Business Context and Reporting Period
Company: Navios Maritime Partners L.P.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three and six months ended June 30, 2016 (Unaudited)
Filing Date: August 12, 2016
Business Overview: Navios Partners is an international owner and operator of dry cargo and container vessels. As of August 11, 2016, the fleet consisted of 12 Panamax, 8 Capesize, 3 Ultra-Handymax, and 8 Container vessels. The company operates primarily under long-term time charters.
Key Financial Metrics
| Metric ($ in thousands) | 3 Months Ended June 30, 2016 | 6 Months Ended June 30, 2016 |
|---|---|---|
| Time Charter & Voyage Revenues | $44,877 | $90,518 |
| Net (Loss)/Income | $(16,807) | $(16,598) |
| EBITDA | $11,804 | $39,875 |
| Adjusted EBITDA | $28,997 | $57,068 |
| Operating Surplus | $19,434 | $37,718 |
| Net Cash Provided by Operating Activities | $15,206 | $38,736 |
| Total Debt (Net) | $555,007 (as of June 30, 2016) | |
| Cash and Cash Equivalents | $25,327 (as of June 30, 2016) | |
| Working Capital | $(22,353) (Negative) | |
| Time Charter Equivalent (TCE) per Day | $16,005 | $15,764 |
Material Changes vs. Prior Period
- Revenue Decline: Revenues for the six months ended June 30, 2016, decreased by 20.1% ($22.7 million) compared to the same period in 2015, primarily due to a decline in the freight market.
- Net Loss: The company reported a net loss of $16.6 million for the six months ended June 30, 2016, compared to net income of $22.2 million in the prior year period. This shift was driven by lower revenues and a significant non-cash impairment loss.
- Impairment Loss: An impairment loss of $17.2 million was recorded related to the MSC Cristina container vessel, which was classified as "held for sale" as of June 30, 2016. No impairment loss was recorded in the comparable 2015 period.
- EBITDA Impact: Adjusted EBITDA for the six months ended June 30, 2016, decreased by $19.6 million to $57.1 million compared to $76.7 million in 2015, reflecting the revenue decline and increased management fees.
- Customer Concentration: For the six months ended June 30, 2016, Hyundai Merchant Marine Co., Ltd. (HMM) accounted for 30.7% of total revenues, up from 24.0% in the full year 2015.
Guidance, Outlook, and Material Events
- Distribution Suspension: The Board of Directors suspended quarterly cash distributions beginning with the quarter ended December 31, 2015, to preserve cash and improve liquidity. There is no guarantee of future distributions.
- Vessel Sale: In June 2016, the company agreed to sell the MSC Cristina (13,100 TEU) for a net price of $125.0 million, with delivery expected in Q1 2017. Proceeds are intended to repay specific credit facilities.
- Charter Restructuring (Subsequent Event): On July 15, 2016, the company restructured charters for five container vessels with HMM. Hire rates were reduced by 20% (to $24,400/day) through December 31, 2019, with a restoration to $30,500/day in 2020. In exchange, Navios Partners received $7.7 million in senior unsecured notes and 3.7 million shares of HMM (sold in August 2016 for ~$21.3 million).
- Liquidity Position: The company maintains a negative working capital position of $22.4 million. Primary sources of funds include cash flows from operations, asset sales, and bank borrowings. The company was in compliance with all financial covenants as of June 30, 2016.
- Risks: Key risks include the cyclical nature of the shipping industry, potential loss of customers or charters, fluctuations in charter rates, and the ability to refinance debt on favorable terms.
Investor Verification Checklist
- Impairment Validity: Verify the fair value assessment and sale timeline for the MSC Cristina to ensure the $17.2 million impairment is accurate and the $125 million sale price is achievable.
- Charter Restructuring Impact: Assess the long-term revenue impact of the 20% hire rate reduction on the five HMM vessels and the creditworthiness of HMM as a counterparty.
- Liquidity and Covenants: Monitor the company's ability to maintain the required EBITDA to interest expense ratios (minimum 2.0:1, or 5.0:1 prior to distributions) and free consolidated liquidity requirements.
- Distribution Policy: Confirm the conditions required to reinstate quarterly distributions, given the current suspension and negative working capital.
- Related Party Transactions: Review the terms of the management agreement and the Navios Holdings Guarantee, noting that Navios Holdings owns a 20.1% interest and provides supplemental credit default insurance.