Genco Shipping & Trading Limited — Q1 2012 Form 10-Q
Business context and reporting period. Unaudited consolidated results for the three months ended March 31, 2012, compared with Q1 2011. Genco owns and operates drybulk carriers worldwide; consolidated reporting includes Baltic Trading, in which Genco held a 25.11% economic interest and 83.41% of voting power.
Key financial metrics
Amounts below are U.S. dollars in millions, except per-share data and operating rates.
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $59.8 | $101.4 |
| Operating income (loss) | $(12.5) | $33.7 |
| Net income (loss) | $(36.4) | $12.2 |
| Net income (loss) attributable to Genco | $(33.1) | $13.4 |
| Basic and diluted EPS | $(0.87) | $0.38 |
| EBITDA, as defined by the company | $25.2 | $68.0 |
| Net cash from (used in) operating activities | $(8.0) | $40.2 |
| Cash and cash equivalents at quarter-end | $246.7 | $228.0 at Dec. 31, 2011 |
- Voyage revenue fell 41.3% to $59.0 million. Fleet-average time charter equivalent (TCE) fell 45.3% to $10,480 per day; utilization remained high at 99.3% versus 99.5%.
- Operating margin was approximately negative 20.9%, versus positive 33.3% a year earlier; net margin was approximately negative 60.8%, versus positive 12.0%.
- Vessel operating expenses were $27.8 million, up 12.3%; daily vessel operating expenses rose 3.9% to $4,933. Interest expense was $23.7 million, compared with $21.3 million.
- Quarter-end current assets were $278.5 million and current liabilities $251.3 million, for working capital of approximately $27.2 million. Current debt was $220.8 million; restricted cash was $9.8 million.
- Bank debt was $1.569 billion, including current and long-term portions. Convertible notes had a $125 million principal amount and $107.5 million carrying amount. Total equity was $1.385 billion.
Material changes versus the prior comparable period
- Revenue declined $41.6 million and the company moved from operating profit to operating loss and from net income to net loss. Management attributed the deterioration principally to lower charter rates and more planned drydock off-hire days; fleet growth partly offset the rate decline.
- The company reported a 45.3% decline in fleet-average TCE. Management cited reduced iron ore cargoes around Chinese New Year and increased newbuilding deliveries as contributors to weaker freight rates.
- Operating cash flow shifted from $40.2 million provided to $8.0 million used. Investing cash outflow decreased to $1.5 million from $36.0 million, largely because Q1 2011 included vessel purchases.
- Financing provided $28.2 million, mainly reflecting the February equity offering. Genco issued 7.5 million shares at $7.10 each and received $49.9 million net proceeds. Quarter-end shares outstanding were 43.8 million, versus 36.3 million at year-end 2011.
- Cash increased $18.7 million during the quarter. The company repaid $12.5 million under its 2007 facility, $5.1 million under the $253 million term loan, and $1.9 million under the $100 million term loan.
Outlook, risks, contingencies and unusual items
- The filing provides no formal earnings or rate guidance. As of April 28, 2012, minimum contracted time-charter revenue was estimated at $45.6 million for the remainder of 2012, $7.8 million for 2013 and $3.0 million for 2014. These figures exclude pool vessels and spot or spot-linked employment where rates could not be estimated.
- Management expected drydocking costs of $7.2 million and 229 off-hire days for April–December 2012, and $5.0 million and 140 days in 2013. These are estimates; actual cost and downtime may vary.
- The 2007 Credit Facility’s collateral-maintenance, maximum-leverage and minimum-interest-ratio covenants were waived; leverage and interest-ratio covenant waivers on the three Genco facilities ran through March 31, 2013. Genco said it believed it was in compliance with applicable financial covenants. The 2007 facility’s collateral covenant waiver remains a key financing condition, and dividends and share repurchases are suspended; the company is also prohibited from paying dividends through March 31, 2013.
- Genco had $1.162 billion outstanding under the 2007 Credit Facility, with quarterly facility reductions of $48.2 million beginning June 30, 2012, followed by a $149.9 million final payment at July 2017 maturity. The company reported no availability under its $100 million and $253 million term facilities. Baltic Trading had $38.8 million available under its credit facility.
- Management disclosed that vessel covenant valuations were below carrying values; the average carrying-value excess was $19.4 million per vessel. Under the $100 million term loan collateral covenant, a further 5% decline in pledged-vessel values would have caused noncompliance at March 31; management said it expected to use cash to pay down debt if needed.
- Interest-rate exposure remains material: a 1% increase in LIBOR was estimated to increase Q1 2012 interest expense by $2.7 million on the unhedged debt. Five swaps with $356.2 million notional remained outstanding; their fair-value liability was $22.6 million.
- Other notable items: $0.4 million net rent expense was recorded after Genco ceased using its former office space; the company had a $0.8 million estimated claim against Korea Line Corporation in rehabilitation proceedings, with recoverability uncertain. Genco reported no legal proceeding it believed would materially affect its financial condition or results.
- After quarter-end, Baltic Trading declared a $0.05-per-share dividend, expected to total approximately $1.1 million. Genco identified drybulk demand and freight rates, vessel supply, operating costs, charterer performance, repairs and drydockings, and regulatory or geopolitical developments among risks that could cause actual results to differ from expectations.
Important facts for investors to verify
- Whether charter rates and drybulk market conditions recover, and how soon expiring charters must be renewed at prevailing rates.
- Compliance with collateral requirements, the effect of vessel valuations below book value, and the terms and duration of lender waivers and repayment schedules.
- Cash generation relative to debt service, scheduled amortization, drydocking needs and the company’s ability to preserve liquidity without further financing.
- The extent to which the February 2012 equity issuance diluted shareholders and whether further capital raising may be needed.
- Actual drydock costs and off-hire, charterer collectability, and the eventual outcome of the Korea Line claim.