Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2019
Filing Date: June 6, 2019
Business Overview: The Partnership owns and operates a fleet of six liquefied natural gas (LNG) carriers. As of the reporting date, the fleet operated at 100% utilization with an average remaining charter duration of 9.3 years.
Key Financial Metrics
| Metric (in thousands, except per unit) | Q1 2019 | Q1 2018 |
|---|---|---|
| Voyage Revenues | $31,403 | $33,904 |
| Net Income | $1,892 | $4,840 |
| Adjusted Net Income | $1,731 | $7,232 |
| Adjusted EBITDA | $21,716 | $26,590 |
| Distributable Cash Flow | $5,782 | $11,286 |
| Net Cash from Operating Activities | $9,186 | $11,853 |
| Free Cash (as of Mar 31, 2019) | $112,271 | N/A |
| Total Indebtedness (as of Mar 31, 2019) | $721,600 | N/A |
| Available Liquidity (as of Mar 31, 2019) | $142,300 | N/A |
| Earnings per Common Unit (GAAP) | $(0.03) | $0.09 |
| Adjusted Earnings per Common Unit | $(0.03) | $0.16 |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by 7.4% ($2.5 million) compared to Q1 2018. This was primarily due to lower charter rates on the Arctic Aurora, Ob River, and Lena River following contract rollovers or new charters at reduced rates. This was partially offset by higher revenues from the Clean Energy vessel.
- Profitability Drop: Net income fell 60.4% to $1.9 million. Adjusted Net Income decreased 76.4% to $1.7 million. The decline is attributed to lower revenues and increased interest costs due to rising U.S. Libor rates affecting the $480 million Term Loan B.
- Expense Increases: Vessel operating expenses rose to $6.9 million (daily rate of $12,817) from $6.3 million in the prior year, largely due to higher costs for the Yenisei River. Interest and finance costs increased 9.2% to $13.1 million.
- Cash Flow: Distributable Cash Flow decreased 48.7% to $5.8 million, driven by the revenue and expense factors noted above.
Guidance, Outlook, and Risks
- Refinancing Priority: Management is in advanced stages of refinancing $250 million in senior unsecured notes (the "2019 Notes") due on October 30, 2019. The transaction may also address Term Loan B. No definitive binding documentation has been signed.
- Distribution Impact: Proposed terms for the new financing may require the elimination of distributions on common units until the new indebtedness is repaid.
- Liquidity Position: As of March 31, 2019, the Partnership held $112.3 million in free cash and had a working capital deficit of $156.7 million due to the current classification of the 2019 Notes. A $30 million interest-free revolving credit facility with the Sponsor remains fully available.
- Fleet Outlook: The Lena River is expected to commence employment under a long-term charter with Yamal LNG in July 2019. Post-commencement, all six vessels will be fully contracted with the earliest potential availability in Q3 2021.
- Risks: Risks include the failure to secure refinancing on acceptable terms or at all prior to the October 2019 maturity, potential default on the 2019 Notes, and fluctuations in charter rates and operating costs.
Investor Verification Checklist
- Refinancing Status: Verify if definitive agreements for the refinancing of the $250 million 2019 Notes have been executed prior to the October 30, 2019 maturity date.
- Distribution Policy: Confirm whether the new financing terms will result in the suspension of common unit distributions.
- Charter Rate Realization: Monitor the actual revenue performance of the Arctic Aurora, Ob River, and Lena River under their new lower-rate charters compared to guidance.
- Liquidity Runway: Assess the sufficiency of the $112.3 million free cash balance and the $30 million sponsor facility to cover obligations if refinancing is delayed.
- Interest Rate Exposure: Evaluate the impact of continued fluctuations in U.S. Libor rates on the variable interest-bearing Term Loan B.