Genco Shipping & Trading Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 9, 2023

Key Takeaways

  • 17th consecutive quarterly dividend: Board declared $0.15/share, underscoring Genco’s industry‐low breakeven rates and commitment to capital return despite freight rate headwinds.
  • $500 M revolving credit facility: New 100% revolving structure boosts borrowing capacity by 50%, lowers margins to 1.85%–2.15% plus SOFR, extends maturity to 2028, and supports net‐debt‐zero strategy.
  • Fleet renewal with modern Capesize acquisition: Agreed to purchase a 2016-built, 181k dwt scrubber-fitted Capesize (“Genco Ranger”) for mid-November delivery, targeting higher-spec, eco-efficient assets.
  • Q3 results impacted by non-cash impairments: Reported net loss of $32 M ($0.75/share) including a $28.1 M vessel impairment; adjusted net loss $3.9 M ($0.09/share), adjusted EBITDA $14.6 M.
  • Improved market fundamentals: Q4 TCE to date of $16,665/day vs $8,170/day breakeven, driven by firm iron ore, coal and bauxite shipments, historically low orderbook, and tight supply–demand balance.
AI Generated. May Contain Errors.
Earnings Conference Call
Genco Shipping & Trading Q3 2023
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Genco Shipping and Trading Limited Third Quarter 2023 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, Today's conference is being recorded and is now being webcast at the company's website at www.gencoshipping.com. We will conduct a question and answer session after the opening remarks and instructions will follow at that time.

Operator

A replay of the conference will be accessible at any time during the next 2 weeks by dialing in 1-eight seventy seven 6,747,070 and entering the passcode 329,256. At this time, I will now turn the conference over to the company. Please go ahead.

Speaker 1

Good morning. Before we begin our presentation, I note that in this conference We will be making certain forward looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such Forward looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, Circumstances are future operating or financial performance. These forward looking statements are based on management's current expectations and observations. The company's filings with the Securities and Exchange Commission including without limitation the company's annual report on Form 10 ks for the year ended December 31, 2022 and the company's reports on Form 10 Q and Form 8 ks subsequently filed with the SEC.

Speaker 1

At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping and Trading Limited.

Speaker 2

Good morning, everyone. Welcome to Genco's Q3 2023 conference call. We'll begin today's call by reviewing our Q3 2023 and year to date highlights providing an update on our comprehensive value strategy, financial results for the quarter and the industry's current fundamentals before opening the call up for questions. For additional information, please also refer to our earnings presentation posted on our website. During the Q3, we continued to advance our value strategy, providing shareholders with a sizable dividend, while continuing to take steps and flexibility within our dividend policy.

Speaker 2

This highlights Genco's differentiated capital structure and industry low breakeven levels for providing sizable dividends to shareholders even during a lower freight rate environment. Notably, the 3rd quarter represents our 17th consecutive highlighting our commitment and success, returning significant capital to shareholders. Over this time, we have declared dividends of $4.745 per share or 36% of the current share price. While Our stated formula did not produce a dividend for the quarter. The Board of Directors elected on management's recommendation to declare the $0.15 per share dividend.

Speaker 2

Genco's industry low cash flow breakeven rate and low financial leverage position together with improved freight rates in Q4 to date gave the company confidence to declare the $0.15 per share dividend. Regarding the dividend calculation, We have consolidated the previous voluntary quarterly reserve of $10,750,000 and voluntary quarterly debt repayment of $8,750,000 which totaled $19,500,000 in one line item. This voluntary quarterly reserve was reduced $4,400,000 for the purpose of the Q3 dividend. Given that both the reserve and debt repayments are fully in Genco's discretion, We felt it was appropriate to consolidate them into 1 voluntary quarterly reserve. Furthermore, with our new 100% revolving credit facility, this advantageous structure allows us more flexibility Then with previous term loan structures to actively manage our debt outstanding to reduce interest expense while providing meaningful capacity to partially fund future vessel acquisitions.

Speaker 2

In Q4, we received a commitment for a $500,000,000 revolving credit facility, Significantly expanding our borrowing capacity, reducing interest expense and extending debt maturities. This facility aligns well with our value strategy As the revolving credit facility structure enables Genco to continue to voluntarily pay down debt in line with our medium term goal of net debt 0 without losing the capacity drawdown to fund growth. To this point, we took advantage of the company's Strong liquidity position to opportunistically enter into an agreement to acquire a modern high specification Capesize vessel. The vessel to be renamed the Genco Ranger is a 2016 built SWS scrubber fitted 181,000 deadweight ton Capesize vessel, which we anticipate taking delivery of in mid November of this year. Modern Eco Capesizes rarely trade with only a handful of transactions in a given year.

Speaker 2

As such, we are pleased with this purchase Regarding the current dry bulk market, beginning in September, we have seen a significant uplift in dry bulk freight rates led by firm iron ore, coal and bauxite shipments, which is reflected in our solid estimated Q4 TCE today. Moving forward, while we expect volatility to persist, we view commodity demand growth from China and developing Asia, Coupled with capacity constraints that have resulted in a historically low order book to be supportive for the drybulk market. Given the recent rate improvement, we have also seen asset value strengthen. In addition, firm newbuilding prices and lower shipyard capacity continue to be supportive of secondhand asset values. Lastly, in October, we are pleased to become a signatory to the operational The ambition statement focused on emissions reductions and reducing our carbon footprint and initiatives led by the Global Maritime Forum.

Speaker 2

I will now return the call over to Peter Allen, our Chief Financial Officer.

Speaker 1

Thank you, John. For Q3 2020 3, the company recorded a net loss of $32,000,000 or $0.75 basic and diluted loss per share, which included a non cash vessel impairment charge of $28,100,000 Excluding this non cash charge, adjusted net loss is $3,900,000 or $0.09 basic and diluted loss per share. This non cash vessel impairment charge was recorded as the estimated future undiscounted cash flows for 3 of our 170,000 deadweight ton Capesize vessels That we were evaluating, divesting as part of our fleet renewal, the 3rd special survey scheduled in 2024 did not exceed their net book values and we therefore adjusted Their values to fair market value during the Q3. Adjusted EBITDA for Q3 totaled $14,600,000 bringing the 9 month 2023 total to $64,400,000 As of September 30, our cash position was $52,000,000 and our debt outstanding was $144,800,000 bringing our net debt to $92,500,000 and net loan to value to 10%. With $198,800,000 of undrawn revolver availability, Our total liquidity position at the end of the 3rd quarter was $251,000,000 Subsequently in Q4, we received commitments for a $500,000,000 revolving credit facility, which can be utilized to support fleet growth as well as general corporate purposes.

Speaker 1

Key terms include an increase in borrowing capacity by nearly 50% or over $150,000,000 Lower pricing on margin of 185 percent to 2.15% plus sulfur compared to 15% to 2 75% plus SOFR previously. Extended maturity to the end of 2028 the 100% revolving credit facility structure providing further flexibility. We appreciate the continued support of our high quality lending group that documentation and fulfillment of customary closing conditions and is expected to close in Q4 2023. Upon closing the amended facility and acquisition, we anticipate pro form a debt outstanding to be $179,800,000 and undrawn revolver availability of 300 This includes a $35,000,000 drawdown in Q4 to partially fund the acquisition of the Genco Ranger. Looking ahead to Q4 2023, we anticipate our cash flow breakeven rate to be $8,170 per vessel per day, Well below our Q4 TCE estimates to date of $16,665 for 69 percent fixed.

Speaker 1

After a slow start to the Q3, freight rates began to rise in September, specifically, Malta Capesize Index rose from approximately $8,300 To end the quarter at $20,000 Rates continued to push higher in October, reaching a year to date high of $31,000 While we expect volatility to persist in the near term, current spot and Supramax rates of $20,000 $12,000 remain firm. The year to date iron ore and coal trade into China has increased by 6% and 67%, respectively. In the second half of twenty twenty three, we have seen Munding cargo availability from major iron ore miners in Brazil and Australia supporting these solid import figures. Given the general tight supply and demand balance, Freight rates continue to be sensitive to the fluctuation of poor congestion levels. In Q3, we saw meaningful unwinding, which offset some of the firm trade volumes that pressured freight rates, The challenges within China's property sector, several key indicators within the China Steel Complex continue to convey positive signals.

Speaker 1

These include multi year low iron ore port inventories, iron ore prices above $125 per tonne and steel mill utilization above 90%. Furthermore, ex China Steel production has now risen for 3 straight months after an elongated period of contraction, potentially signaling an increase in demand in developed countries and support secondary trade routes outside of Asia. Regarding the supply side, annualized net fleet growth in the year to date is 2.7%, Primarily due to the front loaded nature of the delivery schedule and low scrapping levels, the historically low order book as a percentage of the fleet As well as near term and longer term environmental regulations are expected to keep net fleet growth low in the coming years. While we expect volatility for the balance of the year and into early part of next year, The foundation of a low supply growth picture provides a solid basis for our constructive view of the dry bulk market going forward. This concludes our presentation, and we'd now be happy to take your questions.

Operator

Thank you. And ladies and gentlemen, we will now begin the question and answer session. One moment please for your first question. Your first question comes from the line of Amar Nochta from Jefferies. Your line is open.

Speaker 3

Thank you. Hey, John and Peter, good morning. First off, I guess, congrats on the $500,000,000 revolver. Obviously, not every day that you see a facility of that size that's fully revolving. So congrats on that.

Speaker 3

Wanted to just sort of ask about the Cape, you acquired the 2016 built ship. Just in general, you also sort of signaled in the release Being a bit more active on the sale and purchase front, and it sounds like it's going to be both sale and purchases is the way I kind of read that. Could you give us maybe a bit more color or maybe expand a bit on that comment and how you're thinking about Genco Moving forward here in the near term in the S and P market?

Speaker 2

Yes. Thanks, Omar. So if you look at our fleet, we had some older Capes, some of the 170s. So our intention is to ultimately replace those with newer High Spec Eco Vessels, so we're looking at that and working on a few things right now. And then also on the Supramaxes, we have the Genco Auvergne, the Ardennes, the Bergone and the Aquitaine, Which are older and are coming up for dry docking next year.

Speaker 2

So those vessels were also focused on replacing with Higher spec, Ultramax, Eco, better fuel efficiency type vessels. We have All those vessels that I just mentioned are dry docking next year. So the intention would be to try to save on the CapEx numbers By disposing of those and deploying capital for newer vessels. And I think You have the CapEx side. We're obviously also trying to reduce our carbon footprint, but we have the EU ETS Coming into play starting next year.

Speaker 2

So particularly with the Altra's Supra's, we want to be as efficient as we can to keep those costs down and be in a better position to trade the Europe.

Speaker 3

Thanks, John. That's helpful. And maybe just was going to come back to the Ultra Supras. Clearly, over the past several years in terms of acquisitions, Genco has been more focused on the ultras, and it's been some time since you've acquired the Cape. Is this a shift perhaps in thinking and wanted to lean a bit higher in sort of future investment or is it still kind of That barbell approach?

Speaker 3

I

Speaker 2

would say it's still the barbell approach. We like the shape size It's very difficult to get your hands on eco tonnage Right now and really over the last few years, we've only seen a few trade this year in 2023 including the Genco Ranger. So when they do come up, you want to move on them quickly and be very precise about it, which is what we did here. But I again, with the focus on environmental regulations and reducing emissions, I think vessels are going to have more and more value and certainly more flexibility trading going forward than maybe Some of the older ships.

Speaker 3

Yes, definitely. Thanks, John. And maybe just maybe one final one for me and I'll turn it over. Clearly, the revolver gives you a lot more flexibility than you want, and you pushed out the maturity by a couple of years plus. When we think about sort of the dividend policy and the ongoing reserve, which is obviously very conservative, giving you plenty of flexibility to toggle with it.

Speaker 3

But in general, is there any kind of shift or changes that you see happening with sort of the numbers that go into the reserve once the new facility is completed?

Speaker 2

I don't see any change at this point though. So we put out guidance for the 4th quarter And when we get into announcing Q4 and we have our normal Board meeting, there obviously will be discussion about how we want to set that for 2024. And as we did with 2022 and 2023, we announced that ahead of time. So I would say stay tuned and we'll see how the conversations go and our strategy session for 2024 plays out.

Speaker 3

Okay, very good. All right. Well, thanks, John, and congrats again on the facility.

Speaker 2

Great. Thanks, Omar. Appreciate it.

Operator

Your next question comes from the line of Leon Burke from B. Riley. Your line is open.

Speaker 4

Yes. Thank you. Good morning, John. Good morning, Peter.

Speaker 2

Good morning.

Speaker 4

John, on the supply side, are you seeing any additional tightening either through congestion or Slow steaming with the global fleet?

Speaker 2

Look, I think the global fleet is actually going fairly Slow as it is already. The congestion side of it, particularly in China, has started to move up again. Obviously, there's a lot of flow of iron ore and coal that is driving that. I still think As we get into next year, there is positive there is upside risk on congestion Winding back up again, are we going to get to the levels of during COVID? Probably not.

Speaker 2

But certainly, we can get back to more historical Averages, which should help take supply out of the market and push up rates as we get into next year.

Speaker 4

You did mention in your prepared comments about how you the outlook for the Capesize market I mentioned the commodities that are haul. As we look down the road, Do you still see them fitting in visavis Newcastlemax where there seems to be a larger percent of the order book there?

Speaker 2

In terms of the Capesize sitting in with the new Capsulexes, Yes. So personally, we like the flexibility of the Capesize more so than the Newcastlemaxes. There are times where you're still not filling up a Newcastlemax to its full capacity. So In terms of return on capital, we still like the Capesize sector, and but we obviously like the modern ones That are more fuel efficient. But if you look at the trades, Liam, Whether it's iron or coal or the bauxite trade, which is growing quite significantly, Capes are extremely active In all three of those markets.

Speaker 2

And I think that it's going to be the case for quite a while.

Speaker 4

Great. Thank you, Josh.

Speaker 2

Thanks, Liam.

Operator

Your next question comes from the line of Sherif El Magrabi from BTIG. Your line is open.

Speaker 5

Hey, good morning. Thanks for taking my questions. Good morning. Good morning. So first, charter in days Roughly doubled from Q2, but they're still pretty far below what we've seen for the last couple of years.

Speaker 5

So rates have seen a pretty significant improvement from Q3 to Q4. So should we expect charter in days to tick higher for the end of the year? I guess any general color on how you're thinking about chartering in would be helpful.

Speaker 2

Yes. So keep in mind that the chartering in that we're doing is very short term. It is used to create arbitrage trades on our existing fleet, on cargo that we have booked forward And you used to create alpha over the indices, which we've obviously been very successful at, particularly in the midsized sector. I would expect to see some higher charter in days as we get into the Q4, or I guess we're really in the Q4. But as we get through the end, the market has moved up.

Speaker 2

We also have been fixing Forward some for Q1, which is what we typically do. So I think you'll see more charter in tonnage in the Q1 as well. But keep in mind that chartered in tonnage again is not long term. It's usually for short term cargo liftings Where we've identified an arbitrage opportunity to use somebody else's ship and then take our ship and go perform another cargo.

Speaker 5

That's very helpful. And then maybe a bit more macro. On the North and South Great story. We've got a record grain season in Brazil, but then in the U. S, we have low inland water levels kind of constraining exports.

Speaker 5

So I'm wondering how you see seaborne winter grain exports shaking out, especially given the low water levels on the Mississippi could persist Kind of into Q1.

Speaker 1

Yes, absolutely. Thanks for the question. Yes, look, it's obviously been a Grain season out of South America, it's extended. It's been definitely supportive to the overall Atlantic market that we've seen and it's been good to offset some of Reduced volumes out of Ukraine in particular. In the Q4, yes, wheat exports out of U.

Speaker 1

S. Likely to be lower. But again, in the not too distant future, we'll have South American grain season picking back up towards the end of Q1. So it should be relatively short lived. We are getting some help on the Panama Canal situation, which is extending ton miles and taking ships.

Speaker 1

Instead of going to the Panama Canal, they're going through Suez. So it's extending ton miles there. So there are some fleet inefficiencies that are supportive to the current market. And Yes, like John mentioned in prepared remarks as well as during the Q and A, we do expect volatility in Q1, but we're doing a good job of fixing over that. We have 3 period short period deals on the Ultra Supras at 15 ks to 16 ks that are fixed over through March.

Speaker 1

So pretty good job on that side.

Speaker 5

Okay. Thanks for taking my questions.

Speaker 2

Thank you.

Operator

And ladies and gentlemen, our Q and A session has ended. This concludes today's conference call. Thank you all for participating. You may now disconnect.

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