Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Interim Report)
Reporting Period: Three months ended March 31, 2019
Business Overview: A growth-oriented limited partnership owning and operating a fleet of six LNG carriers. All vessels are employed or contracted for multi-year time charters with major energy companies (Gazprom, Equinor, Yamal). The Partnership has a significant revenue backlog of approximately $1.35 billion with an average remaining duration of 9.3 years.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2019 | Q1 2018 |
|---|---|---|
| Voyage Revenues | $31,403 | $33,904 |
| Operating Income | $14,381 | $16,806 |
| Net Income | $1,892 | $4,840 |
| Net Income Attributable to Common Unitholders | $(998) | $3,149 |
| Adjusted EBITDA | $21,716 | $26,590 |
| Net Cash from Operating Activities | $9,186 | $11,853 |
| Time Charter Equivalent (TCE) Rate | $57,113 | $61,635 |
| Total Debt (Gross) | $721,600 | $722,800 |
| Cash and Cash Equivalents | $112,271 | $61,401 |
Liquidity: As of March 31, 2019, available liquidity was $142.3 million, including $112.3 million in cash and $30.0 million under a revolving credit facility with the Sponsor.
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by 7.4% ($2.5 million) compared to Q1 2018. This was driven by lower charter rates on the Arctic Aurora, Ob River, and Lena River following charter rollovers or transitions to new contracts.
- Profitability: Net income attributable to common unitholders swung from a profit of $3.1 million in Q1 2018 to a loss of $1.0 million in Q1 2019. This was primarily due to lower revenues and increased interest costs.
- Interest Costs: Interest and finance costs increased by 9.2% to $13.1 million, attributed to rising LIBOR rates affecting the variable interest-bearing Term Loan B.
- Operating Expenses: Vessel operating expenses increased to $6.9 million (from $6.3 million), largely due to higher costs for the Yenisei River. Conversely, dry-docking costs were nil in Q1 2019 compared to $0.5 million in Q1 2018.
- Distributions: The quarterly cash distribution for common units was reduced to $0.0625 per unit (from $0.25 in prior quarters) due to lower earnings.
Outlook, Risks, and Contingencies
- Going Concern: The filing explicitly states there is "substantial doubt" about the Partnership's ability to continue as a going concern. This is due to the maturity of $250 million in 2019 Notes on October 30, 2019, and insufficient current cash/operating cash flow to repay them. Management is in advanced stages of discussions with banks for refinancing but has not finalized terms.
- Refinancing Needs: The Partnership must secure external financing to refinance the 2019 Notes and potentially the Term Loan B (maturing 2023).
- Legal Contingency: A class action lawsuit (Mario Epelbaum v. Dynagas LNG Partners LP) was filed in May 2019 alleging securities violations regarding charter party contracts. Management intends to vigorously defend the suit, believing allegations are without merit.
- Market Risks: Future results depend on LNG market trends, charter rates, and the ability to re-charter vessels upon contract expiration. The backlog includes contracts with Yamal subject to certain conditions regarding a shipbuilding contract held by a third party.
Investor Verification Checklist
- Refinancing Status: Verify the progress of negotiations with potential lenders to refinance the $250 million 2019 Notes due in October 2019.
- Going Concern Assessment: Monitor subsequent filings for updates on the "substantial doubt" regarding the ability to continue operations.
- Legal Proceedings: Track the status of the class action lawsuit filed in May 2019 regarding charter revenue disclosures.
- Charter Expirations: Review the specific terms and conditions attached to the Yamal charters (Yenisei River and Lena River) which are subject to satisfaction of conditions.
- Debt Covenants: Confirm continued compliance with financial covenants, specifically the minimum free liquidity requirement of $20.0 million.