Genco Shipping & Trading Limited — Q1 2018 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2018, compared with Q1 2017; balance-sheet figures are compared with December 31, 2017. Genco owns and operates drybulk vessels transporting cargo worldwide. At the filing date, its fleet comprised 60 vessels with approximately 4.688 million deadweight tons and an average age of about 10.1 years. Amounts below are U.S. dollars unless stated otherwise.
Financial and operating performance
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Voyage revenue | $76.9 million | $38.2 million |
| Operating loss | $48.4 million | $8.6 million |
| Net loss | $55.8 million; $1.61 per share | $15.6 million; $0.47 per share |
| EBITDA (non-GAAP) | $(31.6) million | $9.5 million |
| Operating cash flow | $9.5 million provided | $6.6 million used |
| Cash, cash equivalents and restricted cash | $201.2 million | $204.9 million at Dec. 31, 2017 |
| Total debt principal, including PIK interest | $509.8 million | $524.4 million at Dec. 31, 2017 |
| Total assets / equity | $1,452.6 million / $919.0 million | $1,521.0 million / $975.0 million at Dec. 31, 2017 |
Fleet-average time charter equivalent (TCE) rate increased 65.5% to $10,463 per available day from $6,321. Fleet utilization was 98.9%, versus 99.1%; daily vessel operating expense averaged $4,401, essentially flat year over year. Interest expense was $8.1 million, up from $7.1 million; the filing reports net interest expense of $7.3 million versus $7.0 million.
Material changes versus the prior period
- Revenue more than doubled, mainly from higher rates and increased use of spot voyage charters, partly offset by fewer vessels after five 2017 vessel sales. Voyage expenses also rose sharply because vessel owners bear fuel and port costs on voyage charters.
- A $56.4 million impairment was recorded for nine older vessels the board decided to dispose of. No vessel-sale gain was recorded in Q1 2018, compared with a $6.4 million gain in Q1 2017.
- Despite the larger net loss, operating cash flow improved to $9.5 million, reflecting, among other items, the noncash impairment adjustment. Investing cash flow was $1.4 million versus $13.1 million, as Q1 2017 included vessel-sale proceeds. Financing cash outflow was $14.7 million, primarily debt repayments.
- Adoption of the new revenue standard in Q1 2018 changed voyage-charter revenue timing and capitalization of certain pre-loading fuel costs. It reduced opening retained earnings by $0.7 million; its reported Q1 effect was a $0.2 million reduction in revenue and a $0.2 million increase in net loss. Prior-year results were not restated.
Liquidity, debt, outlook and risks
- Cash and cash equivalents were $172.8 million, with a further $28.4 million restricted. Current assets were $221.3 million and current liabilities $53.8 million. The company reported $4.1 million due under the $400 million facility’s excess-cash-flow sweep, classified as current debt and payable within 45 days of quarter-end.
- Debt facilities are floating-rate and secured by vessels; no facility availability remained. Genco said it believed it was compliant with financial covenants at March 31, 2018. The $400 million facility matures in November 2021, the $98 million facility in September 2020, and the 2014 term loans have scheduled amortization. Dividends were restricted under existing agreements, with the longest restriction extending to December 31, 2020.
- On May 8, 2018, after quarter-end, Genco signed a commitment letter for a proposed five-year secured facility of up to $460 million to refinance existing facilities and pay down debt on seven vessels identified for sale. The proposed facility includes an expected first scheduled payment of about $15 million on December 31, 2018 and financial, liquidity and collateral tests. It remained subject to definitive documentation and customary conditions; completion was not assured.
- Management cited improving drybulk supply-and-demand fundamentals and believed available capital resources would fund operations for at least 12 months. It gave no specific earnings or rate guidance. Most vessel employment contracts were due to expire, assuming no options, between May and November 2018, exposing results to prevailing freight rates when vessels are rechartered.
- Risks include volatility in drybulk demand and freight rates, vessel supply, fuel and operating costs, charterer performance, LIBOR exposure, covenant compliance, vessel values and refinancing execution. A 1 percentage-point LIBOR increase was estimated to raise interest expense by $1.3 million for the quarter. The filing also flags potential trade barriers and tariffs, including U.S. steel and aluminum tariffs and possible retaliation.
- Estimated remaining 2018 drydocking costs were $3.2 million and ballast-water treatment system costs $0.6 million; 2019 estimates were $20.9 million and $16.6 million, respectively. Estimates include vessels potentially for sale and may change. The company noted ongoing potential legal proceedings, but did not believe their resolution was likely to materially affect it; a shareholder suit dismissal was affirmed on appeal in April 2018, subject to possible further appeal.
Most important facts for investors to verify
- Whether the proposed $460 million refinancing closed on final terms, and how its amortization, covenants and collateral requirements affect liquidity.
- Whether and when the nine impaired vessels and the additional seven vessels identified for sale were disposed of, and the resulting proceeds, gains or losses and debt reductions.
- Rechartering rates and contract coverage as the substantial number of charters expiring in 2018 rolled off.
- Cash availability after restricted balances and mandatory cash sweeps, alongside covenant compliance and floating-rate interest exposure.
- Actual drydocking and ballast-water system costs, off-hire time, and the effect of the new revenue-recognition policy on period-to-period comparisons.