Genco Shipping & Trading Limited — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. The company owns and operates drybulk vessels, reporting one operating segment. Its fleet comprised 60 vessels with approximately 4.688 million dwt.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $45.4 | $31.9 | $83.6 | $52.8 |
| Operating loss | $(7.2) | $(100.8) | $(15.8) | $(147.7) |
| Net loss | $(14.5) | $(110.7) | $(30.1) | $(165.1) |
| Net loss per share | $(0.42) | $(15.32) | $(0.89) | $(22.87) |
| EBITDA (non-GAAP) | $10.9 | $(83.9) | $20.4 | $(110.7) |
- Voyage revenue rose 44.2% in Q2 and 62.1% in the first half. Fleet-average time charter equivalent (TCE) rates increased 82.7% to $8,439 per day in Q2 and 105.9% to $7,458 per day in the first half.
- Operating results remained loss-making. The much smaller comparative losses primarily reflect substantially lower vessel impairment charges: $3.3 million in 2017 versus $67.6 million in Q2 2016; first-half charges were $3.3 million versus $69.3 million. Q2 2017 also included a $1.3 million vessel-sale gain; first-half gain was $7.7 million.
- Daily vessel operating expense averaged $4,333 in Q2 and $4,364 in the first half, down 3.9% year over year in both periods. Fleet utilization was 96.6% in Q2 and 97.8% in the first half, below prior-year levels.
- Six-month operating cash flow was a use of $0.6 million, versus a use of $41.2 million in 2016. Investing activities provided $17.0 million, mainly from vessel sales; financing activities used $2.7 million. Cash and cash equivalents rose $13.8 million to $147.2 million. Restricted cash totaled $33.8 million and is not equivalent to unrestricted cash.
- At June 30, cash and cash equivalents were $147.2 million; current assets were $184.4 million and current liabilities $31.6 million. Gross debt principal, including accrued PIK interest, was $525.8 million; debt reported on the balance sheet, net of financing costs, was $515.6 million. Debt includes floating-rate facilities, and the company had no further borrowing availability under the cited facilities.
- Total assets were $1.542 billion and equity was $1.002 billion. Common shares outstanding were 34.4 million, compared with 7.4 million at year-end 2016, following conversion of all Series A preferred shares into common stock in January 2017.
Changes, outlook, and material matters
- Higher freight rates were the main driver of revenue and TCE improvement, partly offset by a smaller fleet after vessel sales and lower utilization. Management attributed early-quarter market strength to Chinese steel output and South American grain demand; rates came under pressure late in the quarter as fleet supply expanded and demolition activity declined.
- The Genco Tiger and Baltic Lion had 84 and 34 offhire days, respectively, in the first half for main-engine repairs. The company recorded $1.7 million of loss-of-hire insurance proceeds as Q2 voyage revenue. It expected about 30 further offhire days for the Genco Tiger in Q3, with approximately 10 days outside insurance coverage.
- Management said refinancing and the $125 million equity raise completed in 2016 were, under current market conditions, sufficient to address liquidity and covenant needs for at least the next 12 months. However, prolonged weak or declining drybulk conditions could leave the company unable to fund operations or meet debt obligations, potentially causing a facility default.
- Management reported compliance with financial covenants at June 30, 2017. The $400 million facility has a cash sweep; first-half excess cash flow was approximately $5.2 million. If Q2 revenue and expense levels persisted, management expected the $10 million threshold could be exceeded as early as Q3, with cash-sweep payments potentially due in Q4.
- There is no formal earnings or rate guidance in the filing. Dividends are restricted under debt agreements, with the longest restriction through December 31, 2020. The company had no interest-rate swaps or forward freight agreements; a 1 percentage-point LIBOR increase was estimated to raise first-half 2017 interest expense by $2.6 million.
- Subsequent event: on August 4, 2017, the board decided to dispose of five 1999-built vessels. The company expected this to result in an approximately $19 million Q3 impairment charge.
- At June 30, covenant-compliance vessel valuations were below carrying values for most vessels; carrying values exceeded those valuations by $451.4 million in aggregate, excluding specified vessels. These valuation differences are not themselves a recorded impairment but highlight valuation and collateral sensitivity.
- A shareholder lawsuit concerning the 2015 Baltic Trading merger remained on appeal after dismissal with prejudice. The company said it could not reasonably estimate any loss, but did not believe an adverse resolution was probable to have a material effect. Management reported disclosure controls were effective and no material quarterly change in internal control.
Investor verification points
- Track drybulk spot rates, charter renewals, fleet utilization, and whether market improvement persists; most vessel employment was due to expire between August 2017 and July 2018.
- Verify unrestricted liquidity, covenant compliance, and the timing and amount of cash-sweep repayments, given restricted cash and limited borrowing availability.
- Assess floating-rate debt exposure, scheduled amortization and balloon payments, PIK interest accumulation, and refinancing capacity.
- Confirm the Q3 impairment and disposal outcomes for the five older vessels, and monitor further vessel impairments or asset-sale gains and losses.
- Monitor repair-related offhire, insurance recoveries, drydocking costs, and expected ballast-water-treatment expenditures.
- Consider the significant increase in common shares following preferred-stock conversion when interpreting per-share comparisons; 2016 share and per-share data also reflect a one-for-ten reverse split.