NMM

Business Context and Reporting Period

Company: Navios Maritime Partners L.P. (NMM)
Filing Type: Form 20-F (Annual Report)
Period Ended: December 31, 2010
Business Overview: Navios Partners is an international owner and operator of drybulk carriers, primarily Panamax, Capesize, and Ultra-Handymax vessels. The fleet is chartered under medium to long-term time charters to major commodity traders. The partnership is managed by Navios ShipManagement Inc., a subsidiary of Navios Maritime Holdings Inc. (Navios Holdings), which also owns a significant interest in the partnership.

Key Financial Metrics (Year Ended Dec 31, 2010)

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 54.6% to $143.2 million, driven primarily by the acquisition of six additional vessels (Navios Apollon, Hyperion, Sagittarius, Aurora II, Pollux, Melodia, and Fulvia) during 2009 and 2010.
• Profitability: Net income rose 76.3% to $60.5 million. This was aided by higher revenues and a decrease in interest expense (due to lower LIBOR rates), partially offset by increased management fees and depreciation/amortization associated with the expanded fleet.
• Balance Sheet Expansion: Total assets nearly doubled to $840.9 million, reflecting significant capital expenditures of $447.8 million for vessel acquisitions. Total debt increased to $321.5 million to fund these acquisitions.
• Equity Issuances: The company raised approximately $266.4 million in gross proceeds from three public equity offerings in 2010 to fund fleet expansion.

Guidance, Outlook, Risks, and Contingencies

• Outlook: Management anticipates stable cash flows due to long-term, fixed-rate charters with an average remaining duration of 4.5 years. The company plans to continue growing its fleet through acquisitions from Navios Holdings and the open market.
• Key Risks:
  • Charter Rate Volatility: The drybulk shipping industry is highly cyclical. While current charters are fixed, future re-chartering rates are uncertain.
  • Customer Concentration: The top five customers accounted for approximately 67.5% of 2010 revenues. Loss of a major charterer could materially impact results.
  • Debt Covenants: The company is subject to restrictive covenants under its Credit Facility, including minimum liquidity ($20 million), EBITDA/Interest coverage (2.0:1), and leverage ratios. Breach could lead to acceleration of debt.
  • Related Party Dependence: Operations rely heavily on Navios ShipManagement for technical and commercial management. Fees are fixed until November 2011 but will revert to cost-reimbursement thereafter, potentially increasing expenses.
• Contingencies:
  • Korea Line Corporation (KLC): In January 2011, KLC filed for receivership. Navios Partners has a Capesize vessel (Navios Melodia) chartered to KLC. The company has demanded affirmation or termination of the charter. Charter payments are insured by an "AA+" rated governmental agency.
  • Piracy: The vessel Navios Apollon was seized by pirates in December 2009 and released in February 2010. The company maintains insurance for such events.

Investor Verification Checklist

• Debt Covenant Compliance: Verify current compliance with the Credit Facility's liquidity, leverage, and interest coverage covenants, especially given the high debt load relative to equity.
• Charter Expirations: Review the schedule of charter expirations to assess exposure to spot market rates upon renewal, noting that no more than three vessels are subject to re-chartering in any single year.
• Related Party Transactions: Scrutinize the terms of the Management Agreement, specifically the transition from fixed fees to cost-reimbursement in late 2011, and the pricing of vessel acquisitions from Navios Holdings.
• Customer Credit Risk: Assess the financial health of major charterers, particularly in light of the KLC receivership and the concentration of revenue among the top five clients.
• Capital Expenditure Needs: Evaluate the adequacy of the replacement reserve ($14.7 million in 2010) against future drydocking and vessel replacement costs.