Continued Strong Commercial Performance During Q1 2018
New Credit Facility is Expected to Provide Lower Interest Costs and Enhanced Financial Flexibility
New York - May 08, 2018
Genco Shipping & Trading Limited (NYSE:GNK) (“Genco” or the “Company”), the largest U.S. headquartered drybulk shipowner focused on the transportation of major and minor bulk commodities globally, today reported its financial results for the three months ended March 31, 2018.
The following financial review discusses the results for the three months ended March 31, 2018 and March 31, 2017.
First Quarter 2018 and Year-to-Date Highlights
• Entered into a commitment letter for a senior secured term loan facility with an aggregate principal amount of up to $460 million to - - Refinance its four existing credit facilities and - Provide the Company with added flexibility in regards to vessel acquisitions, additional indebtedness and potential dividends
• Net revenue (voyage revenues minus voyage expenses) totaled $55.8 million during Q1 2018, nearly 60% higher than the same period of 2017
• Time charter equivalent (“TCE”) increased to $10,463 for Q1 2018 marking a year-over-year improvement of 66% - Currently have fixed 64% of our Q2 2018 days at a TCE of $11,112
• Recorded a net loss of $55.8 million for the first quarter of 2018 - Basic and diluted loss per share of $1.61
• Adjusted net income of $0.6 million or adjusted basic and diluted earnings per share of $0.02, after excluding $56.4 million of non-cash impairment charges1 - Further highlights the successful implementation of our commercial strategy and cost optimization initiatives together with improving market conditions
• Concluded Q1 2018 with a cash position of $201.2 million, one of the highest among our drybulk peer group - This compares to $173.9 million of cash at the end of Q1 2017, representing an increase of $27.3 million, and includes restricted cash, highlighting the operating leverage of Genco’s sizeable fleet
• Paid down the $400 Million Credit Facility by $11.3 million on February 13, 2018, from cash flow from operations during Q4 2017 - Generated an additional $4.1 million of excess cash flow in Q1 2018 which is expected to be paid in May 2018
• Established a European subsidiary in Denmark focusing on the minor bulks - Further builds out our commercial platform - Creates a 24-hour cargo logistics operation complementing our New York and Singapore operations
• Maintained low daily vessel operating expenses (“DVOE”) of $4,401 per vessel per day during Q1 2018 highlighting our industry leading low-cost structure - Costs remained under our 2018 budget without sacrificing our high safety and maintenance standards
• Recorded EBITDA of ($31.6) million during Q1 2018 - Adjusted EBITDA of $24.8 million, after excluding $56.4 million of non-cash impairment charges1
1 We believe the non-GAAP measure presented provides investors with a means of better evaluating and understanding the Company’s operating performance.
John C. Wobensmith, Chief Executive Officer, commented, “We benefited from our success transforming the Company’s commercial strategy, as we continued to exceed benchmarks during the seasonally softer first quarter. We also further expanded our global presence and are pleased to have established a subsidiary in Denmark, complementing our New York and Singapore operations to create a true 24-hour operation while further strengthening our ability to provide leading drybulk commodity producers and charterers with a full-scale logistics solution. With our recently signed commitment letter for a $460 million credit facility, we have taken another important step positioning Genco to capitalize on a drybulk market that continues to recover. Based on our considerable success expanding our industry leadership, the completion of our strategic fleet deployment, and our ability to incorporate voyage charters and direct cargo liftings to our service offerings, we remain in a strong position to take advantage of industry fundamentals, which we continue to expect to remain favorable in 2018.”
Credit Facility Update
On May 8, 2018, the Company entered into a commitment letter for a five-year $460 million senior secured credit facility. Proceeds from the new credit facility up to $460 million are intended to be used to refinance all of the Company’s existing credit facilities into one facility and pay down the debt on the oldest seven vessels in our fleet. The new credit facility commitments are expected to be oversubscribed by approximately 40%. The Company believes the new $460 million facility will simplify the Company’s capital structure and improve the terms across all of the Company’s refinanced facilities. Furthermore, under the terms of the new facility, Genco is expected to achieve the following:
• Covenant light structure allowing for potential dividend distributions in the future
• Improve pricing and extend maturities
• Establish an attractive 17-year amortization period following an initial non-amortization period ending December 31, 2018
• Enhance flexibility to execute upon our fleet growth and renewal program
The final maturity date of the facility will be five years following closing, which is expected in Q2 2018 and is subject to completion of definitive documentation and customary conditions precedent. Borrowings under the facility will bear interest at LIBOR plus 325 basis points through December 31, 2018 and LIBOR plus a range of 300 to 350 basis points thereafter, dependent upon total net indebtedness to LTM EBITDA. Nordea Bank AB (publ), New York Branch is to be the agent of the facility. Nordea Bank, AB (publ), New York Branch, Skandinaviska Enskilda Banken AB (publ), ABN AMRO Capital USA LLC, DVB Bank SE, Crédit Agricole Corporate & Investment Bank, and Danish Ship Finance A/S are acting as mandated lead arrangers and bookrunners.
Our Commercial Strategy is Actively Driving Revenue and Increasing Margins
Our strong performance during the first quarter of 2018 was primarily driven by our in-house commercial expertise in designated regions in which we trade our vessels together with identified trade lanes per vessel, our expanded global presence and our active engagement with cargo providers to further grow our network of customers. Overall, our fleet deployment strategy remains weighted towards short-term fixtures which provides optionality in a potentially rising freight rate environment. We believe that our active commercial strategy together with our low-cost structure should continue to increase margins going forward.
Our first quarter of 2018 TCE results by class are listed below. Despite a seasonally softer freight rate environment experienced during the first quarter, we were able to successfully navigate this period with only a marginal drop off from the strong fourth quarter of 2017. Specifically, for our Capesize fleet, we were able to fix several short period contracts at firm rates ahead of a softer earnings environment to capture the stable cash flow impact while maintaining our portfolio approach to fixtures. Several of our Capesize vessels are due to come open between now and the end of the second quarter and potentially benefit from the improving drybulk market.
•Ultramax, Supramax and Handymax: $10,128
•Fleet average: $10,463
We currently have the following net TCE fixed for the second quarter of 2018, which further builds on the performance registered during the previous quarter:
•Capesize: $14,287 for 64% of the available Q2 2018 days
•Panamax: $10,348 for 57% of the available Q2 2018 days
•Ultramax, Supramax and Handymax: $11,286 for 66% of the available Q2 2018 days
•Handysize: $8,308 for 64% of the available Q2 2018 days
•Fleet average: $11,112 for 64% of the available Q2 2018 days
Financial Review: 2018 First Quarter
The Company recorded a net loss for the first quarter of 2018 of $55.8 million, or $1.61 basic and diluted net loss per share. Comparatively, for the three months ended March 31, 2017, the Company recorded a net loss of $15.6 million, or $0.47 basic and diluted net loss per share.
The Company’s revenues more than doubled to $76.9 million for the three months ended March 31, 2018, compared to $38.2 million for the three months ended March 31, 2017. The increase in revenues was primarily due to higher rates achieved by the majority of the vessels in our fleet and the employment of vessels on spot market voyage charters. These increases were partially offset by the operation of fewer vessels during the first quarter of 2018 as compared to the same period of 2017. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $10,463 per day for the three months ended March 31, 2018 as compared to $6,321 for the three months ended March 31, 2017. The increase in TCE was primarily due to higher rates achieved by the majority of the vessels in our fleet during the first quarter of 2018 versus the first quarter of 2017. During the first quarter of 2018, various seasonal factors negatively impacted the freight rate environment including the frontloaded nature of the newbuilding orderbook which led to firm delivery totals in January, weather related disruptions in Brazil and Australia as well as the occurrence of the Chinese New Year holiday in February. Despite these factors, the Baltic Dry Index still averaged nearly 25% higher on a year-over-year basis, highlighting the strengthening fundamentals of the drybulk market.
Total operating expenses were $125.3 million for the three months ended March 31, 2018 compared to $46.8 million for the three months ended March 31, 2017. During the three months ended March 31, 2018, a $56.4 million non-cash impairment charge was recorded as the estimated future undiscounted cash flows for nine of the 15 vessels that comprise our fleet renewal plan did not exceed their net book values, and we therefore adjusted their values to fair market value during the first quarter. During the three months ended March 31, 2017, a $6.4 million gain on sale of vessels was recorded due to the sale of four vessels during the period. Voyage expenses rose to $21.1 million for the three months ended March 31, 2018 versus $3.2 million during the prior year period primarily due to the increased employment of vessels on spot market voyage charters as part of our commercial strategy, in which we incur significantly higher voyage expenses as compared to time charters, spot market-related time charters and pool arrangements. Vessel operating expenses declined to $23.8 million for the three months ended March 31, 2018 compared to $24.9 million for the three months ended March 31, 2017. This decrease was primarily due to the operation of fewer vessels during the first quarter of 2018 as compared to the same period of the prior year. General and administrative expenses were $5.2 million for the first quarter of 2018 compared to $4.9 million for the first quarter of 2017, primarily due to compensation related expenses in connection with the build out of our commercial platform. Included in general and administrative expenses is nonvested stock amortization expense of $0.5 million and $0.7 million for the first quarter of 2018 and 2017, respectively. Depreciation and amortization expenses decreased to $16.9 million for the three months ended March 31, 2018 from $18.2 million for the three months ended March 31, 2017, primarily due to the revaluation of 15 of our vessels to their respective fair values during the first quarter of 2018 as well as the second and third quarters of 2017.
Daily vessel operating expenses, or DVOE, amounted to $4,401 per vessel per day for the first quarter of 2018, below our budget of $4,440 per vessel per day and compares to $4,395 per vessel per day for the same quarter of 2017. We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers and management’s views, our DVOE budget for 2018 is $4,440 per vessel per day on a weighted average basis for the entire year for our fleet of 60 vessels.
Apostolos Zafolias, Chief Financial Officer, commented, “During the quarter, we increased TCE by 66% on a year-over-year basis. This considerable success, combined with our cash balance of over $200 million at the end of the quarter, highlights the improving dry bulk market and our enhanced commercial operating platform. We are pleased to have signed a commitment letter for a $460 million credit facility that we believe will enable Genco to accomplish important objectives. Specifically, we expect to simplify our capital structure, improve pricing, extend maturities and establish an attractive 17-year amortization period following the initial non-amortization period. We also plan to eliminate a number of restrictive covenants and enhance our flexibility to capitalize on attractive growth opportunities.
Genco Shipping & Trading Limited press release