Genco Shipping & Trading Limited — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. Genco owns and operates a global drybulk fleet of 70 vessels. Results include Baltic Trading, which became a wholly owned subsidiary in July 2015; comparisons with Q1 2015 are therefore affected by the merger and the prior-period noncontrolling interest.
Financial performance
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $20.9 million | $34.4 million | Down 39.2% |
| Voyage revenue | $20.1 million | $33.6 million | Down 40.1% |
| Operating loss | $(47.0) million | $(73.8) million | Improved by $26.8 million |
| Net loss, consolidated | $(54.5) million | $(79.1) million | Improved by $24.6 million |
| Net loss attributable to Genco | $(54.5) million | $(38.4) million | Worsened by $16.0 million |
| Basic and diluted loss per share | $(0.75) | $(0.64) | |
| EBITDA (non-GAAP) | $(26.8) million | $(14.2) million | Loss worsened by $12.7 million |
Operating and net margins, calculated from reported figures, were approximately negative 224% and negative 260%, respectively. The differing trends in consolidated loss and loss attributable to Genco reflect the 2015 merger: Q1 2015 included $40.7 million of net loss allocated to noncontrolling interests, while Q1 2016 did not.
- Average fleet time charter equivalent rate fell 47.2% to $2,629 per available day from $4,977. Management attributed the revenue decline primarily to lower spot-market rates.
- Fleet utilization was 98.5%, versus 99.0%. Ownership days increased 4.1%, partly because two Ultramax vessels entered service in 2015.
- Vessel operating expenses rose 1.6% to $29.1 million, while daily vessel operating expense declined 2.4% to $4,573. General, administrative and management expense fell 36.7% to $12.9 million, primarily due to lower noncash stock compensation.
- Interest expense increased to $7.1 million from $4.3 million, reflecting added borrowing and financing-cost amortization. Effective interest rate, including commitment fees, was 4.35%, versus 3.69%.
- Vessel impairment was $1.7 million, compared with $35.4 million in Q1 2015. The 2016 charge related to Genco Marine, which the board approved for scrapping on April 5.
Cash, debt and liquidity
- At March 31, cash and cash equivalents were $75.6 million; restricted cash was $19.8 million. Current assets were $124.0 million and current liabilities were $584.9 million, a working-capital deficit of approximately $461.0 million.
- Principal debt was $570.0 million, net of financing costs; the balance sheet showed $561.1 million as current debt and no long-term debt. The company classified all outstanding debt as current because of covenant risks and probable future noncompliance.
- Operating cash outflow was $27.3 million, versus $12.3 million in Q1 2015. Investing activities provided $0.4 million; financing activities used $18.6 million. Cash declined $45.5 million during the quarter.
- Credit facilities require a minimum fleetwide cash balance of $52.5 million. Management stated it was probable that, without measures that may not be available, Genco would fail to meet minimum-cash and leverage requirements during 2016.
- At quarter-end Genco was below collateral-maintenance requirements on the $148 million facility (107.3% against 140%) and 2014 Term Loan Facilities (132.5% against 135%). Waivers or extensions were subsequently obtained through May 31, 2016 for specified facilities; the 2014 facility shortfall was addressed by a $0.7 million payment on April 29.
Outlook, risks and unusual items
- The filing states that recurring losses, negative working capital, weak drybulk rates and declining vessel values raise substantial doubt about Genco’s ability to continue as a going concern. Management was in discussions with lenders and considering refinancing, further waivers or amendments, asset sales, reduced or delayed spending, equity or debt financing, strategic alternatives, or potentially Chapter 11 protection. No outcome was assured.
- Cross-default provisions could make some or all debt immediately due if defaults are not cured or waived. Substantially all assets are pledged to lenders. Vessel values used for covenant compliance were below carrying values by $730.6 million in aggregate, excluding Genco Marine.
- Management reported the Baltic Dry Index reached an all-time low of 290 on February 11, 2016, then said freight rates improved late in March and into Q2 amid stronger iron ore demand and South American grain shipments. This is commentary, not formal earnings guidance.
- Minimum contracted time-charter revenue as of May 4 was $12.6 million for the remainder of 2016 and $1.2 million for 2017; it excludes spot and pool employment. Estimated drydocking costs were $8.9 million for the remainder of 2016 and $15.6 million for 2017.
- Genco had no interest-rate swaps or forward freight agreements and is exposed to floating-rate debt; management estimated a 1% LIBOR increase would add $1.5 million in interest expense for the quarter.
- Subsequent events included shareholder approval to increase authorized common shares to 500 million, authorize up to 100 million preferred shares, and permit a reverse split between 1-for-2 and 1-for-25 at the board’s discretion. The filing reports no material change in legal proceedings since the 2015 10-K.
Important facts for investors to verify
- Whether lenders extended or replaced the May 31, 2016 waivers, and whether all collateral, liquidity and leverage covenants were met or amended.
- Genco’s cash runway, access to financing, and ability to service debt given the current classification of $561.1 million of net debt and the going-concern warning.
- Subsequent drybulk rates, vessel values, charter renewals and realized earnings compared with the low Q1 TCE rate and limited contracted revenue disclosure.
- Any asset sales, vessel scrapping, equity or debt issuance, restructuring, or reverse-stock-split action, including resulting dilution and effects on shareholders.