Genco Shipping & Trading Ltd (GNK) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Ltd. third-quarter 2016 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, www.Gencoshipping.com. (Operator Instructions) A replay of the conference will be accessible anytime during the next two weeks by dialing 888-203-1112 or 719-457-0820 and entering the passcode 1253233.

At this time I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call we will be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances, or future operating or financial performance.

These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday, the materials relating to this call posted on the Company's website, and the Company's filings with the Securities and Exchange Commission including, without limitation, the Company's annual report on Form 10-K for the year ended December 31, 2015, and the Company's report subsequently filed with the SEC.

At this time I would like to introduce John Wobensmith, President of Genco Shipping & Trading Ltd.

Good morning. Welcome to Genco's third-quarter 2016 conference call. As outlined on slide three of the presentation, I will begin today's call by reviewing our third-quarter highlights. We will then discuss our financial results for the quarter and the industry's current fundamentals and then open up the call for questions.

Moving to slide 5, we review Genco's third-quarter highlights. During the third quarter, the dry bulk market remained challenging and we recorded a net loss of $27.5 million, or $3.80 basic and diluted loss per share for the period ended September 30, 2016. Basic and diluted net loss per share for both periods has been adjusted for the 1-for-10 reverse stock split of Genco's common stock effective on July 7, 2016.

In terms of our cash position, as of September 30, 2016, we have $59.8 million including restricted cash. Over the last several months, Genco has taken important steps to strengthen its balance sheet to better position the Company to operate in a challenging drybulk environment and enhance its long-term prospects. Recently Genco extended and amended the commitment and waiver letter for the $400 million credit facility through November 15, 2016, which has further improved the financial covenants of the $400 million facility.

The proposed $400 million facility, which is intended to refinance the majority of the Company's credit facilities, provides Genco with a more favorable amortization schedule through 2020, a reduction in the minimum liquidity requirements, and significant relief under the collateral maintenance covenants.

The commitment for the proposed $400 million credit facility highlights the Company's industry leadership and is expected to better position the Company to capitalize on our leading drybulk platform during a potential market recovery. We would like to thank our lenders for their strong and ongoing support.

During the month of October, we also entered into agreements for the sale of a $125 million in Series A preferred stock at $4.85 per share in order to fulfill the condition under the Company's previously announced $400 million credit facility and certain amendments to the Company's existing $98 million credit facility for an equity raise. Specifically, on October 4, 2016, we entered into agreements with affiliates of our three largest shareholders for the purchase of an aggregate of up to $125 million, consisting of a firm amount of $86.4 million and a backstop commitment of $38.6 million.

Following this, on October 27, 2016, we entered into an agreement with a number of investors, including certain affiliates of our three largest shareholders, for a private placement of Series A preferred Stock in an aggregate amount of $38.6 million. The Series A stock converts mandatorily and automatically into common stock following shareholder approval of the conversion. We expect the equity raise to close simultaneously with the proposed refinancing and amendments to our credit facilities.

Subsequent to the end of the third quarter, we sold two Handysize vessels, the Genco Sugar and the Genco Pioneer, for $5.1 million. Genco also agreed to sell the Genco Leader, a 1999-built Panamax vessel, for $3.47 million, which is expected to be delivered to buyers in the fourth quarter.

Moving to slide 6, we present an overview of our fleet. Genco continues to utilize its modern fleet of drybulk vessels to fulfill our customers' transportation needs. Following the sale of the Genco Sugar and the Genco Pioneer, delivered to buyers on October 20 and 26, respectively, Genco's fleet now consists of 67 drybulk vessels made up of 13 Capesize, 8 Panamax, 4 Ultramax, 21 Supermax, 5 Handymax, and 16 Handysize vessels with a total carrying capacity of approximately 5.1 million deadweight tons.

At this time I would like to turn the call over to Apostolos Zafolias, our Chief Financial Officer.

Thank you, John. Turning to slide 8, our financial results are presented.

For the third quarter and nine-month period ended September 30, 2016, the Company generated revenues of $38.9 million and $91.7 million, respectively. This compares to revenues for the third quarter of 2015 and the nine months ended September 30, 2015, of $50 million and $119 million, respectively. The decrease in revenues is primarily due to lower spot market rates achieved by the majority of the vessels in our fleet during the first nine months of 2016 versus the same period last year, partially offset by the increase in the size of our fleet.

For the third quarter of 2016, the Company recorded a net loss of $27.5 million, or $3.80 basic and diluted loss per share. Basic and diluted net loss per share amounts have been adjusted for the 1-for-10 reverse stock split of Genco's common stock effective on July 7, 2016.

Turning to slide 9, we present key balance sheet items as of September 30, 2016. Our cash position, including restricted cash, was $59.8 million as of September 30. Our total assets were $1.5 billion, which consists primarily of the vessels in our fleet and cash. Our total debt outstanding, including the $7.8 million of unamortized debt issuance costs, was $548.3 million as of September 30, 2016.

As John mentioned, earlier this year the Company entered into a commitment letter for a new $400 million credit facility and certain amendments to the Company's existing $98 million credit facility, which are intended to address the Company's liquidity and covenant compliance issues and to refinance the majority of its credit facilities on more favorable terms.

During the third quarter, Genco and its lenders entered into an amendment to the commitment letter that extended the covenant waivers under the existing credit facility through November 15, 2016. The proposed $400 million facility includes improved financial covenants, such as the elimination of collateral maintenance test, through the first half of 2018 and the reduction of the minimum liquidity requirements. It also provides for a more favorable repayment schedule with no significant amortization payments until 2019.

Moving to slide 10, our utilization rate was 99.4% for the third quarter of 2016. Our TCE for the third quarter was $5,779 per vessel per day. This compares to $7,009 per vessel per day recorded in the third quarter of 2015. The decrease in TCE was primarily due to lower spot rates achieved by the vessels in our fleet during the third quarter of this year versus the third quarter of 2015.

For the third quarter of 2016, our daily vessel operating expenses decreased to $4,483 per vessel per day, as compared to $4,997 per vessel per day for the same period last year. Daily vessel operating expenses for the nine months ended September 30, 2016, were $4,523 per vessel per day versus $4,841 per vessel per day for the same period last year. The decrease was primarily due to lower expenses related to maintenance as well as crewing and insurance.

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 operations. Based on estimates provided by our technical managers and management's views, our daily vessel operating expense budget for 2016 is $4,820 per vessel per day on a weighted average basis for the entire fleet.

I will now turn the call back over to John to discuss the industry fundamentals.

Thank you, Apostolos. I will begin with slide 12, which represents the Baltic Dry Index.

During the third quarter, the BDI continued on an upward trajectory with periods of volatility, while rebounding from all-time lows witnessed earlier in the year. Specifically, in September the BDI was able to find support past the 900 point threshold for the first time in 2016 to reach a year-to-date high of 941 on September 23 before concluding the quarter at 875.

Turning to slide 13, we outlined some of the market developments influencing recent freight rate volatility. We believe that the relative rate improvement experience as of late has been due to the following factors: first, the pickup in China's steel production since March; second, the stabilization and partial return of the Chinese coal trade so far this year after large declines witnessed during 2014 and 2015; and third, annualized fleet growth of only 2.5% through the first nine months of 2016.

The rise of Chinese steel output has resulted in augmented demand for both iron ore and coal cargoes. Through September, China's iron ore imports rose by 9% year on year. During eight of the first nine months of this year, China's iron ore imports have exceeded 80 million tons and exceeded 90 million tons during September for only the second time on record. This concluded a three-month stretch in which China imported 269.1 million tons of iron ore, the most ever for any quarter.

Iron ore demand in China has been satisfied by augmented volumes out of Australia and Brazil. Australia's iron ore exports through August have increased by 5% year on year, while Brazilian iron ore exports are up by 5% through the first nine months of 2016.

Specifically, in September, Brazilian iron ore exports reached 35.3 million tons, representing the most ore shipped in a month this year. This was also the third consecutive month in which exports have exceeded 30 million tons, the longest such streak since the fourth quarter of 2013.

Turning to slide 14, we highlight global steel production.

While steel output has eased from record levels experienced from March to June, year-on-year increases have still occurred over each of the last seven months. Specifically, China's steel output in September rose by 3.9% year on year to 68.2 million tons, the highest year-on-year increase registered in 2016 to date. Augmented levels of steel production can be partially attributed to rising steel prices, as well as low steel inventories.

Moving to slide 15, in addition to rising steel production in China, another key factor impacting the drybulk market this year has been the relative strength of the Chinese coal trade. September was the fourth consecutive month in which China coal imports exceeded 20 million tons, something that was only attained once during all of 2015. In total, this has led to a 15% increase through the first nine months of 2016 year on year.

China has taken several steps during the year to rebalance its domestic coal sector. According to the NDRC, China has cut approximately 200 million tons of domestic coal capacity through September, which represents 80% of its target for 2016. This has resulted in an 11% decline in domestic coal production in the year to date.

Recent developments in India have also affected the coal trade. Specifically, coal power plant stockpiles have fallen to the lowest point of the year at 19 million tons, down from a high of 39 million tons in April of this year. The significant drawdown of inventory at India's coal power plants, as well as increase domestic production, has negatively impacted seaboard imports in the year-to-date period.

On slide 16 and 17 we outlined current supply side fundamentals. The drybulk fleet has grown by 1.9% in the year to date, after taking into account scrapping of older tonnage. (technical difficulty) [rates] of scrapping during the first half of the year, vessel demolition has slowed significantly since. This has led to a higher rate of fleet growth during the third quarter, after minimal growth materialized during the first six months of the year.

Capesize and Panamax vessels have been the most prevalent scrapping candidate so far in 2016, representing 75% of the 26.9 million deadweight tons demolished in the year to date. Younger vessels are also being scrapped when compared to previous years. The average demolition age has fallen significantly from 27 years as recently as 2014; 23 years so far in 2016. This has been highlighted by Capesize and Panamax vessels, which have an average demolition age of 20 years.

Given current market conditions and aside from the 30 Valemax orders, contracting activity has been almost nonexistent. The lack of ordering has pushed the order book as a percentage of the fleet down to 12%, the lowest point since 2003.

Regardless of the decline in the overall order book, there is still a high amount of tonnage scheduled for delivery during the remainder of 2016, as nearly one-third of the order book, or approximately 27.7 million deadweight tons, remains scheduled for the balance of this year. Of this amount, it still remains to be seen how much will actually deliver, considering that the slippage rate through September was approximately 50%.

In conclusion, with regard to the industry's current supply side fundamentals, we believe scrapping, slippage, and cancellations or additional conversions of newbuilding contracts are all essential components of reducing supply growth which could lead to a more balanced supply-and-demand equation going forward.

This concludes our presentation and we now would be happy to open up and take your questions.

(Operator Instructions) Magnus Fyhr, Seaport Global.

Good morning. Just you guys have done a lot here the last few months trying to shore up liquidity. Still though, rates are below daily cash breakeven; I think you stated $7,200 a day. Are you -- I guess now in the fourth quarter are you sort of above that level? I mean I know rates have moved up here in the fourth quarter, but can you comment on that; where you currently are or what you think you are with October behind you?

Magnus, typically we don't comment on forward numbers on the revenue side. I think that you are correct; our breakeven rate will be, going forward, somewhere around $7,200 per day. I think we've done a pretty good job of putting the fleet out there in terms of what the employment side is, so hopefully you can take a look at that and then do your calculations.

Right. And I guess you still have -- what else can you do --? I mean the daily OpEx have come down 10% in the last year. You're trying to sell some of the older ships.

I guess as far as the CapEx, you state about $15.6 million in 2017. Is that all -- I mean is there some wiggle room in that or is that pretty firm number? And then I guess on the G&A side, what else can you do?

I actually think there is still some work to be done on the operating expense side and we are finalizing those budgets right now for 2017. But I would expect to see that number continue to come down somewhat.

The G&A side, particularly because we are reducing the size of the fleet, there should be some efficiencies that come out of that as well. And we will try to get that guidance out to you hopefully towards the end of the year.

And as far as the sale of older ships, I mean you reported three, I think you also talked about maybe selling 10 ships as part of the refinancing.

Yes, that is correct. There is a total of 10 ships and, as you said, we have disposed of the Marine, the Sugar, the Pioneer, the Leader, and then there will be six to go after that. And that's (multiple speakers).

I know it is a small amount, but of the $5-plus-million in proceeds from the two ships, how much of that is net proceeds? I mean these older ships; do they have any debt associated with them?

Some of them do, some of them don't. But keep in mind, in the credit facility that we negotiated, as we sell these 10 ships those proceeds will actually be going onto the balance sheet for liquidity purposes.

Okay. And lastly, on the CapEx for next year, can you comment that all on that number? Does that include -- I mean what is the stance now on the water ballast treatment systems? The ships that are going in next year are they going to be equipped with that and maybe can you give us an update?

Yes, so the 2017 number does not include ballast water treatment systems. We have gotten a lot of these pushed out. We have some that have had extensions now through January 1, 2018. We are hopeful that we will have extensions granted by the US Coast Guard on those as well.

And on the IMO side, we think there is some room to again push these things out. I think we are, at least at this point, targeting -- though again there are some things that still need to happen, but we are targeting probably installing our first ballast water treatment system sometime maybe 2019 at this point.

Okay, thank you.

This does conclude today's conference. You may disconnect at anytime and have a wonderful day.