Genco, the largest U.S. headquartered drybulk shipowner focused on the global transportation of commodities, reported its financial results for the three months and nine months ended September 30, 2023.
Third Quarter 2023 and Year-to-Date Highlights
- Dividend: Declared a $0.15 per share dividend for Q3 2023
- 17th consecutive quarterly payout
- Cumulative dividends of $4.745 per share or 36% of our share price1
- Q3 2023 dividend is payable on or about November 30, 2023 to all shareholders of record as of November 22, 2023.
- Global refinancing: Commitments received for a $500 million revolving credit facility providing additional capital allocation flexibility and improved terms compared to the existing facility
- 100% revolver structure increases borrowing capacity by $156 million, maturity is extended by over two years to the end of 2028 and margin is reduced to a grid of 1.85% to 2.15% from 2.15% to 2.75%
- Growth: Agreed to purchase a 2016-built scrubber-fitted Capesize vessel, to be renamed the Genco Ranger, for $43.1 million, with expected delivery in Q4 2023
- Financial performance: Net loss of $32.0 million for Q3 2023, including a non-cash vessel impairment charge of $28.1 million, or basic and diluted loss per share of $0.75
- Adjusted net loss of $3.9 million or basic and diluted loss per share of $0.09, excluding the non-cash vessel impairment charge of $28.1 million2
- Adjusted EBITDA of $14.6 million for Q3 20232
- Voyage revenues: Totaled $83.4 million in Q3 2023
- Net revenue2 was $47.2 million during Q3 2023
- Average daily fleet-wide TCE2 was $12,082 for Q3 2023
- Estimated TCE to date for Q4 2023: $16,665 for 69% of our owned fleet available days, based on both period and current spot fixtures2
- Global Maritime Forum: Genco became a signatory to the operational efficiency ambition statement focused on emissions reductions
John C. Wobensmith, Chief Executive Officer, commented, “We continued to advance our value strategy in the third quarter, delivering on our commitments to dividends, deleveraging, and growth. In addition to declaring our 17th consecutive dividend, we capitalized on an attractive opportunity to acquire a 2016-built scrubber-fitted Capesize vessel. The agreed upon acquisition of the Genco Ranger represents the next step in our fleet renewal plans as we continue to evaluate potential sale and purchase transactions in the market. We remain in a strong position to continue providing sizeable dividend payouts, supported by our balance sheet strength, available liquidity, and improved drybulk market. At the same time, our continued debt prepayments have enabled Genco to reduce our industry-low cash flow breakeven rate, which is a core differentiator for the Company.”
Mr. Wobensmith continued, “We expect our refinancing to further enhance Genco’s capital structure and support both the continued execution of our value strategy and our ability to take advantage of favorable long-term industry fundamentals. Beginning in September, we have seen a significant uplift in drybulk freight rates, led by firm iron ore, coal and bauxite shipments, which is reflected in our solid Q4 TCE to date. Moving forward, while we expect volatility to persist, we view commodity demand growth from China and developing Asia, coupled with capacity constraints that have resulted in a historically low orderbook, to be supportive for the drybulk market.”
1 Genco share price as of November 7, 2023.
2 We believe the non-GAAP measure presented provides investors with a means of better evaluating and understanding the Company’s operating performance. Please see Summary Consolidated Financial and Other Data below for further reconciliation. Regarding Q4 2023 TCE, actual results will vary from current estimates. Net revenue is defined as voyage revenues minus voyage expenses, charter hire expenses and realized gains or losses on fuel hedges.
Credit Facility Refinancing
In Q4 2023, Genco received commitments for a $500 million revolving credit facility, which can be utilized to support growth of the Company’s asset base as well as general corporate purposes.
Key terms of the amended $500 million revolving credit facility include:
- Borrowing capacity increases to $500 million from $344 million currently, an increase of $156 million or 46%
- 100% revolving credit facility structure provides flexibility for Genco to continue to pay down debt while maintaining the ability to opportunistically draw down capital
- Competitive pricing: margin grid reduced to 1.85% to 2.15% + SOFR from 2.15% to 2.75% + SOFR
- Credit adjustment spread of approximately 0.11% was also eliminated
- Margin grid based on the ratio of total net indebtedness to EBITDA
- 5-year tenor extends maturity by over two years from August 2026 to November 2028
- Repayment profile of 20 years
- Quarterly revolver commitment reduction of approximately $15 million per quarter
- Genco will have no mandatory debt repayments until 2028, due to our reduction in debt outstanding
- Sustainability linked feature with interest rate increased or decreased by a margin of up to 0.05% based on our performance relative to fleet-wide carbon emissions targets
- Favorable covenant package in line with the existing facility
- Collateral package includes Genco’s 44-vessel fleet as well as the Genco Ranger, upon expected delivery in mid-November 2023
Lenders of the revolving credit facility include reputable international shipping banks that are both existing and new lenders to Genco. The amended facility is subject to definitive documentation and fulfillment of customary conditions precedent. The amended facility is expected to close in Q4 2023.
Upon closing the amended credit facility and acquisition, we anticipate pro forma debt outstanding to be $179.8 million and undrawn revolver availability to be $320.3 million. Given the 100% revolver structure, we plan to actively manage our debt outstanding to reduce interest expense while also planning to utilize the revolver a source of funds to opportunistically acquire tonnage.
Comprehensive Value Strategy
Genco’s comprehensive value strategy is centered on three pillars:
- Dividends: paying sizeable quarterly cash dividends to shareholders
- Deleveraging: through voluntary debt prepayments or repayments to maintain low financial leverage, and
- Growth: opportunistically growing and renewing the Company’s asset base
This strategy is a key differentiator for Genco, which we believe creates a compelling risk-reward balance to drive shareholder value over the long-term. The Company is positioned to pay a sizeable quarterly dividend across diverse market environments while maintaining significant flexibility to grow the fleet through accretive vessel acquisitions.
Key characteristics of our unique platform include:
- Industry low cash flow breakeven rate
- Net loan-to-value of 10%3
- Strong liquidity position of $251.0 million at September 30, 2023, which consists of:
- $52.2 million of cash on the balance sheet
- $198.8 million of revolver availability
- High operating leverage with our scalable fleet across the major and minor bulk sectors
3 Represents the principal amount of our credit facility debt outstanding less our cash and cash equivalents as of September 30, 2023 divided by estimates of the market value of our fleet as of November 7, 2023 from VesselsValue.com. The actual market value of our vessels may vary.
Financial deleveraging
Genco paid down $304.5 million or 68% of our debt from Q1 2021 to Q3 2023
- Debt outstanding: $144.8 million as of September 30, 2023
- Drew down $35.0 million under our revolver in Q4 2023 to partially fund the acquisition of the Genco Ranger
- We plan to continue to voluntarily pay down debt
- Medium-term goal: reducing net debt to zero
- Longer-term goal: zero debt
Growth
Entered into an agreement to acquire a 2016-built 181,000 dwt scrubber-fitted Capesize vessel for $43.1 million constructed at SWS shipyard in China in October 2023. The vessel, to be renamed Genco Ranger, is expected to be delivered to Genco in mid-November 2023. We continue to further evaluate fleet renewal and growth opportunities in the sale and purchase market.
Dividend Policy
Genco declared a cash dividend of $0.15 per share for the third quarter of 2023. While our stated formula did not produce a dividend for the quarter, the Board of Directors elected on management’s recommendation to declare the $0.15 per share dividend. Genco’s industry low cash flow breakeven rate and low financial leverage, together with improved freight rates in Q4 2023 to date gave the Company confidence to declare the $0.15 per share dividend. This represents our eighth dividend payment under our value strategy with cumulative dividends declared to date of $3.69 per share. The Q3 2023 dividend is payable on or about November 30, 2023 to all shareholders of record as of November 22, 2023.
Under the quarterly dividend policy adopted by our Board of Directors, the amount available for quarterly dividends is to be calculated based on the formula in the table below. The table includes the calculation of the actual Q3 2023 dividend and estimated amounts for the calculation of the dividend for Q4 2023:
| Dividend calculation | Q3 2023 actual | Q4 2023 estimates | |||||
| Net revenue | $ | 47.24 | Fixtures + market | ||||
| Operating expenses | (31.84 | ) | (33.07 | ) | |||
| Less: capex for dydocking/BWTS/ESDs | (4.54 | ) | (0.40 | ) | |||
| Operating cash flow less DD capex | $ | 10.87 | Sum of the above | ||||
| Less: voluntary quarterly reserve* | (4.40 | ) | (19.50 | ) | |||
| Cash flow distributable as dividends | $ | 6.47 | Sum of the above | ||||
| Number of shares to be paid dividends | 43.2 | 43.2 | |||||
| Dividend per share | $ | 0.15 | |||||
| Numbers in millions except per share amounts | |||||||
| *We have consolidated the previous voluntary quarterly reserve of $10.75m and voluntary debt repayments of $8.75m (total of $19.5m). This consolidated Q3 2023 voluntary quarterly reserve was reduced from $19.5m to $4.4m for the purposes of the dividend calculation. | |||||||
Operating cash flow is defined as net revenue (consisting of voyage revenue less voyage expenses, charter hire expenses, and realized gains or losses on fuel hedges), less operating expenses (consisting of vessel operating expenses, general and administrative expenses other than non-cash restricted stock expenses, technical management fees, and interest expense other than non-cash deferred financing costs), for purposes of the foregoing calculation. Estimated expenses, debt repayments, and capital expenditures for Q4 2023 are estimates presented for illustrative purposes.
We have consolidated our voluntary quarterly debt repayments and voluntary quarterly reserve for the purposes of our dividend calculation as shown in the table above. With our new 100% revolving credit facility structure, we intend to actively manage our debt outstanding to reduce interest expense while also planning to opportunistically draw down to partially fund future acquisitions or for general corporate purposes while remaining committed to our medium-term goal of net debt zero. Furthermore, given that both the reserve and debt repayments are fully in our discretion, we felt it was appropriate to consolidate into one voluntary quarterly reserve.
The voluntary quarterly reserve for the third quarter of 2023 under the Company’s dividend policy was reduced to $4.4 million. A key component of Genco’s value strategy is maintaining a voluntary quarterly reserve, as well as the optionality for the use of the reserve as Genco seeks to pay sizeable dividends in diverse market environments.
The voluntary quarterly reserve for the fourth quarter of 2023 under the Company’s dividend formula is expected to be $19.5 million, a portion of which consists of a voluntary debt repayment under our revolver with the balance representing our voluntary quarterly reserve. As we anticipate having no mandatory debt repayments until the maturity of the new credit facility in 2028, the $19.5 million remains fully within our discretion. Subject to the development of freight rates for the remainder of the fourth quarter and our assessment of our liquidity and forward outlook, we maintain flexibility to reduce the quarterly reserve to pay dividends or increase the amount of dividends otherwise payable under our formula. We plan to set the voluntary reserve on a quarterly basis for the subsequent quarter, and it is expected to be based on anticipated debt repayments and interest expense for the relevant and succeeding quarter and remains subject to our Board of Directors’ discretion.
Anticipated uses for the voluntary reserve include, but are not limited to:
- Vessel acquisitions
- Debt repayments, and
- General corporate purposes
The Board expects to reassess the payment of dividends as appropriate from time to time. Our quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with applicable law and contractual obligations (including our credit facility) and the Board of Directors’ determination that each declaration and payment is at the time in the best interests of the Company and its shareholders after its review of our financial performance.
Peter Allen, Chief Financial Officer, commented, “Consistent with our focus on further strengthening our balance sheet, we are pleased to have received commitments for a $500 million revolving credit facility, which we anticipate closing before year-end. The global refinancing and full revolving credit facility structure aligns well with Genco’s value strategy, providing the flexibility to continue on our debt paydown trajectory while maintaining the optionality to strategically access capital when attractive opportunities materialize. Furthermore, we increased our borrowing capacity by nearly 50%, or over $150 million, while lowering pricing and extending maturity. This key initiative enhances Genco’s industry-leading balance sheet and low financial leverage position, highlighted by a net loan-to-value ratio of approximately 10%. We appreciate the continued support of our high quality bank group.”