Q3 2023 Genco Shipping & Trading Ltd Earnings Call
Participants
John C. Wobensmith; CEO, President, Secretary & Director; Genco Shipping & Trading Limited
Peter Allen; CFO; Genco Shipping & Trading Limited
Liam Dalton Burke; MD; B. Riley Securities, Inc., Research Division
Omar Mostafa Nokta; Equity Analyst; Jefferies LLC, Research Division
Sherif Ehab Elmaghrabi; Research Analyst; BTIG, LLC, Research Division
Presentation
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 will 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 2 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 will 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 yesterday, the materials relating to this call posted on the company's website, in 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 C. 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 utilize the built-in optionality and flexibility within our dividend policy. This highlights Genco's differentiated capital structure and industry low break-even 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 the 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 break-even 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 0 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 today. 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 order book, to be supportive for the drybulk market.
Given the recent rate improvement, we have also seen asset value strengthen. In addition, firm newbuilding 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 return the call over to Peter Allen, our Chief Financial Officer.
Peter Allen
Thank you, John. For Q3 2023, the company recorded a net loss of $32 million or $0.75 basic and diluted loss per share, which included a noncash vessel impairment charge of $28.1 million. Excluding this noncash charge, adjusted net loss is $3.9 million or $0.09 basic and diluted loss per share. This noncash vessel impairment charge was recorded as the estimated future undiscounted cash flows for 3 of our 170,000 deadweight ton Capesize vessels that we were evaluating divesting as part of our fleet renewal. The third special survey scheduled in 2024 did not exceed their net book values and we, therefore, adjusted their values to fair market value during the third quarter.
Adjusted EBITDA for Q3 totaled $14.6 million, bringing the 9-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 core purposes. Key terms include an increase in borrowing capacity by nearly 50% or over $150 million, lower pricing on margin of 185% (sic) [1.85%] to 2.15% plus SOFR compared to 2.15% to 275% (sic) [2.75%] plus SOFR previously, extended maturity to the end of 2028 and a 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 an $179.8 million and undrawn revolver availability of $320.3 million. This includes a $35 million drawdown in Q4 partially from the acquisition of the Genco Ranger.
Looking ahead to Q4 2023, we anticipate our cash flow break-even 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 Multi 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 at $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 continue to be sensitive to the fluctuation of port congestion levels. In Q3, we saw meaningful unwinding, which offset some of the firm trade volumes and the pressure on 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 continued 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 3 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 order book 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.
Question and Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Omar Nokta from Jefferies.
Omar Mostafa Nokta
First off, I guess, congrats on the $500 million revolver. Obviously, not every day that you see a facility of that size that's fully revolving, so congrats on that.
Wanted to just sort of ask about the Cape, you acquired a 2016-built ship. Just in general, you also sort of signaled in the release being a bit more active on the sale and purchase front and it sounds like it's going to be both sale and purchase is the way I kind of read that.
Could you give us maybe a bit more color or maybe expand a bit on that comment and how you're thinking about Genco moving forward here in the near term in the S&P market?
John C. Wobensmith
Yes. Thanks, Omar. So if you look at our fleet, we had some older Capes, some of the 170s. So our intention is to ultimately replace those with newer high-spec Eco vessels. So we're looking at that and working on a few things right now.
And then also on the Supramaxes, we have the Genco Auvergne, the Ardennes, the Bourgogne and the Aquitaine, which are older and are coming up for drydocking next year. So those vessels were also focused on replacing with the higher-spec Ultramax Eco, better fuel efficiency type vessels.
We have all those vessels that I just mentioned are drydocking next year. So the intention would be to try to save on the CapEx numbers by disposing of those and deploying capital for newer vessels.
And I think you have the CapEx side. We're obviously also trying to reduce our carbon footprint, but we have the EU ETS coming into play starting next year. So particularly with the Ultras and Supras, we want to be as efficient as we can to keep those costs down and be in a better position to trade the year up.
Omar Mostafa Nokta
That's helpful. And maybe just was going to come back to the Ultra/Supras. Clearly, over the past several years in terms of acquisitions, Genco has been more focused on the Ultras. And it's been some time since you've acquired a Cape.
Is this a shift perhaps in thinking, in wanting to lean a bit higher in sort of future investment? Or is it still kind of that barbell approach? What's the...
John C. Wobensmith
Yes. I would say it's still a barbell approach. We like this Capesize exposure. It's very difficult to get your hands on Eco tonnage right now. And really over the last few years, we've only seen a few trade this year in 2023, including the Genco Ranger. So when they do come up, you want to move on them quickly and be very precise about it, which is what we did here.
But again, with the focus on environmental regulations and reducing emissions, I think Eco vessels are going to have more and more value and certainly more flexibility trading going forward than maybe some of the older ships.
Omar Mostafa Nokta
Yes, definitely. And maybe just -- maybe one final one for me and I'll turn it over. Clearly, the revolver gives you a lot more flexibility, the new one, and you pushed out the maturity by a couple of years plus.
When we think about sort of the dividend policy and the ongoing reserve, which is obviously very conservative, giving you plenty of flexibility to toggle with it, but in general, is there any kind of shifts or changes that you see happening with sort of the numbers that go into the reserve once the new facility is completed?
John C. Wobensmith
I don't see any change at this point, though. So we've put out guidance for the fourth quarter and when we get into announcing fourth quarter and we have our normal Board meeting, there obviously will be discussion about how we want to set that for 2024. And as we did with 2022 and 2023, we announced that ahead of time.
So I would say stay tuned, and we'll see how the conversations go and our strategy session for 2024 plays out.
Omar Mostafa Nokta
Very good. All right. Well, thanks, John. And congrats again on the facility.
John C. Wobensmith
Great. Thanks, Omar. Appreciate it.
Operator
Your next question comes from the line of Liam Burke from B. Riley.
Liam Dalton Burke
Yes. John, on the supply side, are you seeing any additional tightening either through congestion or slow steaming with the global fleet?
John C. Wobensmith
Look, I think the global fleet is actually going fairly slow as it is already. The congestion side of it, particularly in China, has started to move up again. Obviously, there's a lot of flow of iron ore and coal that is driving that.
I still think as we get into next year, there is positive, there's upside risk on congestion winding back up again. Are we going to get to the levels of -- during COVID? Probably not. But certainly, we can get back to more historical averages, which should help take supply out of the market and push up rates as we get into next year.
Liam Dalton Burke
You did mention in your prepared comments about your -- how you -- the outlook for the Capesize market and mentioned the commodities that are [hawked]. As we look down the road, do you still see them fitting in vis-a-vis a Newcastlemax where there seems to be a larger percent of the order book there?
John C. Wobensmith
In terms of the Capesize fitting in with the Newcastlemaxes, was that -- yes. Yes. So personally, we like the flexibility of the Capesize more so than the Newcastlemaxes. There are times where you're still not filling up a Newcastlemax to its full capacity. So -- in terms of return on capital, we still like the Capesize sector. And -- but we obviously like the modern ones that are more fuel efficient.
But if you look at the trades, Liam, whether it's iron or coal or the bauxite trade, which is growing quite significantly, Capes are extremely active in all 3 of those markets. And I think that it's going to be the case for quite a while.
Operator
Your next question comes from the line of Sherif Elmaghrabi from BTIG.
Sherif Ehab Elmaghrabi
So first, charter-in days roughly doubled from Q2, but they're still pretty far below what we've seen for the last couple of years. So rates have seen a pretty significant improvement from Q3 to Q4. So should we expect charter-in days to tick higher for the end of the year? I guess, any general color on how you're thinking about chartering in would be helpful.
John C. Wobensmith
Yes. So keep in mind, the chartering in that we're doing is very short term. It is used to create arbitrage trades on our existing fleet on cargo that we have booked forward and use to create alpha over the indices, which we've obviously been very successful at, particularly in the midsized sector.
I would expect to see some higher charter-in days as we get into the fourth quarter -- or I guess we're really in the fourth quarter, but as we get to the end. The market has moved up. We also have been fixing forward some for first quarter, which is what we typically do. So I think you'll see more charter-in tonnage in the first quarter as well.
But keep in mind that chartered-in tonnage, again, is not long term. It's usually for short-term cargo liftings where we've identified an arbitrage opportunity to use somebody else's ship and then take our ship and go perform in other cargo.
Sherif Ehab Elmaghrabi
That's very helpful. And then maybe a bit more macro, on the North and South American grain story, we've got a record grain season in Brazil. But then in the U.S., we have low inland water levels kind of constraining exports. So I'm wondering how you see seaborne winter grain exports shaking out, especially given the low water levels on the Mississippi could persist kind of into Q1.
John C. Wobensmith
(inaudible)
Peter Allen
Yes. No, absolutely. Thanks for the question. Yes, look, it's obviously been a terrific grain season out of South America. It's extended. It's been definitely supportive to the overall Atlantic market that we've seen, and it's been good to offset some of the reduced volumes out of Ukraine, in particular.
In the fourth quarter, yes, wheat exports out of U.S. likely to be lower. But again, in the not-too-distant future, we'll have South American grain season picking back up in -- towards the end of Q1. So it should be relatively short-lived.
We are getting some help on the Panama Canal situation, which is extending ton miles and taking ships instead of going through the Panama Canal, they're going through Suez. So it's extending ton miles there. So there are some fleet inefficiencies that are supportive to the current market.
But yes, like John mentioned in the prepared remarks as well as during the Q&A, we do expect volatility in Q1, but we're doing a good job of fixing over that. We have 3 period -- short period deals on the Ultra/Supras at $15,000 to $16,000 that are fixed over -- through March. So pretty good job on that side.
Operator
And ladies and gentlemen, our Q&A session has ended. This concludes today's conference call. Thank you all for participating. You may now disconnect.
