Dynagas Partners posts lower earnings; 100% of fleet on long-term charters

dynagas

Dynagas LNG Partners LP, an owner and operator of liquefied natural gas carriers, announced its results for the three and six months ended June 30, 2019.

Highlights:

  • Net income of $0.9 million;
  • Adjusted Net Income(1) and Adjusted EBITDA(1) of $0.8 million and $20.9 million, respectively;
  • Distributable Cash Flow(1) of $4.9 million;
  • Free cash of $112.9 million and available liquidity of $142.9 million, each as of June 30, 2019;
  • 94% utilization of the Partnership’s vessels;
  • Declared and paid a cash distribution of $0.0625 per common unit in respect of the first quarter of 2019;
  • Declared and paid cash distribution of $0.5625 per unit on its Series A Preferred Units (NYSE: “DLNG PR A”) for the period from February 12, 2019 to May 11, 2019; and
  • Declared and paid cash distribution of $0.546875 per unit on the Series B Preferred Units (NYSE: “DLNG PR B”) for the period from February 22, 2019 to May 21, 2019.

Subsequent Events:

  • Declared in July and paid in August a quarterly cash distribution of $0.5625 per Series A Preferred Unit for the period from May 12, 2019 to August 11, 2019;
  • Declared and paid in August a quarterly cash distribution of $0.546875 on the Series B Preferred Units for the period from May 22, 2019 to August 21, 2019;
  • The Lena River was delivered into its multi-year charter with Yamal on July 1, 2019, after completion of its short term charter with a major energy company and its positioning period of approximately one month;
  • and On September 19, 2019, the Partnership announced that it entered into a syndicated $675 million senior secured term loan (the “Credit Facility”) with leading international banks for the purpose of refinancing the Partnership’s existing total indebtedness. The Credit Facility successfully closed on September 25, 2019. Under the terms of the Credit Facility, the Partnership is prohibited from paying distributions to its common unit-holders while borrowings are outstanding under the Credit Facility.

CEO Commentary:

“We are pleased to report the results for the quarter ended June 30, 2019.

“Our underlying charter business remains healthy with our fleet of six LNG carriers all contracted on charters to international gas producers with an average remaining contract term of 9.0 years.

“The Lena River commenced employment under its long term charter with Yamal LNG on July 1, 2019. In order to deliver the Lena River into the new charter the Vessel incurred a repositioning voyage which took about 30 days and which reduced the fleet’s utilization to about 94%.

“All of our six LNG carriers are now fully delivered and operating under their existing charters. The fleet’s earliest possible rechartering availability is in the third quarter of 2021, which is the earliest contracted re-delivery date for one of our six LNG carriers with the next earliest redelivery not before the first quarter of 2026.

“On September 25, 2019, the company closed a syndicated $675 million senior secured term loan (the “Credit Facility”). Since the beginning of the year, we have engaged in an active dialogue with all of our relationship banks to procure this Credit Facility. Its terms provide the Partnership with reduced cost of debt relative to the existing one and a simplified debt structure with a clear and viable path towards deleveraging through a significant increase in debt amortization, while restricting the payment of distributions to common unitholders. The Partnership has in place long term charter contracts with international energy companies, generating cash flows that will be channeled towards the increased amortization requirements of the Credit Facility, building equity value over time. As a result of this global refinancing and the broader strategic realignment, the Partnership will be better positioned for future growth initiatives as we expect global LNG markets to continue their robust development.”

Three Months Ended June 30, 2019 and 2018 Financial Results

Net Income for the three months ended June 30, 2019 was $0.9 million as compared to net income of $0.4 million in the corresponding period of 2018, which represents an increase of $0.5 million, or 125.0%. The increase in net income, was mainly due to the decrease in dry-dock and special survey costs. In the second quarter of 2019, no dry-dock and special survey expenditures were incurred whereas in the prior year’s second quarter, $2.2 million of dry-dock and special survey expenditures were incurred on the Arctic Aurora. The increase in net income was, however, partially offset with:

the increase in operating expenses during the three months ended June 30, 2019, as compared to the same period in 2018, as further elaborated below; and
the increase in USD LIBOR interest rate, which correspondingly, increased the Partnership’s interest cost with respect to the $480 million senior secured term loan (the “Term Loan B”) in the second quarter of 2019 in comparison to the second quarter of 2018.
Adjusted Net Income for the three months ended June 30, 2019 was $0.8 million as compared to Adjusted Net Income of $4.5 million in the corresponding period of 2018, which represents a decrease of $3.7 million, or 82.2%. The decrease in Adjusted Net Income (which excludes non-cash and non-recurring items) was predominantly due to the lower revenues earned on certain of the Partnership’s vessels as discussed below, as well as the increased operating and financing costs, as also discussed below.

Adjusted EBITDA and Distributable Cash Flow for the three months ended June 30, 2019 were $20.9 million and $4.9 million, respectively, as compared to $24.4 million and $8.7 million, respectively, for the corresponding period of 2018. This corresponds to a decrease of $3.5 million, or 14.3% in the Adjusted EBITDA and a decrease of $3.8 million, or 43.7% in the Distributable Cash Flow. The decrease in both Adjusted EBITDA and Distributable Cash Flow was mainly due to the lower revenues earned on certain of the Partnership’s vessels as discussed below and the increase in operating expenses, as also further discussed below.

For the three-month period ended June 30, 2019, the Partnership reported loss per common unit and Adjusted Loss per common unit, basic and diluted, of $0.06, after taking into account the Series A Preferred Units’ interest and the Series B Preferred Units’ interest on the Partnership’s net income/ Adjusted Net Income. Loss per common unit and Adjusted Loss per common unit, basic and diluted, are calculated on the basis of a weighted average number of 35,490,000 common units outstanding during the period, in the case of Adjusted Loss per common unit after reflecting the impact of the non-cash items presented in Appendix B of this press release.

Adjusted Net Income, Adjusted EBITDA, Distributable Cash Flow and Adjusted Earnings/(Loss) per common unit are not recognized measures under U.S. GAAP. Please refer to Appendix B of this press release for the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.

Voyage revenues were $30.8 million for the three-month period ended June 30, 2019 as compared to $30.9 million for the corresponding period of 2018, which represents a decrease of $0.1 million. Excluding Amortization of fair value of acquired time charters and Amortization of deferred revenue, voyage revenues quarter on quarter decreased by $2.2 million mainly as a result of:

  • the lower revenues earned on the Arctic Aurora, which, in August 2018 rolled-over into its new charter with Equinor ASA (“Equinor”) at a lower charter rate;
  • the lower revenues earned on the Lena River, which completed its employment under its multi-year charter contract with Gazprom in October 2018 and in the same month, was delivered into its multi-month interim charter with a major energy company at a lower charter rate; and
  • the decrease in the fleet utilization following the positioning period of the Lena River by approximately one month for the purpose of the vessel’s delivery to its multi-year charter contract with Yamal.

This decrease in voyage revenues was, however, partially offset by the increase in the second quarter 2019 voyage revenues on the Clean Energy, which was delivered to its eight-year charter party with Gazprom in July 2018. The vessel had been trading in the spot market in the second quarter of 2018 at a lower charter rate.

Vessel operating expenses were $6.9 million, which corresponds to a daily rate of $12,630 in the three-month period ended June 30, 2019, as compared to $5.9 million, or a daily rate of $10,808 in the corresponding period of 2018. This increase is mainly attributable to the increased operating expenses of the Yenisei River and the Ob River in the second quarter of 2019, as compared to the corresponding quarter of 2018. The Yenisei River has been employed by Yamal since August 2018.

Interest and finance costs were $13.1 million in the second quarter of 2019 as compared to $12.6 million in the second quarter of 2018, which represents an increase of $0.5 million, or 4.0%. As discussed above, this increase was due to the increase in the Partnership’s weighted average interest in the second quarter of 2019 related to increased interest charges on its variable interest bearing secured debt, as compared to the corresponding period of 2018.

The Partnership reported average daily hire gross of commissions(1) of approximately $55,100 per day per vessel in the three months ended June 30, 2019, compared to approximately $61,500 per day per vessel in the corresponding period of 2018. During the three-month period ended June 30, 2019, the Partnership’s vessels operated at 94% utilization as compared to 97% utilization in the same period of 2018.

Amounts relating to variations in period–on–period comparisons shown in this section are derived from the condensed financials presented below.

(1) Average daily hire gross of commissions represents voyage revenue excluding the non-cash time charter deferred revenue amortization and amortization of prepaid charter revenue, divided by the Available Days in the Partnership’s fleet as described in Appendix B.

Liquidity/ Financing/ Cash Flow Coverage

During the three months ended June 30, 2019, the Partnership generated net cash from operating activities of $7.0 million as compared to $8.6 million in the corresponding period of 2018, which represents a decrease of $1.6 million, or 18.6%. This decrease was attributable to the decrease in period net income due to the factors discussed above.

As of June 30, 2019, the Partnership reported free cash of $112.9 million and a working capital surplus of $16.6 million (as of December 31, 2018 working capital deficit: $159.8 million).

Total indebtedness outstanding as of June 30, 2019 was $720.4 million (gross of unamortized deferred loan fees).

As described above in “Subsequent Events,” on September 19, 2019, the Partnership entered into the Credit Facility with leading international banks for the purpose of refinancing the Partnership’s total outstanding indebtedness. All amounts under the Credit Facility were drawn on September 25, 2019, utilizing $470.4 million to repay the Partnership’s outstanding principal of its Senior Secured Term Loan B. The remaining amounts drawn together with cash on hand will be utilized to repay the $250 million aggregate principal amount of its 6.25% senior unsecured notes at their maturity on October 30, 2019.

As of June 30, 2019, the Partnership had unused availability of $30.0 million under its interest free $30 million revolving credit facility with its Sponsor (the “$30 Million Revolving Credit Facility”), which was extended on November 14, 2018, and is available to the Partnership at any time until November 2023. The $30 Million Revolving Credit Facility remains available in its entirety as of the date of this release.

Vessel Employment

As of September 26, 2019, the Partnership had estimated contracted time charter coverage(2) for 100% of its fleet estimated Available Days (as defined in Appendix B) for 2019, 100% of its fleet estimated Available Days for 2020 and 92% of its fleet estimated Available Days for 2021.

As of the same date, the Partnership’s contracted revenue backlog estimate(3)(4) was $1.31 billion, with an average remaining contract term of 9.0 years.

(2) Time charter coverage for the Partnership’s fleet is calculated by dividing the fleet contracted days on the basis of the earliest estimated delivery and redelivery dates prescribed in the Partnership’s current time charter contracts, net of scheduled class survey repairs by the number of expected Available Days during that period.

(3) The Partnership calculates its estimated contracted revenue backlog by multiplying the contractual daily hire rate by the expected number of days committed under the contracts (assuming earliest delivery and redelivery and excluding options to extend), assuming full utilization. The actual amount of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods disclosed due to, for example, dry-docking and/or special survey downtime, maintenance projects, off-hire downtime and other factors that result in lower revenues than the Partnership’s average contract backlog per day. Certain time charter contracts that the Partnership has recently entered into with Yamal are subject to the satisfaction of important conditions, which, if not satisfied or waived by the charterer, may result in their cancellation or amendment before or after the charter term commences and in such case, the Partnership may not receive the contracted revenues thereunder.

(4) $0.17 billion of the revenue backlog estimate relates to the estimated portion of the hire contained in certain time charter contracts with Yamal which represents the operating expenses of the vessel and is subject to yearly adjustments on the basis of the actual operating costs incurred within each year. The actual amount of revenues earned in respect of such variable hire rate may therefore differ from the amounts included in the revenue backlog estimate due to the yearly variations in the respective vessels’ operating costs.

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