Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Interim Report)
Reporting Period: Three months ended March 31, 2018
Business Overview: A growth-oriented limited partnership owning and operating a fleet of six liquefied natural gas (LNG) carriers. As of May 29, 2018, five vessels were under multi-year time charters with major energy companies (Gazprom, Equinor, Yamal), while one vessel was trading on the short-term market prior to a new long-term charter.
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Voyage Revenues | $33.9 million | $39.1 million |
| Operating Income | $16.8 million | $21.9 million |
| Net Income | $4.8 million | $12.9 million |
| Adjusted EBITDA | $26.6 million | $31.3 million |
| Net Cash from Operating Activities | $11.9 million | $18.2 million |
| Time Charter Equivalent (TCE) Rate | $61,635/day | $70,778/day |
| Total Debt (Gross) | $726.4 million | $727.6 million |
| Cash and Cash Equivalents | $61.4 million | $50.9 million |
| Available Liquidity | $91.4 million | N/A |
Note: Available liquidity includes cash on hand plus $30.0 million borrowing capacity under a revolving credit facility with the Sponsor.
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by 12.3% ($5.0 million) primarily due to lower earnings on the Clean Energy vessel, which was employed on the short-term market at lower rates compared to the prior year. This vessel is scheduled to commence an eight-year charter with Gazprom in July 2018.
- Profitability Drop: Net income fell 62.5% to $4.8 million. This was driven by the revenue decrease and a 35.5% increase in interest and finance costs ($12.0 million vs. $8.9 million) due to the Term Loan B facility entered into in May 2017.
- Operating Expenses: Vessel operating expenses decreased slightly to $6.3 million due to crewing and technical efficiencies. However, dry-docking costs increased to $0.5 million due to preliminary expenditures for upcoming scheduled repairs.
- Interest Costs: Interest and finance costs rose significantly, reflecting the higher weighted average interest rate (6.2% in Q1 2018 vs. 4.6% in Q1 2017).
Guidance, Outlook, and Risks
- Distribution Reduction: On April 12, 2018, the Board reduced the quarterly common unit cash distribution from $0.4225 to $0.25 per unit (annualized $1.69 to $1.00) to align distributions with long-term cash flow capacity and strengthen the balance sheet. The first reduced distribution was paid on May 3, 2018.
- Contract Backlog: As of May 29, 2018, the estimated contracted revenue backlog was approximately $1.46 billion with an average remaining duration of 10.2 years. This includes charters for the Yenisei River and Lena River with Yamal, which are subject to important conditions.
- Optional Vessels: The deadline to exercise purchase options for four "Initial Optional Vessels" from the Sponsor was extended to December 31, 2018. No financing has been secured for these potential acquisitions yet.
- Risks: Key risks include reliance on a limited number of charterers (top three accounted for 100% of revenue in Q1 2018), potential cancellation of Yamal LNG Project charters, fluctuations in charter rates upon contract expiry, and the ability to service debt obligations.
Investor Verification Checklist
- Revenue Concentration: Verify the stability of the top three charterers (Gazprom, Equinor, Yamal) which accounted for 100% of Q1 2018 revenues.
- Yamal Project Conditions: Confirm the status of conditions precedent for the Yenisei River and Lena River charters with Yamal, as failure to satisfy these could cancel significant future revenue.
- Debt Covenants: Review compliance with financial covenants, specifically the minimum free liquidity requirement of $20.0 million and debt service coverage ratios.
- Distribution Coverage: Assess the sustainability of the new reduced distribution level ($0.25/unit) against future Adjusted EBITDA projections.
- Optional Vessel Exercise: Monitor the decision timeline (by Dec 31, 2018) regarding the acquisition of the four Initial Optional Vessels and the associated capital requirements.