Genco Shipping & Trading Limited — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Financial statements are unaudited and consolidate Genco and Baltic Trading, which Genco controls through voting rights. Unless noted, amounts below are U.S. dollars.
Business context and operating performance
The company owns and operates drybulk carriers transporting cargo worldwide. Its results are highly exposed to charter rates. Management attributed the weak first-quarter freight market to reduced Brazilian iron ore cargoes, weather disruptions in Australia, increased vessel supply, and a prolonged Colombian coal-mine strike.
- Voyage revenue fell 32.8% to $39.7 million from $59.0 million; total revenue declined 32.3% to $40.5 million.
- Average fleet time-charter-equivalent (TCE) revenue fell 33.6% to $6,963 per available day from $10,480. Fleet utilization remained 99.3%.
- Operating expenses declined just 1.9% to $71.0 million, leaving an operating loss of $30.5 million versus $12.5 million. Operating margin was approximately negative 75% versus negative 21%.
Financial results, cash flow and liquidity
- Net loss was $52.0 million versus $36.4 million; loss attributable to Genco was $48.2 million versus $33.1 million. Loss per share increased to $1.12 from $0.87.
- Net interest expense decreased to $21.3 million from $23.6 million, primarily reflecting lower debt after 2012 repayments and expired swaps; higher credit-facility margins partly offset the decline.
- EBITDA, as defined by management and not a GAAP measure, was $7.7 million versus $25.2 million.
- Operating cash flow was negative $17.4 million, compared with negative $8.0 million. Investing cash flow was negative $0.01 million; financing cash flow was negative $0.2 million. Cash and cash equivalents declined to $55.0 million from $72.6 million. Restricted cash was $10.2 million.
- Total debt under credit facilities was $1.413 billion; the convertible notes had $125 million principal and $112.1 million net carrying value. The balance sheet classified $1.312 billion of facility debt and the convertible notes as current, while $101.3 million of debt remained noncurrent.
- Total current liabilities were $1.477 billion against current assets of $97.4 million. Total equity was $1.222 billion. No Genco dividend was declared; facility terms also restrict dividends and share repurchases.
Changes versus prior period and unusual items
- The pronounced deterioration in earnings primarily reflected lower charter rates; operating costs were comparatively stable. Fleet-average TCE fell by $3,517 per day year over year.
- Debt was reclassified as current because management considered future covenant noncompliance probable within 12 months, despite stating the company was in compliance at March 31 and certain covenants were waived through December 31, 2013. The reclassification also covered the notes and one swap because a facility default could trigger related defaults.
- The Jinhui investment rose in fair value to $30.6 million from $21.0 million, producing a $9.6 million unrealized gain in other comprehensive income; no impairment was recorded.
Outlook, risks and contingencies
- Management warned it may be unable to make required facility payments beginning in the quarter ending March 31, 2014. Scheduled first-quarter 2014 amortization is $55.2 million. It considers noncompliance with minimum-cash covenants probable at or after that date, and possible earlier if the sector remains weak; it also considers future leverage-covenant noncompliance probable and interest-coverage noncompliance possible after waivers expire.
- The minimum-cash covenant requires $39.8 million at quarter-end, excluding Baltic Trading cash. A default, if not cured, could accelerate debt, trigger defaults under the notes and swaps, and expose pledged assets to lender enforcement.
- Genco was discussing further lender waivers or amendments and may seek refinancing, new debt or equity, vessel sales, lower or delayed capital spending, or other restructuring. Management cautioned these actions may not be available or successful.
- Minimum charter revenue under noncancelable contracts, as of May 1, was $14.6 million for the remainder of 2013 and $3.5 million in 2014; this excludes pool and spot-market-related employment where rates cannot be estimated. Estimated drydock costs for Genco were $1.6 million for the remainder of 2013 and $15.8 million in 2014; Baltic Trading estimated $3.6 million for 2014.
- Interest-rate exposure remains material: management estimated a 1 percentage-point LIBOR increase would add $2.8 million of interest expense for the quarter, based on the unhedged debt portion. Swaps had a $13.8 million liability at quarter-end.
- The company reported no legal proceedings believed likely to have a material effect. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether lenders grant extensions or covenant relief before waivers expire and before the anticipated 2014 payment and minimum-cash pressure.
- Cash available for debt service, including the distinction between Genco cash and Baltic Trading cash, and any further use of restricted cash.
- Progress in drybulk rates and charter renewals, given the steep year-over-year TCE decline and limited disclosed fixed-contract revenue.
- Debt maturities, the $55.2 million scheduled amortization, cross-default provisions, and the basis for current classification of debt and notes.
- Whether Jinhui’s market value and vessel collateral values change materially; reported collateral covenant valuations were below vessel carrying values.