Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Interim Report)
Reporting Period: Nine months ended September 30, 2018
Business Overview: A growth-oriented limited partnership owning and operating a fleet of six LNG carriers. As of December 10, 2018, all vessels were employed or contracted on multi-year time charters with major energy companies (Gazprom, Equinor, Yamal). The Partnership has an estimated contracted revenue backlog of approximately $1.41 billion with an average remaining duration of 9.8 years.
Key Financial Metrics
| Metric (in thousands, except per unit) | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2017 |
|---|---|---|
| Voyage Revenues | $96,116 | $104,538 |
| Operating Income | $41,271 | $46,520 |
| Net Income | $4,537 | $11,714 |
| Net Income Attributable to Common Unitholders | $(525) | $5,387 |
| Adjusted EBITDA | $74,507 | $80,626 |
| Net Cash Provided by Operating Activities | $33,980 | $44,333 |
| Total Debt (Gross) | $724,000 | $727,600 |
| Cash and Cash Equivalents | $59,536 | $67,464 |
| Time Charter Equivalent (TCE) Rate | $58,368 | $63,970 |
| Fleet Utilization | 100% | 97% |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased by 7.8% ($8.7 million) primarily due to lower charter rates on the Arctic Aurora and Ob River, and the Clean Energy operating in the spot market for part of the period before securing a long-term charter in July 2018.
- Profitability: Net income attributable to common unitholders turned negative ($(0.01) per unit) compared to $0.16 per unit in the prior year, driven by lower revenues and fixed preferred unit distributions.
- Cost Efficiency: Vessel operating expenses decreased by 8.2% due to crewing and technical efficiencies. Voyage expenses dropped 25.9% as the Clean Energy was fully utilized in 2018, eliminating bunker consumption costs incurred during off-hire days in 2017.
- Interest Costs: Interest and finance costs increased by 8.6% to $37.4 million, reflecting higher weighted average interest rates on the Term Loan B facility.
Guidance, Outlook, Risks, and Unusual Items
Liquidity and Going Concern
The filing explicitly states there is substantial doubt about the Partnership's ability to continue as a going concern. The Partnership estimates that current liquidity sources will not be sufficient to repay the $250 million 2019 Notes maturing on October 30, 2019. Management is exploring refinancing options, including the use of proceeds from a recent Series B Preferred Units offering.
Recent Capital Actions
- Series B Offering: On October 23, 2018, the Partnership completed an offering of 2.2 million Series B Preferred Units, raising net proceeds of approximately $53.0 million.
- Distribution Reduction: The quarterly cash distribution on common units was reduced from $0.4225 to $0.25 per unit, effective Q1 2018.
Key Risks
- Concentration Risk: As of September 30, 2018, 93% of revenues were derived from two charterers (74% and 19%).
- Refinancing Risk: Inability to secure committed funds to refinance the 2019 Notes prior to maturity.
- Market Conditions: Fluctuations in charter rates, LNG supply/demand, and bunker prices.
Investor Verification Checklist
- Refinancing Status: Verify if the Partnership has secured committed financing to repay the $250 million 2019 Notes maturing in October 2019.
- Charter Expirations: Monitor the re-chartering of the Lena River (short-term charter ending Feb 2020) and the Arctic Aurora (charter ending July 2021).
- Debt Covenants: Confirm continued compliance with financial covenants, specifically the minimum free liquidity requirement of $20.0 million.
- Optional Vessel Acquisitions: Assess the likelihood of exercising options to acquire the remaining Initial Optional Vessels from the Sponsor by the December 31, 2018 deadline.
- Going Concern Assessment: Review subsequent filings for updates on the "substantial doubt" regarding the ability to continue as a going concern.