Genco Shipping & Trading Limited (NYSE:GNK) Q3 2023 Earnings Call Transcript
Genco Shipping & Trading Limited (NYSE:GNK) Q3 2023 Earnings Call Transcript November 9, 2023
Operator: Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Third Quarter 2023 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today’s conference call. That presentation can be obtained from Genco’s website at www.gencoshipping.com. To inform everyone, today’s conference is being recorded and is now being webcast at the company’s website at www.gencoshipping.com. We’ll conduct a question-and-answer session after the opening remarks and instructions will follow at that time. A replay of the conference will be accessible at any time during the next two weeks by dialing in 1-877-674-7070 and entering the passcode 329256. At this time, I will now turn the conference over to the company. Please go ahead.
Peter Allen: Good morning. Before we begin our presentation, I note that in this conference call, we’ll be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words in terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management’s current expectations and observations. For a discussion of factors that could cause results to differ, please see the company’s press release that was issued today, materials relating to this call posted on the company’s website and the company’s filings with the Securities and Exchange Commission, including, without limitation, the company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the company’s reports on Form 10-Q and Form 8-K subsequently filed with the SEC.
At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.
John Wobensmith: Good morning, everyone. Welcome to Genco’s third quarter 2023 conference call. I will begin today’s call by reviewing our Q3 2023 and year-to-date highlights, providing an update on our comprehensive value strategy, financial results for the quarter and the industry’s current fundamentals before opening the call up for questions. For additional information, please also refer to our earnings presentation posted on our website. During the third quarter, we continued to advance our value strategy providing shareholders with a sizable dividend while continuing to take steps to renew our fleet. For the quarter, we declared a dividend of $0.15 per share as we utilized the built-in optionality and flexibility within our dividend policy.
This highlights Genco’s differentiated capital structure and industry low breakeven levels for providing sizable dividends to shareholders even during a lower freight rate environment. Notably, the third quarter represents our 17th consecutive quarterly dividend, highlighting our commitment and success, returning significant capital to shareholders. Over this time, we have declared dividends of $4.745 per share, or 36% of the current share price. 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 position, together with improved freight rates in Q4 to-date gave the company confidence to declare the $0.15 per share dividend.
Regarding the dividend calculation, we have consolidated the previous voluntary quarterly reserve of $10.75 million and voluntary quarterly debt repayment of $8.75 million, which totaled $19.5 million in one line item. This voluntary quarterly reserve was reduced to $4.4 million for the purpose of the Q3 dividend. Given that both the reserve and debt repayments are fully in Genco’s discretion, we felt it was appropriate to consolidate them into one voluntary quarterly reserve. Furthermore, with our new 100% revolving credit facility, this advantageous structure allows us more flexibility than with previous term loan structures to actively manage our debt outstanding to reduce interest expense while providing meaningful capacity to partially fund future vessel acquisitions.
In Q4, we received a commitment for a $500 million revolving credit facility, significantly expanding our borrowing capacity, reducing interest expense and extending debt maturities. This facility aligns well with our value strategy as the revolving credit facility structure enables Genco to continue to voluntarily pay down debt in line with our medium-term goal of net debt zero without losing the capacity to draw down to fund growth. To this point, we took advantage of the company’s strong liquidity position to opportunistically enter into an agreement to acquire a modern, high specification Capesize vessel. The vessel to be renamed the Genco Ranger is a 2016 built SWS scrubber-fitted 181,000 deadweight ton Capesize vessel, which we anticipate taking delivery of in mid-November of this year.
Modern eco Capesizes rarely trade with only a handful of transactions in a given year. As such, we are pleased with this purchase to further modernize our fleet. We continue to assess additional sale and purchase transactions in the market in line with our fleet renewal strategy. Regarding the current drybulk market 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 estimated 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.
Given the recent rate improvement, we have also seen asset valuess strengthen. In addition, firm new building prices and lower shipyard capacity continue to be supportive of secondhand asset values. Lastly, in October, we are pleased to become a signatory to the operational efficiency ambition statement focused on emissions reductions and reducing our carbon footprint, an initiative led by the Global Maritime Forum. I will now turn the call over to Peter Allen, our Chief Financial Officer.
Peter Allen:
,: Adjusted EBITDA for Q3 totaled $14.6 million, bringing the nine-month 2023 total to $64.4 million. As of September 30, our cash position was $52 million and our debt outstanding was $144.8 million, bringing our net debt to $92.5 million and net loan to value to 10%. With $198.8 million of undrawn revolver availability, our total liquidity position at the end of the third quarter was $251 million. Subsequently, in Q4, we received commitments for a $500 million revolving credit facility, which can be utilized to support fleet growth as well as general corporate purposes. Key terms include an increase in borrowing capacity by nearly 50% or over $150 million, lower pricing on margin of 1.85% to 2.15% + SOFR compared to 2.15% to 2.75% + SOFR, previously.
Extended maturity to the end of 2028 and 100% revolving credit facility structure providing further flexibility. We appreciate the continued support of our high quality lending group that participated in the revolving facility, including leading international shipping banks that are both existing and new lenders to Genco. The amended facility is subject to definitive documentation and fulfillment of customary closing conditions and is expected to close in Q4 2023. Upon closing, the amended facility and acquisition, we anticipate pro forma debt outstanding to be $179.8 million and undrawn revolver availability of $320.3 million. This includes a $35 million drawdown in Q4 to partially fund the acquisition of the Genco Ranger. Looking ahead to Q4 2023, we anticipate our cash flow breakeven rate to be $8,170 per vessel per day, well below our Q4 TCE estimates to-date of $16,665 for 69% fixed.
After a slow start to the third quarter, freight rates began to rise in September, specifically, the Baltic Capesize Index rose from approximately $8,300 to end the quarter at $20,000. Rates continued to push higher in October, reaching a year-to-date high of $31,000. While we expect volatility to persist in the near-term current spot and Supramax rates of $20,000 and $12,000 remain firm. The year-to-date, iron ore and coal trades into China have increased by 6% and 67% respectively. In the second half of 2023, we have seen abundant cargo availability from major iron ore miners in Brazil and Australia supporting these solid import figures. Given the general tight supply and demand balance, freight rates continued to be sensitive to the fluctuation of port congestion levels.
In Q3, we saw meaningful unwinding, which offset some of the firm trade volumes that pressured freight rates, while in October, increased congestion off of Q3 lows helped to reduce effective capacity and push rates higher. Despite the challenges within China’s property sector, several key indicators within the China steel complex continue to convey positive signals. These include multiyear low iron ore port inventories, iron ore prices above $125 per ton, and steel mill utilization above 90%. Furthermore, ex-China steel production has now risen for three straight months after an elongated period of contraction, potentially signaling an increase in demand in developed countries and support for the secondary trade routes outside of Asia. Regarding the supply side, annualized net fleet growth in the year-to-date is 2.7%, primarily due to the front loaded nature of the delivery schedule and low scrapping levels.
The historically low orderbook as a percentage of the fleet as well as near-term and longer term environmental regulations are expected to keep net fleet growth low in the coming years. While we expect volatility for the balance of the year and into early part of next year, the foundation of a low supply growth picture provides a solid basis for our constructive view of the drybulk market going forward. This concludes our presentation and we’ll now be happy to take your questions.
See also 16 Best Consistent Dividend Stocks to Invest In and 12 Best Undervalued Dividend Stocks To Buy Now.
To continue reading the Q&A session, please click here.
