UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
Republic of the | ||
(State or other jurisdiction of | (I.R.S. Employer |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Non-accelerated filer ◻ | Smaller reporting company | ||||||
Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ⌧ No ◻
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 3, 2021: Common stock, par value $0.01 per share —
Genco Shipping & Trading Limited
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Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 | 4 | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 | ||
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Website Information
We intend to use our website, www.GencoShipping.com, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in our website’s Investor section. Accordingly, investors should monitor the Investor portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. To subscribe to our e-mail alert service, please submit your e-mail address at the Investor Relations Home page of the Investor section of our website. The information contained in, or that may be accessed through, our website is not incorporated by reference into or a part of this document or any other report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Genco Shipping & Trading Limited
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
(U.S. Dollars in thousands, except for share and per share data)
(Unaudited)
September 30, | December 31, | ||||||
| 2021 |
| 2020 |
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Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Restricted cash |
| — |
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Due from charterers, net of a reserve of $ |
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Prepaid expenses and other current assets | | | |||||
Inventories | | | |||||
Vessels held for sale | | | |||||
Total current assets |
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Noncurrent assets: | |||||||
Vessels, net of accumulated depreciation of $ |
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Deposits on vessels |
| |
| — | |||
Vessels held for exchange | — | | |||||
Deferred drydock, net of accumulated amortization of $ |
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Fixed assets, net of accumulated depreciation and amortization of $ |
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Operating lease right-of-use assets |
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Restricted cash |
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Fair value of derivative instruments |
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| — | |||
Total noncurrent assets |
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Total assets | $ | | $ | | |||
Liabilities and Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | | $ | | |||
Current portion of long-term debt |
| — |
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Deferred revenue |
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Fair market value of time charters acquired | | — | |||||
Current operating lease liabilities | | | |||||
Total current liabilities: |
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Noncurrent liabilities: | |||||||
Long-term operating lease liabilities | | | |||||
Contract liability |
| — |
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Long-term debt, net of deferred financing costs of $ | | | |||||
Total noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies (Note 13) | |||||||
Equity: | |||||||
Common stock, par value $ | | | |||||
Additional paid-in capital | | | |||||
Accumulated other comprehensive income |
| |
| — | |||
Accumulated deficit |
| ( |
| ( | |||
Total equity |
| |
| | |||
Total liabilities and equity | $ | | $ | |
See accompanying notes to Condensed Consolidated Financial Statements.
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Genco Shipping & Trading Limited
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020
(U.S. Dollars in Thousands, Except for Earnings Per Share and Share Data)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||
Revenues: | |||||||||||||
Voyage revenues | $ | | $ | | $ | | $ | | |||||
Total revenues | |
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Operating expenses: | |||||||||||||
Voyage expenses | |
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Vessel operating expenses | |
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Charter hire expenses | | | | | |||||||||
General and administrative expenses (inclusive of nonvested stock amortization expense of $ | |
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Technical management fees | | | | | |||||||||
Depreciation and amortization | |
| | |
| | |||||||
Impairment of vessel assets | — | | — | | |||||||||
Loss on sale of vessels | | | | | |||||||||
Total operating expenses | |
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Operating income (loss) | |
| ( | |
| ( | |||||||
Other income (expense): | |||||||||||||
Other income (expense) | |
| ( | |
| ( | |||||||
Interest income | |
| | |
| | |||||||
Interest expense | ( |
| ( | ( | ( | ||||||||
Loss on debt extinguishment | ( | — | ( | — | |||||||||
Other expense, net | ( |
| ( | ( |
| ( | |||||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | |||||
Net earnings (loss) per share-basic | $ | | $ | ( | $ | | $ | ( | |||||
Net earnings (loss) per share-diluted | $ | | $ | ( | $ | | $ | ( | |||||
Weighted average common shares outstanding-basic | |
| | |
| | |||||||
Weighted average common shares outstanding-diluted | |
| | |
| |
See accompanying notes to Condensed Consolidated Financial Statements.
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Genco Shipping & Trading Limited
Condensed Consolidated Statements of Comprehensive Income (Loss)
For the Three and Nine Months Ended September 30, 2021 and 2020
(U.S. Dollars in Thousands)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||
Net income (loss) | $ | |
| $ | ( | $ | |
| $ | ( | |||
Other comprehensive (loss) income | ( |
| | |
| | |||||||
Comprehensive income (loss) | $ | | $ | ( | $ | | $ | ( |
See accompanying notes to Condensed Consolidated Financial Statements.
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Genco Shipping & Trading Limited
Condensed Consolidated Statements of Equity
For the Three and Nine Months Ended September 30, 2021 and 2020
(U.S. Dollars in Thousands)
Accumulated | ||||||||||||||||
Additional | Other | |||||||||||||||
Common | Paid-in | Comprehensive | Accumulated | |||||||||||||
Stock | Capital | Income | Deficit | Total Equity | ||||||||||||
Balance — January 1, 2021 | $ | | $ | | $ | — | $ | ( | $ | | ||||||
Net income | | | ||||||||||||||
Other comprehensive income | | | ||||||||||||||
Issuance of shares due to vesting of RSUs and exercise of options | | ( | — | |||||||||||||
Cash dividends declared ($ | ( | ( | ||||||||||||||
Nonvested stock amortization | | | ||||||||||||||
Balance — March 31, 2021 | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | | | ||||||||||||||
Other comprehensive loss | ( | ( | ||||||||||||||
Issuance of shares due to exercise of options | — | — | — | |||||||||||||
Cash dividends declared ($ | ( | ( | ||||||||||||||
Nonvested stock amortization | | | ||||||||||||||
Balance — June 30, 2021 | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | | | ||||||||||||||
Other comprehensive loss | ( | ( | ||||||||||||||
Issuance of shares due to exercise of options | — | — | — | |||||||||||||
Cash dividends declared ($ | ( | ( | ||||||||||||||
Nonvested stock amortization | | | ||||||||||||||
Balance — September 30, 2021 | $ | | $ | | $ | | $ | ( | $ | |
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Accumulated | ||||||||||||||||
Additional | Other | |||||||||||||||
Common | Paid-in | Comprehensive | Accumulated | |||||||||||||
Stock | Capital | Income | Deficit | Total Equity | ||||||||||||
Balance — January 1, 2020 | $ | | $ | | $ | — | $ | ( | $ | | ||||||
Net loss | ( | ( | ||||||||||||||
Issuance of shares due to vesting of RSUs, net of forfeitures | | ( | — | |||||||||||||
Cash dividends declared ($ | ( | ( | ||||||||||||||
Nonvested stock amortization | | | ||||||||||||||
Balance — March 31, 2020 | $ | | $ | | $ | — | $ | ( | $ | | ||||||
Net loss | ( | ( | ||||||||||||||
Cash dividends declared ($ | ( | ( | ||||||||||||||
Nonvested stock amortization | | | ||||||||||||||
Balance — June 30, 2020 | $ | | $ | | $ | — | $ | ( | $ | | ||||||
Net loss | ( | ( | ||||||||||||||
Cash dividends declared ($ | ( | ( | ||||||||||||||
Nonvested stock amortization | | | ||||||||||||||
Balance — September 30, 2020 | $ | | $ | | $ | — | $ | ( | $ | |
See accompanying notes to Condensed Consolidated Financial Statements.
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Genco Shipping & Trading Limited
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020
(U.S. Dollars in Thousands)
(Unaudited)
For the Nine Months Ended | |||||||
September 30, | |||||||
| 2021 |
| 2020 |
| |||
Cash flows from operating activities: | |||||||
Net income (loss) |
| $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | |
| | ||||
Amortization of deferred financing costs | |
| | ||||
Amortization of fair market value of time charters acquired | ( | — | |||||
Right-of-use asset amortization | | | |||||
Amortization of nonvested stock compensation expense | |
| | ||||
Impairment of vessel assets | — |
| | ||||
Loss on sale of vessels | |
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Loss on debt extinguishment | | — | |||||
Amortization of premium on derivative | | — | |||||
Interest rate cap premium payment | ( | — | |||||
Insurance proceeds for protection and indemnity claims | | | |||||
Insurance proceeds for loss of hire claims | — | | |||||
Change in assets and liabilities: | |||||||
(Increase) decrease in due from charterers | ( |
| | ||||
(Increase) decrease in prepaid expenses and other current assets | ( |
| | ||||
(Increase) decrease in inventories | ( | | |||||
Increase (decrease) in accounts payable and accrued expenses | |
| ( | ||||
Increase in deferred revenue | |
| | ||||
Decrease in operating lease liabilities | ( | ( | |||||
Deferred drydock costs incurred | ( |
| ( | ||||
Net cash provided by operating activities | |
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Cash flows from investing activities: | |||||||
Purchase of vessels and ballast water treatment systems, including deposits | ( |
| ( | ||||
Purchase of scrubbers (capitalized in Vessels) | ( | ( | |||||
Purchase of other fixed assets | ( |
| ( | ||||
Net proceeds from sale of vessels | | | |||||
Insurance proceeds for hull and machinery claims | | | |||||
Net cash (used in) provided by investing activities | ( |
| | ||||
Cash flows from financing activities: | |||||||
Proceeds from the $450 Million Credit Facility | | — | |||||
Repayments on the $450 Million Credit Facility | ( | — | |||||
Proceeds from the $133 Million Credit Facility | — | | |||||
Repayments on the $133 Million Credit Facility | ( | ( | |||||
Proceeds from the $495 Million Credit Facility | — | | |||||
Repayments on the $495 Million Credit Facility | ( | ( | |||||
Cash dividends paid | ( | ( | |||||
Payment of deferred financing costs | ( |
| ( | ||||
Net cash used in financing activities | ( |
| ( | ||||
Net decrease in cash, cash equivalents and restricted cash | ( |
| ( | ||||
Cash, cash equivalents and restricted cash at beginning of period | |
| | ||||
Cash, cash equivalents and restricted cash at end of period |
| $ | | $ | |
See accompanying notes to Condensed Consolidated Financial Statements.
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Genco Shipping & Trading Limited
(U.S. Dollars in Thousands, Except Per Share and Share Data)
Notes to Condensed Consolidated Financial Statements (unaudited)
1 - GENERAL INFORMATION
The accompanying Condensed Consolidated Financial Statements include the accounts of Genco Shipping & Trading Limited (“GS&T”) and its direct and indirect subsidiaries (collectively, the “Company”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels and operates in
At September 30, 2021, the Company’s fleet consisted of
During September 2021, the Company and Synergy Marine Pte. Ltd. (“Synergy”), a third party, formed a joint venture, GS Shipmanagement Pte. Ltd. (“GSSM”). GSSM is owned
Management has determined that GSSM qualifies as a variable interest entity, and, when aggregating the variable interest held by the Company and Synergy, the Company is the primary beneficiary as the Company has the ability to direct the activities that most significantly impact GSSM’s economic performance. Accordingly, the Company consolidates GSSM. The effect on the financial statements during the three and nine months ended September 30, 2021 was immaterial.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus strain, or COVID-19, to be a pandemic. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Over the course of the pandemic, governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, working from home, supply chain logistical changes, and closure of non-essential businesses. This led to a significant slowdown in overall economic activity levels globally and a decline in demand for certain of the raw materials that our vessels transport.
At present, it is not possible to ascertain any future impact of COVID-19 on the Company’s operational and financial performance, which may take some time to materialize and may not be fully reflected in the results for 2021. However, an increase in the severity or duration or a resurgence of the COVID-19 pandemic, any potential variants and the timing of wide-scale vaccine distribution could have a material adverse effect on the Company’s business, results of operations, cash flows, financial condition, the carrying value of the Company’s assets, the fair values of the Company’s vessels, and the Company’s ability to pay dividends.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which includes the accounts of GS&T and its direct and indirect wholly-owned subsidiaries and GSSM. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the
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“SEC”). In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”). The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the operating results to be expected for the year ending December 31, 2021.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include vessel valuations, the valuation of amounts due from charterers, residual value of vessels, useful life of vessels, the fair value of time charters acquired, and the fair value of derivative instruments, if any. Actual results could differ from those estimates.
Cash, cash equivalents and restricted cash
The Company considers highly liquid investments, such as money market funds and certificates of deposit with an original maturity of three months or less at the time of purchase to be cash equivalents. Current and non-current restricted cash includes cash that is restricted pursuant to our credit facilities. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows:
September 30, | December 31, | ||||||
| 2021 |
| 2020 |
| |||
Cash and cash equivalents |
| $ | |
| $ | | |
Restricted cash - current | — | | |||||
Restricted cash - noncurrent |
| |
| | |||
Cash, cash equivalents and restricted cash |
| $ | |
| $ | | |
Vessels held for sale
The Company’s Board of Directors has approved a strategy of divesting specifically identified older, less fuel-efficient vessels as part of a fleet renewal program to streamline and modernize the Company’s fleet.
On July 16, 2021, the Company entered into an agreement to sell the Genco Provence. The relevant vessel assets have been classified as held for sale in the Condensed Consolidated Balance Sheet as of September 30, 2021. The sale of the Genco Provence was completed on November 2, 2021. Refer to Note 4 — Vessel Acquisitions and Dispositions for details of the agreement.
On November 3, 2020, November 27, 2020 and November 30, 2020, the Company entered into agreements to sell the Baltic Panther, the Baltic Hare and the Baltic Cougar, respectively. The relevant vessel assets have been classified as held for sale in the Condensed Consolidated Balance Sheet as of December 31, 2020. The Baltic Panther, the Baltic Hare and the Baltic Cougar were sold on January 4, 2021, January 15, 2021 and February 24, 2021, respectively.
Vessels held for exchange
The remaining
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Baltic Cove, the Baltic Fox, the Genco Avra, the Genco Mare and the Genco Spirit. These vessels were exchanged during the first quarter of 2021. Refer to Note 4 — Vessel Acquisitions and Dispositions for details of the agreement.
Voyage expense recognition
In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer. These expenses are borne by the Company during spot market voyage charters. As such, there are significantly higher voyage expenses for spot market voyage charters as compared to time charters, spot market-related time charters and pool agreements. Refer to Note 11 — Voyage Revenues for further discussion of the accounting for fuel expenses for spot market voyage charters. There are certain other non-specified voyage expenses, such as commissions, which are typically borne by the Company. At the inception of a time charter, the Company records the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses. Additionally, the Company records lower of cost and net realizable value adjustments to re-value the bunker fuel on a quarterly basis for certain time charter agreements where the inventory is subject to gains and losses. These differences in bunkers, including any lower of cost and net realizable value adjustments, resulted in a net (gain) loss of ($
Technical management fees
Technical management fees represent fees paid to third party technical management companies for the day-to-day management of our vessels, including performing routine maintenance, attending to vessel operation and arranging for crews and supplies. In addition, technical management fees also include the direct costs incurred by GSSM for the technical management of the vessels under its management.
Impairment of vessel assets
During the three and nine months ended September 30, 2021, the Company did not incur any impairment of vessel assets in accordance with Accounting Standards Codification (“ASC”) 360 — “Property, Plant and Equipment” (“ASC 360”). During the three and nine months ended September 30, 2020, the Company recorded $
On November 3, 2020, the Company entered into an agreement to sell the Baltic Panther, a 2009-built Supramax vessel, to a third party for $
On October 16, 2020, the Company entered into an agreement to sell the Genco Loire, a 2009-built Supramax vessel, to a third party for $
On September 30, 2020, the Company determined that the expected estimated future undiscounted cash flows for
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On September 25, 2020, the Company entered into an agreement to sell the Baltic Jaguar, a 2009-built Supramax vessel, to a third party for $
On September 17, 2020, the Company entered in an agreement to sell the Genco Normandy, a 2007-built Supramax vessel, to a third party for $
At March 31, 2020, the Company determined that the expected estimated future undiscounted cash flows for
On February 24, 2020, the Board of Directors determined to dispose of the Company’s following
Refer to Note 4 — Vessel Acquisitions and Dispositions for further detail regarding the sale of certain aforementioned vessels.
Loss on sale of vessels
During the three months ended September 30, 2021, the Company recorded a net loss of $
Loss on debt extinguishment
During the three and nine months ended September 30, 2021, the Company recorded $
Recent accounting pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”)” which provides temporary optional expedients and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the
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expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848) – Scope (“ASU 2021-01”),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modification made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modification made on or before December 31, 2022. The Company is currently evaluating the impact of the adoption of ASU 2020-04 and ASU 2021-01 on its Condensed Consolidated Financial Statements and related disclosures.
3 - CASH FLOW INFORMATION
For the nine months ended September 30, 2021, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $
For the nine months ended September 30, 2020, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $
During the nine months ended September 30, 2021 and 2020, cash paid for interest, net of amounts capitalized, was $
During the nine months ended September 30, 2021 and 2020, there was
During the nine months ended September 30, 2021, the Company made a total reclassification of $
During the nine months ended September 30, 2020, the Company made a reclassification of $
On May 13, 2021, the Company issued
On May 4, 2021, the Company issued
On February 23, 2021, the Company issued
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On July 15, 2020, the Company issued
On February 25, 2020, the Company issued
Refer to Note 14 — Stock-Based Compensation for further information regarding the aforementioned grants.
Supplemental Condensed Consolidated Cash Flow information related to leases is as follows:
For the Nine Months Ended | |||||||
September 30, | |||||||
2021 | 2020 |
| |||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating lease | $ | | $ | |
4 - VESSEL ACQUISITIONS AND DISPOSITIONS
Vessel Acquisitions
On July 2, 2021, the Company entered into an agreement to purchase
These
On May 18, 2021, the Company entered into agreements to acquire
Capitalized interest expense associated with these newbuilding contracts for the three and nine months ended September 30, 2021 was $
On April 20, 2021, the Company entered into an agreement to purchase a 2016-built,
Vessel Exchange
On December 17, 2020, the Company entered into an agreement to acquire
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delivered to the Company on December 23, 2020, January 28, 2021 and February 20, 2021, respectively. The Genco Ocean, the Baltic Cove and the Baltic Fox, all 2010-built Handysize vessels, were delivered to the buyers on December 29, 2020, January 30, 2021 and February 2, 2021, respectively. The Genco Spirit, the Genco Avra and the Genco Mare, all 2011-built Handysize vessels, were delivered to the buyers on February 15, 2021, February 21, 2021 and February 24, 2021, respectively. As of December 31, 2020, the vessel assets for the Baltic Cove, the Baltic Fox, the Genco Avra, the Genco Mare and the Genco Spirit have been classified as held for exchange in the Condensed Consolidated Balance Sheet.
Vessel Dispositions
On July 16, 2021, the Company entered into an agreement to sell the Genco Provence, a 2004-built Supramax vessel, to a third party for $
On January 25, 2021, the Company entered into an agreement to sell the Baltic Leopard, a 2009-built Supramax vessel, to a third party for $
On January 22, 2021, the Company entered into an agreement to sell the Genco Lorraine, a 2009-built Supramax vessel, to a third party for $
During November 2020, the Company entered into agreements to sell the Baltic Cougar, the Baltic Hare and the Baltic Panther. These vessels have been classified as held for sale in the Condensed Consolidated Balance Sheet as of December 31, 2020. The sale of the Baltic Hare, Baltic Panther and Baltic Cougar were completed on January 15, 2021, January 4, 2021 and February 24, 2021, respectively.
As of December 31, 2020, the Company recorded $
Refer to the “Impairment of vessel assets” and “Loss on sale of vessels” sections in Note 2 — Summary of Significant Accounting Policies for discussion of impairment expense and the net loss on sale of vessels recorded during the three and nine months ended September 30, 2021 and 2020.
5 – NET EARNINGS (LOSS) PER SHARE
The computation of basic net earnings (loss) per share is based on the weighted-average number of common shares outstanding during the reporting period. The computation of diluted net earnings (loss) per share assumes the vesting of nonvested stock awards and the exercise of stock options (refer to Note 14 — Stock-Based Compensation), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive. There were
16
The Company’s diluted net earnings (loss) per share will also reflect the assumed conversion of the equity warrants issued when the Company emerged from bankruptcy on July 9, 2014 (the “Effective Date”) and MIP Warrants issued by the Company (refer to Note 14 — Stock-Based Compensation) if the impact is dilutive under the treasury stock method. The equity warrants have a
The components of the denominator for the calculation of basic and diluted net earnings (loss) per share are as follows:
For the Three Months Ended | For the Nine Months Ended | ||||||||
September 30, | September 30, | ||||||||
2021 |
| 2020 |
| 2021 |
| 2020 |
| ||
Common shares outstanding, basic: | |||||||||
Weighted-average common shares outstanding, basic | |
| | |
| | |||
Common shares outstanding, diluted: | |||||||||
Weighted-average common shares outstanding, basic | |
| | |
| | |||
Dilutive effect of warrants | — |
| — | — |
| — | |||
Dilutive effect of stock options | | — | | — | |||||
Dilutive effect of restricted stock units | |
| — | |
| — | |||
Weighted-average common shares outstanding, diluted | |
| | |
| |
6 - RELATED PARTY TRANSACTIONS
During the three and nine months ended September 30, 2021 and 2020, the Company did not have any related party transactions.
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7 – DEBT
Long-term debt, net consists of the following:
September 30, | December 31, | ||||||
| 2021 |
| 2020 |
| |||
Principal amount |
| $ | |
| $ | | |
Less: Unamortized debt financing costs |
| ( |
| ( | |||
Less: Current portion |
| — |
| ( | |||
Long-term debt, net |
| $ | |
| $ | |
September 30, 2021 | December 31, 2020 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Unamortized | Unamortized | ||||||||||||
Debt Issuance | Debt Issuance | ||||||||||||
| Principal |
| Cost |
| Principal |
| Cost |
| |||||
$450 Million Credit Facility | $ | | $ | | $ | — | $ | — | |||||
$495 Million Credit Facility | — | — | | | |||||||||
$133 Million Credit Facility | — | — | | | |||||||||
Total debt | $ | |
| $ | | $ | |
| $ | |
As of September 30, 2021 and December 31, 2020, $
Effective August 31, 2021, the portion of the unamortized deferred financing costs for the $495 Million Credit Facility and the $133 Million Credit Facility that was identified as a debt modification, rather than an extinguishment of debt, is being amortized over the life of the $495 Million Credit Facility in accordance with ASC 470-50.
$
On August 3, 2021, the Company entered into the $
The key terms associated with the $
● | The final maturity date is August 3, 2026. |
● | Borrowings are subject to a limit of the ratio of the principal amount of debt outstanding to the collateral (“LTV”) of |
● | There is a non-committed accordion term loan facility whereby additional borrowings of up to $ |
18
● | Borrowings bear interest at LIBOR plus a margin of |
● | Scheduled quarterly commitment reduction are $ |
● | Collateral includes |
● | Commitment fees are |
● | The Company can sell or dispose of collateral vessels without loan prepayment if a replacement vessel or vessels meeting certain requirements are included as collateral within |
● | The Company is subject to customary financial covenants, including a collateral maintenance covenant requiring the aggregate appraised value of collateral vessels to be at least |
● | The Company may declare and pay dividends and other distributions so long as, at the time of declaration, (1) no event of default has occurred and is continuing or would occur as a result of the declaration and (2) the Company is in pro forma compliance with its financial covenants after giving effect to the dividend. Other restrictions in the dividend covenants of the Company’s prior credit facilities were eliminated. |
As of September 30, 2021, there was $
As of September 30, 2021, the Company was in compliance with all of the financial covenants under the $450 Million Credit Facility.
$
On May 31, 2018, the Company entered into the $460 Million Credit Facility, a
On February 28, 2019, the Company entered into an amendment to the $460 Million Credit Facility, which provided an additional tranche of up to $
On June 5, 2020, the Company entered into an amendment to the $495 Million Credit Facility to extend the period that collateral vessels can be sold or disposed of without prepayment of the loan if a replacement vessel or vessels meeting certain requirements are included as collateral from
19
Thunder, respectively, as loan prepayment under these terms. These amounts were classified as restricted cash in the Condensed Consolidated Balance Sheet as of December 31, 2020 and are included in the total debt repayments below.
As a result of the loan prepayments for vessel sales, scheduled amortization payments were recalculated in accordance with the terms of the facility during April 2021. Scheduled amortization payments under the $460 million tranche were revised to $
On December 17, 2020, the Company entered into an amendment to the $495 Million Credit Facility that allowed the Company to enter into a vessel transaction in which the Company agreed to acquire
On August 28, 2019, September 23, 2019 and March 12, 2020, the Company made total drawdowns of $
Total debt repayments of $
On August 31, 2021, the $495 Million Credit Facility was refinanced with the $450 Million Credit Facility; refer to the “$450 Million Credit Facility” section above.
$
On August 14, 2018, the Company entered into the $
On June 11, 2020, the Company entered into an amendment and restatement agreement to the $108 Million Credit Facility that provided for a revolving credit facility of up to $
● | The final maturity date of the Revolver is August 14, 2023. |
● | Borrowings under the Revolver may be incurred pursuant to multiple drawings on or prior to July 1, 2023 in minimum amounts of $ |
● | Borrowings under the Revolver will bear interest at LIBOR plus |
● | The Revolver is subject to consecutive quarterly commitment reductions commencing on the last day of the fiscal quarter ending September 30, 2020 in an amount equal to approximately $ |
● | Borrowings under the Revolver are subject to a limit of |
The collateral and financial covenants otherwise remained substantially the same as they were under the $108 Million Credit Facility.
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On June 15, 2020, the Company drew down $
Total debt repayments of $
On August 31, 2021, the $133 Million Credit Facility was refinanced with the $450 Million Credit Facility; refer to the “$450 Million Credit Facility” section above.
Interest rates
The following table sets forth the effective interest rate associated with the interest expense for the Company’s debt facilities noted above, including the cost associated with unused commitment fees, if applicable. The following table also includes the range of interest rates on the debt, excluding the impact of unused commitment fees, if applicable:
For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
| 2021 | 2020 | 2021 |
| 2020 | ||||||
Effective Interest Rate | | % | | % | | % |
| | % | ||
Range of Interest Rates (excluding unused commitment fees) | % | % | % |
| % |
8 – DERIVATIVE INSTRUMENTS
The Company is exposed to interest rate risk on its floating rate debt. As of September 30, 2021, the Company had
The following table summarizes the interest rate cap agreements in place as of September 30, 2021.
Interest Rate Cap Detail | Notional Amount Outstanding | |||||||||
September 30, | ||||||||||
Trade date | Cap Rate | Start Date | End Date |
| 2021 | |||||
March 25, 2021 | | % | April 29, 2021 | March 28, 2024 | $ | | ||||
July 29, 2020 | | % | July 31, 2020 | December 29, 2023 | | |||||
March 6, 2020 | | % | March 10, 2020 | March 10, 2023 | | |||||
$ | |
The Company records the fair value of the interest rate caps as Fair value of derivatives in the non-current asset section on its Condensed Consolidated Balance Sheets. The Company has elected to use the income approach to value the interest rate derivatives using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) reflecting current market expectations about those future amounts. Level 2 inputs for derivative valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates, implied volatility, basis swap adjustments, and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for most fair value measurements.
21
The Company recorded a $
The Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Operations | |||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | |||||||
Interest Expense | Interest Expense | Interest Expense | Interest Expense | ||||||||||
Total amounts of income and expense line items presented in the statement of operations in which the effects of fair value or cash flow hedges are recorded | $ | | $ | | $ | | $ | | |||||
The effects of fair value and cash flow hedging | |||||||||||||
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20: | |||||||||||||
Interest contracts: | |||||||||||||
Amount of gain or (loss) reclassified from AOCI to income | $ | — | $ | — | $ | — | $ | — | |||||
Premium excluded and recognized on an amortized basis | | — | | — | |||||||||
Amount of gain or (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring | — | — | — | — |
The following table shows the interest rate cap assets as of September 30, 2021:
September 30, | ||||||
Derivatives designated as hedging instruments | Balance Sheet Location | 2021 | ||||
Interest rate caps | Fair value of derivative instruments - noncurrent | $ | |
The components of AOCI included in the accompanying Condensed Consolidated Balance Sheet consists of net unrealized gain (loss) on cash flow hedges as of September 30, 2021.
AOCI — January 1, 2021 | $ | — | ||
Amount recognized in OCI on derivative, intrinsic |
| ( | ||
Amount recognized in OCI on derivative, excluded |
| | ||
Amount reclassified from OCI into income |
| — | ||
AOCI — September 30, 2021 | $ | |
22
9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values and carrying values of the Company’s financial instruments as of September 30, 2021 and December 31, 2020 which are required to be disclosed at fair value, but not recorded at fair value, are noted below.
September 30, 2021 | December 31, 2020 | ||||||||||||
| Carrying |
|
| Carrying |
|
| |||||||
| Value |
| Fair Value |
| Value |
| Fair Value |
| |||||
Cash and cash equivalents | $ | | $ | | $ | | $ | | |||||
Restricted cash |
| |
| |
| |
| | |||||
Principal amount of floating rate debt |
| |
| |
| |
| |
The carrying value of the borrowings under the $450 Million Credit as of September 30, 2021 and the $495 Million Credit Facility and the $133 Million Credit Facility as of December 31, 2020, which excludes the impact of deferred financing costs, approximate their fair value due to the variable interest nature thereof as each of these credit facilities represent floating rate loans. The carrying amounts of the Company’s other financial instruments as of September 30, 2021 and December 31, 2020 (principally Due from charterers and Accounts payable and accrued expenses) approximate fair values because of the relatively short maturity of these instruments.
ASC Subtopic 820-10, “Fair Value Measurements & Disclosures” (“ASC 820-10”), applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumption (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 requires significant management judgment. The three levels are defined as follows:
● | Level 1—Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. |
● | Level 2—Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
● | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
Cash and cash equivalents and restricted cash are considered Level 1 items, as they represent liquid assets with short-term maturities. Floating rate debt is considered to be a Level 2 item, as the Company considers the estimate of rates it could obtain for similar debt or based upon transactions amongst third parties. Interest rate cap agreements are considered to be a Level 2 item. Refer to Note 8 — Derivative Instruments for further information. Nonrecurring fair value measurements include vessel impairment assessments completed during the interim period and at year-end as determined based on third-party quotes, which are based on various data points, including comparable sales of similar vessels, which are Level 2 inputs. There was
The fair value determination for the operating lease right-of-use assets was based on third party quotes, which is considered a Level 2 input. Nonrecurring fair value measurements may include impairment tests of the Company’s operating lease right-of-use assets if there are indicators of impairments. During the three and nine months ended September 30, 2021 and 2020, there were
23
The Company did not have any Level 3 financial assets or liabilities as of September 30, 2021 and December 31, 2020.
10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
| September 30, |
| December 31, | ||||
| 2021 |
| 2020 |
| |||
Accounts payable | $ | | $ | | |||
Accrued general and administrative expenses |
| |
| | |||
Accrued vessel operating expenses |
| |
| | |||
Total accounts payable and accrued expenses | $ | | $ | |
11 – VOYAGE REVENUES
Total voyage revenues include revenue earned on fixed rate time charters, spot market voyage charters and spot market-related time charters, as well as the sale of bunkers consumed during short-term time charters. For the three months ended September 30, 2021 and 2020, the Company earned $
Revenue for spot market voyage charters is recognized ratably over the total transit time of the voyage which begins when the vessel arrives at the loading port and ends at the time the discharge of cargo is completed at the discharge port in accordance with ASC 606 — Revenue from Contracts with Customers. Spot market voyage charter agreements do not provide the charterers with substantive decision-making rights to direct how and for what purpose the vessel is used; therefore, revenue from spot market voyage charters is not within the scope of ASC 842 — Leases (“ASC 842”). Additionally, the Company has identified that the contract fulfillment costs of spot market voyage charters consist primarily of the fuel consumption that is incurred by the Company from the latter of the end of the previous vessel employment and the contract date until the arrival at the loading port in addition to any port expenses incurred prior to arrival at the load port, as well as any charter hire expenses for third-party vessels that are chartered in. The fuel consumption and any port expenses incurred prior to arrival at the load port are capitalized and recorded in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets and are amortized ratably over the total transit time of the voyage from arrival at the loading port until the vessel departs from the discharge port and expensed as part of Voyage Expenses. Similarly, for any third party vessels that are chartered in, the charter hire expenses during this period are capitalized and recorded in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets and are amortized and expensed as part of Charter hire expenses.
During time charter agreements, including fixed rate time charters and spot market-related time charters, the charterers have substantive decision-making rights to direct how and for what purpose the vessel is used. As such, the Company has identified that time charter agreements contain a lease in accordance with ASC 842. During time charter agreements, the Company is responsible for operating and maintaining the vessels. These costs are recorded as vessel operating expenses in the Condensed Consolidated Statements of Operations. The Company has elected the
24
Total voyage revenues recognized in the Condensed Consolidated Statements of Operations includes the following:
For the Three Months Ended | For the Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2021 |
| 2020 | 2021 |
| 2020 | |||||||
Lease revenue | $ | | $ | | $ | | $ | | |||||
Spot market voyage revenue | | | | | |||||||||
Total voyage revenues | $ | | $ | | $ | | $ | |
12 - LEASES
On June 14, 2019, the Company entered into a sublease agreement for a portion of the leased space for its main office in New York, New York that commenced on July 26, 2019 and will end on September 29, 2025. There was $
The Company charters in third-party vessels and the Company is the lessee in these agreements under ASC 842. The Company has elected the practical expedient under ASC 842 to not recognize right-of-use assets and lease liabilities for short-term leases. During the three and nine months ended September 30, 2021 and 2020, all charter-in agreements for third-party vessels were less than twelve months and considered short-term leases.
13 – COMMITMENTS AND CONTINGENCIES
During the second half of 2018, the Company entered into agreements for the purchase of ballast water treatments systems (“BWTS”) for
14 - STOCK-BASED COMPENSATION
2015 Equity Incentive Plan
On March 19, 2021, the Board of Directors approved an amendment and restatement of the 2015 Equity Incentive Plan (the “Amended 2015 Plan”). This amendment and restatement increased the number of shares available for awards under the plan from
Stock Options
On February 23, 2021, the Company issued options to purchase
25
each of the first anniversaries of February 23, 2021, with accelerated vesting that may occur following a change in control of the Company, and all unexercised options expire on the sixth anniversary of the grant date. The fair value of each option was estimated on the date of the grant using the Cox-Ross-Rubinstein pricing formula, resulting in a value of $
For the three and nine months ended September 30, 2021 and 2020, the Company recognized amortization expense of the fair value of these options, which is included in General and administrative expenses, as follows:
For the Three Months Ended | For the Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2021 | 2020 | 2021 |
| 2020 |
| ||||||||
General and administrative expenses | $ | | $ | | $ | | $ | |
Amortization of the unamortized stock-based compensation balance of $
Weighted | Weighted | ||||||||||
Number | Average | Average | |||||||||
of | Exercise | Fair | |||||||||
| Options |
| Price |
| Value |
| |||||
Outstanding as of January 1, 2021 |
| |
| $ | | | |||||
Granted |
| | | | |||||||
Exercised |
| ( | | | |||||||
Forfeited |
| — | — | — | |||||||
Outstanding as of September 30, 2021 |
| |
| $ | | $ | | ||||
Exercisable as of September 30, 2021 |
| |
| $ | | $ | |
The following table summarizes certain information about the options outstanding as of September 30, 2021:
Options Outstanding and Unvested, | Options Outstanding and Exercisable, | |||||||||||||||
September 30, 2021 | September 30, 2021 | |||||||||||||||
Weighted | Weighted |
| Weighted | |||||||||||||
Average |
| Weighted | Average | Weighted | Average | |||||||||||
Exercise Price of |
| Average | Remaining | Average | Remaining | |||||||||||
Outstanding | Number of | Exercise | Contractual | Number of | Exercise | Contractual | ||||||||||
Options |
| Options |
| Price |
| Life |
| Options |
| Price |
| Life |
| |||
$ | |
| | $ | | | $ | |
As of September 30, 2021 and December 31, 2020, a total of
26
Restricted Stock Units
The Company has issued restricted stock units (“RSUs”) under the 2015 Plan to certain members of the Board of Directors and certain executives and employees of the Company, which represent the right to receive a share of common stock, or in the sole discretion of the Company’s Compensation Committee, the value of a share of common stock on the date that the RSU vests. As of September 30, 2021 and December 31, 2020,
The RSUs that have been issued to certain members of the Board of Directors generally vest on the date of the annual shareholders meeting of the Company following the date of the grant. In lieu of cash dividends issued for vested and nonvested shares held by certain members of the Board of Directors, the Company will grant additional vested and nonvested RSUs, respectively, which are calculated by dividing the amount of the dividend by the closing price per share of the Company’s common stock on the dividend payment date and will have the same terms as other RSUs issued to members of the Board of Directors. The RSUs that have been issued to other individuals vest ratably on each of the anniversaries of the determined vesting date. The table below summarizes the Company’s unvested RSUs for the nine months ended September 30, 2021:
Weighted | |||||
Number of | Average Grant | ||||
RSUs | Date Price | ||||
Outstanding as of January 1, 2021 | | $ | | ||
Granted | | | |||
Vested | ( | | |||
Forfeited | — | — | |||
Outstanding as of September 30, 2021 | | $ | |
The total fair value of the RSUs that vested during the nine months ended September 30, 2021 and 2020 was $
The following table summarizes certain information of the RSUs unvested and vested as of September 30, 2021:
Unvested RSUs | Vested RSUs | ||||||||||
September 30, 2021 | September 30, 2021 | ||||||||||
Weighted | |||||||||||
Weighted | Average | Weighted | |||||||||
Average | Remaining | Average | |||||||||
Number of | Grant Date | Contractual | Number of | Grant Date | |||||||
RSUs |
| Price |
| Life |
| RSUs |
| Price |
| ||
| $ | | | $ | |
The Company is amortizing these grants over the applicable vesting periods, net of anticipated forfeitures. As of September 30, 2021, unrecognized compensation cost of $
27
For the three and nine months ended September 30, 2021 and 2020, the Company recognized nonvested stock amortization expense for the RSUs, which is included in General and administrative expenses as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||
September 30, | September 30, | ||||||||||||
2021 | 2020 |
| 2021 |
| 2020 |
| |||||||
General and administrative expenses | $ | | $ | | $ | | $ | |
15 - LEGAL PROCEEDINGS
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material effect on the Company, its financial condition, results of operations or cash flows.
16 – SUBSEQUENT EVENTS
On November 3, 2021, the Company announced a regular quarterly dividend of $
On November 2, 2021, the Company completed the sale of the Genco Provence, a 2004-built Supramax vessel, to a third-party for $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements made 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 and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on our management’s current expectations and observations. Included among the factors that, in our view, could cause actual results to differ materially from the forward looking statements contained in this report are the following: (i) declines or sustained weakness in demand in the drybulk shipping industry; (ii) continuation of weakness or declines in drybulk shipping rates; (iii) changes in the supply of or demand for drybulk products, generally or in particular regions; (iv) changes in the supply of drybulk carriers including newbuilding of vessels or lower than anticipated scrapping of older vessels; (v) changes in rules and regulations applicable to the cargo industry, including, without limitation, legislation adopted by international organizations or by individual countries and actions taken by regulatory authorities; (vi) increases in costs and expenses including but not limited to: crew wages, insurance, provisions, lube oil, bunkers, repairs, maintenance, general and administrative expenses, and management fee expenses; (vii) whether our insurance arrangements are adequate; (viii) changes in general domestic and international political conditions; (ix) acts of war, terrorism, or piracy; (x) changes in the condition of the Company’s vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs) and unanticipated drydock expenditures; (xi) the Company’s acquisition or disposition of vessels; (xii) the amount of offhire time needed to complete maintenance, repairs, and installation of equipment to comply with applicable regulations on vessels and the timing and amount of any reimbursement by our insurance carriers for insurance claims, including offhire days; (xiii) the completion of definitive documentation with respect to charters; (xiv) charterers’ compliance with the terms of their charters in the current market environment; (xv) the extent to which our operating results continue to be affected by weakness in market conditions and freight and charter rates; (xvi) our ability to maintain contracts that are critical to our operation, to obtain and maintain acceptable terms with our vendors, customers and service providers and to retain key executives, managers and employees; (xvii) completion of documentation for vessel transactions and the performance of the terms thereof by buyers or sellers of vessels and us; (xviii) the relative cost and availability of low sulfur and high sulfur fuel, worldwide compliance with sulfur emissions regulations that took effect on January 1, 2020 and our ability to realize the economic benefits or recover the cost of the scrubbers we have installed; (xix) our financial results for the year ending December 31, 2021 and other factors relating to determination of the tax treatment of dividends we have declared; (xx) the financial results we achieve for each quarter that apply to the formula under our new dividend policy, including without limitation the actual amounts earned by our vessels and the amounts of various expenses we incur, as a significant decrease in such earnings or a significant increase in such expenses may affect our ability to carry out our new value strategy; (xxi) the exercise of the discretion of our Board regarding the declaration of dividends, including without limitation the amount that our Board determines to set aside for reserves under our dividend policy; (xxii) the duration and impact of the COVID-19 novel coronavirus epidemic, which may negatively affect general global and regional economic conditions, our ability to charter our vessels at all and the rates at which are able to do so; our ability to call on or depart from ports on a timely basis or at all; our ability to crew, maintain, and repair our vessels, including without limitation the impact diversion of our vessels to perform crew rotations may have on our revenues, expenses, and ability to consummate vessel sales, expense and disruption to our operations that may arise from the inability to rotate crews on schedule, and delay and added expense we may incur in rotating crews in the current environment; our ability to staff and maintain our headquarters and administrative operations; sources of cash and liquidity; our ability to sell vessels in the secondary market, including without limitation the compliance of purchasers and us with the terms of vessel sale contracts, and the prices at which vessels are sold; and other factors relevant to our business described from time to time in our filings with the Securities and Exchange Commission; and (xxiii) other factors listed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2020 and subsequent reports on Form 8-K and Form 10-Q. Our ability to pay dividends in any period will depend upon various factors, including the limitations under any credit agreements to which we may be a party, applicable provisions of Marshall Islands law and the final determination by the Board of Directors each quarter after its review of our financial performance, market developments, and the best interests of the Company and its shareholders. The timing and
29
amount of dividends, if any, could also be affected by factors affecting cash flows, results of operations, required capital expenditures, or reserves. As a result, the amount of dividends actually paid may vary. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The following management’s discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included in this Form 10-Q.
General
We are a Marshall Islands company that transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes through the ownership and operation of drybulk carrier vessels. After the anticipated acquisition of two Ultramax vessels during January 2022, our fleet will consist of 44 drybulk vessels, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers and twelve Supramax drybulk carriers, with an aggregate carrying capacity of approximately 4,635,300 dwt and an average age of approximately 10.1 years. We seek to deploy our vessels on time charters, spot market voyage charters, spot market-related time charters or in vessel pools trading in the spot market, to reputable charterers.
See pages 41 – 42 for a table of our current fleet.
Genco’s approach towards fleet composition is to own a high-quality fleet of vessels that focuses primarily on Capesize, Ultramax and Supramax vessels. Capesize vessels represent our major bulk vessel category and the other vessel classes, including Ultramax, Supramax and Handysize vessels, represent our minor bulk vessel category. On February 24, 2021, we disposed of the last Handysize vessel in our fleet. Our major bulk vessels are primarily used to transport iron ore and coal, while our minor bulk vessels are primarily used to transport grains, steel products and other drybulk cargoes such as cement, scrap, fertilizer, bauxite, nickel ore, salt and sugar. This approach of owning ships that transport both major and minor bulk commodities provide us with exposure to a wide range of drybulk trade flows. We employ an active commercial strategy which consists of a global team located in the U.S., Copenhagen and Singapore. Overall, we utilize a portfolio approach to revenue generation through a combination of short-term, spot market employment as well as opportunistically booking longer term coverage. Our fleet deployment strategy currently remains weighted towards short-term fixtures, which provides us with optionality on our sizeable fleet. However, depending on market conditions, we may seek to enter into longer term time charter contracts. In addition to both short and long-term time charters, we fix our vessels on spot market voyage charters as well as spot market-related time charters depending on market conditions and management’s outlook. We are also exploring the possibility of transporting containers on board our vessels time to time, which could provide an additional flexibility for vessel fixtures, primarily for backhaul trades.
Drawing on one of the strongest balance sheets in the drybulk industry, in April 2021 we announced a new comprehensive value strategy. Specifically, we intend to use a phased in approach to further reduce our debt and refinance our current credit facilities in order to lower our cash flow breakeven levels and position us to pay a sizeable quarterly dividend across diverse market environments. Utilizing this approach, we maintain significant flexibility to grow the fleet through accretive vessel acquisitions. We have entered into an agreement for a new $450 Million Credit Facility under which we have used for a global refinance of our existing credit facilities, thereby increasing flexibility, improving key terms and lowering our cash flow breakeven rates. We are targeting the fourth quarter of 2021 results for our anticipated first dividend under our new corporate strategy, which would be payable in the first quarter of 2022.
In implementing this strategy, we will focus on the following specific priorities for the remainder of 2021:
● | Continue to pay down debt through regularly scheduled quarterly repayments and voluntary prepayments from a combination of cash flow generation and cash on the balance sheet; and |
● | Opportunistically grow the fleet on a low levered basis utilizing proceeds from previous vessel sales |
30
COVID-19
In March 2020, the World Health Organization (the “WHO”) declared the outbreak of a novel coronavirus strain, or COVID-19, to be a pandemic. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Over the course of the pandemic, governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, working from home, supply chain logistical changes, and closure of non-essential businesses. This led to a significant slowdown in overall economic activity levels globally and a decline in demand for certain of the raw materials that our vessels transport.
Drybulk shipping rates, and therefore our voyage revenues, depend to a significant degree on global economic activity levels and specifically, economic activity in China. As the world’s second largest economy, China is the largest importer of drybulk commodities globally, which drives demand for iron ore, coal and other cargoes we carry. In particular, starting in the first quarter of 2020, the COVID-19 pandemic resulted in reduced industrial activity in China on which our business is substantially dependent, with temporary closures of factories and other facilities. The pandemic resulted in a 6.8% contraction in China’s GDP during the first quarter of 2020, with the most significant impact occurring in January and February. Since March 2020, China’s economy has substantially improved, as various economic indicators such as fixed asset investment and industrial production rose as compared to the previous months of the year, which led to a return to GDP growth for the balance of 2020 and into 2021. Demand for the commodities that we carry continued to increase through 2021, which positively impacted the rate our vessels earned. Economic activity levels in regions outside of China declined significantly beginning in the first quarter of 2020 and continuing into the second quarter of the year due to various forms of nationwide shutdowns being imposed to prevent the spread of COVID-19. Over time, several economies around the world gradually eased measures taken earlier in 2020 resulting in improved activity levels from earlier year lows and leading to a demand rebound for 2021. Although rebounding economies around the world have had a positive impact on our revenues during 2021, our vessel operating expenses continued to be affected by higher than anticipated costs related to COVID-19 disruptions. The impact of COVID-19 on both our revenues and operating expenses remains highly dependent on the trajectory of COVID-19, potential variants, and the timing of wide-scale vaccine distribution, which remains uncertain.
While global economic activity levels, led by China, have improved, the outlook for China and the rest of the world remains uncertain and is highly dependent on the path of COVID-19 and measures taken by governments around the world in response to it. Drybulk commodities that are closely tied to global GDP growth and energy demand, experienced reduced trade flows in 2020 due to lower end user demand resulting from a decline in global economic activity. As countries worldwide gradually reopened their respective economies in mid-2020, trade flows and demand for raw materials increased. Drybulk spot freight rates rebounded from the 2020 lows towards the end of the second quarter and remained firm in the second half of 2020. In 2021 to date, spot rates for Capesize and Supramax vessels reached levels not seen since 2010, although rates for Capesize vessels have since decreased from their record highs following the end of the third quarter of 2021. While vaccinations are rising in developed countries, developing countries vaccination rates have lagged. Global vaccination rates, vaccine effectiveness together with the onset of variants, could impact the sustainability of this recovery in addition to drybulk specific seasonality described in further detail below.
As our vessels trade commodities globally, we have taken measures to safeguard our crew and work toward preventing the spread of COVID-19. Crew members have received gloves, face masks, hand sanitizer, goggles and handheld thermometers. Genco requires its vessel crews to wear masks when in contact with other individuals who board the vessel. We continue to monitor the Centers for Disease Control and Prevention (the “CDC”) and the WHO guidelines and are also limiting access of shore personnel boarding our vessels. Specifically, no shore personnel with fever or respiratory symptoms are allowed on board, and those that are allowed on board are restricted to designated areas that are thoroughly cleaned after their use. Face masks are also provided to shore personnel prior to boarding a vessel. Precautionary materials are posted in common areas to supplement safety training while personal hygiene best practices are strongly encouraged on board.
We have implemented protocols with regard to crew rotations to keep our crew members safe and healthy which includes polymerase chain reaction (PCR) antibody testing as well as a 14-day quarantine period prior to boarding
31
a vessel. Genco is enacting crew changes where permitted by regulations of the ports and of the country of origin of the mariners, in addition to strict protocols that safeguard our crews against COVID-19 exposure. Crew rotations have been challenging due to port and travel restrictions globally, as well as promoting the health and safety of both on and off signing crew members.
The COVID-19 pandemic and measures to contain its spread thus have negatively impacted and could continue to impact regional and global economies and trade patterns in markets in which we operate, the way we operate our business, and the businesses of our charterers and suppliers. These impacts may continue or become more severe. Although we have successfully completed many crew changes over the course of the pandemic to date, additional crew changes could remain challenging due to COVID-19 related factors. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity, including the possibility of recession or financial market instability.
U.S.-China Relationship
Over the course of 2018 and 2019, the United States imposed a series of tariffs on several goods imported from various countries. Certain of these countries, including China, undertook retaliatory actions by implementing tariffs on select U.S. products. Most notably in terms of drybulk trade volumes is China’s tariff placed upon U.S. soybean exports, which could adversely affect drybulk rates. With the signing of the “phase one” trade agreement between China and the U.S. in January 2020, China agreed in principle to purchase meaningful quantities of agricultural products, including soybeans, from the U.S. Peak North American grain season historically ramps up during the fourth quarter and extends into the early first quarter of the following year. Continuing that trend, in recent months, China has purchased large amounts of agricultural products that are transported on drybulk vessels which has helped support freight rates for the mid-sized and smaller vessel classes. It remains to be seen the stance the current U.S. administration will take towards China as well as any previously agreed upon trade deals. Any deterioration in the trading relationship or a re-escalation of protectionist measures taken between these countries or others could lead to reduced volumes of drybulk trade.
IMO 2020 Compliance
On October 27, 2016, the Marine Environment Protection Committee (“MEPC”) of the International Maritime Organization (“IMO”) announced the ratification of regulations mandating reduction in sulfur emissions from 3.5% currently to 0.5% as of the beginning of 2020 rather than pushing the deadline back to 2025. Accordingly, ships now have to reduce sulfur emissions, for which the principal solutions are the use of exhaust gas cleaning systems (“scrubbers”) or buying fuel with low sulfur content. If a vessel is not retrofitted with a scrubber, it will need to use low sulfur fuel, which is currently more expensive than standard marine fuel containing 3.5% sulfur content. This increased demand for low sulfur fuel resulted in an increase in prices for such fuel during the beginning of 2020. Following a decrease during the second quarter of 2020, fuel prices began to increase again during the third quarter of 2020 and continue to increase due to such demand.
We have installed scrubbers on our 17 Capesize vessels, 16 of which were completed during 2019 and one of which was completed in January 2020. The remainder of our fleet began consuming compliant, low sulfur fuel beginning in 2020, although we intend to continue to evaluate other options.
Vessel Sales and Acquisitions
On July 2, 2021, we entered into an agreement to purchase two 2017-built, 63,000 dwt Ultramax vessels for a purchase price of $24.6 million each, to be renamed the Genco Mayflower and Genco Constellation, and one 2014-built, 63,000 dwt Ultramax vessel for a purchase price of $21.9 million, to be renamed the Genco Madeleine. The Genco Mayflower, the Genco Constellation and the Genco Madeleine were delivered on August 24, 2021, September 3, 2021 and August 23, 2021, respectively and we used cash on hand to finance the purchase.
On May 18, 2021, we entered into agreements to acquire two 2022-built 61,000 dwt newbuilding Ultramax vessels from Dalian Cosco KHI Ship Engineering Co. Ltd. for a purchase price of $29.2 million each, to be renamed the
32
Genco Mary and the Genco Laddey. The vessels are expected to be delivered during January 2022 and we intend to use a combination of cash on hand and credit facility borrowings to finance the purchase.
On April 20, 2021, we entered into an agreement to purchase a 2016-built, 64,000 dwt Ultramax vessel for a purchase price of $20.2 million, to be renamed the Genco Enterprise. The vessel delivered on August 23, 2021 and we used cash on hand to finance the purchase.
On December 17, 2020, we entered into an agreement to acquire three modern, eco Ultramax vessels in exchange for six of our older Handysize vessels. The Genco Magic, a 2014-built Ultramax vessel, and the Genco Vigilant and the Genco Freedom, both 2015-built Ultramax vessels, were delivered to the Company on December 23, 2020, January 28, 2021 and February 20, 2021, respectively. We delivered the Genco Ocean, Baltic Cove and Baltic Fox, all 2010-built Handysize vessels, and the Genco Spirit, Genco Avra and Genco Mare, all 2011-built Handysize vessels, on December 29, 2020, January 30, 2021, February 2, 2021, February 15, 2021, February 21, 2021 and February 24, 2021, respectively.
During November 2021, we completed the sale of one Supramax vessel that was classified as held for sale as of September 30, 2021. During July 2021, we completed the sale of one Supramax vessel that was classified as held for sale as of June 30, 2021. During the first half of 2021, we completed the sale of nine of our vessels, including three Supramax vessels and six Handysize vessels, which includes five of the Handysize vessels in the exchange described above.
During 2020, we completed the sale of nine of our vessels, including one of the Handysize vessels in the exchange described above. Three vessels were classified as held for sale as of December 31, 2020 and the five Handysize vessels were classified as held for exchange as of December 31, 2020.
We will continue to seek opportunities to renew our fleet going forward.
Our Operations
We report financial information and evaluate our operations by charter revenues and not by the length of ship employment for our customers, i.e., spot or time charters. Each of our vessels serves the same type of customer, has similar operations and maintenance requirements, operates in the same regulatory environment, and is subject to similar economic characteristics. Based on this, we have determined that we operate in one reportable segment in which we are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.
Our management team and our other employees are responsible for the commercial and strategic management of our fleet. Commercial management includes the negotiation of charters for vessels, managing the mix of various types of charters, such as time charters, spot market voyage charters and spot market-related time charters, and monitoring the performance of our vessels under their charters. Strategic management includes locating, purchasing, financing and selling vessels. We currently contract with three independent technical managers to provide technical management of our fleet. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. During the third quarter of 2021, we entered into a joint venture with Synergy Marine Pte. Ltd., one of our technical managers, which has been named GS Shipmanagement Pte. Ltd. (“GSSM”) to which we intend to transfer the technical management of all vessels in our fleet. Currently, a total of 28 of our vessels are being managed by GSSM. This joint venture, called GS Shipmanagement Pte. Ltd., aims to provide a unique and differentiated service to the management of our vessels. We expect this joint venture to increase visibility and control over our vessel operations, augment fleet-wide fuel efficiency to lower our carbon footprint through an advanced data platform and potentially provide vessel operating expense savings over time. Members of our New York City-based management team oversee the activities of our technical managers.
33
Factors Affecting Our Results of Operations
We believe that the following table reflects important measures for analyzing trends in our results of operations. The table reflects our ownership days, chartered-in days, available days, operating days, fleet utilization, TCE rates and daily vessel operating expenses for the three and nine months ended September 30, 2021 and 2020 on a consolidated basis.
For the Three Months Ended |
| |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | Increase |
| ||||||||||
| 2021 |
| 2020 |
| (Decrease) |
| % Change |
| ||||
Fleet Data: |
| |||||||||||
Ownership days (1) | ||||||||||||
Capesize |
| 1,564.0 | 1,564.0 | — |
| — | % | |||||
Panamax |
| — | — | — |
| — | % | |||||
Ultramax |
| 970.0 | 552.0 | 418.0 |
| 75.7 | % | |||||
Supramax |
| 1,201.3 | 1,840.0 | (638.7) |
| (34.7) | % | |||||
Handymax |
| — | — | — |
| — | % | |||||
Handysize |
| — | 773.3 | (773.3) |
| (100.0) | % | |||||
Total |
| 3,735.3 | 4,729.3 | (994.0) |
| (21.0) | % | |||||
Chartered-in days (2) | ||||||||||||
Capesize | — | — | — | — | % | |||||||
Panamax | — | — | — | — | % | |||||||
Ultramax | 43.3 | 82.2 | (38.9) | (47.3) | % | |||||||
Supramax | 289.8 | 60.6 | 229.2 |
| 378.2 | % | ||||||
Handymax | — | — | — | — | % | |||||||
Handysize | — | 2.5 | (2.5) | (100.0) | % | |||||||
Total | 333.1 | 145.3 | 187.8 | 129.2 | % | |||||||
Available days (owned & chartered-in fleet) (3) | ||||||||||||
Capesize |
| 1,564.0 | 1,551.2 | 12.8 |
| 0.8 | % | |||||
Panamax |
| — | — | — |
| — | % | |||||
Ultramax |
| 997.1 | 633.8 | 363.3 |
| 57.3 | % | |||||
Supramax |
| 1,487.3 | 1,829.2 | (341.9) |
| (18.7) | % | |||||
Handymax |
| — | — | — |
| — | % | |||||
Handysize |
| — | 758.9 | (758.9) |
| (100.0) | % | |||||
Total |
| 4,048.4 | 4,773.1 | (724.7) |
| (15.2) | % | |||||
Available days (owned fleet) (4) | ||||||||||||
Capesize | 1,564.0 | 1,551.2 | 12.8 |
| 0.8 | % | ||||||
Panamax | — | — | — |
| — | % | ||||||
Ultramax | 953.8 | 551.6 | 402.2 |
| 72.9 | % | ||||||
Supramax | 1,197.5 | 1,768.6 | (571.1) |
| (32.3) | % | ||||||
Handymax | — | — | — |
| — | % | ||||||
Handysize | — | 756.4 | (756.4) |
| (100.0) | % | ||||||
Total | 3,715.3 | 4,627.8 | (912.5) |
| (19.7) | % | ||||||
Operating days (5) | ||||||||||||
Capesize |
| 1,545.3 | 1,513.5 | 31.8 |
| 2.1 | % | |||||
Panamax |
| — | — | — |
| — | % | |||||
Ultramax |
| 981.6 | 625.4 | 356.2 |
| 57.0 | % | |||||
Supramax |
| 1,463.5 | 1,814.0 | (350.5) |
| (19.3) | % | |||||
Handymax |
| — | — | — |
| — | % | |||||
Handysize |
| — | 673.4 | (673.4) |
| (100.0) | % | |||||
34
For the Three Months Ended |
| |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | Increase |
| ||||||||||
| 2021 |
| 2020 |
| (Decrease) |
| % Change |
| ||||
Total |
| 3,990.4 | 4,626.3 | (635.9) |
| (13.7) | % | |||||
Fleet utilization (6) | ||||||||||||
Capesize |
| 98.8 | % | 96.8 | % | 2.0 | % | 2.1 | % | |||
Panamax |
| — | % | — | % | — | % | — | % | |||
Ultramax |
| 96.9 | % | 98.6 | % | (1.7) | % | (1.7) | % | |||
Supramax |
| 98.1 | % | 97.9 | % | 0.2 | % | 0.2 | % | |||
Handymax |
| — | % | — | % | — | % | — | % | |||
Handysize |
| — | % | 88.7 | % | (88.7) | % | (100.0) | % | |||
Fleet average |
| 98.1 | % | 96.2 | % | 1.9 | % | 2.0 | % |
For the Three Months Ended | ||||||||||||
September 30, | Increase | |||||||||||
| 2021 |
| 2020 |
| (Decrease) |
| % Change |
| ||||
Average Daily Results: | ||||||||||||
Time Charter Equivalent (7) | ||||||||||||
Capesize | $ | 30,809 | $ | 16,287 | $ | 14,522 |
| 89.2 | % | |||
Panamax |
| — |
| — |
| — |
| — | % | |||
Ultramax |
| 23,271 |
| 10,965 |
| 12,306 |
| 112.2 | % | |||
Supramax |
| 31,996 |
| 9,523 |
| 22,473 |
| 236.0 | % | |||
Handymax |
| — |
| — |
| — |
| — | % | |||
Handysize |
| — |
| 6,445 |
| (6,445) |
| (100.0) | % | |||
Fleet average |
| 29,287 |
| 11,456 |
| 17,831 |
| 155.6 | % | |||
Major bulk vessels | 30,809 | 16,287 | 14,522 | 89.2 | % | |||||||
Minor bulk vessels | 28,180 | 9,021 | 19,159 | 212.4 | % | |||||||
Daily vessel operating expenses (8) | ||||||||||||
Capesize | $ | 6,092 | $ | 5,255 | $ | 837 |
| 15.9 | % | |||
Panamax |
| — |
| — |
| — |
| — | % | |||
Ultramax |
| 5,792 |
| 5,709 |
| 83 |
| 1.5 | % | |||
Supramax |
| 5,515 |
| 4,786 |
| 729 |
| 15.2 | % | |||
Handymax |
| — |
| — |
| — |
| — | % | |||
Handysize |
| — |
| 4,191 |
| (4,191) |
| (100.0) | % | |||
Fleet average |
| 5,833 |
| 4,961 |
| 872 |
| 17.6 | % |
For the Nine Months Ended |
| |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | Increase |
| ||||||||||
| 2021 |
| 2020 |
| (Decrease) |
| % Change |
| ||||
Fleet Data: | ||||||||||||
Ownership days (1) | ||||||||||||
Capesize |
| 4,641.0 | 4,658.0 | (17.0) |
| (0.4) | % | |||||
Panamax |
| — | 64.8 | (64.8) |
| (100.0) | % | |||||
Ultramax |
| 2,520.8 | 1,644.0 | 876.8 |
| 53.3 | % | |||||
Supramax |
| 3,890.5 | 5,480.0 | (1,589.5) |
| (29.0) | % | |||||
Handymax |
| — | — | — |
| — | % | |||||
Handysize |
| 227.5 | 2,648.0 | (2,420.5) |
| (91.4) | % | |||||
Total |
| 11,279.8 | 14,494.8 | (3,215.0) |
| (22.2) | % | |||||
Chartered-in days (2) | ||||||||||||
Capesize | — | — | — | — | % | |||||||
Panamax | — | — | — | — | % | |||||||
Ultramax | 387.5 | 374.7 | 12.8 | 3.4 | % | |||||||
Supramax | 732.3 | 363.5 | 368.8 |
| 101.5 | % | ||||||
Handymax | — | 14.5 | (14.5) | (100.0) | % |
35
For the Nine Months Ended |
| |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | Increase |
| ||||||||||
| 2021 |
| 2020 |
| (Decrease) |
| % Change |
| ||||
Handysize | — | 63.2 | (63.2) | (100.0) | % | |||||||
Total | 1,119.8 | 815.9 | 303.9 | 37.2 | % | |||||||
Available days (owned & chartered-in fleet) (3) | ||||||||||||
Capesize |
| 4,583.4 | 4,609.5 | (26.1) |
| (0.6) | % | |||||
Panamax |
| — | 64.4 | (64.4) |
| (100.0) | % | |||||
Ultramax |
| 2,883.5 | 1,939.4 | 944.1 |
| 48.7 | % | |||||
Supramax |
| 4,594.1 | 5,581.8 | (987.7) |
| (17.7) | % | |||||
Handymax |
| — | 14.5 | (14.5) |
| (100.0) | % | |||||
Handysize |
| 227.5 | 2,681.1 | (2,453.6) |
| (91.5) | % | |||||
Total |
| 12,288.5 | 14,890.7 | (2,602.2) |
| (17.5) | % | |||||
Available days (owned fleet) (4) | ||||||||||||
Capesize | 4,583.4 | 4,609.5 | (26.1) |
| (0.6) | % | ||||||
Panamax | — | 64.4 | (64.4) |
| (100.0) | % | ||||||
Ultramax | 2,496.0 | 1,564.7 | 931.3 |
| 59.5 | % | ||||||
Supramax | 3,861.8 | 5,218.3 | (1,356.5) |
| (26.0) | % | ||||||
Handymax | — | — | — |
| — | % | ||||||
Handysize | 227.5 | 2,617.9 | (2,390.4) |
| (91.3) | % | ||||||
Total | 11,168.7 | 14,074.8 | (2,906.1) |
| (20.6) | % | ||||||
Operating days (5) | ||||||||||||
Capesize |
| 4,549.2 | 4,570.4 | (21.2) |
| (0.5) | % | |||||
Panamax |
| — | 60.1 | (60.1) |
| (100.0) | % | |||||
Ultramax |
| 2,854.5 | 1,929.6 | 924.9 |
| 47.9 | % | |||||
Supramax |
| 4,513.3 | 5,521.3 | (1,008.0) |
| (18.3) | % | |||||
Handymax |
| — | 14.5 | (14.5) |
| (100.0) | % | |||||
Handysize |
| 191.3 | 2,479.8 | (2,288.5) |
| (92.3) | % | |||||
Total |
| 12,108.3 | 14,575.7 | (2,467.4) |
| (16.9) | % | |||||
Fleet utilization (6) | ||||||||||||
Capesize |
| 99.1 | % | 98.5 | % | 0.6 | % | 0.6 | % | |||
Panamax |
| — | % | 92.7 | % | (92.7) | % | (100.0) | % | |||
Ultramax |
| 98.2 | % | 99.5 | % | (1.3) | % | (1.3) | % | |||
Supramax |
| 97.6 | % | 98.0 | % | (0.4) | % | (0.4) | % | |||
Handymax |
| — | % | 100.0 | % | (100.0) | % | 100.0 | % | |||
Handysize |
| 84.1 | % | 92.0 | % | (7.9) | % | (8.6) | % | |||
Fleet average |
| 98.1 | % | 97.3 | % | 0.8 | % | 0.8 | % |
For the Nine Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | Increase | |||||||||||
| 2021 |
| 2020 |
| (Decrease) |
| % Change |
| ||||
Average Daily Results: | ||||||||||||
Time Charter Equivalent (7) | ||||||||||||
Capesize | $ | 22,829 | $ | 14,147 | $ | 8,682 |
| 61.4 | % | |||
Panamax |
| — |
| 5,365 |
| (5,365) |
| (100.0) | % | |||
Ultramax |
| 18,365 |
| 9,028 |
| 9,337 |
| 103.4 | % | |||
Supramax |
| 20,605 |
| 7,136 |
| 13,469 |
| 188.7 | % | |||
Handymax |
| — |
| — |
| — |
| — | % | |||
Handysize |
| 8,503 |
| 5,328 |
| 3,175 |
| 59.6 | % | |||
Fleet average |
| 20,761 |
| 9,307 |
| 11,454 |
| 123.1 | % | |||
Major bulk vessels | 22,829 | 14,147 | 8,682 | 61.4 | % |
36
For the Nine Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | Increase | |||||||||||
| 2021 |
| 2020 |
| (Decrease) |
| % Change |
| ||||
Minor bulk vessels | 19,322 | 6,949 | 12,373 | 178.1 | % | |||||||
Daily vessel operating expenses (8) | ||||||||||||
Capesize | $ | 5,590 | $ | 5,064 | $ | 526 |
| 10.4 | % | |||
Panamax |
| — |
| 3,149 |
| (3,149) |
| (100.0) | % | |||
Ultramax |
| 5,194 |
| 4,728 |
| 466 |
| 9.9 | % | |||
Supramax |
| 4,961 |
| 4,396 |
| 565 |
| 12.9 | % | |||
Handymax |
| — |
| — |
| — |
| — | % | |||
Handysize |
| 5,617 |
| 3,967 |
| 1,650 |
| 41.6 | % | |||
Fleet average |
| 5,286 |
| 4,576 |
| 710 |
| 15.5 | % |
Definitions
In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that influence our results of operations.
(1) Ownership days. We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
(2) Chartered-in days. We define chartered-in days as the aggregate number of days in a period during which we chartered-in third-party vessels.
(3) Available days (owned and chartered-in fleet). We define available days, which we have recently updated and incorporated in the table above to better demonstrate the manner in which we evaluate our business, as the number of our ownership days and chartered-in days less the aggregate number of days that our vessels are off-hire due to familiarization upon acquisition, repairs or repairs under guarantee, vessel upgrades or special surveys. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be capable of generating revenues.
(4) Available days (owned fleet). We define available days for the owned fleet as available days less chartered-in days.
(5) Operating days. We define operating days as the number of our total available days in a period less the aggregate number of days that our vessels are off-hire due to unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.
(6) Fleet utilization. We calculate fleet utilization, which we have recently updated and incorporated in the table above to better demonstrate the manner in which we evaluate our business, as the number of our operating days during a period divided by the number of ownership days plus chartered-in days less drydocking days.
(7) TCE rates. We define TCE rates as our voyage revenues less voyage expenses and charter-hire expenses, divided by the number of the available days of our owned fleet during the period. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not
37
expressed in per-day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
Entire Fleet | Major Bulk | Minor Bulk |
| |||||||||||||||||
For the Three Months Ended | For the Three Months Ended | For the Three Months Ended | ||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||
| 2021 |
| 2020 | 2021 |
| 2020 | 2021 |
| 2020 |
| ||||||||||
Voyage revenues (in thousands) | $ | 155,252 | $ | 87,524 | $ | 68,068 | $ | 42,481 | $ | 87,184 | $ | 45,043 | ||||||||
Voyage expenses (in thousands) |
| 37,797 |
| 33,487 |
| 19,883 |
| 17,217 |
| 17,914 |
| 16,270 | ||||||||
Charter hire expenses (in thousands) | 8,644 | 1,020 | — | — | 8,644 | 1,020 | ||||||||||||||
| 108,811 |
| 53,017 |
| 48,185 |
| 25,264 |
| 60,626 |
| 27,753 | |||||||||
Total available days for owned fleet |
| 3,715 |
| 4,628 |
| 1,564 | 1,551 |
| 2,151 |
| 3,077 | |||||||||
Total TCE rate | $ | 29,287 | $ | 11,456 | $ | 30,809 | $ | 16,287 | $ | 28,180 | $ | 9,021 |
Entire Fleet | Major Bulk | Minor Bulk | ||||||||||||||||||
For the Nine Months Ended | For the Nine Months Ended | For the Nine Months Ended | ||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||
2021 |
| 2020 | 2021 |
| 2020 | 2021 |
| 2020 |
| |||||||||||
Voyage revenues (in thousands) | $ | 363,851 | $ | 260,066 | $ | 160,346 | $ | 121,342 | $ | 203,505 | $ | 138,724 | ||||||||
Voyage expenses (in thousands) |
| 109,572 |
| 123,550 |
| 55,710 |
| 56,131 |
| 53,862 |
| 67,419 | ||||||||
Charter hire expenses (in thousands) | 22,405 | 5,527 | — | — | 22,405 | 5,527 | ||||||||||||||
| 231,874 |
| 130,989 |
| 104,636 |
| 65,211 |
| 127,238 |
| 65,778 | |||||||||
Total available days for owned fleet |
| 11,169 |
| 14,075 |
| 4,583 |
| 4,610 |
| 6,585 |
| 9,465 | ||||||||
Total TCE rate | $ | 20,761 | $ | 9,307 | $ | 22,829 | $ | 14,147 | $ | 19,322 | $ | 6,949 |
(8) Daily vessel operating expenses. We define daily vessel operating expenses to include crew wages and related costs, the cost of insurance expenses relating to repairs and maintenance (excluding drydocking), the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period.
38
Operating Data
The following table represents the operating data for the three and nine months ended September 30, 2021 and 2020 on a consolidated basis.
For the Three Months Ended |
| |||||||||||
September 30, |
| |||||||||||
| 2021 |
| 2020 |
| Change |
| % Change |
| ||||
(U.S. dollars in thousands, except for per share amounts) |
| |||||||||||
Revenue: | ||||||||||||
Voyage revenues |
| $ | 155,252 |
| $ | 87,524 |
| $ | 67,728 |
| 77.4 | % |
Total revenues |
| 155,252 |
| 87,524 |
| 67,728 |
| 77.4 | % | |||
Operating Expenses: | ||||||||||||
Voyage expenses |
| 37,797 |
| 33,487 |
| 4,310 |
| 12.9 | % | |||
Vessel operating expenses |
| 21,788 |
| 23,460 |
| (1,672) |
| (7.1) | % | |||
Charter hire expenses | 8,644 | 1,020 | 7,624 | 747.5 | % | |||||||
General and administrative expenses (inclusive of nonvested stock amortization expense of $597 and $534, respectively) |
| 5,659 |
| 5,115 |
| 544 |
| 10.6 | % | |||
Technical management fees | 1,631 | 1,739 | (108) | (6.2) | % | |||||||
Depreciation and amortization |
| 14,200 |
| 16,115 |
| (1,915) |
| (11.9) | % | |||
Impairment of vessel assets |
| — | 21,896 | (21,896) | (100.0) | % | ||||||
Loss on sale of vessels |
| 159 | 358 | (199) | (55.6) | % | ||||||
Total operating expenses |
| 89,878 |
| 103,190 |
| (13,312) |
| (12.9) | % | |||
Operating income (loss) |
| 65,374 |
| (15,666) |
| 81,040 |
| (517.3) | % | |||
Other expense, net |
| (8,242) |
| (5,432) |
| (2,810) |
| 51.7 | % | |||
Net income (loss) |
| $ | 57,132 |
| $ | (21,098) |
| $ | 78,230 |
| (370.8) | % |
Net earnings (loss) per share - basic |
| $ | 1.36 |
| $ | (0.50) | $ | 1.86 |
| (372.0) | % | |
Net earnings (loss) per share - diluted |
| $ | 1.34 |
| $ | (0.50) | $ | 1.84 |
| (368.0) | % | |
Weighted average common shares outstanding - basic |
| 42,095,211 |
| 41,928,682 |
| 166,529 |
| 0.4 | % | |||
Weighted average common shares outstanding - diluted |
| 42,750,836 |
| 41,928,682 |
| 822,154 |
| 2.0 | % | |||
EBITDA (1) |
| $ | 75,250 |
| $ | 13 |
| $ | 75,237 |
| 578,746.2 | % |
39
For the Nine Months Ended |
| |||||||||||
September 30, |
| |||||||||||
| 2021 |
| 2020 |
| Change |
| % Change |
| ||||
(U.S. dollars in thousands, except for per share amounts) |
| |||||||||||
Revenue: | ||||||||||||
Voyage revenues |
| $ | 363,851 |
| $ | 260,066 |
| $ | 103,785 |
| 39.9 | % |
Total revenues |
| 363,851 |
| 260,066 |
| 103,785 |
| 39.9 | % | |||
Operating Expenses: | ||||||||||||
Voyage expenses |
| 109,572 |
| 123,550 |
| (13,978) |
| (11.3) | % | |||
Vessel operating expenses |
| 59,622 |
| 66,332 |
| (6,710) |
| (10.1) | % | |||
Charter hire expenses | 22,405 | 5,527 | 16,878 | 305.4 | % | |||||||
General and administrative expenses (inclusive of nonvested stock amortization expense of $1,670 and $1,491, respectively) |
| 17,616 |
| 16,353 |
| 1,263 |
| 7.7 | % | |||
Technical management fees | 4,400 | 5,316 | (916) |
| (17.2) | % | ||||||
Depreciation and amortization |
| 41,409 |
| 49,619 |
| (8,210) |
| (16.5) | % | |||
Impairment of vessel assets |
| — |
| 134,710 |
| (134,710) |
| (100.0) | % | |||
Loss on sale of vessels |
| 894 |
| 844 |
| 50 |
| 5.9 | % | |||
Total operating expenses |
| 255,918 |
| 402,251 |
| (146,333) |
| (36.4) | % | |||
Operating income (loss) |
| 107,933 |
| (142,185) |
| 250,118 |
| (175.9) | % | |||
Other expense |
| (16,779) |
| (17,467) |
| 688 |
| (3.9) | % | |||
Net income (loss) |
| $ | 91,154 |
| $ | (159,652) |
| $ | 250,806 |
| (157.1) | % |
Net earnings (loss) per share - basic |
| $ | 2.17 |
| $ | (3.81) |
| 5.98 |
| (157.0) | % | |
Net earnings (loss) per share - diluted |
| $ | 2.14 |
| $ | (3.81) |
| 5.95 |
| (156.2) | % | |
Weighted average common shares outstanding - basic |
| 42,047,115 |
| 41,898,756 |
| 148,359 |
| 0.4 | % | |||
Weighted average common shares outstanding - diluted |
| 42,548,187 |
| 41,898,756 |
| 649,431 |
| 1.6 | % | |||
EBITDA (1) |
| $ | 145,374 |
| $ | (93,466) |
| $ | 238,840 |
| (255.5) | % |
40
(1) | EBITDA represents net income (loss) plus net interest expense, taxes and depreciation and amortization. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common performance measure to compare results across peers. Our management uses EBITDA as a performance measure in our consolidated internal financial statements, and it is presented for review at our board meetings. We believe that EBITDA is useful to investors as the shipping industry is capital intensive which often results in significant depreciation and cost of financing. EBITDA presents investors with a measure in addition to net income to evaluate our performance prior to these costs. EBITDA is not an item recognized by U.S. GAAP (i.e., non-GAAP measure) and should not be considered as an alternative to net income, operating income or any other indicator of a company’s operating performance required by U.S. GAAP. EBITDA is not a measure of liquidity or cash flows as shown in our Condensed Consolidated Statements of Cash Flows. The definition of EBITDA used here may not be comparable to that used by other companies. The following table demonstrates our calculation of EBITDA and provides a reconciliation of EBITDA to net income (loss) for each of the periods presented above: |
For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||
September 30, |
| September 30, |
| ||||||||||
2021 | 2020 |
| 2021 |
| 2020 |
| |||||||
Net income (loss) |
| $ | 57,132 |
| $ | (21,098) | $ | 91,154 |
| $ | (159,652) | ||
Net interest expense |
| 3,918 |
| 4,996 |
| 12,811 |
| 16,567 | |||||
Income tax expense |
| — |
| — |
| — |
| — | |||||
Depreciation and amortization |
| 14,200 |
| 16,115 |
| 41,409 |
| 49,619 | |||||
EBITDA (1) |
| $ | 75,250 |
| $ | 13 | $ | 145,374 |
| $ | (93,466) |
Results of Operations
The following tables set forth information about the current employment of the vessels in our fleet as of November 2, 2021:
| Year |
| Charter |
| |||
---|---|---|---|---|---|---|---|
Vessel |
| Built |
| Expiration(1) |
| Cash Daily Rate(2) |
|
Capesize Vessels | |||||||
Genco Augustus |
| 2007 |
| November 2021 |
| Voyage | |
Genco Tiberius |
| 2007 |
| November 2021 |
| $52,000 | |
Genco London |
| 2007 |
| November 2021 | Voyage | ||
Genco Titus |
| 2007 |
| November 2021 | Voyage | ||
Genco Constantine |
| 2008 |
| November 2021 | Voyage | ||
Genco Hadrian |
| 2008 |
| December 2021 | Voyage | ||
Genco Commodus |
| 2009 |
| January 2022 | Voyage | ||
Genco Maximus |
| 2009 |
| September 2023 | $27,500 | ||
Genco Claudius |
| 2010 |
| November 2021 | $68,000 | ||
Genco Tiger |
| 2011 |
| November 2021 | $47,000 | ||
Baltic Lion |
| 2012 |
| November 2021 | Voyage | ||
Baltic Bear |
| 2010 |
| March 2022 | $32,000 | ||
Baltic Wolf |
| 2010 |
| June 2023 | $30,250 | ||
Genco Resolute | 2015 | October 2021 | Voyage | ||||
Genco Endeavour | 2015 | December 2021 | Voyage | ||||
Genco Defender | 2016 | December 2021 | Voyage | ||||
Genco Liberty | 2016 | February 2022 | $31,000 | ||||
Ultramax Vessels | |||||||
Baltic Hornet |
| 2014 |
| April 2023 | $24,000 | ||
Baltic Wasp |
| 2015 |
| June 2023 | $25,500 | ||
Baltic Scorpion |
| 2015 |
| November 2021 | Voyage | ||
Baltic Mantis |
| 2015 |
| November 2021 | $48,450 |
41
| Year |
| Charter |
| |||
---|---|---|---|---|---|---|---|
Vessel |
| Built |
| Expiration(1) |
| Cash Daily Rate(2) |
|
Genco Weatherly | 2014 | November 2021 | Voyage | ||||
Genco Columbia | 2016 | December 2021 | Voyage | ||||
Genco Magic | 2014 | November 2021 | $25,000 | ||||
Genco Vigilant | 2015 | September 2022 | $17,750 | ||||
Genco Freedom | 2015 | March 2023 | $23,375 | ||||
Genco Enterprise | 2016 | November 2021 | $43,500 | ||||
Genco Constellation | 2017 | November 2021 | $12,500 | ||||
Genco Madeleine | 2014 | December 2021 | $46,000 | ||||
Genco Mayflower | 2017 | November 2021 | $11,500 | ||||
Supramax Vessels | |||||||
Genco Predator |
| 2005 |
| November 2021 | Voyage | ||
Genco Warrior |
| 2005 |
| December 2021 | Voyage | ||
Genco Hunter |
| 2007 |
| December 2021 | $42,000 | ||
Genco Aquitaine |
| 2009 |
| December 2021 | Voyage | ||
Genco Ardennes |
| 2009 |
| December 2021 | Voyage | ||
Genco Auvergne |
| 2009 |
| December 2021 | Voyage | ||
Genco Bourgogne |
| 2010 |
| November 2021 | $36,750 | ||
Genco Brittany |
| 2010 |
| December 2021 | Voyage | ||
Genco Languedoc |
| 2010 |
| November 2021 | $40,000 | ||
Genco Picardy |
| 2005 |
| November 2021 | Voyage | ||
Genco Pyrenees |
| 2010 |
| December 2021 | $23,000 | ||
Genco Rhone |
| 2011 |
| December 2021 | Voyage |
(1) | The charter expiration dates presented represent the earliest dates that our charters may be terminated in the ordinary course. Under the terms of certain contracts, the charterer is entitled to extend the time charter from two to four months in order to complete the vessel's final voyage plus any time the vessel has been off-hire. |
(2) | Time charter rates presented are the gross daily charterhire rates before third-party brokerage commission generally ranging from 1.25% to 6.25%. In a time charter, the charterer is responsible for voyage expenses such as bunkers, port expenses, agents’ fees and canal dues. |
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
VOYAGE REVENUES-
For the three months ended September 30, 2021, voyage revenues increased by $67.8 million, or 77.4%, to $155.3 million as compared to $87.5 million for the three months ended September 30, 2020. The increase in voyage revenues was primarily due higher rates achieved by both our major and minor bulk vessels, as well as our third party time chartered-in vessels, which was partially offset by the operation of fewer vessels in our fleet. During the third quarter of 2021, drybulk freight rates reached decade highs led by a seasonal rise in iron ore shipments from Brazil and Australia, strong global economic activity, a reduction of fleet-wide productivity due to COVID-19 restrictions and port congestion, increased demand for coal ahead of peak winter season and manageable fleet growth due to the historically low orderbook. Rates continued to show strength going into the fourth quarter of 2021, with spot rates for Capesize vessels reaching a peak on October 7, 2021, but have since come off their highs due to easing iron ore exports, a decline in port congestion together with reduced output in China from the record levels seen earlier in the year. These factors have been partially offset by an increase in coal shipments.
The average TCE rate of our overall fleet increased 155.6% to $29,287 a day during the third quarter of 2021 from $11,456 a day during the third quarter of 2020. The TCE for our major bulk vessels increased by 89.2% from $16,287 a day during the third quarter of 2020 to $30,809 a day during the third quarter of 2021. This increase was primarily a result of higher rates achieved by our Capesize vessels. The TCE for our minor bulk vessels increased by 212.4% from $9,021 a day during the third quarter of 2020 to $28,180 a day during the third quarter of 2021 primarily a result of higher rates achieved by our Ultramax and Supramax vessels.
42
For the three months ended September 30, 2021 and 2020, we had 3,735.3 and 4,729.3 ownership days, respectively. The decrease in ownership days is primarily due to the sale of nine vessels during 2020 and ten vessels during the nine months ended September 30, 2021, partially offset by the delivery of one and six vessels during 2020 and the nine months ended September 30, 2021, respectively. Fleet utilization increased from 96.2% during the third quarter of 2020 to 98.1% during the third quarter of 2021.
VOYAGE EXPENSES-
In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer. These expenses are borne by the Company during spot market voyage charters. There are certain other non-specified voyage expenses such as commissions, which are typically borne by us. Voyage expenses include port and canal charges, fuel (bunker) expenses and brokerage commissions payable to unaffiliated third parties. Port and canal charges and bunker expenses primarily increase in periods during which vessels are employed on spot market voyage charters because these expenses are for the account of the vessel owner. At the inception of a time charter, we record the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses. Voyage expenses also include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement. Additionally, we may record lower of cost and net realizable value adjustments to re-value the bunker fuel on a quarterly basis for certain time charter agreements where the inventory is subject to gains and losses. Refer to Note 2 — Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements.
Voyage expenses were $37.8 million and $33.5 million during the three months ended September 30, 2021 and 2020, respectively. This increase was primarily due to higher bunker expenses, partially offset by the operation of fewer vessels.
VESSEL OPERATING EXPENSES-
Vessel operating expenses decreased by $1.7 million from $23.5 million during the three months ended September 30, 2020 to $21.8 million during the three months ended September 30, 2021. The decrease was primarily due to fewer owned vessels during the third quarter of 2021 as compared to the third quarter of 2020, partially offset by higher crew expenses as a result of COVID-19 related expenses and disruptions. Restrictions on crew rotations led to a temporary decline in crewing related expenses during the first half of 2020. However, such costs began to increase in June 2020, which also contributed to higher crew related expenses during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.
Average daily vessel operating expenses for our fleet increased to $5,833 per vessel per day for the three months ended September 30, 2021 from $4,961 per day for the three months ended September 30, 2020. The increase in daily vessel operating expense was predominantly due to higher crew expenses as a result of COVID-19 related expenses and disruptions. 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. Our actual daily vessel operating expenses per vessel for the three months ended September 30, 2021 were $833 above the weighted-average budgeted rate of $5,000 per vessel per day for the entire year. Based on estimates provided by our technical managers, our budgeted rate for the fourth quarter of 2021 is $5,100 per vessel per day on a fleet-wide basis. These budgeted rates reflect the larger weighting of our fleet towards Capesize vessels following our sales of smaller Supramax and Handysize vessels, as well as an anticipated increase in COVID-19 related expenses. The potential impacts of COVID-19 are beyond our control and are difficult to predict due to uncertainties surrounding the pandemic.
As a result of COVID-19 restrictions with regard to crew rotations, we still expect higher crew related costs. Travel and port restrictions together with promoting the health of the on-signing crew boarding the ship while the off-signing crew gets home safely have all been increasing challenges that shipowners are facing globally. As crew members worldwide have in many cases, including on certain of our vessels, exceeded the duration of their contracts there is an
43
increased urgency to work towards completing more crew rotations in the coming months. Given this urgency, since June 2020, certain of these crew rotations have led to and could continue to lead to additional deviation time of our vessels as well as unbudgeted expenses due to testing, PPE, quarantine periods and higher than normal travel expenses due to increased airfare costs.
The timing of crew rotations remains dependent on the duration and severity of COVID-19 in countries from which our crews are sourced as well as any restrictions in place at ports in which our vessels call. In cases when crew rotations have been delayed further, we have paid additional costs related to crew bonuses to retain the existing crew members on board since June 2020 and may continue to do so.
Our vessel operating expenses, which generally represent fixed costs for each vessel, increase to the extent our fleet expands. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for crewing, lubes, and insurance, may also cause these expenses to increase. The impact of COVID-19 could result in potential shortages or a lack of access to required spare parts for the operation of our vessels, potential delays in any unscheduled repairs, deviations for crew changes or increased costs to successfully execute a crew change, which could lead to business disruptions and delays. We expect that crew costs for the crew that we utilize on our vessels will increase going forward due to expected higher wages, as well as the impact of COVID-19 restrictions.
CHARTER HIRE EXPENSES-
Charter hire expenses increased by $7.6 million from $1.0 million during the three months ended September 30, 2020 to $8.6 million during the three months ended September 30, 2021. The increase was primarily due to higher charter in rates during the third quarter of 2021 as compared to the third quarter of 2020, in addition to an increase in chartered-in days.
GENERAL AND ADMINISTRATIVE EXPENSES-
We incur general and administrative expenses that relate to our onshore non-vessel-related activities. Our general and administrative expenses include our payroll expenses, including those relating to our executive officers, operating lease expense, legal, auditing and other professional expenses. General and administrative expenses include nonvested stock amortization expense which represent the amortization of stock-based compensation that has been issued to our Directors and employees pursuant to the 2015 Equity Incentive Plan. Refer to Note 14 — Stock-Based Compensation in our Condensed Consolidated Financial Statements. General and administrative expenses also include legal and professional fees associated with our credit facilities, which are not capitalizable to deferred financing costs. We also incur general and administrative expenses for our overseas offices located in Singapore and Copenhagen.
For the three months ended September 30, 2021 and 2020, general and administrative expenses were $5.7 million and $5.1 million, respectively. The $0.6 million increase was primarily due to higher legal and professional fees.
TECHNICAL MANAGEMENT FEES-
We incur management fees to third-party technical management companies for the day-to-day management of our vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. In addition, technical management fees also include the direct cost incurred by GSSM for the technical management of the vessels under its management. Technical management fees were $1.6 million and $1.7 million during the three months ended September 30, 2021 and 2020, respectively.
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization expense decreased by $1.9 million to $14.2 million during the three months ended September 30, 2021 as compared to $16.1 million during the three months ended September 30, 2020. This decrease was primarily due to a decrease in depreciation for certain vessels in our fleet that were impaired during 2020,
44
as well as a decrease in the depreciation of vessels due to the operation of a smaller fleet during the third quarter of 2021 as compared to the third quarter of 2020.
IMPAIRMENT OF VESSEL ASSETS-
During the three months ended September 30, 2020, we recorded $21.9 million of impairment of vessel assets. This included impairment losses for seven of our Supramax vessels. There was no vessel impairment recorded during the three months ended September 30, 2021.
Refer to Note 2 — Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements for further information regarding the impairment of these vessels.
LOSS ON SALE OF VESSELS-
During the third quarter of 2021, we recorded a net loss on sale of vessels of $0.2 million related primarily to the sale of the Genco Lorraine. During the third quarter of 2020, we recorded a net loss on sale of vessels of $0.4 million related primarily to the sale of the Baltic Wind and Baltic Breeze.
OTHER INCOME (EXPENSE)-
NET INTEREST EXPENSE –
Net interest expense decreased by $1.1 million from $5.0 million during the three months ended September 30, 2020 to $3.9 million during the three months ended September 30, 2021. Net interest expense during the three months ended September 30, 2021 and 2020 consisted primarily of interest expense under our credit facilities and amortization of deferred financing costs for those facilities. This decrease was primarily due to a $1.2 million decrease in interest expense as a result of lower interest rates, as well as lower outstanding debt. This was offset by a $0.1 million decrease in interest income due to a decrease in interest earned on our time deposits.
LOSS ON DEBT EXTINGUISHMENT –
During the three months ended September 30, 2021, we recorded a $4.4 million loss on debt extinguishment as a result of the refinancing of our $495 Million Credit Facility and $133 Million Credit Facility with the $450 Million Credit Facility on August 31, 2021. Refer to Note 7 — Debt in our Condensed Consolidated Financial Statements for information regarding our credit facilities.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
VOYAGE REVENUES-
For the nine months ended September 30, 2021, voyage revenues increased by $103.8 million, or 39.9%, to $363.9 million as compared to $260.1 million for the nine months ended September 30, 2020. The increase in voyage revenues was primarily due higher rates achieved by both our major and minor bulk vessels, as well as our third party time chartered-in vessels, which was partially offset by the operation of fewer vessels in our fleet. Refer to the discussion above included under the section “Three months ended September 30, 2021 compared to the three months ended September 30, 2020 – Voyage Revenues” for further information.
The average TCE rate of our overall fleet increased by 123.1% to $20,761 a day for the nine months ended September 30, 2021 from $9,307 a day for the nine months ended September 30, 2020. The TCE for our major bulk vessels increased by 61.4% from $14,147 a day during the nine months ended September 30, 2020 to $22,829 a day during the nine months ended September 30, 2021. This increase was primarily a result of higher rates achieved by our Capesize vessels. The TCE for our minor bulk vessels increased by 178.1% from $6,949 a day during the nine months ended September 30, 2020 to $19,322 a day during the nine months ended September 30, 2021 primarily a result of higher rates achieved by our Ultramax and Supramax vessels.
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For the nine months ended September 30, 2021 and 2020, we had 11,279.8 and 14,494.8 ownership days, respectively. The decrease in ownership days is primarily due to the sale of nine vessels during 2020 and ten vessels during the nine months ended September 30, 2021, partially offset by the delivery of one and six vessels during 2020 and the nine months ended September 30, 2021, respectively. Fleet utilization increased to 98.1% during the nine months ended September 30, 2021 from 97.3% during the nine months ended September 30, 2020.
VOYAGE EXPENSES-
Voyage expenses decreased by $14.0 million from $123.6 million during the nine months ended September 30, 2020 as compared to $109.6 million during the nine months ended September 30, 2021. This decrease was primarily due to the operation of fewer vessels, partially offset by higher bunker expenses and certain costs incurred relation to our spot market voyages.
VESSEL OPERATING EXPENSES-
Vessel operating expenses decreased by $6.7 million from $66.3 million during the nine months ended September 30, 2020 to $59.6 million during the nine months ended September 30, 2021. The decrease was primarily due to fewer owned vessels during the nine months ended September 30, 2021 as compared to the same period during 2020, partially offset by higher crew expenses as a result of COVID-19 related expenses and disruptions. Restrictions on crew rotations led to a temporary decline in crewing related expenses during the first half of 2020. However, such costs began to increase in June 2020, which also contributed to higher crew related expenses during the nine months ended September 30, 2021 as compared to the same period during 2020.
Daily vessel operating expenses increased to $5,286 per vessel per day for the nine months ended September 30, 2021 from $4,576 per day for the nine months ended September 30, 2020. The increase in daily vessel operating expense was predominantly due to higher crew expenses as a result of COVID-19 related expenses and disruptions. 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. Our actual daily vessel operating expenses per vessel for the nine months ended September 30, 2021 were $286 above the weighted-average budgeted rate of $5,000 per vessel per day for the entire year.
CHARTER HIRE EXPENSES-
Charter hire expenses increased by $16.9 million from $5.5 million during the nine months ended September 30, 2020 to $22.4 million during the nine months ended September 30, 2021. The increase was primarily due to higher charter in rates during the nine months ended September 30, 2021 as compared to the same period during 2020, in addition to an increase in chartered-in days.
GENERAL AND ADMINISTRATIVE EXPENSES-
For the nine months ended September 30, 2021 and 2020, general and administrative expenses were $17.6 million and $16.4 million, respectively. The $1.2 million increase was primarily due to higher legal and professional fees.
TECHNICAL MANAGEMENT FEES-
Technical management fees were $4.4 million and $5.3 million during the nine months ended September 30, 2021 and 2020, respectively, and is primarily due to the operation of a smaller fleet.
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization expense decreased by $8.2 million to $41.4 million during the nine months ended September 30, 2021 as compared to $49.6 million during the nine months ended September 30, 2020. This
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decrease was primarily due to a decrease in the depreciation of vessels due to the operation of a smaller fleet during the nine months ended September 30, 2021 as compared to the same period during 2020, as well as a decrease in depreciation for certain vessels in our fleet that were impaired during 2020.
IMPAIRMENT OF VESSEL ASSETS-
During the nine months ended September 30, 2020, we recorded $134.7 million of impairment of vessel assets. This included impairment losses for eleven of our Supramax vessels and ten of our Handysize vessels. There was no vessel impairment recorded during the nine months ended September 30, 2021.
Refer to Note 2 — Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements for further information regarding the impairment of these vessels.
For our impairment analysis, we utilize the ten-year historical one-year time charter average to project future charter rates, which we believe appropriately takes into account the volatility and highs and lows of the shipping cycle. In addition, we consider the current market rate environment and, if necessary, adjust our estimates of undiscounted cash flows to reflect the current rate environment. For our older vessels, those vessels in operation for at least 18 years, we evaluate the current rate environment compared to the ten-year historical one-year time charter rate and adjust the rate to better reflect the expected cash flows over the remaining useful lives of those vessels. Please see “Critical Accounting Policies – Impairment of long-lived assets” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2020 10-K.
LOSS ON SALE OF VESSELS-
During the nine months ended September 30, 2021, we recorded a net loss on sale of vessels of $0.9 million related primarily to the sale of the Baltic Panther, Baltic Hare, Baltic Cougar, Baltic Leopard and Genco Lorraine, as well as net losses associated with the exchange the Baltic Cove, Baltic Fox, Genco Spirit, Genco Avra and Genco Mare. During the nine months ended September 30, 2020, we recorded a net loss on sale of vessels of $0.8 million related primarily to the sale of the Genco Charger, Genco Thunder, Baltic Wind and Baltic Breeze.
OTHER INCOME (EXPENSE)-
NET INTEREST EXPENSE –
Net interest expense decreased by $3.8 million from $16.6 million during the nine months ended September 30, 2020 to $12.8 million during the nine months ended September 30, 2021. Net interest expense during the nine months ended September 30, 2021 and 2020 consisted of interest expense under our credit facilities and amortization of deferred financing costs for those facilities. This decrease was primarily due to a $4.6 million decrease in interest expense as a result of lower interest rates, as well as lower outstanding debt. This was offset by a $0.8 million decrease in interest income due to a decrease in interest earned on our time deposits and cash accounts.
LOSS ON DEBT EXTINGUISHMENT –
During the nine months ended September 30, 2021, we recorded a $4.4 million loss on debt extinguishment as a result of the refinancing of our $495 Million Credit Facility and $133 Million Credit Facility with the $450 Million Credit Facility on August 31, 2021. Refer to Note 7 — Debt in our Condensed Consolidated Financial Statements for information regarding our credit facilities.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flow from operations, cash on hand, equity offerings and credit facility borrowings. We currently use our funds primarily for the acquisition of vessels generally and under our ongoing fleet renewal program, drydocking for our vessels, and satisfying working capital requirements as may be needed to support our business and make required payments under our indebtedness. Our ability to continue to meet our liquidity
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needs is subject to and will be affected by cash utilized in operations, the economic or business environment in which we operate, shipping industry conditions, the financial condition of our customers, vendors and service providers, our ability to comply with the financial and other covenants of our indebtedness, and other factors.
We believe, given our current cash holdings, if drybulk shipping rates do not decline significantly from current levels, our capital resources, including cash anticipated to be generated within the year, are sufficient to fund our operations for at least the next twelve months. Such resources include unrestricted cash and cash equivalents of $80.2 million as of September 30, 2021 in addition to the $137.5 million availability under the revolver of the $450 Million Credit Facility, which compares to a minimum liquidity requirement under our $450 Million Credit Facility of $21.5 million as of the date of this report. Given anticipated capital expenditures related to drydockings and the installation of ballast water treatment systems (“BWTS”) and fuel efficiency upgrade costs, as well as any quarterly dividend payments, we anticipate to continue to have significant cash expenditures. However, if market conditions were to worsen significantly due to the current COVID-19 pandemic or other causes, then our cash resources may decline to a level that may put at risk our ability to service timely our debt and capital expenditure commitments. Through the implementation phase of our comprehensive value strategy, the Company has been utilizing this strong drybulk earnings environment to proactively pay down debt to reduce cash flow breakeven rates from previous levels.
As of September 30, 2021, the $450 Million Credit Facility contained collateral maintenance covenants that require the aggregate appraised value of collateral vessels to be at least 140% of the principal amount of the loan outstanding under each such facility. If the values of our vessels were to decline as a result of COVID-19 or otherwise, we may not satisfy this collateral maintenance requirement. If we do not satisfy the collateral maintenance requirement, we will need to post additional collateral or prepay outstanding loans to bring us back into compliance, or we will need to seek waivers, which may not be available or may be subject to conditions.
In the future, we may require capital to fund acquisitions or to improve or support our ongoing operations and debt structure, particularly in light of economic conditions resulting from the ongoing COVID-19 pandemic. We may from time to time seek to raise additional capital through equity or debt offerings, selling vessels or other assets, pursuing strategic opportunities, or otherwise. We may also from time to time seek to incur additional debt financing from private or public sector sources, refinance our indebtedness or obtain waivers or modifications to our credit agreements to obtain more favorable terms, enhance flexibility in conducting our business, or otherwise. We may also seek to manage our interest rate exposure through hedging transactions. We may seek to accomplish any of these independently or in conjunction with one or more of these actions. However, if market conditions are unfavorable, we may be unable to accomplish any of the foregoing on acceptable terms or at all.
We entered into the $450 Million Credit Facility on August 3, 2021. Proceeds from the $450 Million Credit Facility were used to refinance our $495 Million Credit Facility and our $133 Million Credit Facility on August 31, 2021. Refer to Note 7 — Debt in our Condensed Consolidated Financial Statements for further details regarding the terms of the $450 Million Credit Facility, which information is incorporated herein by reference.
As of September 30, 2021, we were in compliance with all financial covenants under the $450 Million Credit facility.
Dividends
We disclosed on April 19, 2021 that, on management’s recommendation, our Board of Directors adopted a new quarterly dividend policy for dividends payable commencing in the first quarter of 2022 in respect of our financial results for the fourth quarter of 2021. Under the new quarterly dividend policy, the amount available for quarterly dividends is to be calculated based on the following formula:
Operating cash flow
Less: Debt repayments
Less: Capital expenditures for drydocking
Less: Reserve
Cash flow distributable as dividends
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The amount of dividends payable under the foregoing formula for each quarter of the year will be determined on a quarterly basis.
For purposes of the foregoing calculation, operating cash flow is defined as voyage revenue less voyage expenses, charter hire expenses, 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. Anticipated uses for the reserve include, but are not limited to, vessel acquisitions, debt repayments, and general corporate purposes. In order to set aside funds for these purposes, the reserve will be set on a quarterly basis in the discretion of our Board and is anticipated to be based on future quarterly debt repayments and interest expense.
On November 3, 2021, our Board declared a quarterly dividend of $0.15 per share. 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 facilities) and our Board’s determination that each declaration and payment is at that time in the best interests of the Company and its shareholders after its review of our financial performance. If in the fourth quarter of 2021 our net income is less than approximately $60 million, we estimate for federal income tax purposes that the entire dividend paid during 2021 would be considered a return of capital to the extent of the holder’s basis and then as capital gain. However, to the extent our net income for the fourth quarter exceeds this amount, a portion or potentially the entire dividend paid in 2021 may be treated as dividend income for such purposes. This categorization will depend on our final calculation for the year ended December 31, 2021.
In connection with our new dividend policy, we have paid down additional indebtedness under our credit facilities and utilized the $450 Million Credit Facility to refinance our two prior credit facilities as noted above.
The declaration and payment of any dividend or any stock repurchase is subject to the discretion of our Board of Directors. Our Board of Directors and management continue to closely monitor market developments together with the evaluation of our quarterly dividend policy in the current market environment. The principal business factors that our Board of Directors expects to consider when determining the timing and amount of dividend payments or stock repurchases include our earnings, financial condition, and cash requirements at the time. Marshall Islands law generally prohibits the declaration and payment of dividends or stock repurchases other than from surplus. Marshall Islands law also prohibits the declaration and payment of dividends or stock repurchases while a company is insolvent or would be rendered insolvent by the payment of such a dividend or such a stock repurchase. Heightened economic uncertainty and the potential for renewed drybulk market weakness as a result of the COVID-19 pandemic and related economic conditions may result in our suspension, reduction, or termination of future quarterly dividends.
U.S. Federal Income Tax Treatment of Dividends
U.S. Holders
For purposes of this discussion, the term "U.S. Holder" means a beneficial owner of our common stock that is, for U.S. federal income tax purposes, (i) an individual U.S. citizen or resident, (ii) a corporation that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia, or any other U.S. entity taxable as a corporation, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if either (x) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (y) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. If a partnership, or an entity treated for U.S. federal income tax purposes as a partnership, such as a limited liability company, holds common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. If you are a partner in such a partnership holding our common stock, you are encouraged to consult your tax advisor. A beneficial owner of our common stock (other than a partnership) that is not a U.S. Holder is referred to below as a "Non-U.S. Holder."
Subject to the discussion of passive foreign investment company (PFIC) status on pages 33 – 34 in the 2020 10-K, any distributions made by us to a U.S. Holder with respect to our common shares generally will constitute dividends to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
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Distributions in excess of those earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder's tax basis in our common shares (determined on a share-by-share basis), and thereafter as capital gain. U.S. Holders that own at least 10% of our shares may be able to claim a dividends-received-deduction and should consult their tax advisors.
Dividends paid on our common shares to a U.S. Holder who is an individual, trust or estate, or a "non-corporate U.S. Holder," will generally be treated as "qualified dividend income" that is taxable to such non-corporate U.S. Holder at preferential tax rates, provided that (1) our common shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our common shares are traded); (2) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we have been, are, or will be); (3) the non-corporate U.S. Holder's holding period of our common shares includes more than 60 days in the 121-day period beginning 60 days before the date on which our common shares becomes ex-dividend; and (4) the non-corporate U.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. A non-corporate U.S. Holder will be able to take qualified dividend income into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case, the dividend will be taxed at ordinary income rates. Non-corporate U.S. Holders also may be required to pay a 3.8% surtax on all or part of such holder's "net investment income," which includes, among other items, dividends on our shares, subject to certain limitations and exceptions. Investors are encouraged to consult their own tax advisors regarding the effect, if any, of this surtax on their ownership of our shares.
Amounts taxable as dividends generally will be treated as passive income from sources outside the U.S. However, if (a) we are 50% or more owned, by vote or value, by U.S. Holders and (b) at least 10% of our earnings and profits are attributable to sources within the U.S., then for foreign tax credit purposes, a portion of our dividends would be treated as derived from sources within the U.S. With respect to any dividend paid for any taxable year, the U.S. source ratio of our dividends for foreign tax credit purposes would be equal to the portion of our earnings and profits from sources within the U.S. for such taxable year divided by the total amount of our earnings and profits for such taxable year. The rules related to U.S. foreign tax credits are complex and U.S. Holders should consult their tax advisors to determine whether and to what extent a credit would be available.
Special rules may apply to any "extraordinary dividend" — generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder's adjusted basis (or fair market value in certain circumstances) in a share of our common shares — paid by us. If we pay an "extraordinary dividend" on our common shares that is treated as "qualified dividend income", then any loss derived by a non-corporate U.S. Holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.
Tax Consequences if We Are a Passive Foreign Investment Company
As discussed in “U.S. tax authorities could treat us as a ‘passive foreign investment company,’ which could have adverse U.S. federal income tax consequences to U.S. shareholders” in Item 1.A Risk Factors in our 2020 10-K, a foreign corporation generally will be treated as a PFIC for U.S. federal income tax purposes if, after applying certain look through rules, either (1) at least 75% of its gross income for any taxable year consists of “passive income” or (2) at least 50% of the average value or adjusted bases of its assets (determined on a quarterly basis) produce or are held for the production of passive income, i.e., “passive assets.” As discussed above, we do not believe that our past or existing operations would cause, or would have caused, us to be deemed a PFIC with respect to any taxable year. No assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, there can be no assurance that we will not become a PFIC in any future taxable year because the PFIC test is an annual test, there are uncertainties in the application of the PFIC rules, and although we intend to manage our business so as to avoid PFIC status to the extent consistent with our other business goals, there could be changes in the nature and extent of our operations in future taxable years.
If we were to be treated as a PFIC for any taxable year in which a U.S. Holder owns shares of our common stock (and regardless of whether we remain a PFIC for subsequent taxable years), the tax consequences to such a U.S. holder upon the receipt of distributions in respect of such shares that are treated as “excess distributions” would differ from those described above. In general, an excess distribution is the amount of distributions received during a taxable
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year that exceed 125% of the average amount of distributions received by a U.S. Holder in respect of the common shares during the preceding three taxable years, or if shorter, during the U.S. Holder’s holding period prior to the taxable year of the distribution. The distributions that are excess distributions would be allocated ratably over the U.S. Holder’s holding period for the common shares. The amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated to each of the other taxable years would be subject to tax at the highest marginal rate in effect for the U.S. Holder for that taxable year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such other taxable years. The tax liability with respect to the amount allocated to taxable years prior to the year of the distribution cannot be offset by net operating losses. As an alternative to such tax treatment, a U.S. Holder may make a “qualified electing fund” election or “mark to market” election, to the extent available, in which event different rules would apply. The U.S. federal income tax consequences to a U.S. Holder if we were to be classified as a PFIC are complex. A U.S. Holder should consult with his or her own advisor with regard to those consequences, as well as with regard to whether he or she is eligible to and should make either of the elections described above.
Non-U.S. Holders
Non-U.S. Holders generally will not be subject to U.S. federal income tax on dividends received from us on our common shares unless the income is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States (“effectively connected income”) (and, if an applicable income tax treaty so provides, the dividends are attributable to a permanent establishment maintained by the Non-U.S. Holder in the U.S.). Effectively connected income (or, if an income tax treaty applies, income attributable to a permanent establishment maintained in the U.S.) generally will be subject to regular U.S. federal income tax in the same manner discussed above relating to taxation of U.S. Holders. In addition, earnings and profits of a corporate Non-U.S. Holder that are attributable to such income, as determined after allowance for certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable income tax treaty. Non-U.S. Holders may be subject to tax in jurisdictions other than the United States on dividends received from us on our common shares.
Dividends paid on our common shares to a non-corporate U.S. Holder may be subject to U.S. federal backup withholding tax if the non-corporate U.S. Holder:
● | fails to provide us with an accurate taxpayer identification number; |
● | is notified by the IRS that they have become subject to backup withholding because they previously failed to report all interest and dividends required to be shown on their federal income tax returns; or |
● | fails to comply with applicable certification requirements |
A holder that is not a U.S. Holder or a partnership may be subject to U.S. federal backup withholding with respect to such dividends unless the holder certifies that it is a non-U.S. person, under penalties of perjury, or otherwise establishes an exemption therefrom. Backup withholding tax is not an additional tax. Holders generally may obtain a refund of any amounts withheld under backup withholding rules that exceed their income tax liability by timely filing a refund claim with the IRS.
You are encouraged to consult your own tax advisor concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local, or foreign law from the payment of dividends on our common stock.
Cash Flow
Net cash provided by operating activities for the nine months ended September 30, 2021 was $135.0 million as compared to $16.0 million for the nine months ended September 30, 2020. This increase in cash provided by operating activities was primarily due to higher rates achieved by our major and minor bulk vessels, changes in working capital, as well as a decrease in drydocking related expenditures and interest expense.
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Net cash used in investing activities for the nine months ended September 30, 2021 was $77.3 million as compared to net cash provided by investing activities of $12.3 million for the nine months ended September 30, 2020. This fluctuation was primarily due to the purchase of four Ultramax vessels which delivered during the third quarter of 2021, as well as deposits made for the two Ultramax vessels that are expected to be delivered during the first quarter of 2022. These fluctuations were partially offset by a decrease in scrubber related expenses and an increase in net proceeds from the sale of vessels during the nine months ended September 30, 2021 as compared to the same period during 2020.
Net cash used in financing activities during the nine months ended September 30, 2021 and 2020 was $156.9 million and $29.8 million, respectively. The increase was primarily due to the refinancing of the $495 Million Credit Facility and the $133 Million Credit Facility with the $450 Million Credit Facility on August 31, 2021. During the nine months ended September 30, 2021, the increase in total net cash used in financing activities related to our credit facilities was $123.8 million as compared to the same period during 2020. Additionally, there was a $5.0 million increase in deferred financing costs paid in relation to the $450 Million Credit Facility during the nine months ended September 30, 2021. These increases were partially offset by a $1.8 million decrease in the payment of dividends during the nine months ended September 30, 2021 as compared to the same period during 2020.
Credit Facilities
On August 3, 2021, we entered into the $450 Million Credit Facility, which we used to refinance the existing debt outstanding under the $495 Million Credit Facility and the $133 Million Credit Facility as of August 31, 2021.
We entered into the $133 Million Credit Facility on August 14, 2018, which was initially used to finance a portion of the purchase price for the six vessels that were purchased during the third quarter of 2018. On June 11, 2020, we entered into an amendment to the $133 Million Credit Facility which provided us with a $25 million revolving credit facility to be used for general corporate and working capital purposes. Additionally, we entered into the $495 Million Credit Facility on May 31, 2018, which was initially used to refinance our prior credit facilities. On February 28, 2019, we entered into an amendment to the $495 Million Credit Facility, which provides for an additional tranche of up to $35 million to finance a portion of the acquisitions, installations, and related costs for exhaust cleaning systems (or “scrubbers”) for 17 of our Capesize vessels. On June 5, 2020, we entered into an amendment to the $495 Million Credit Facility to extend the period that collateral vessels can be sold or disposed of without prepayment of the loan if a replacement vessel or vessels meeting certain requirements are included as collateral from 180 days to 360 days. On December 17, 2020, we entered into an amendment to the $495 Million Credit Facility that allowed us to enter into a vessel transaction in which we agreed to acquire three modern Ultramax vessels in exchange for six of our older Handysize vessels.
Interest Rate Swap and Cap Agreements, Forward Freight Agreements and Currency Swap Agreements
At September 30, 2021, we had three interest rate cap agreements to manage interest costs and the risk associated with changing interest rates. Such agreements cap the borrowing rate on our variable debt to provide a hedge against the risk of rising rates. At September 30, 2021, the total notional principal amount of the interest rate cap agreements is $200.0 million.
Refer to the table in Note 8 — Derivative instruments of our Condensed Consolidated Financial Statements which summarizes the interest rate cap agreements in place as of September 30, 2021.
As part of our business strategy, we may enter into interest rate swap agreements to manage interest costs and the risk associated with changing interest rates. In determining the fair value of interest rate derivatives, we would consider the impact of the creditworthiness of both the counterparty and ourselves immaterial. Valuations prior to any adjustments for credit risk would be validated by comparison with counterparty valuations. Amounts would not and should not be identical due to the different modeling assumptions. Any material differences would be investigated.
As part of our business strategy, we may enter into arrangements commonly known as forward freight agreements, or FFAs, to hedge and manage our exposure to the charter market risks relating to the deployment of our vessels. Generally, these arrangements would bind us and each counterparty in the arrangement to buy or sell a specified
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tonnage freighting commitment “forward” at an agreed time and price and for a particular route. Upon settlement, if the contracted charter rate is less than the average of the rates (as reported by an identified index) for the specified route and period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the settlement rate multiplied by the number of days in the specific period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. Although FFAs can be entered into for a variety of purposes, including for hedging, as an option, for trading or for arbitrage, if we decided to enter into FFAs, our objective would be to hedge and manage market risks as part of our commercial management. It is not currently our intention to enter into FFAs to generate a stream of income independent of the revenues we derive from the operation of our fleet of vessels. If we determine to enter into FFAs, we may reduce our exposure to any declines in our results from operations due to weak market conditions or downturns, but may also limit our ability to benefit economically during periods of strong demand in the market. We have not entered into any FFAs as of September 30, 2021 and December 31, 2020.
Capital Expenditures
We make capital expenditures from time to time in connection with our vessel acquisitions. After the anticipated acquisition of two Ultramax vessels during January 2022, our fleet will consist of 44 drybulk vessels, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers and twelve Supramax drybulk carriers. We anticipate taking delivery of the two Ultramax vessels during January 2022, at which point we expect to pay the remaining $40.8 million to acquire these two vessels.
As previously announced, we have implemented a fuel efficiency upgrade program for certain of our vessels in an effort to generate fuel savings and increase the future earnings potential for these vessels. Twenty-two of our vessels are outfitted with energy saving devices which are meant to reduce the fuel consumption of these vessels. The upgrades have been successfully installed during previous drydockings.
Under U.S. Federal law and 33 CFR, Part 151, Subpart D, U.S. approved BWTS will be required to be installed in all vessels at the first out of water drydocking after January 1, 2016 if these vessels are to discharge ballast water inside 12 nautical miles of the coast of the U.S. U.S. authorities did not approve ballast water treatment systems until December 2016. Therefore, the U.S. Coast Guard (“USCG”) has granted us extensions for our vessels with 2016 drydocking deadlines until January 1, 2018; however, an alternative management system (“AMS”) may be installed in lieu. For example, in February 2015, the USCG added Bawat to the list of ballast water treatment systems that received AMS acceptance. An AMS is valid for five years from the date of required compliance with ballast water discharge standards, by which time it must be replaced by an approved system unless the AMS itself achieves approval. Furthermore, we received extensions for vessels drydocking in 2016 that allowed for further extensions to the vessels’ next scheduled drydockings in year 2021. Additionally, for our vessels that were scheduled to drydock in 2017 and 2018, the USCG has granted an extension that enables us to defer installation to the next scheduled out of water drydocking. Any newbuilding vessels that we acquire will have a USCG approved system or at least an AMS installed when the vessel is being built.
In addition, on September 8, 2016, the Ballast Water Management (“BWM”) Convention was ratified and had an original effective date of September 8, 2017. However, on July 7, 2017, the effective date of the BWM Convention was extended two years to September 8, 2019 for existing ships. This will require vessels to have a BWTS installed to coincide with the vessels’ next International Oil Pollution Prevention Certificate (“IOPP”) renewal survey after September 8, 2019. In order for a vessel to trade in U.S. waters, it must be compliant with the installation date as required by the USCG as outlined above.
During the second half of 2018, we have entered into agreements for the purchase of BWTS for 36 of our vessels. The cost of these systems will vary based on the size and specifications of each vessel and whether the systems will be installed in China. Based on the contractual purchase price of the BWTS and the estimated installation fees, the Company estimates the cost of the systems to be approximately $0.9 million for Capesize vessels and $0.6 million for Supramax vessels. The BWTS will be installed during a vessel’s scheduled drydocking and these costs will be capitalized and depreciated over the remainder of the life of the vessel. During the years ended December 31, 2020 and 2019, we completed the installation of BWTS on nine and 17 of our vessels, respectively. There were no BWTS
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installations completed during the nine months ended September 30, 2021. Ten of these vessels have since been sold as of September 30, 2021. We anticipate that we will complete the installation of BWTS on one vessel during the remainder of 2021 and nine vessels during 2022. We intend to fund the remaining BWTS purchase price and installation fees using cash on hand.
Under maritime regulations that went into effect January 1, 2020, our vessels were required to reduce sulfur emissions, for which the principal solutions are the use of scrubbers or buying fuel with low sulfur content. We have completed the installation of scrubbers on our 17 Capesize vessels, 16 of which were completed as of December 31, 2019 and the last one of which was completed on January 17, 2020. The remainder of our vessels are consuming VLSFO. The costs for the scrubber equipment and installation was capitalized and is being depreciated over the remainder of the life of the vessel. This does not include any lost revenue associated with offhire days due to the installation of the scrubbers.
In addition to acquisitions that we may undertake in future periods, we will incur additional expenditures due to special surveys and drydockings for our fleet. 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. Through September 30, 2021, we have paid $42.9 million in cash installments towards our scrubber program and have drawn down $32.8 million under the scrubber tranche under our $495 Million Credit Facility. During the second quarter of 2021, we paid down the debt balance under the scrubber tranche.
We estimate our drydocking costs, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, BWTS costs, fuel efficiency upgrades and scheduled off-hire days for our fleet through 2022 to be:
Year |
| Estimated Drydocking | Estimated BWTS |
| Estimated Fuel Efficiency Upgrade Costs | Estimated Off-hire |
| |||||
(U.S. dollars in millions) |
| |||||||||||
October 1 - December 31, 2021 | $ | 2.2 | $ | 0.6 | $ | 0.2 | 60 | |||||
2022 | $ | 12.3 | $ | 6.1 | $ | 8.6 | 300 |
The costs reflected are estimates based on drydocking our vessels in China. Actual costs will vary based on various factors, including where the drydockings are actually performed. We expect to fund these costs with cash on hand. These costs do not include drydock expense items that are reflected in vessel operating expenses.
Actual length of drydocking will vary based on the condition of the vessel, yard schedules and other factors. Higher repairs and maintenance expense during drydocking for vessels which are over 15 years old typically result in a higher number of off-hire days depending on the condition of the vessel.
During the nine months ended September 30, 2021 and 2020, we incurred a total of $1.9 million and $6.8 million of drydocking costs, respectively, excluding costs incurred during drydocking that were capitalized to vessel assets or vessel equipment.
We completed the drydockings for two of our vessels during the nine months ended September 30, 2021. We estimate that three of our vessels will be drydocked during the remainder of 2021 and twelve of our vessels will be drydocked during 2022.
As of January 17, 2020, we completed the installation of scrubbers on our 17 Capesize vessels.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Inflation
Inflation has only a moderate effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, general and administrative, and financing costs.
CRITICAL ACCOUNTING POLICIES
There have been no changes or updates to our critical accounting policies as disclosed in the 2020 10-K.
Vessels and Depreciation
We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation. We depreciate our drybulk vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years from the date of initial delivery from the shipyard. Depreciation is based on cost less the estimated residual scrap value of $310/lwt based on the 15-year average scrap value of steel. An increase in the residual value of the vessels will decrease the annual depreciation charge over the remaining useful life of the vessels. Similarly, an increase in the useful life of a drybulk vessel would also decrease the annual depreciation charge. Comparatively, a decrease in the useful life of a drybulk vessel or in its residual value would have the effect of increasing the annual depreciation charge. However, when regulations place limitations over the ability of a vessel to trade on a worldwide basis, we will adjust the vessel’s useful life to end at the date such regulations preclude such vessel’s further commercial use.
The carrying value of each of our vessels does not represent the fair market value of such vessel or the amount we could obtain if we were to sell any of our vessels, which could be more or less. Under U.S. GAAP, we would not record a loss if the fair market value of a vessel (excluding its charter) is below our carrying value unless and until we determine to sell that vessel or the vessel is impaired as discussed in the 2020 10-K.
There were no impairment losses incurred during the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, we recorded losses of $21.9 million and $134.7 million, respectively, related to the impairment of vessel assets. During the three months ended September 30, 2020, we recorded an impairment loss for seven of our Supramax vessels (the Genco Loire, the Genco Lorraine, the Genco Normandy, the Baltic Cougar, the Baltic Jaguar, the Baltic Leopard and the Baltic Panther). During the nine months ended September 30, 2020, we recorded an impairment loss for ten of our Handysize vessels (the Genco Avra, the Genco Bay, the Genco Mare, the Genco Ocean, the Genco Spirit, the Baltic Breeze, the Baltic Cove, the Baltic Fox, the Baltic Hare and the Baltic Wind) and eleven of our Supramax vessels (the Genco Loire, the Genco Lorraine, the Genco Normandy, the Genco Picardy, the Genco Predator, the Genco Provence, the Genco Warrior, the Baltic Cougar, the Baltic Jaguar, the Baltic Leopard and the Baltic Panther). Refer to Note 2 — Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statement for further information regarding the impairment recorded during the three and nine month periods ended September 30, 2020.
Pursuant to our credit facilities, we regularly submit to the lenders’ valuations of our vessels on an individual charter free basis in order to evidence our compliance with the collateral maintenance covenants under our credit facilities. Such a valuation is not necessarily the same as the amount any vessel may bring upon sale, which may be more or less, and should not be relied upon as such. We were in compliance with the collateral maintenance covenant under our $450 Million Credit Facility as of September 30, 2021. We obtained valuations for all of the vessels in our fleet pursuant to the terms of the $450 Million Credit Facility. In the chart below, we list each of our vessels, the year it was built, the year we acquired it, and its carrying value at September 30, 2021 and December 31, 2020. Vessels have
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been grouped according to their collateralized status as of September 30, 2021 and does not include any vessels held for sale or held for exchange. The carrying value of our twelve and fifteen Supramax vessels that were not held for sale as of September 30, 2021 and December 31, 2020, respectively, reflect the impairment loss recorded during the year ended December 31, 2020.
As of September 30, 2021, the vessel valuations of all of our vessels for covenant compliance purposes under our credit facilities as of the most recent compliance testing date were higher than their carrying values at September 30, 2021, with the exception of eleven of our Capesize vessels, as a result of an overall increase in vessel values. Comparatively, as of December 31, 2020, the vessel valuations of all of our vessels for covenant compliance purposes under our credit facility as of the most recent compliance testing date were lower than their carrying values at December 31, 2020, with the exception of nine of the Supramax vessels that were impaired as of December 31, 2020 (the Genco Aquitaine, the Genco Ardennes, the Genco Auvergne, the Genco Bourgogne, the Genco Brittany, the Genco Hunter, the Genco Languedoc, the Genco Pyrenees and the Genco Rhone) and the Genco Magic that was acquired during the fourth quarter of 2020.
The amount by which the carrying value at September 30, 2021 of eleven our Capesize vessels exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual vessel basis, from $1.2 million to $4.4 million per vessel, and $35.6 million on an aggregate fleet basis. Comparatively, the amount by which the carrying value at December 31, 2020 of all of the vessels in our fleet, with the exception of the ten aforementioned vessels, exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual vessel basis, from $0 million to $18.3 million per vessel, and $260.8 million on an aggregate fleet basis. The average amount by which the carrying value of our vessels exceeded the valuation of such vessels for covenant compliance purposes was $3.2 million at September 30, 2021 and $9.0 million as of December 31, 2020. However, neither such valuation nor the carrying value in the table below reflects the value of long-term time charters, if any, related to some of our vessels.
Carrying Value (U.S. |
| ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
dollars in |
| ||||||||||
thousands) as of |
| ||||||||||
|
| Year |
| September 30, |
| December 31, |
| ||||
Vessels |
| Year Built |
| Acquired |
| 2021 |
| 2020 |
| ||
$450 Million Credit Facility | |||||||||||
Genco Commodus |
| 2009 |
| 2009 | $ | 35,751 | $ | 37,356 | |||
Genco Maximus |
| 2009 |
| 2009 |
| 35,758 |
| 37,355 | |||
Genco Claudius | 2010 |
| 2009 |
| 37,435 |
| 39,091 | ||||
Baltic Bear |
| 2010 |
| 2010 | 37,212 | 38,813 | |||||
Baltic Wolf |
| 2010 |
| 2010 |
| 37,482 |
| 39,050 | |||
Baltic Lion |
| 2009 |
| 2013 |
| 29,975 |
| 30,811 | |||
Genco Tiger | 2010 | 2013 | 28,637 | 29,020 | |||||||
Baltic Scorpion |
| 2015 |
| 2015 |
| 23,724 |
| 24,520 | |||
Baltic Mantis |
| 2015 |
| 2015 |
| 23,970 |
| 24,768 | |||
Genco Hunter |
| 2007 |
| 2007 |
| 7,904 |
| 8,250 | |||
Genco Warrior |
| 2005 |
| 2007 |
| 7,039 |
| 7,422 | |||
Genco Aquitaine |
| 2009 |
| 2010 |
| 8,692 |
| 9,000 | |||
Genco Ardennes |
| 2009 |
| 2010 |
| 8,694 |
| 9,000 | |||
Genco Auvergne |
| 2009 |
| 2010 |
| 8,699 |
| 9,000 | |||
Genco Bourgogne |
| 2010 |
| 2010 |
| 9,413 |
| 9,750 | |||
Genco Brittany |
| 2010 |
| 2010 |
| 9,416 |
| 9,750 | |||
Genco Languedoc |
| 2010 |
| 2010 |
| 9,417 |
| 9,750 | |||
Genco Picardy |
| 2005 |
| 2010 |
| 7,485 |
| 7,890 | |||
Genco Provence |
| 2004 |
| 2010 |
| — |
| 6,930 | |||
Genco Pyrenees |
| 2010 |
| 2010 |
| 9,422 |
| 9,750 | |||
Genco Rhone |
| 2011 |
| 2011 |
| 10,541 |
| 10,625 | |||
Genco Constantine |
| 2008 |
| 2008 |
| 32,557 |
| 34,179 | |||
Genco Augustus |
| 2007 |
| 2007 |
| 31,023 |
| 32,049 | |||
Genco London |
| 2007 |
| 2007 |
| 30,080 |
| 31,587 |
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Carrying Value (U.S. |
| ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
dollars in |
| ||||||||||
thousands) as of |
| ||||||||||
|
| Year |
| September 30, |
| December 31, |
| ||||
Vessels |
| Year Built |
| Acquired |
| 2021 |
| 2020 |
| ||
Genco Titus |
| 2007 |
| 2007 |
| 30,763 |
| 32,306 | |||
Genco Tiberius |
| 2007 |
| 2007 |
| 30,496 |
| 32,007 | |||
Genco Hadrian |
| 2008 |
| 2008 |
| 33,093 |
| 34,633 | |||
Genco Predator |
| 2005 |
| 2007 |
| 7,404 |
| 7,816 | |||
Baltic Hornet |
| 2014 |
| 2014 |
| 22,282 |
| 23,055 | |||
Baltic Wasp |
| 2015 |
| 2015 |
| 22,535 |
| 23,308 | |||
Genco Endeavour | 2015 | 2018 |
| 42,680 |
| 44,069 | |||||
Genco Resolute | 2015 | 2018 |
| 42,968 |
| 44,320 | |||||
Genco Columbia | 2016 | 2018 |
| 24,753 |
| 25,553 | |||||
Genco Weatherly | 2014 | 2018 |
| 20,042 |
| 20,740 | |||||
Genco Liberty | 2016 | 2018 |
| 46,247 |
| 47,676 | |||||
Genco Defender | 2016 | 2018 |
| 46,286 |
| 47,641 | |||||
Genco Magic | 2014 | 2020 | 14,537 | 14,683 | |||||||
Genco Vigilant | 2015 | 2021 | 15,635 | — | |||||||
Genco Freedom | 2015 | 2021 | 15,726 | — | |||||||
Genco Enterprise | 2016 | 2021 | 20,381 | — | |||||||
TOTAL | $ | 916,154 | $ | 903,523 | |||||||
Unencumbered | |||||||||||
Genco Madeleine | 2014 | 2021 | 23,327 | — | |||||||
Genco Constellation | 2017 | 2021 | 25,773 | — | |||||||
Genco Mayflower | 2017 | 2021 | 26,217 | — | |||||||
Genco Lorraine |
| 2009 |
| 2010 |
| — |
| 7,751 | |||
Baltic Leopard |
| 2009 |
| 2009 |
| — |
| 7,840 | |||
$ | 75,317 | $ | 15,591 | ||||||||
Consolidated Total | $ | 991,471 | $ | 919,114 |
If we were to sell a vessel or hold a vessel for sale, and the carrying value of the vessel were to exceed its fair market value, we would record a loss in the amount of the difference. Refer to Note 2 — Summary of Significant Accounting Policies and Note 4 — Vessel Acquisitions and Dispositions in our Condensed Consolidated Financial Statements for information regarding the sale of vessel assets and the classification of vessel assets held for sale and exchange as of September 30, 2021 and December 31, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on our earnings and cash flow in relation to our borrowings. We held three interest rate cap agreements as of September 30, 2021 to manage future interest costs and the risk associated with changing interest rates. The total notional amount of the caps at September 30, 2021 is $200.0 million and the caps have specified rates and durations. Refer to Note 8 — Derivative Instruments of our Condensed Consolidated Financial Statements, which summarizes the interest rate caps in place as of September 30, 2021.
The interest rate cap agreements cap the borrowing rate on our variable debt to provide a hedge against the risk of rising rates.
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The total asset associated with the caps at September 30, 2021 is $0.4 million, which has been classified as a noncurrent asset on the balance sheet. As of September 30, 2021, the Company has accumulated other comprehensive income (“AOCI”) of $0.04 million related to the interest rate cap agreements. At September 30, 2021, $0.2 million of AOCI is expected to be reclassified into income over the next 12 months associated with interest rate derivatives.
We are subject to market risks relating to changes in LIBOR rates because we have significant amounts of floating rate debt outstanding. During the three and nine months ended September 30, 2021 and 2020, we were subject to the following interest rates on the outstanding debt under our credit facilities:
● | $450 Million Credit Facility |
● | One-month LIBOR plus 2.45% beginning August 31, 2021 |
● | $133 Million Credit Facility |
● | $108 Million Tranche — one-month LIBOR plus 2.50% until August 31, 2021, when this facility was refinanced with the $450 Million Credit Facility. |
● | $25 Million Tranche — one-month LIBOR plus 3.00% until March 31, 2021, when this tranche was paid down. |
● | $495 Million Credit Facility — |
● | $460 Million Tranche – one-month or three-month LIBOR plus 3.25% until August 31, 2021, when this facility was refinanced with the $450 Million Credit Facility. |
● | $35 Million Tranche – one-month LIBOR plus 2.50% until June 7, 2021, when this tranche was paid down. |
A 1% increase in LIBOR would result in an increase of $3.0 million in interest expense for the nine months ended September 30, 2021.
Derivative financial instruments
As part of our business strategy, we may enter into interest rate swaps or interest rate cap agreements to manage interest costs and the risk associated with changing interest rates. As of September 30, 2021, we held three interest rate cap agreements to manage interest costs and the risk associated with changing interest rates. The total notional amount of the caps at September 30, 2021 is $200.0 million and the caps have specified rates and durations. Refer to Note 8 — Derivative Instruments of our condensed consolidated financial statements which summarizes the interest rate caps in place as of September 30, 2021.
The Company is currently utilizing cash flow hedge accounting for the interest rate cap agreements. The premium paid is recognized in income on a rational basis, and all changes in the value of the caps are deferred in AOCI and are subsequently reclassified into Interest expense in the period when the hedged interest affects earnings. If for any period of time we did not designate the caps for hedge accounting, the change in the value of the interest rate cap agreements prior to designation would be recognized as other (expense) income.
Refer to “Interest rate risk” section above for further information regarding interest rate swap agreements.
Currency and exchange rates risk
The majority of transactions in the international shipping industry are denominated in U.S. Dollars. Virtually all of our revenues and most of our operating costs are in U.S. Dollars. We incur certain operating expenses in
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currencies other than the U.S. dollar, and the foreign exchange risk associated with these operating expenses is immaterial.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and President and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and President and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the 2020 10-K, which could materially affect our business, financial condition or future results. Below is an update to the risk factor entitled, “Legislative action relating to taxation could materially and adversely affect us”:
Our tax position could be adversely impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by any tax authority. For example, Democratic U.S. senators recently published proposed legislation that would impose a 15% minimum tax on certain corporations. It is not yet clear whether, if enacted, such proposed legislation would apply to us, and if so, to what extent. We cannot predict the outcome of any specific legislative proposals.
Furthermore, on October 8, 2021 the Organisation for Economic Cooperation and Development (OECD) announced that 136 countries and jurisdictions—of the 140 members of the OECD/G20 Inclusive Framework on base erosion and profit shifting—have agreed on a framework to subject certain multinational enterprises to a minimum 15% tax rate. While the United States has signed the agreement, the Marshall Islands is not among the signatories. The agreement would also reallocate certain taxing rights over multinational enterprises from their home countries to the markets where they have business activities and earn profits—regardless of whether the multinational enterprises have a physical presence in such markets. While international shipping income may be exempt from some or all of the provisions included in the agreement, the impact of these provisions is uncertain and may not become evident for some period of time.
Also, below is an update to the risk factor entitled, “Our vessels are exposed to international risks that could reduce revenue or increase expenses”:
In recent months, tensions have been rising between the U.S. and China as a result of significantly increased Chinese military flights into Taiwan’s air defense zone, U.S. claims that China tested a hypersonic missile, and the establishment of the AUKUS pact among Australia, the U.K., and the U.S. under which the U.S. is to assist Australia in developing a nuclear submarine program. In addition, China imposed restrictions on the imports of coal and certain other products from Australia following Australia’s alignment with the U.S. on a number of issues, which China perceived as adverse to its interests. Developments around these restrictions are dynamic and uncertain. The escalation of such trade issues or tensions or development of any military conflict could result in interference with shipping routes
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or in market disruptions. In addition, unfavorable weather conditions brought on by climate change or otherwise could result in disruption to our operations or require infrastructure adaptations or new or different investments for our vessels. The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
ITEM 6. EXHIBITS
The Exhibit Index attached to this report is incorporated into this Item 16 by reference.
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EXHIBIT INDEX
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101 | The following materials from Genco Shipping & Trading Limited’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited), (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 (Unaudited), (iv) Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited), (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).(*) | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||
(*) | Filed with this report. | |
(1) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 15, 2014. | |
(2) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 17, 2015. | |
(3) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on April 15, 2016. | |
(4) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2016. | |
(5) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on January 4, 2017. | |
(6) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 15, 2020. | |
(7) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on May 31, 2021. | |
(8) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on November 15, 2016. | |
(9) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on June 5, 2018. | |
(10) | Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on January 11, 2021. | |
(11) | Incorporated by reference to Genco Shipping & Trading Limited’s Quarterly Report on Form 10-Q, for the quarterly period ended June 30, 2021, filed with the Securities and Exchange Commission on August 4, 2021. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENCO SHIPPING & TRADING LIMITED | ||||
DATE: November 3, 2021 | By: | /s/ John C. Wobensmith | ||
John C. Wobensmith | ||||
Chief Executive Officer and President | ||||
(Principal Executive Officer) | ||||
DATE: November 3, 2021 | By: | /s/ Apostolos Zafolias | ||
Apostolos Zafolias | ||||
Chief Financial Officer | ||||
(Principal Financial Officer) |
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