Genco Shipping & Trading Limited — Q1 2014 Form 10-Q
Business and period: The company owns and operates drybulk carriers transporting cargo worldwide. This unaudited report covers the three months ended March 31, 2014, compared with Q1 2013. Results consolidate Baltic Trading, in which Genco held 65.08% of voting power.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $64.0 million | $40.5 million |
| Operating loss | $20.8 million | $30.5 million |
| Net loss | $42.2 million | $52.0 million |
| Net loss attributable to Genco | $39.1 million; $0.90 per share | $48.2 million; $1.12 per share |
| Net interest expense | $21.0 million | $21.3 million |
| Operating cash flow | $(2.6) million | $(17.4) million |
| Cash and cash equivalents at quarter-end | $92.4 million | $122.7 million at Dec. 31, 2013 |
| Total assets / total equity | $2.902 billion / $1.253 billion | $2.957 billion / $1.309 billion at Dec. 31, 2013 |
- Voyage revenue increased 59.2%; average fleet time charter equivalent (TCE) rate rose 54.4% to $10,753 per day. Fleet utilization was 99.4% versus 99.3%.
- Operating margin remained negative: operating loss was about 32% of revenue, compared with about 75% in Q1 2013. Management-reported EBITDA, a non-GAAP measure, was $18.5 million versus $7.7 million.
- Reported debt included $1.472 billion of floating-rate borrowings and $117.2 million carrying value of convertible notes. Of the floating-rate borrowings, $1.305 billion under Genco’s three principal facilities was classified current following covenant defaults; $162.6 million was classified long-term. The balance sheet also included $13.2 million current interest payable and a $5.7 million swap liability.
- Current assets were $140.1 million versus current liabilities of $1.483 billion. Quarter-end restricted cash was $10.3 million, in addition to cash and cash equivalents.
- Investing cash outflow was $17.9 million, primarily vessel deposits; financing cash outflow was $9.8 million, including debt repayments and Baltic Trading dividends. Cash declined $30.3 million during the quarter.
Changes versus the prior comparable period
- Higher charter rates, plus four Baltic Trading vessels delivered in the second half of 2013, lifted revenue and reduced the net loss. Ownership days increased 6.5%.
- Operating expenses rose 19.4% to $84.8 million. Vessel operating expense increased 15.1%; daily vessel operating costs rose 8.1% to $5,256. General and administrative and management fees increased 87.7% to $15.4 million, primarily reflecting Chapter 11-related costs.
- Comprehensive loss attributable to Genco was $52.1 million versus $36.3 million in Q1 2013, largely reflecting a $14.2 million unrealized decline in investment values recorded in other comprehensive income. Jinhui shares were valued at $63.3 million, down from $77.5 million at year-end.
- Cash and cash equivalents fell from $122.7 million at year-end, while debt remained heavily concentrated in obligations classified as current.
Outlook, restructuring, and key risks
- Subsequent bankruptcy filing: On April 21, 2014, Genco and subsidiaries other than Baltic Trading and its subsidiaries filed voluntary Chapter 11 petitions. The debtors said they intended to continue operating as debtors-in-possession and pursue a prepackaged reorganization plan. The filing triggered defaults and acceleration provisions; collection actions are subject to the bankruptcy stay.
- The proposed plan contemplated converting the 2007 Credit Facility and convertible-note claims into equity, extending and amending the $100 million and $253 million term loans through August 2019, and paying the outstanding swap in cash. These were proposals subject to bankruptcy court confirmation, not completed outcomes.
- Before filing, Genco had missed a scheduled $48.2 million amortization payment due March 31 and was out of compliance with covenants under its principal credit facilities. Those facilities’ approximately $1.305 billion outstanding balance was classified current. Baltic Trading’s separate credit facilities were reported in compliance at quarter-end.
- Management believed cash available under the Cash Collateral Order plus operating cash flow would cover short-term minimum operating, capital, and working-capital needs, but warned there was no assurance of sufficient liquidity. It anticipated continued net cash use and said lower charter rates, plan objections, restructuring delays, or unavailable financing could require vessel or business sales, further financing, or reduced capital spending.
- Charter-market conditions remained uncertain: management cited new vessel deliveries, constrained Chinese commodity-importer credit, and seasonal shifts in cargo volumes as rate factors. The company also disclosed that some charterers had declined or failed to respond to new charter opportunities during bankruptcy.
- Genco’s contracted minimum time-charter revenue for the remainder of 2014 was $12.6 million as of May 8, excluding spot-market and pool vessels. Baltic Trading had committed to four Ultramax newbuildings for $112 million; the contractual-obligations table showed $95.2 million of remaining purchase price. Delivery was expected from Q3 2014 through Q3 2015, subject to contract conditions and financing. No earnings guidance was provided.
- Other items include a $0.9 million bank guarantee held in escrow pending arbitration over a disputed charter claim, and anticipated Genco drydock costs of $9.5 million for the remainder of 2014 and $11.7 million in 2015; Baltic Trading estimated $2.7 million and $3.6 million, respectively.
Important facts for investors to verify
- Bankruptcy court status and final treatment of secured debt, convertible notes, swap obligations, and equity under any confirmed plan.
- Cash available to the Chapter 11 debtors versus Baltic Trading cash, and the terms and permitted uses of cash collateral and any post-restructuring financing.
- Charter rates, vessel employment, charterer retention, and cash generation relative to the company’s substantial debt service and operating needs.
- Funding and delivery conditions for the four newbuildings, together with drydock costs, off-hire, and other capital requirements.
- Outcome of the charter-related arbitration and whether investment-value changes or other contingencies materially affect reported equity and liquidity.