Business context and reporting period
Genco Shipping & Trading Limited filed this Form 10-K for the fiscal year ended December 31, 2014. It owns and operates drybulk carriers transporting iron ore, coal, grain, steel products and other cargoes. The consolidated results include Baltic Trading, which Genco controlled through voting rights.
A major comparability caveat: Genco filed Chapter 11 on April 21, 2014 and emerged on July 9, 2014. It applied fresh-start accounting at emergence, creating distinct Predecessor and Successor reporting periods. The filing’s combined full-year 2014 comparisons are management’s non-GAAP presentation, not a single comparable GAAP reporting period.
Financial and operating highlights
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue | $220.9 million | $227.5 million |
| Operating loss | $258.9 million | $66.9 million |
| Loss before reorganization items | $307.6 million | $155.1 million |
| Net income (loss), including reorganization items | $571.2 million | $(157.0) million |
| Operating cash flow | $(60.2) million | $(3.1) million |
| Investing cash flow | $(74.6) million | $(146.6) million |
| Financing cash flow | $95.5 million | $199.8 million |
- The reported 2014 net income includes an $880.6 million net reorganization gain, largely reflecting debt settlement and fresh-start adjustments; it should not be read as recurring operating profit. Genco recorded a $166.1 million goodwill impairment in the second half of 2014.
- Voyage revenue fell 2.9%. Average fleet time-charter-equivalent (TCE) revenue declined 7.9%, to $8,785 per available day from $9,539. Average daily vessel operating expense rose 3.3%, to $5,035. Fleet utilization was 98.5%, versus 99.3%.
- At December 31, cash and cash equivalents were $83.4 million, restricted cash was $29.7 million, total assets were $1.753 billion and shareholders’ equity was $1.293 billion. Current assets were $130.3 million and current liabilities $63.9 million.
- Total debt was $430.1 million at year-end, down from $1.596 billion at December 31, 2013. This followed conversion of the 2007 Credit Facility and 2010 Notes claims into successor-company equity and amendment of the $100 million and $253 million term facilities. The restructured term loans’ maturities were extended to 2019.
- The fleet’s average TCE and rates are exposed to spot markets: approximately 80% of vessels, including Baltic Trading’s, were in spot-linked charters or pools as of March 2, 2015. Genco reported that 41 vessels were on spot-market-related time charters, 14 in pools and 13 on fixed-rate charters.
Fourth-quarter detail
The Successor Company’s quarter ended December 31, 2014 reported revenue of $54.9 million, operating loss of $185.8 million and net loss of $190.8 million. The operating loss included the $166.1 million goodwill impairment. These results are not directly comparable with pre-emergence quarters.
Material changes, outlook and risks
- Restructuring and ownership: Pre-reorganization common stock was cancelled; creditors received most successor equity, and the plan issued warrants. A $100 million rights offering provided new capital. Former shareholders received warrants rather than successor common shares.
- Weak freight markets: Management cited oversupply of vessels, subdued drybulk demand and market volatility. The Baltic Dry Index averaged 1,105 in 2014, compared with a ten-year average of 2,964; it stood at 509 on February 18, 2015. Management expected weak market conditions to hurt first-quarter 2015 revenue and results.
- Covenant and collateral pressure: February 2015 valuations showed a roughly $5.2 million collateral shortfall under the $100 million term facility. The $253 million facility also had a small collateral shortfall after its January amortization payment; Genco prepaid $0.2 million on March 2, 2015 and expected that to reduce the next scheduled payment. The company said it had not received notices requiring remedial action. Financial-ratio covenants were due to be tested from June 30, 2015, and management warned that weak rates could make compliance difficult.
- Liquidity assessment: Management said cash on hand and internally generated cash were expected to fund operations and working capital for the next 12 months, subject to resolving the covenant and collateral issues and continued operating performance. Genco also warned that remedies, waivers or refinancing might not be available on acceptable terms.
- Spending and expansion: Baltic Trading had two remaining Ultramax newbuildings scheduled for delivery in Q2 and Q3 2015, at a combined remaining purchase price of $56 million. Genco estimated 2015 drydocking costs of $12.5 million for its fleet excluding Baltic Trading and $4.6 million for Baltic Trading. Expected 2015 daily operating expense budgets were $5,250 and $5,500, respectively.
- Other exposures: Genco identified customer concentration (about 81% of 2014 revenue from ten charterers), floating-rate debt (a 1 percentage-point LIBOR increase was estimated to add $8.8 million of 2014 interest expense), environmental compliance costs, vessel-value risk and potential loss of the U.S. shipping-income tax exemption in 2015. Dividends had not been paid since 2008; management did not plan to resume them, and debt agreements prohibited dividends and repurchases through March 31, 2015.
Most important facts for investors to verify
- Review the fresh-start and reorganization reconciliations: distinguish recurring operating performance from the $880.6 million reorganization gain and $166.1 million goodwill impairment.
- Confirm the latest status of collateral maintenance tests, lender notices, any added collateral or paydowns, and June 2015 financial-covenant compliance.
- Check actual cash availability, restricted-cash requirements, debt amortization and funding for the remaining Ultramax vessel purchases and planned drydockings.
- Track spot charter rates, vessel utilization and the renewal terms of charters expiring from 2015 onward; compare realized TCE rates with operating costs.
- Assess the effect of concentrated charterer exposure, potential U.S. tax-exemption loss and any decision by Baltic Trading regarding Genco’s management agreement after the restructuring.