Genco Shipping reports Q3 loss

GENCO-Beauty-Panamax-dry-bulk

Genco reported its financial results for the three and nine months ended September 30, 2016.

The following financial review discusses the results for the three and nine months ended September 30, 2016 and September 30, 2015.

Third Quarter 2016 and Year-to-Date Highlights

  • Recorded a net loss attributable to Genco Shipping & Trading Limited of $27.5 million for the third quarter of 2016
    • Basic and diluted loss per share of $3.80
  • Basic and diluted loss per share of $3.80
  • Extended and amended the commitment and waiver letter for the $400.0 million facility through November 15, 2016
    • Provides further amortization relief for 2019 and 2020
    • Includes improved collateral maintenance covenants for 2020
    • Designed to refinance all of our existing credit facilities with the exception of the $98 Million Credit Facility and the 2014 Term Loan Facilities
  • Provides further amortization relief for 2019 and 2020
  • Includes improved collateral maintenance covenants for 2020
  • Designed to refinance all of our existing credit facilities with the exception of the $98 Million Credit Facility and the 2014 Term Loan Facilities
  • Entered into agreements with the Company’s three largest shareholders and other investors for the purchase of an aggregate of $125 million of Series A Preferred Stock at a price of $4.85 per share
    • On October 4, 2016 entered into agreements with the three largest shareholders of the Company for the firm purchase commitment of $86.4 million and a backstop commitment for $38.6 million
    • On October 27, 2016 entered into an agreement with a number of investors including our three largest shareholders for a firm purchase of $38.6 million
  • On October 4, 2016 entered into agreements with the three largest shareholders of the Company for the firm purchase commitment of $86.4 million and a backstop commitment for $38.6 million
  • On October 27, 2016 entered into an agreement with a number of investors including our three largest shareholders for a firm purchase of $38.6 million
  • Sold two Handysize vessels, the Genco Sugar and the Genco Pioneer for $5.1 million
  • Entered into an agreement to sell the Genco Leader for $3.47 million
  • Effected a one-for-ten reverse stock split of Genco’s common stock as of July 7, 2016.

Financial Review: 2016 Third Quarter

The Company recorded a net loss attributable to Genco Shipping & Trading Limited for the third quarter of 2016 of $27.5 million, or $3.80 basic and diluted net loss per share. Comparatively, for the three months ended September 30, 2015, the Company recorded a net loss attributable to Genco Shipping & Trading Limited of $66.6 million, or $9.54 basic and diluted net loss per share. Basic and diluted net loss per share for both periods has been adjusted for the one-for-ten reverse stock split of Genco’s common stock effected on July 7, 2016.

John C. Wobensmith, President, commented, “Genco has taken important steps to strengthen its balance sheet and enhance its long-term prospects in the third quarter. The proposed $400 million facility provides us with a more favorable amortization schedule through 2020, a reduction in the minimum liquidity requirements and significant relief under the collateral maintenance covenants which is expected to provide the company with increased financial flexibility upon closing.  The commitment for the proposed $400 million credit facility highlights the Company’s industry leadership and is expected to better position the Company to capitalize on our leading drybulk platform during a potential market recovery. We thank our lenders for their strong and ongoing support.”

The Company’s revenues decreased to $38.9 million for the three months ended September 30, 2016, compared to $50.0 million for the three months ended September 30, 2015. The decrease was primarily due to lower spot market rates achieved by the majority of the vessels in our fleet during the third quarter of 2016 versus the same period last year.

The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $5,779 per day for the three months ended September 30, 2016 as compared to $7,009 for the three months ended September 30, 2015. The decrease in TCE was primarily due to lower spot rates achieved by the majority of the vessels in our fleet during the third quarter of 2016 versus the third quarter of 2015. During the third quarter of 2016, the Baltic Dry Index continued to increase from all-time lows registered earlier in the year. Freight rates during the quarter were primarily supported by heightened demand for iron ore cargoes due to augmented Chinese steel production and increased coal shipments to China as the country reduced domestic coal output. With regard to supply, net fleet growth in the year-to-date remained relatively low in historical terms, however vessel demolition activity eased during the third quarter as compared to the first half of the year.

Total operating expenses were $59.0 million for the three months ended September 30, 2016 compared to $85.3 million for the three months ended September 30, 2015. Vessel operating expenses declined to $28.5 million for the three months ended September 30, 2016 compared to $31.5 million for the three months ended September 30, 2015. This was primarily due to lower expenses related to maintenance, crewing and insurance as well as the timing of purchases of stores and spares. General, administrative and technical management expenses were $10.2 million for the third quarter of 2016 compared to $27.0 million for the third quarter of 2015, primarily due to a decrease in compensation and merger related expenses partially offset by costs related to financing or refinancing activities. Included in general, administrative and technical management expenses for the three months ended September 30, 2016 and the three months ended September 30, 2015, are non-cash compensation expenses of $3.6 million and $11.8 million, respectively, arising from awards under the 2015 Equity Incentive Plan and the 2014 Management Incentive Plan, or MIP. Depreciation and amortization expenses decreased to $18.1 million for the three months ended September 30, 2016 from $20.1 million for the three months ended September 30, 2015, primarily due to the revaluation of ten of our vessels to their estimated net realizable value during the first half of 2016.

Daily vessel operating expenses, or DVOE, decreased to $4,483 per vessel per day for the third quarter of 2016 compared to $4,997 per vessel per day for the same quarter of 2015 predominantly due to lower expenses related to maintenance, crewing and insurance as well as the timing of purchases of stores and spares. 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 2016 is $4,820 per vessel per day on a weighted average basis for the entire year.

Apostolos Zafolias, Chief Financial Officer, commented, “The proposed $400 million credit facility includes improved financial covenants such as the elimination of collateral maintenance tests through the first half of 2018, and a reduction of the minimum liquidity requirement. It also provides a more favorable repayment schedule with no significant amortization payments until 2019.”

Financial Review: Nine Months 2016

The Company recorded a net loss attributable to Genco Shipping & Trading Limited of $192.7 million or $26.65 basic and diluted net loss per share for the nine months ended September 30, 2016. This compares to a net loss attributable to Genco Shipping & Trading Limited of $145.4 million or $22.86 basic and diluted net loss per share for the nine months ended September 30, 2015. Basic and diluted net loss per share for both periods has been adjusted for the one-for-ten reverse stock split of Genco’s common stock effected on July 7, 2016. Net income for the nine months ended September 30, 2016 and 2015, includes non-cash vessel impairment charges of $69.3 million and $35.4 million, respectively. Revenues decreased to $91.7 million for the nine months ended September 30, 2016 compared to $119.0 million for the nine months ended September 30, 2015 due to lower spot market rates achieved by the majority of our vessels. TCE rates obtained by the Company decreased to $4,341 per day for the nine months ended September 30, 2016 from $5,696 per day for the nine months ended September 30, 2015, due to lower rates achieved by the majority of the vessels in our fleet. Total operating expenses, excluding non-cash vessel impairment charges totaling $69.3 million relating to the revaluation of ten vessels to their estimated net realizable value, were $190.3 million for the nine months ended September 30, 2016. This compares to total operating expenses, excluding a non-cash vessel impairment charge of $35.4 million relating to the sale of the Baltic Tiger and the Baltic Lion in April 2015, of $238.9 million for the nine months ended September 30, 2015. Daily vessel operating expenses per vessel were $4,523 versus $4,841 in the comparative periods due to lower expenses related maintenance as well as crewing and insurance.

Liquidity and Capital Resources

Cash Flow

Net cash used in operating activities for the nine months ended September 30, 2016 and 2015 was $45.9 million and $39.4 million, respectively.  Included in the net loss attributable to Genco during the nine months ended September 30, 2016 and 2015 are $72.0 million and $67.9 million of non-cash impairment charges, respectively. Also included in the net loss during the nine months ended September 30, 2016 and 2015 was $14.5 million and $36.7 million, respectively, of non-cash amortization of non-vested stock compensation due to the vesting of restricted shares and warrants primarily issued under the MIP. Additionally, the fluctuation in accounts payable and accrued expenses decreased by $13.7 million due to the timing of payments.  The above changes in operating activities were partially offset by a $4.3 million increase in the fluctuation in prepaid expenses and other current assets.  Additionally, there was an $8.3 million decrease in deferred drydocking costs incurred because there were fewer vessels that completed drydocking during the nine months ended September 30, 2016 as compared to the same period during 2015.

Net cash provided by investing activities was $5.1 million during the nine months ended September 30, 2016 as compared to net cash used in investing activities of $26.4 million during the nine months ended September 30, 2015. The fluctuation is primarily due to a $45.7 million decrease in the purchase of vessels, including deposits.  The decrease is primarily due to the completion of the purchase of the Baltic Wasp on January 2, 2015 and the Baltic Scorpion on August 6, 2015.  Additionally, there was an increase of $3.2 million of proceeds from the sale of available-for-sale (“AFS”) securities, as well as $1.9 million of proceeds from the sale of the Genco Marine which was scrapped during the nine months ended September 30, 2016.  These fluctuations were partially offset by a $19.6 million decrease in deposits of restricted cash, representing the amount of restricted cash that was held in an escrow account as of December 31, 2014 for the purchase of the Baltic Wasp, which was released to the shipyard upon the vessel delivery on January 2, 2015.

Net cash used in financing activities was $40.3 million during the nine months ended September 30, 2016 as compared to net cash provided by financing activities of $26.9 million during the nine months ended September 30, 2015. Net cash used in financing activities for the nine months ended September 30, 2016 consisted primarily of the following: $15.2 million repayment of debt under the $253 Million Term Loan Facility, $9.0 million repayment of debt under the $148 Million Credit Facility, $5.8 million repayment of debt under the $100 Million Term Loan Facility, $4.9 million repayment of debt under the 2015 Revolving Credit Facility, $2.1 million repayment of debt under $44 Million Term Loan Facility, $2.1 million repayment of debt under the 2014 Term Loan Facilities, $1.1 million repayment of debt under the $22 Million Term Loan Facility, and $0.1 million cash settlement paid to non-accredited 5.00% Convertible Senior Note holders. Net cash provided by financing activities for the nine months ended September 30, 2015 consisted primarily of $131.5 million of proceeds from the $148 Million Credit Facility and $35.0 million of proceeds from 2015 Revolving Credit Facility partially offset by the following: $102.3 million repayment of debt under the 2010 Credit Facility, $16.9 million repayment of debt under the $253 Million Term Loan Facility, $5.8 million repayment of debt under the $100 Million Term Loan Facility, $4.9 million repayment of debt under the $148 Million Term Loan Facility, $2.1 million repayment of debt under the $44 Million Term Loan Facility, $1.1 million repayment of debt under the $22 Million Term Loan Facility, $1.4 million repayment of debt under the 2014 Term Loan Facilities, $0.7 million cash settlement paid to non-accredited 5.00% Convertible Senior Note holders, and $4.5 million payment of deferred financing costs.

Capital Expenditures

We make capital expenditures from time to time in connection with vessel acquisitions. As of November 2, 2016, our fleet consists of 13 Capesize, eight Panamax, four Ultramax, 21 Supramax, five Handymax and 16 Handysize vessels with an aggregate capacity of approximately 5,053,000 dwt.

In addition to acquisitions that we may undertake in future periods, we will incur additional capital expenditures due to special surveys and drydockings for our fleet. Two of our vessels were drydocked during the third quarter of 2016. We currently expect three of our vessels to be drydocked during the remainder of 2016.

We estimate our capital expenditures related to drydocking for our fleet through 2017 to be:

Q4 2016 2017
Estimated Costs (1) $3.2 million $15.6 million
Estimated Offhire Days (2) 100 385

(1) Estimates are based on our budgeted cost of drydocking our vessels in China. Actual costs will vary based on various factors, including where the drydockings are actually performed. We expect to fund these costs with cash from operations. These costs do not include drydock expense items that are reflected in vessel operating expenses or potential costs associated with the installation of ballast water treatment systems. The estimated costs shown in the table above include $1.5 million and $4.8 million of estimated costs associated with vessels that could potentially be sold or scrapped as per the terms of the $400 Million Credit Facility during Q4 2016 and 2017, respectively.

(2) Actual length will vary based on the condition of the vessel, yard schedules and other factors. The estimated offhire days shown in the table above include 60 days and 125 days associated with vessels that could potentially be sold or scrapped as per the terms of the $400 Million Credit Facility in Q4 2016 and 2017, respectively.

One vessel began drydocking during June and completed drydocking during the third quarter. Two other vessels began drydocking during the third quarter, of which one vessel competed drydocking in September and the other completed drydocking during Q4 2016. The planned offhire days recorded for these vessels during the third quarter of 2016 amounted to 32.0 days. Capitalized costs associated with drydocking incurred during the third quarter of 2016 were approximately $0.9 million.

Credit Facility Waivers/New Facility

As previously announced, the Company entered into agreements for waivers of the collateral maintenance covenants under its $253 Million Term Loan Facility, its $100 Million Credit Facility, and its $148 Million Credit Facility, which were extended by the commitment letter for the Company’s $400 Million Credit Facility, as amended.  The $400 Million Credit Facility is intended to address the Company’s liquidity and covenant compliance issues and to refinance the Company’s $100 Million Term Loan Facility, $253 Million Term Loan Facility, $148 Million Credit Facility, $22 Million Term Loan Facility, $44 Million Term Loan Facility, and 2015 Revolving Credit Facility (the “Prior Facilities”). Under the amended commitment letter, collateral maintenance waivers have been implemented or extended for the Prior Facilities through November 15, 2016.  Our credit facilities contain minimum cash covenants measured on a company-wide basis and on the basis of the number of vessels pledged by obligors under each such credit facility. The amended commitment letter also provides waivers of the Company’s minimum cash covenants under the Prior Facilities that are applicable on a company-wide basis, so long as cash and cash equivalents of the Company are at least $25 million, and of the Company’s maximum leverage ratio through November 15, 2016. Additionally, we have obtained collateral maintenance waivers under the 2014 Term Loan Facilities through November 15, 2016. Moreover, under the amended commitment letter, from August 31, 2016 through November 15, 2016, the amount of cash we would need to maintain under our minimum cash covenants applicable only to obligors in each facility to be refinanced under the Amended Commitment Letter would be reduced by up to $0.25 million per vessel, subject to an overall maximum cash withdrawal of $10.0 million to pay expenses and additional conditions.

As also previously announced, the Company entered into a commitment letter for certain amendments to its $98 Million Facility. This commitment letter provides for certain covenant relief through November 15, 2016. For such period, compliance with the company-wide minimum cash covenant has been waived so long as cash and cash equivalents of the Company are at least $25 million; compliance with the maximum leverage ratio has been waived; and the ratio required to be maintained under the Company’s collateral maintenance covenant will be 120% rather than 140%.

The foregoing waivers, amendments, and the $400 Million Credit Facility are subject to conditions that the Company must fulfill, including the completion of an equity financing by November 15, 2016.

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