Business Context and Reporting Period
Company: Dynagas LNG Partners LP (DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2017 (Interim Unaudited)
Business Overview: A master limited partnership owning and operating ice-class LNG carriers. As of September 27, 2017, the fleet consisted of six vessels. Five are on multi-year time charters with major energy companies (Gazprom, Statoil, Yamal), while one trades on the spot market pending a long-term charter with Gazprom in July 2018.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 |
|---|---|---|
| Voyage Revenues | $71,067 | $85,379 |
| Operating Income | $30,627 | $51,727 |
| Net Income | $7,731 | $34,101 |
| Adjusted EBITDA | $54,192 | $70,202 |
| Net Cash from Operating Activities | $29,568 | $53,299 |
| Total Debt (Gross) | $730,000 | $722,500 |
| Cash and Cash Equivalents | $74,311 | $57,248 |
| Time Charter Equivalent (TCE) Rate | $65,784 | $76,845 |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by 16.0% ($14.2 million) primarily due to scheduled dry-docking of three vessels (Clean Energy, Ob River, Amur River), lower spot market rates for the Clean Energy, and a negotiated rate reduction on the Yenisei River and Lena River contracts.
- Profitability Impact: Net income dropped significantly to $7.7 million from $34.1 million. This was driven by lower revenues, $5.1 million in dry-docking costs (none in 2016), and increased interest expenses.
- Debt Refinancing: In May 2017, the company refinanced existing facilities ($340M Credit Suisse and $200M ABN Amro) with a new $480 million Term Loan B due in 2023. This increased interest costs by $5.2 million due to higher weighted average rates and a $2.6 million write-off of deferred loan fees.
- Equity Structure: On January 23, 2017, the subordination period expired, and 14,985,000 subordinated units held by the Sponsor converted into common units on a one-to-one basis.
Outlook, Risks, and Management Commentary
- Revenue Backlog: As of September 27, 2017, the estimated contracted revenue backlog was approximately $1.48 billion with an average remaining duration of 10.2 years. This includes charters with Yamal subject to important conditions.
- Liquidity: The company reported $104.3 million in available liquidity as of June 30, 2017 (including $30M revolving credit facility). Management anticipates generating sufficient cash from operations to fund operations, debt service, and distributions for at least the next 12 months.
- Capital Expenditures: Estimated annual maintenance and replacement capital expenditures are $16.9 million ($4.2M for dry-docking, $12.7M for vessel replacement).
- Risks: Key risks include LNG market trends, charter rate fluctuations, potential delays in the Yamal LNG Project, and the ability to exercise options for "Optional Vessels" (deadline extended to March 31, 2018). The company relies heavily on three charterers for 100% of revenues (70%, 19%, and 11% respectively).
Investor Verification Checklist
- Yamal Project Status: Verify the progress and conditions precedent for the Yenisei River and Lena River charters with Yamal, which represent a significant portion of the revenue backlog.
- Spot Market Exposure: Monitor the performance of the Clean Energy vessel in the spot market prior to its July 2018 long-term charter commencement with Gazprom.
- Debt Covenants: Confirm continued compliance with the Term Loan B covenants, specifically the debt service coverage ratio and minimum free liquidity requirements.
- Optional Vessel Exercise: Assess the likelihood and financing strategy for exercising the purchase options for the four Initial Optional Vessels and five Additional Optional Vessels by the March 31, 2018 deadline.
- Distribution Coverage: Review cash flow sufficiency to maintain the quarterly distribution of $0.4225 per common unit and $0.5625 per Series A Preferred Unit.