt.
The board reduced the regular quarterly dividend from $0.175 to $0.02 per share beginning in the first quarter of 2020 to preserve liquidity. A $0.02 dividend for the fourth quarter was announced in February 2021. Future dividends remain at board discretion and are subject to cash, legal and lender restrictions; the filing says they may be reduced, suspended or discontinued.
Management described drybulk rates as recovering in the second half of 2020, supported in part by China’s stronger activity and iron-ore imports, but emphasized that recovery sustainability was uncertain. The filing provides no formal earnings or rate guidance. Management budgeted 2021 average daily vessel operating expenses of about $5,000 for the fleet, reflecting a changed fleet mix and anticipated crew and COVID-related costs. It estimated 2021 drydocking costs of $7.7 million and ballast-water-system costs of $4.0 million, with further expenditures anticipated in 2022.
Key risks include COVID-19’s effects on trade, port access and crew rotations; volatile spot freight rates and dependence on China and other global economies; vessel-value declines and further impairment; collateral covenant pressure; floating-rate debt and LIBOR transition; fuel-price and IMO emissions-compliance costs; customer concentration; and environmental, operational, piracy and insurance risks. Ten charterers accounted for approximately 40% of 2020 revenue, although no individual customer exceeded 10%. The company reported no material pending legal proceedings. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether vessel-rate recovery and fleet employment generate enough operating cash to cover scheduled debt amortization, drydockings and other commitments.
- How sensitive vessel values and future impairment charges are to charter-rate assumptions; year-end covenant valuations were below carrying values for most vessels.
- Collateral-covenant headroom, restricted vessel-sale proceeds, and the consequences if replacement collateral is not added within permitted periods.
- Actual results of the vessel-sale and exchange program, including proceeds, related losses and the resulting fleet size and earning capacity.
- Whether crew-change restrictions, pandemic-related costs, regulatory requirements and scrubber fuel savings differ materially from management’s assumptions.
- Dividend capacity under the credit agreements and applicable law, especially given cash requirements and the company’s quarterly amortization burden.