Genco Shipping & Trading Limited — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts are U.S. dollars; financial statement amounts are in millions unless noted. The company transports drybulk cargo globally. At June 30, its fleet comprised 53 vessels; following vessel sales in July, management described a fleet of 51 vessels.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $74.2 | $83.6 | $172.5 | $177.0 |
| Operating loss | $(13.1) | $(27.3) | $(126.5) | $(28.2) |
| Net loss | $(18.2) | $(34.5) | $(138.6) | $(42.3) |
| Net loss per share | $(0.43) | $(0.83) | $(3.31) | $(1.01) |
| EBITDA, non-GAAP | $2.9 | $(9.2) | $(93.5) | $8.4 |
- Operating margin was approximately negative 17.7% in Q2 and negative 73.3% for the first half; the first-half result includes a substantial vessel impairment charge.
- Fleet-average TCE rate was $6,693 per day in Q2, down 9.7% year over year; for the first half it was $8,251, down 1.1%. Fleet utilization was 97.8% in both periods.
- Cash from operations was $(9.0) for the first half, versus $14.8 generated in the prior-year period. Investing cash use was $0.6; financing cash use was $9.8. Cash, cash equivalents and restricted cash ended at $142.9.
- Unrestricted cash was $127.7 and restricted cash was $15.2 at June 30. Principal debt was $494.5, including $79.5 classified as current; total liabilities were $521.9. The company reported compliance with financial covenants under both credit facilities.
Material changes and unusual items
- First-half vessel impairment expense was $112.8, compared with $13.9 in the prior-year period. The charge comprised $85.8 relating to ten older Handysize vessels identified for disposal and $27.0 relating to four Supramax vessels.
- Q2 revenue declined 11.2%, mainly due to lower rates for most vessel classes and a smaller fleet. First-half revenue fell 2.5%; weaker minor-bulk results and vessel disposals were partly offset by higher Capesize revenue.
- Q2 operating loss improved from the prior year, when $13.9 of impairment was recorded. First-half operating and net losses worsened sharply, principally because of the 2020 impairment charge.
- Voyage expenses rose 6.2% year over year for the first half, partly reflecting the higher cost of compliant low-sulfur fuel under IMO 2020; the company’s 17 Capesize vessels had scrubbers installed.
- In June, the company added a $25.0 revolving facility to its $133 Million Credit Facility and drew $24.0, leaving $1.0 available. The $495 Million Credit Facility had no availability. A separate amendment extended from 180 to 360 days the period for replacing certain sold collateral vessels before loan prepayment is required.
- The company sold the Baltic Wind and Baltic Breeze in July for $7.75 and $7.90, respectively, before commissions; it expected a $0.2–$0.4 loss on each sale. The Genco Bay sale was expected in Q3. Proceeds from certain collateral vessels are restricted and may have to be applied to debt if qualifying replacement collateral is not provided.
Outlook, risks and contingencies
- Management said drybulk rates improved from mid-May, with a marked Capesize rebound, and that rates for major and minor bulk vessels had improved into Q3 to date. It cautioned that the recovery’s sustainability is uncertain and could be affected by renewed COVID-19 disruption. No full-year earnings or revenue guidance was provided.
- Management believed available resources could fund operations for at least 12 months if shipping rates did not decline significantly. It highlighted scheduled facility amortization of $19.0 in Q3 2020 and $20.2 per quarter beginning December 31, 2020, along with drydocking, ballast-water-system spending and potential dividends.
- COVID-19 created uncertainty in cargo demand, freight rates, port access, vessel operations and crew rotations. Crew-change diversions can cause lost revenue, extra fuel, travel, testing and quarantine costs; management expected related pressures to continue at least through the remainder of 2020.
- Credit facilities require collateral vessel appraisals of at least 135% of outstanding principal. Further vessel-value declines could require additional collateral, debt prepayment or lender waivers. Management noted the $24.0 revolver borrowing could make covenant compliance more difficult.
- The quarterly dividend was reduced from $0.175 to $0.02 per share for Q1 and maintained at $0.02 for Q2. A further $0.02 dividend was announced for payment in August. Management warned that absent operating cash generation, dividends after 2020 may be unlikely except as permitted from net income; future dividends remain discretionary and subject to facility restrictions.
- Other risks include drybulk market and commodity demand weakness, U.S.-China trade tensions, floating-rate debt exposure, vessel-sale execution, and regulatory and capital expenditure requirements. A 1% LIBOR increase was estimated to add $2.5 of interest expense for the first half.
- The company reported no legal proceedings it believed would have a material effect, no material off-balance-sheet arrangements, and effective disclosure controls. The filing states there were no material changes to internal control over financial reporting.
Key facts for investors to verify
- Whether the freight-rate recovery continues and translates into improved TCE rates, revenue and operating cash flow.
- Liquidity against debt amortization, drydocking and ballast-water-system spending, and the conditions governing dividend payments.
- Collateral covenant headroom under both credit facilities, especially if vessel values decline further.
- Completion and proceeds of remaining vessel disposals, restricted-cash treatment and any additional impairment or sale losses.
- Actual cost and operational impact of COVID-related crew changes, including vessel diversions and lost earning days.
- Reconciliation of the fleet count: the notes report 53 vessels at June 30, while management’s post-July fleet description reports 51.