Genco Shipping & Trading Refinances $500 Million, as It Posts Net Loss of $32 Million
Genco Shipping & Trading Limited (NYSE:GNK) (“Genco” or the “Company”), the largest U.S. headquartered drybulk shipowner focused on the global transportation of commodities, today 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.”
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
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
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.
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:
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.”
Genco’s Active Commercial Operating Platform and Fleet Deployment Strategy
We utilize a portfolio approach towards revenue generation through a combination of:
- Short-term, spot market employment, and
- Opportunistically booking longer term coverage
Our fleet deployment strategy currently remains weighted towards short-term fixtures, which provide us with optionality on our sizeable fleet.
Our barbell approach towards fleet composition enables Genco to gain exposure to both the major and minor bulk commodities with a fleet whose cargoes carried align with global commodity trade flows. This approach continues to serve us well given the upside potential in major bulk rates together with the relative stability of minor bulk rates.
Based on current fixtures to date, our estimated TCE to date for the fourth quarter of 2023 on a load-to-discharge basis is presented below. Actual rates for the fourth quarter will vary based upon future fixtures. These estimates are based on time charter contracts entered by the Company as well as current spot fixtures on the load-to-discharge method, whereby revenue is recognized ratably over the voyage from the commencement of loading to the completion of discharge. The actual TCE rates to be earned will depend on the number of contracted days and the number of ballast days at the end of the period. According to the load-to-discharge accounting method, the Company does not recognize revenue for any ballast days or uncontracted days at the end of the fourth quarter of 2023. At the same time, expenses for uncontracted days will be recognized.
Financial Review: 2023 Third Quarter
The Company recorded net loss for the third quarter of 2023 of $32.0 million, or $0.75 basic and diluted loss per share. Adjusted net loss is $3.9 million or $0.09 basic and diluted loss per share excluding a non-cash vessel impairment charge of $28.1 million. This non-cash vessel impairment charge was recorded as the estimated future undiscounted cash flows for three of our 170,000 dwt Capesize vessels, that we are evaluating divesting as part of fleet renewal with third special surveys scheduled in 2024, did not exceed their net book values, and we therefore adjusted their values to fair market value during the third quarter of 2023. Comparatively, for the three months ended September 30, 2022, the Company recorded net income of $40.8 million, or $0.96 and $0.95 basic and diluted earnings per share, respectively.
Revenue / TCE
The Company’s revenues decreased to $83.4 million for the three months ended September 30, 2023, as compared to $136.0 million recorded for the three months ended September 30, 2022, primarily due to lower rates earned by our minor and major bulk vessels. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $12,082 per day for the three months ended September 30, 2023 as compared to $23,624 per day for the three months ended September 30, 2022.
Voyage expenses were $34.3 million for the three months ended September 30, 2023 compared to $39.5 million during the prior year period, primarily due to lower bunker consumption for our minor bulk vessels and third-party chartered-in vessels, as well as decreased fuel prices during the third quarter of 2023 as compared to the same period during 2022.
Vessel operating expenses
Vessel operating expenses increased to $24.7 million for the three months ended September 30, 2023 from $22.1 million for the three months ended September 30, 2022. Daily vessel operating expenses, or DVOE, amounted to $6,113 per vessel per day for the third quarter of 2023 compared to $5,457 per vessel per day for the third quarter of 2022. The increase was primarily due to the timing of the purchase of stores and spare parts, higher insurance costs and higher crew costs due to the timing of crew changes. These increases were partially offset by the absence of COVID-19 related expenses in Q3 2023.
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 manager, our DVOE budget for Q4 2023 is $6,000 per vessel per day on a fleet-wide basis.
General and administrative expenses
General and administrative expenses increased to $6.6 million for the third quarter of 2023 compared to $5.9 million for the third quarter of 2022, primarily due to an increase in non-cash stock amortization expenses.
Depreciation and amortization expenses
Depreciation and amortization expenses increased to $17.0 million for the three months ended September 30, 2023 from $15.6 million for the three months ended September 30, 2022, primarily due to an increase in drydocking amortization expense for certain vessels that completed their respective drydockings during the third quarter of 2022 through the second quarter of 2023.
Drybulk market update
During the first two months of the third quarter, spot freight rates came under pressure primarily due to an unwinding in port congestion which offset firm iron ore and coal volumes into China. During September and into Q4 2023 to date, freight rates have improved meaningfully due to:
- Strong iron ore and coal shipments into China
- Robust Brazilian iron ore volumes
- Ex-China steel production growth
- An increase in port congestion from Q3 lows
Financial Review: Nine Months 2023
The Company recorded net loss of $17.8 million or $0.42 basic and diluted loss per share for the nine months ended September 30, 2023. Adjusted net income is $10.3 million or $0.24 basic and diluted earnings per share excluding a non-cash vessel impairment charge of $28.1 million. This compares to net income of $129.9 million or $3.07 and $3.03 basic and diluted earnings per share, respectively, for the nine months ended September 30, 2022.
Revenue / TCE
The Company’s revenues decreased to $268.3 million for the nine months ended September 30, 2023 compared to $410.0 million for the nine months ended September 30, 2022, primarily due to lower rates achieved by our minor and major bulk vessels. TCE rates obtained by the Company decreased to $13,855 per day for the nine months ended September 30, 2023 from $25,425 per day for the nine months ended September 30, 2022.
Voyage expenses decreased to $100.5 million for the nine months ended September 30, 2023 from $110.4 million for the same period in 2022, primarily due to lower bunker consumption for our minor bulk vessels and third-party chartered-in vessels, as well as decreased fuel prices during the nine months ended September 30, 2023 as compared to the same period during 2022.
Vessel operating expenses
Vessel operating expenses decreased to $71.7 million for the nine months ended September 30, 2023 from $78.6 million for the nine months ended September 30, 2022. DVOE was $5,971 for the year-to-date period in 2023 versus $6,545 in 2022. The decrease was primarily due to the absence of COVID-19 related expenses in 2023 over the same period last year, a decrease in the purchase of stores and spare parts, as well as reduced repair and maintenance costs. These decreases were partially offset by higher crew costs due to the timing of crew changes.
General and administrative expenses
General and administrative expenses for the nine months ended September 30, 2023 increased to $21.3 million as compared to $18.3 million in the same period of 2022 primarily due to an increase in non-cash stock amortization expense as well as higher legal and professional fees.
EBITDA for the nine months ended September 30, 2023 amounted to $36.2 million compared to $180.6 million during the prior period. During the nine months of 2023 and 2022, EBITDA included non-cash impairment charges as well as losses on fuel hedges. Excluding these items, our adjusted EBITDA would have amounted to $64.4 million and $180.7 million, for the respective periods.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended September 30, 2023 and 2022 was $52.2 million and $153.4 million, respectively. This decrease in cash provided by operating activities was primarily due to lower rates earned by our minor and major bulk vessels and changes in working capital. These decreases were partially offset by a decrease in drydocking costs incurred during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
Net cash used in investing activities for the nine months ended September 30, 2023 and 2022 was $3.3 million and $53.5 million, respectively. This decrease was primarily due to a $47.4 million decrease in the purchase of vessels primarily as a result of the purchase of two Ultramax vessels that delivered during the first quarter of 2022. There was also a $2.1 million increase in insurance proceeds for hull and machinery claims for our vessels.
Net cash used in financing activities during the nine months ended September 30, 2023 and 2022 was $60.8 million and $149.0 million, respectively. The decrease is primarily due to the additional $40.0 million debt repayment made under the $450 Million Credit Facility during the first quarter of 2022. Additionally, there was a $48.2 million decrease in the payment of dividends during the nine months ended September 30, 2023 as compared to the same period during 2022.
Genco’s fleet of 44 vessels as of November 8, 2023, consists of:
- 17 Capesizes
- 15 Ultramaxes
- 12 Supramaxes
The fleet’s average age is 11.7 years and has an aggregate capacity of approximately 4,635,000 dwt. We plan to take delivery of the Genco Ranger, a 181,000 dwt scrubber-fitted Capesize vessel in mid-November 2023.
In addition to acquisitions that we may undertake, we will incur additional capital expenditures due to special surveys and drydockings. Furthermore, we plan to upgrade a portion of our fleet with energy saving devices and apply high performance paint systems to our vessels in order to reduce fuel consumption and emissions.
We estimate our capital expenditures related to drydocking, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, ballast water treatment system costs, fuel efficiency upgrades and scheduled off-hire days for our fleet for the balance of 2023 and 2024 to be:
Summary Consolidated Financial and Other Data
The following table summarizes Genco Shipping & Trading Limited’s selected consolidated financial and other data for the periods indicated below.Full Report
Source: Genco Shipping & Trading Limited