Genco Shipping & Trading Limited Announces Second Quarter Financial Results

Executing on Genco’s Strategic Growth Initiatives Through the Acquisition of Six Modern, Fuel Efficient Capesize and Ultramax Vessels

Accessed Commercial Bank Financing and the Capital Markets with a New Credit Facility and the Successful Completion of a $116 Million Equity Offering

New York - Aug 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 and six months ended June 30, 2018.

The following financial review discusses the results for the three and six months ended June 30, 2018 and June 30, 2017.

Second Quarter 2018 and Year-to-Date Highlights

• Agreed to acquire a total of six high specification, fuel efficient Capesize and Ultramax vessels, specifically:
• In June 2018, we agreed to acquire two 2015 Chinese built 180,000 dwt Capesize vessels, one 2016 Japanese built Ultramax vessel and one 2014 Chinese built Ultramax vessel for an en bloc purchase price of approximately $141 million
• In July 2018, we agreed to acquire two 2016 South Korean built 180,000 dwt Capesize vessels for an en bloc purchase price of approximately $98 million
• Received a commitment for a five-year senior secured credit facility with an estimated aggregate principal amount of approximately $107 million to partially finance or refinance these acquisitions
• Completed a common stock offering for gross proceeds of $115.7 million
• Issued 7,015,000 new shares, which included the exercise in full of the underwriters’ option to purchase up to 915,000 shares of common stock
• As a result, 41,547,004 shares of common stock were outstanding following completion of the offering
• Entered into agreements for the sale of three 1990s-built vessels, including one Panamax, the Genco Surprise and two Handysizes, the Genco Explorer and the Genco Progress, as part of our fleet renewal program
• Closed a senior secured term loan facility with an aggregate principal amount of $460 million to -
• Refinance our four prior credit facilities and
• Provide the Company with added flexibility in regards to vessel acquisitions, additional indebtedness and potential dividends
• Recorded a net loss of $1.1 million for the second quarter of 2018
• Basic and diluted loss per share of $0.03
• Adjusted net income of $3.6 million or adjusted basic and diluted earnings per share of $0.10, after excluding:
• $4.5 million for the extinguishment of debt associated with the $460 Million Credit Facility refinancing and
• $0.2 million of non-cash impairment charges related to the sale of the Genco Surprise1
• Net revenue (voyage revenues minus voyage expenses and charter hire expenses) totaled $59.7 million during Q2 2018, nearly 35% higher than the same period of 2017
• Time charter equivalent (“TCE”) increased to $10,964 for Q2 2018 marking a year-over-year improvement of 31%
• Maintained low daily vessel operating expenses (“DVOE”) of $4,344 per vessel per day during Q2 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 $22.9 million during Q2 2018
• Adjusted EBITDA of $27.6 million, after excluding $4.5 million and $0.2 million of debt extinguishment and non-cash impairment charges, respectively1

1 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 a further reconciliation. John C. Wobensmith, Chief Executive Officer, commented, “We continued to benefit from our strengthened commercial platform in the second quarter while further implementing our strategy to position Genco to more fully capitalize on a robust drybulk market. Drawing on Genco’s strong access to the capital markets and our long-standing relationships with our leading bank group, we completed a successful capital raise and arranged for two new credit facilities. Based on this success, we took advantage of the opportunity to further strengthen and grow our fleet and enhance the Company’s earnings power. We are pleased to have identified and acquired six modern, fuel efficient Capesize and Ultramax vessels which we anticipate will be delivered to us during the seasonally stronger second half of the year. We believe this is an attractive entry point in the cycle given the earnings environment for both of these sectors, strong demand for drybulk commodities, and multi-decade low vessel supply growth rates.”

Vessel Acquisitions and Fleet Renewal Program
Genco has agreed to acquire six high specification, fuel efficient Capesize and Ultramax vessels. Specifically, in June 2018, we agreed to acquire two 2015 Chinese built 180,000 dwt Capesize vessels, one 2016 Japanese built Ultramax vessel and one 2014 Chinese built Ultramax vessel for an en bloc purchase price of approximately $141 million. Furthermore, in July 2018, we agreed to acquire two 2016 South Korean built 180,000 dwt Capesize vessels for an en bloc purchase price of approximately $98 million. On July 26, 2018, we took delivery of the Genco Weatherly, a 2014-built 61,000 dwt Ultramax vessel. The remaining five acquisition vessels are scheduled to be delivered to the Company by the end of the third quarter of 2018. Regarding our fleet renewal program announced earlier in the year, we have agreed to sell three older vessels consisting of the Genco Surprise, a 1998-built Panamax vessel which delivered to buyers on August 7, 2018, and the Genco Explorer and Genco Progress, two 1999-built Handysize vessels. These vessels were scheduled to drydock in 2018 and 2019. As a result of the sale, Genco will save anticipated drydocking and ballast water treatment system installation costs of approximately $4.7 million. There will be no debt repayment associated with the sale of these three vessels as they are unencumbered as part of the $460 Million Credit Facility refinancing. Following the acquisition of the six vessels we have agreed to acquire and the sale of three vessels we have agreed to sell, our fleet will consist of 63 vessels with a carrying capacity of 5,400,000 dwt. On a per sector basis, the fleet will consist of 17 Capesize, five Panamax, six Ultramax, 21 Supramax, one Handymax and 13 Handysize vessels with an average age of 9.2 years, representing an over one year reduction in average age from 10.3 years for the prior fleet composition of 60 vessels before any of the recent sale and purchase activity.

Credit Facility Update

$460 Million Credit Facility
On June 5, 2018, the Company closed a previously announced five-year senior secured credit facility in an aggregate principal amount of up to $460 million. Proceeds from this credit facility were used, together with cash on hand, to refinance all of the Company’s prior credit facilities into one facility and pay down the debt on the oldest seven vessels in Genco’s fleet.

The $460 Million Credit Facility lowers Genco’s interest costs through improved pricing, eliminates near-term refinancing risk by extending loan maturity to 2023, establishes an attractive amortization profile and enhances the Company’s flexibility to execute its fleet growth and renewal program by lifting restrictions on vessel acquisitions and additional indebtedness.

New Credit Facility
In addition to the $460 Million Credit Facility, we also received a commitment for a five-year senior secured credit facility (the “New Credit Facility”) to be led by Crédit Agricole Corporate & Investment Bank with an estimated aggregate principal amount of approximately $107 million. Under the terms of the New Credit Facility, borrowings are to bear interest at LIBOR plus 250 basis points through September 30, 2019 and LIBOR plus a range of 225 to 275 basis points thereafter, dependent upon Genco’s ratio of total net indebtedness to the last twelve months EBITDA.

Our Commercial Strategy Continues to Actively Drive Revenue and Margin Growth
Our strong performance during the second 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 second quarter of 2018 TCE results by class are listed below. Our TCE performance during the second quarter of 2018 improved by 31% compared to the same period the year before and rose by 5% from the prior quarter.

• Capesize: $15,162
• Panamax: $10,209
• Ultramax, Supramax and Handymax: $10,503
• Handysize: $8,402
• Fleet average: $10,964

We currently have the following net TCE fixed for the third quarter of 2018. We note that TCE booked in the third quarter to date has been negatively impacted by the timing of backhaul fixtures from the Pacific to the Atlantic basin for select Capesize vessels as well as positioning of our minor bulk fleet during the early part of the quarter. These backhaul fixtures were concluded to strategically position these vessels to take advantage of anticipated stronger export volumes towards the end of the third quarter and into the fourth quarter in the specific regions. Additionally, we note that existing fixtures on several of our Capesize vessels are due to expire between now and the end of the third quarter and will potentially benefit from the improving drybulk market. We also expect to have several vessels in our minor bulk fleet favorably positioned between now and the end of the quarter.

• Capesize: $15,794 for 61% of the available Q3 2018 days
• Panamax: $8,806 for 55% of the available Q3 2018 days
• Ultramax, Supramax and Handymax: $9,535 for 65% of the available Q3 2018 days
• Handysize: $7,537 for 57% of the available Q3 2018 days
• Fleet average: $10,362 for 62% of the available Q3 2018 days
• Financial Review: 2018 Second Quarter

The Company recorded a net loss for the second quarter of 2018 of $1.1 million, or $0.03 basic and diluted net loss per share. Comparatively, for the three months ended June 30, 2017, the Company recorded a net loss of $14.5 million, or $0.42 basic and diluted net loss per share.

The Company’s revenues increased to $86.2 million for the three months ended June 30, 2018, nearly double when compared to $45.4 million for the three months ended June 30, 2017. The increase in revenues was primarily due to the employment of vessels on spot market voyage charters as well as higher spot market rates achieved by the majority of our vessels.

The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $10,964 per day for the three months ended June 30, 2018 as compared to $8,351 for the three months ended June 30, 2017. The increase in TCE was primarily due to higher rates achieved by the majority of the vessels in our fleet during the second quarter of 2018 versus the second quarter of 2017. During the second quarter of 2018, the drybulk freight market strengthened relative to the first quarter with sequential increases in Capesize, Supramax and Handysize average earnings as reported by the Baltic Exchange. Demand for raw materials remains strong as global steel production has increased by 4.6% in the year-to-date led primarily by China and India at growth rates of 6.0% and 5.1%, respectively. On the supply side, net fleet growth remains low at under 2.0% since the end of last year as newbuilding deliveries have fallen significantly.

Total operating expenses were $75.3 million for the three months ended June 30, 2018 compared to $52.6 million for the three months ended June 30, 2017. During the three months ended June 30, 2018, a $0.2 million non-cash impairment charge was recorded in relation to the anticipated sale of the Genco Surprise. During the three months ended June 30, 2017, non-cash charges of $3.3 million and $1.3 million were recorded due to a vessel impairment and a gain on sale of vessel, respectively. Voyage expenses rose to $26.0 million for the three months ended June 30, 2018 versus $1.0 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 marginally declined to $23.7 million for the three months ended June 30, 2018 compared to $23.9 million for the three months ended June 30, 2017. General and administrative expenses were $6.5 million for the second quarter of 2018 compared to $5.8 million for the second quarter of 2017, primarily due to higher legal expenses due to the $460 Million Credit Facility refinancing and compensation related expenses in connection with the buildout of our commercial platform. This was partially offset by lower nonvested stock amortization expense. Included in general and administrative expenses is nonvested stock amortization expense of $0.6 million and $1.6 million for the second quarter of 2018 and 2017, respectively. Depreciation and amortization expenses decreased to $16.5 million for the three months ended June 30, 2018 from $18.2 million for the three months ended June 30, 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 $4,344 per vessel per day for the second quarter of 2018, below our budget of $4,440 per vessel per day and compares to $4,333 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.

Apostolos Zafolias, Chief Financial Officer, commented, “During the quarter, we continued to generate positive operating cash flow to further strengthen our liquidity position. Furthermore, in support of our growth initiatives, we successfully completed a $116 million common stock offering and closed on the $460 Million Credit Facility, which refinanced our existing indebtedness and was significantly oversubscribed. Following our successful refinancing, we obtained a commitment for a five-year senior secured credit facility with an estimated principal amount of $107 million. We are pleased with the terms of both facilities and our success in reducing the Company’s cost of capital.”

Financial Review: Six Months 2018
The Company recorded a net loss of $56.9 million or $1.62 basic and diluted net loss per share for the six months ended June 30, 2018. This compares to a net loss of $30.1 million or $0.89 basic and diluted net loss per share for the six months ended June 30, 2017. Net loss for the six months ended June 30, 2018 and 2017, includes non-cash vessel impairment charges of $56.6 million and $3.3 million, respectively. Net loss for the six months ended June 30, 2018 also includes a loss on debt extinguishment in the amount of $4.5 million. Net loss for the six months ended June 30, 2017 includes a gain on sale of vessels in the amount of $7.7 million due to the sale of vessels. Revenues increased to $163.1 million for the six months ended June 30, 2018 compared to $83.6 million for the six months ended June 30, 2017. The increase in revenues was primarily due to the employment of vessels on spot market voyage charters as well as higher spot market rates achieved by the majority of our vessels. Voyage expenses increased to $47.1 million for the six months ended June 30, 2018 from $4.2 million for the same period in 2017. This increase was primarily due to the employment of vessels on spot market voyage charters during the first half of 2018 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. TCE rates obtained by the Company increased to $10,716 per day for the six months ended June 30, 2018 from $7,318 per day for the six months ended June 30, 2017, due to higher rates achieved by the majority of the vessels in our fleet. Total operating expenses for the six months ended June 30, 2018 and 2017 were $200.6 million and $99.4 million, respectively. Total operating expenses includes non-cash vessel impairment charges of $56.6 million relating to the revaluation of certain vessels that comprise our fleet renewal plan to their respective fair values for the six months ended June 30, 2018. For the six months ended June 30, 2017, total operating expenses includes non-cash vessel impairment charges totaling $3.3 million and a gain on sale of vessels of $7.7 million. General and administrative expenses for the six months ended June 30, 2018 increased to $11.7 million as compared to $10.7 million for same period of 2017, primarily due to higher legal expenses due to the $460 Million Credit Facility refinancing and compensation related expenses in connection with the buildout of our commercial platform partially offset by lower nonvested stock amortization expense. Daily vessel operating expenses per vessel were $4,373 versus $4,364 in the comparative periods. EBITDA for the six months ended June 30, 2018 amounted to $(8.7) million compared to $20.4 million during the prior period. During the first six months of 2018 and 2017, EBITDA included non-cash impairment charges, loss on debt extinguishment and gains on sale of vessels as mentioned above. Excluding these non-cash charges, our adjusted EBTIDA would have amounted to $52.4 million and $16.1 million, for the respective periods.

Liquidity and Capital Resources

Cash Flow
Net cash provided by operating activities for the six months ended June 30, 2018 was $25.0 million as compared to net cash used in operating activities for the six months ended June 30, 2017 of $1.2 million. Included in the net loss during the six months ended June 30, 2018 were $56.6 million of non-cash impairment charges, as well as a $4.5 million loss on the extinguishment of debt and a $5.3 million payment on the $400 Million Credit Facility. Included in the net loss during the six months ended June 30, 2017 was a gain on sale of vessels in the amount of $7.7 million due to the sale of five vessels and paid in kind interest incurred of $3.0 million related to the $400 Million Credit Facility. Depreciation and amortization expense for the six months ended June 30, 2018 decreased by $3.0 million primarily due to the revaluation of six of our vessels that were written down to their estimated fair market value during the second and third quarters of 2017, as well as the revaluation of an additional nine of our vessels that were written down to their estimated fair market value during the first quarter of 2018. Additionally, the fluctuation in inventories decreased by $7.9 million due to additional fuel inventory for our vessels as the result of the employment of our vessels on spot market voyage charters. There was also a $6.1 million decrease in the fluctuation in due from charterers due to the timing of payments received from charterers. These decreases were partially offset by a $3.8 million decrease in deferred drydocking costs incurred because there were less vessels that completed drydocking during the six months ended June 30, 2018 as compared to the same period during 2017. Lastly, there was an increase in the fluctuation in accounts payable and accrued expenses of $3.7 million and an increase in the fluctuation in prepaid expenses and other current assets of $4.9 million due to the timing of payments.

Net cash provided by investing activities was $1.9 million during the six months ended June 30, 2018 as compared to $15.8 million during the six months ended June 30, 2017. The decrease is primarily due to $15.5 million proceeds from the sale of five vessels during the six months ended June 20, 2017 as compared to no vessels sold during the six months ended June 30, 2018. This decrease was partially offset by a $2.5 million increase in the insurance proceeds received for hull and machinery claims primarily due to the receipt of the remaining settlement of the main engine repair claim for the Genco Tiger during the six months ended June 30, 2018.

Net cash provided by financing activities during the six months ended June 30, 2018 was $38.5 million as compared to net cash used in financing activities of $2.7 million during the six months ended June 30, 2017. Net cash provided by financing activities of $38.5 million for the six months ended June 30, 2018 consisted primarily of the $460.0 million drawdown on the $460 Million Credit Facility and the net proceeds from the issuance of common stock on June 19, 2018 of $110.2 million partially offset by the following: $399.6 million repayment of debt under the $400 Million Credit Facility; $93.9 million repayment of debt under the $98 Million Credit Facility; $25.5 million repayment of debt under the 2014 Term Loan Facilities; $9.7 million payment of deferred financing costs; and $3.0 million payment of debt extinguishment costs. On June 5, 2018, the $460 Million Credit Facility refinanced the following three existing credit facilities; the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities. Net cash used in financing activities of $2.7 million for the six months ended June 30, 2017 consisted of the following: $1.4 million repayment of debt under the 2014 Term Loan Facilities; $1.1 million payment of Series A Preferred Stock issuance costs; and $0.2 million repayment of debt under the $400 Million Credit Facility.

Full report

Genco Shipping & Trading Limited press release