Business Context and Reporting Period
Company: Dynagas LNG Partners LP (DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2017 (Interim Unaudited)
Business Overview: The Partnership owns and operates a fleet of six LNG carriers. Five vessels are employed on multi-year time charters with major energy companies (Gazprom, Statoil, Yamal), providing contracted cash flows. One vessel (Clean Energy) was trading on the spot market during the period prior to a scheduled long-term charter with Gazprom commencing in July 2018.
Key Financial Metrics
| Metric | 9 Months Ended Sept 30, 2017 | 9 Months Ended Sept 30, 2016 |
|---|---|---|
| Voyage Revenues | $104.5 million | $128.5 million |
| Operating Income | $46.5 million | $77.8 million |
| Net Income | $11.7 million | $51.4 million |
| Adjusted EBITDA | $80.6 million | $105.6 million |
| Net Cash from Operating Activities | $44.3 million | $80.3 million |
| Total Debt (Gross) | $728.8 million | $722.5 million |
| Cash and Cash Equivalents | $70.5 million | $57.6 million |
| Available Liquidity | $100.5 million | N/A |
| Fleet Utilization | 97% | 100% |
| Time Charter Equivalent (TCE) Rate | $63,970 | $76,791 |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by $23.9 million (17.7%) primarily due to scheduled dry-docking of three vessels (Clean Energy, Ob River, Amur River), lower utilization/rates for Clean Energy in the spot market, and a rate reduction agreement with Gazprom on the Yenisei River and Lena River.
- Increased Expenses: Dry-docking expenses of $6.2 million were incurred in 2017 compared to none in 2016. Interest and finance costs increased by $8.3 million (31.9%) due to higher weighted average interest rates on the new Term Loan B and a $2.6 million write-off of deferred loan fees from refinancing.
- Debt Refinancing: In May 2017, the Partnership refinanced existing facilities ($340M Credit Suisse and $200M ABN Amro) with a new $480 million Term Loan B due in 2023. This transaction released $25 million of previously restricted cash.
- Equity Structure: On January 23, 2017, the subordination period expired, and 14,985,000 subordinated units owned by the Sponsor converted into common units on a one-to-one basis.
Outlook, Risks, and Management Commentary
- Revenue Backlog: As of December 6, 2017, the estimated contracted revenue backlog was approximately $1.46 billion with an average remaining contract duration of 10 years. This includes charters for the Yenisei River and Lena River with Yamal, which are subject to important conditions that could lead to cancellation if not satisfied.
- Liquidity: The Partnership reported a working capital surplus of $49.4 million. Management anticipates generating sufficient cash from operations over the next 12 months to fund operations, debt service, and distributions.
- Distributions: Quarterly cash distributions of $0.4225 per common unit and $0.5625 per Series A Preferred Unit were maintained throughout the period.
- Key Risks:
- Concentration of revenue: 72% of 2017 revenue came from a single charterer (Gazprom).
- Execution risk on the Yamal LNG Project charters.
- Exposure to spot market rates for the Clean Energy vessel until July 2018.
- Fluctuations in charter rates, bunker prices, and interest rates.
Investor Verification Checklist
- Yamal Project Status: Verify the satisfaction of conditions precedent for the Yenisei River and Lena River charters with Yamal, as failure could materially impact the $1.46 billion revenue backlog.
- Clean Energy Charter: Confirm the commencement of the 8-year time charter with Gazprom in July 2018 to ensure the transition from spot market volatility to contracted revenue.
- Debt Covenants: Review compliance with the Term Loan B covenants, specifically the debt service coverage ratio and minimum free liquidity requirements.
- Optional Vessel Options: Monitor the deadline (extended to March 31, 2018) for exercising purchase options on the "Clean Ocean" and "Clean Planet" vessels from the Sponsor.
- Charterer Concentration: Assess the financial health of Gazprom, which accounted for 72% of revenues in the first nine months of 2017.