Genco Shipping & Trading Limited — Q1 2020 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2020, compared with Q1 2019. Genco owns and operates drybulk carriers transporting commodities worldwide. At quarter-end, its fleet comprised 53 vessels with approximately 4.84 million dwt and an average age of 9.9 years.
Key financial results
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Voyage revenue | $98.3 million | $93.5 million; up 5.2% |
| Operating loss | $113.4 million | $0.9 million loss |
| Net loss | $120.4 million; $2.87 per share | $7.8 million loss; $0.19 per share |
| EBITDA, non-GAAP | $(96.4) million | $17.5 million |
| Cash from operations | $(4.0) million | $11.6 million provided |
| Cash, cash equivalents and restricted cash | $149.5 million | $162.2 million at Dec. 31, 2019 |
| Unrestricted cash | $134.3 million | $155.9 million at Dec. 31, 2019 |
| Debt principal | $488.8 million | $495.8 million at Dec. 31, 2019 |
- Q1 2020 operating expenses included a $112.8 million vessel impairment charge: $85.8 million for ten Handysize vessels targeted for disposal and $27.0 million for four Supramax vessels. The charge was the principal driver of the sharp increase in losses.
- Fleet-average time charter equivalent (TCE) rate was $9,755 per day, up 5.7% year over year. Fleet utilization was 97.8%, versus 97.4%.
- Voyage expenses increased 12.4% to $48.4 million, partly reflecting more expensive compliant low-sulfur fuel on vessels without scrubbers. The company reported $21.8 million in vessel operating expenses and $17.6 million in depreciation and amortization.
- Investing activities provided $5.6 million, including vessel-sale proceeds; financing activities used $14.3 million, including $7.3 million of dividends paid. Cash and restricted cash declined by $12.7 million during the quarter.
- Total assets were $1.381 billion and total equity was $851.2 million at March 31, 2020. Current assets were $227.5 million and current liabilities were $116.6 million.
Material changes and unusual items
- Revenue rose despite fewer ownership days, primarily because of increased spot-voyage employment, particularly for Capesize vessels. Higher Capesize rates offset lower rates among several smaller vessel classes.
- Q1 results were partly insulated from COVID-19 because many voyages and short-term charters had been fixed before the pandemic significantly affected markets. Management said subsequent fixtures were at lower rates for some vessels.
- The Board decided to dispose of ten older Handysize vessels. Agreements were signed to sell Baltic Wind, Baltic Breeze and Genco Bay for stated prices of $7.75 million, $7.9 million and $7.9 million, respectively, before commissions; completion was expected in Q2 or Q3 2020. Genco Thunder and Genco Charger were sold during Q1.
- Debt principal fell by approximately $7.0 million net. The company drew $11.25 million under the scrubber tranche and made repayments under its credit facilities. There was no remaining availability under either existing facility at quarter-end.
Outlook, liquidity, risks and contingencies
- Management said current capital resources were expected to fund operations for at least 12 months, provided drybulk rates did not decline significantly. It cautioned that a substantial deterioration in markets could threaten debt service and capital expenditure capacity.
- COVID-19 had reduced economic activity and demand for some cargoes, with management citing weaker drybulk rates since March. It noted signs of improvement in China but said the pace of recovery and risk of resurgence were uncertain. Operational risks include port restrictions, crew-change disruption, delays to repairs and drydockings, and supply-chain constraints.
- Management was negotiating a revolving credit facility of up to $25 million; there was no assurance it would be completed or funded on acceptable terms. Borrowing could also make compliance with collateral requirements more difficult.
- The credit facilities require minimum liquidity, working capital and collateral coverage, among other covenants. Genco reported compliance at March 31, 2020. Collateral vessels must meet a 135% appraised-value coverage test; a further decline in vessel values could require additional collateral, loan prepayment or a waiver.
- The regular quarterly dividend was reduced from $0.175 to $0.02 per share, announced May 6, 2020, amid market uncertainty. The approximately $0.8 million payment was expected around May 28. Future dividends remain discretionary and subject to cash, covenant and legal restrictions.
- Estimated remaining-2020 drydocking costs were $7.6 million and BWTS costs $3.0 million; 2021 estimates were $9.3 million and $5.5 million, respectively. Estimates may change. Management also cited $8.5 million of vessel purchase obligations in its contractual obligations table.
- Genco reported no legal proceedings believed to have a material effect and no material off-balance-sheet arrangements. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether the planned vessel sales close as expected and at the stated prices, and whether further vessel impairments or disposals follow.
- How post-quarter charter rates, cargo volumes and fleet utilization develop as COVID-19 and regional economic conditions evolve.
- Whether operating cash flow and unrestricted liquidity remain adequate for scheduled debt amortization, drydocking and BWTS spending.
- Progress and final terms, if any, of the proposed $25 million revolving facility, including its effects on collateral coverage and covenants.
- Future dividend decisions, subject to cash generation, facility restrictions and Board discretion.
- Exposure to floating-rate debt: the filing estimates a 1 percentage-point LIBOR increase would raise quarterly interest expense by $1.3 million.