“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) 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, including without limitation the ongoing war in
Ukraine; (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 are 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, 2020and 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, 2022and 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, 2021and 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 Islandslaw 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 25
Company and its shareholders. The timing and 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 MD&A should be read in conjunction with our historical consolidated financial statements and related notes included in this Form 10-Q.
We are a
New York City-based company incorporated in the Marshall Islandsthat transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes through the ownership and operation of drybulk carrier vessels. Our fleet currently consists 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 4,636,000 deadweight tons ("dwt") and an average age of approximately 10.2 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 34 – 35 for a chart 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., Copenhagenand 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 is currently 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 additional longer term time charter contracts or contracts of affreightment. 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. Furthermore, we have also transported containers on select vessels on an opportunistic basis. We will continue to explore the possibility of transporting containers on board select vessels from time to time, which could provide additional flexibility for vessel fixture options, primarily for backhaul trades. Drawing on one of the strongest balance sheets in the drybulk industry, in April 2021we announced a new comprehensive value strategy. This strategy is centered on three key pillars: compelling dividends, financial deleveraging and growth. During 2021, we executed this strategy by paying down $203 millionof debt while expanding our core Ultramax fleet. Additionally, during 2022 to date, we have paid down an additional $49 millionof debt. These actions have enabled us to further reduce our cash flow breakeven rate positioning us to pay sizeable quarterly dividends across diverse market environments. To support this strategy, we entered into an agreement for a new $450 MillionCredit Facility under which we have used to globally refinance our prior credit facilities, thereby increasing flexibility, improving key terms and lowering our cash flow breakeven rates. Within this facility is a significant revolving credit facility that we can utilize. The first quarterly dividend under Genco's value strategy was paid during the first quarter of 2022 based on the financial results from the fourth quarter of 2021.
In implementing this strategy, we will focus on the following specific priorities for the remainder of 2022:
? Pay attractive dividends to shareholders
? Continue to repay debt through voluntary prepayments from a combination of
cash flow generation and cash on our balance sheet; and
26 Table of Contents
? Expand the fleet opportunistically on a low-debt basis
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, Chinais the largest importer of drybulk commodities globally, which drives demand for iron ore, coal and other cargoes we carry. In 2022 to date, various regions in Chinahave experienced another wave of COVID-19 outbreaks for which the government chose to reinstate lockdown measures as part of the country's "zero tolerance" policy. This has resulted in a reduction in demand for steel products and other commodities we carry, as well as continued disruptions throughout the supply chain. Chinahas set a 2022 GDP growth forecast of around 5.5%. During the first quarter of 2022, China'sGDP growth came in under this level at 4.8% in part due to the impact of these government measures. Although rebounding economies around the world have had a positive impact on our revenues, 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, as well as vaccine distribution and efficacy, which remains uncertain. While China-led global economic activity levels have improved, the outlook for Chinaand 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. In 2021, spot rates for Capesize and Supramax vessels reached levels not seen since 2010, and these firm levels, particularly for Supramax vessels, continued into Q1 2022 despite various seasonal factors. 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. Moreover, various regions in Chinahave experienced another wave of COVID-19 outbreaks for which the government chose to reinstate lockdown measures as part of the country's "zero tolerance" policy. 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 whoboard the vessel. We continue to monitor the Centers for Disease Control and Prevention(the "CDC") and the WHOguidelines 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 10-day quarantine period prior to boarding 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. 27
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.
IMO 2020 Compliance
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. Following an increase in fuel prices during 2021 coming off of 2020 lows, there was a further increase in fuel prices during the first quarter of 2022 due to oil supply disruptions as a result of the war in Ukraine. We have installed scrubbers on our 17 Capesize vessels and the remainder of our fleet is consuming compliant, low sulfur fuel, although we intend to continue to evaluate other options.
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 millioneach, which were renamed the Genco Mary and the Genco Laddey. The vessels were delivered on January 6, 2022and we used cash on hand to finance the purchase. During 2021, we completed the purchase of six Ultramax vessels, two of which were acquired as part of an agreement to exchange six of our older Handysize vessels for three Ultramax vessels. Additionally, during 2021, we completed the sale of five Supramax vessels and six Handysize vessels, which includes five of the Handysize vessels as described in the exchange agreement above.
We will continue to look for opportunities to renew our fleet in the future.
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. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. In
September 2021, we entered into a joint venture named GS Shipmanagement Pte. Ltd.("GSSM") with Synergy Marine Pte. Ltd.("Synergy"), one of our 28
previous technical managers. GSSM currently provides the technical management to all 44 vessels in our fleet. GSSM 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 GSSM. 29
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 months ended
March 31, 2022and 2021 on a consolidated basis. For the Three Months Ended March 31, Increase 2022 2021 (Decrease) % Change Fleet Data: Ownership days (1) Capesize 1,530.0 1,530.0 - - % Ultramax 1,339.9 731.8 608.1 83.1 % Supramax 1,080.0 1,407.7 (327.7) (23.3) % Handysize - 227.5 (227.5) (100.0) % Total 3,949.9 3,897.0 52.9 1.4 % Chartered-in days (2) Capesize - - - - % Ultramax 190.3 232.5 (42.2) (18.2) % Supramax 120.7 108.3 12.4 11.4 % Handysize - - - - % Total 311.0 340.8 (29.8) (8.7) % Available days (owned & chartered-in fleet) (3) Capesize 1,502.0 1,505.6 (3.6) (0.2) % Ultramax 1,452.0 955.6 496.4 51.9 % Supramax 1,123.8 1,512.2 (388.4) (25.7) % Handysize - 227.5 (227.5) (100.0) % Total 4,077.8 4,200.9 (123.1) (2.9) % Available days (owned fleet) (4) Capesize 1,502.0 1,505.6 (3.6) (0.2) % Ultramax 1,261.7 723.1 538.6 74.5 % Supramax 1,003.1 1,403.9 (400.8) (28.5) % Handysize - 227.5 (227.5) (100.0) % Total 3,766.8 3,860.1 (93.3) (2.4) % Operating days (5) Capesize 1,458.3 1,499.1 (40.8) (2.7) % Ultramax 1,433.8 950.0 483.8 50.9 % Supramax 1,071.6 1,482.0 (410.4) (27.7) % Handysize - 191.3 (191.3) (100.0) % Total 3,963.7 4,122.4 (158.7) (3.8) % Fleet utilization (6) Capesize 96.5 % 99.6 % (3.1) % (3.1) % Ultramax 95.0 % 98.5 % (3.5) % (3.6) % Supramax 90.8 % 97.8 % (7.0) % (7.2) % Handysize - % 84.1 % (84.1) % (100.0) % Fleet average 94.4 % 97.8 % (3.4) % (3.5) % 30 Table of Contents For the Three Months Ended March 31, Increase 2022 2021 (Decrease) % Change Average Daily Results: Time Charter Equivalent (7) Capesize $ 24,627 $ 13,595 $ 11,03281.1 % Ultramax 25,449 10,582 14,867 140.5 % Supramax 21,577 12,292 9,285 75.5 % Handysize - 7,912 (7,912) (100.0) % Fleet average 24,093 12,197 11,896 97.5 % Major bulk vessels 24,627 13,595 11,032 81.1 % Minor bulk vessels 23,739 11,303 12,436 110.0 % Daily vessel operating expenses (8) Capesize $ 6,616 $ 5,208 $ 1,40827.0 % Ultramax 6,115 4,972 1,143 23.0 % Supramax 8,028 4,484 3,544 79.0 % Handysize - 4,931 (4,931) (100.0) % Fleet average 6,839 4,887 1,952 39.9 % Definitions
In order to understand our analysis of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that affect 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) Charter days. We define charter days as the total number of days in a period in which we have chartered third party vessels.
(3) Available days (owned and chartered-in fleet). We define available days 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) Days available (owned fleet). We define available days for the owned fleet as available days minus charter 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) Use of the Fleet. We calculate fleet utilization as the number of our operating days in a period divided by the number of days owned plus charter days minus dry dock days.
(7) TCE rates. We define TCE rates as our voyage revenues less voyage expenses, charter-hire expenses and realized gains or losses on fuel hedges, 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 31 Table of Contents
voyage charters are generally not expressed in daily amounts, while charter rates for time charter vessels are generally 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 March 31, March 31, March 31, 2022 2021 2022 2021 2022 2021
Travel revenue (thousands)
Travel costs (in thousands)
38,464 35,074 17,369 17,187 21,095 17,887 Charter hire expenses (in thousands) 7,638 5,435 - - 7,638 5,435 Realized gain on fuel hedges (in thousands) 629 - - - 629 - 90,754 47,082 36,990 20,470 53,764 26,612 Total available days for owned fleet 3,767 3,860 1,502 1,506 2,265 2,355 Total TCE rate
$ 24,093 $ 12,197 $ 24,627 $ 13,595 $ 23,739 $ 11,303(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. 32 Table of Contents Operating Data
The following table represents operating data for the three months ended
For the Three Months Ended March 31, 2022 2021 Change % Change (U.S. dollars in thousands, except for per share amounts) Revenue: Voyage revenues $ 136,227 $ 87,591
$ 48,63655.5 % Total revenues 136,227 87,591 48,636 55.5 % Operating Expenses: Voyage expenses 38,464 35,074 3,390 9.7 % Vessel operating expenses 27,013 19,046 7,967 41.8 % Charter hire expenses 7,638 5,435 2,203 40.5 % General and administrative expenses (inclusive of nonvested stock amortization expense of $690and $522, respectively) 6,043 6,102 (59) (1.0) % Technical management fees 917 1,464 (547) (37.4) % Depreciation and amortization 14,059
13,441 618 4.6 % Loss on sale of vessels - 720 (720) (100.0) % Total operating expenses 94,134 81,282 12,852 15.8 % Operating income 42,093 6,309 35,784 567.2 % Other expense, net (228) (4,324) 4,096 (94.7) % Net income $ 41,865 $ 1,985
$ 39,8802,009.1 % Less: Net income attributable to noncontrolling interest 176 - 176 100.0 % Net income attributable to Genco Shipping& Trading Limited $ 41,689 $
Net earnings per share - basic $ 0.99 $ 0.05
$ 0.941,880.0 % Net earnings per share - diluted $ 0.97 $ 0.05 $ 0.921,840.0 % Weighted average common shares outstanding - basic 42,166,106 41,973,782 192,324 0.5 % Weighted average common shares outstanding - diluted 42,867,349 42,276,380 590,969 1.4 % EBITDA (1) $ 57,973 $ 19,896 $ 38,077191.4 % 33 Table of Contents
EBITDA represents the net profit attributable to
plus net interest expense, taxes, and depreciation and amortization. EBITDA is
included because it is used by management and some investors as a measure
operating performance. EBITDA is used by shipping industry analysts
as a common performance measure to compare results between peers. Our
management uses EBITDA as a performance measure in its
financial statements, and is presented for review at our board meetings.
We believe EBITDA is useful to investors because the shipping industry is
capital-intensive, often leading to significant depreciation and cost of (1) financing. EBITDA presents investors with a measure in addition to net income
to assess our performance before these costs. EBITDA is not an element
as an alternative to net income, operating income or any other indicator of a
the operational performance of the company required by
measure of liquidity or cash flow as disclosed in our condensed consolidated financial statements
Cash flow statements. The definition of EBITDA used here may not be
comparable to that used by other companies. The following table shows
our EBITDA calculation and provides a reconciliation of EBITDA to net income
income attributable to
Genco Shipping & Trading Limitedfor each of the periods presented above: For the Three Months Ended March 31, 2022 2021 Net income attributable to Genco Shipping & Trading Limited $ 41,689 $ 1,985Net interest expense 2,225 4,470 Income tax expense - - Depreciation and amortization 14,059 13,441 EBITDA (1) $ 57,973 $ 19,896Results of Operations
The following tables present information on the current employment of the vessels in our fleet at
Year Charter Vessel Built Expiration(1) Cash Daily Rate(2) Capesize Vessels Genco Augustus 2007 April 2022 Voyage Genco Tiberius 2007 April 2022 Voyage Genco London 2007 May 2022 Voyage Genco Titus 2007 March 2022 Voyage Genco Constantine 2008 May 2022 Voyage Genco Hadrian 2008 May 2022 Voyage Genco Commodus 2009 May 2022
$19,000Genco Maximus 2009 September 2023 $27,500Genco Claudius 2010 January 2023 94% of BCI Genco Tiger 2011 April 2022 Voyage Baltic Lion 2012 March 2022 Voyage Baltic Bear 2010 May 2022 Voyage Baltic Wolf 2010 June 2023 $30,250Genco Resolute 2015 January 2023 121% of BCI Genco Endeavour 2015 May 2022 Voyage Genco Defender 2016 February 2023 121% of BCI Genco Liberty 2016 May 2022 $28,000Ultramax Vessels Baltic Hornet 2014 April 2023 $24,000Baltic Wasp 2015 June 2023 $25,500Baltic Scorpion 2015 March 2023 $30,50034 Table of Contents Year Charter Vessel Built Expiration(1) Cash Daily Rate(2) Baltic Mantis 2015 June 2022 Voyage Genco Weatherly 2014 May 2022 Voyage Genco Columbia 2016 May 2022 Voyage Genco Magic 2014 May 2022 $20,000Genco Vigilant 2015 September 2022 $17,750Genco Freedom 2015 March 2023 $23,375Genco Enterprise 2016 May 2022 $47,500Genco Constellation 2017 June 2022 Voyage Genco Madeleine 2014 May 2022 $27,750Genco Mayflower 2017 May 2022 $32,500Genco Mary 2022 November 2022 $31,500Genco Laddey 2022 July 2022 $32,900Supramax Vessels Genco Predator 2005 June 2022 Voyage Genco Warrior 2005 May 2022 Voyage Genco Hunter 2007 May 2022 $26,000Genco Aquitaine 2009 May 2022 Voyage Genco Ardennes 2009 May 2022 $46,000Genco Auvergne 2009 June 2022 Voyage Genco Bourgogne 2010 May 2022 Voyage Genco Brittany 2010 June 2022 Voyage Genco Languedoc 2010 June 2022 $36,500Genco Picardy 2005 May 2022 $43,500Genco Pyrenees 2010 May 2022 $33,000Genco Rhone 2011 June 2022 Voyage
The charter expiration dates shown represent the earliest dates on which our
charters may be terminated in the ordinary course. Under certain (1) contracts, the charterer has the right to extend the time charter from two to
four months to complete the ship’s last voyage plus whenever
the vessel is no longer chartered.
The time charter rates shown are gross daily charter rates before (2) third party brokerage commission generally ranging from 1.25% to 6.25%. In a
time charter, the charterer is responsible for travel expenses such as
bunkers, port charges, agents’ fees and channel dues.
Three months completed
VOYAGE REVENUES- For the three months ended
March 31, 2022, voyage revenues increased by $48.6 million, or 55.5%, to $136.2 millionas compared to $87.6 millionfor the three months ended March 31, 2021. The increase in voyage revenues was primarily due to higher rates achieved by both our major and minor bulk vessels, as well as our third party time chartered-in vessels. In the first quarter of 2022, drybulk freight rates were firm relative to the last decade, however declined from the highs seen in the second half of 2021 due to various seasonal factors. These factors included a reduction in iron ore cargo volume from Brazildue to poor weather conditions as well as maintenance, the timing of the Lunar New Yearin China, the Beijing Olympics, as well as the frontloaded nature of the orderbook. Additionally, Indonesiaimposed a temporary coal export ban during the month of January 2022in order to rebuild domestic stockpiles. Furthermore, another COVID-19 wave in Chinaimpacted demand particularly for iron ore which impacted Capesize rates. On February 24, 2022, Russiainvaded Ukraineleading to what is now a multi-month war and a humanitarian crisis. The impact to date on the drybulk market has been a redirection of cargo flows particularly for coal and grain shipments lengthening ton miles, higher commodity prices, slower vessel speeds due to increased fuel prices, an urgency to secure commodities given the tightness in the global energy complex as well as global grain supplies, and sanctions on various Russian exports. Future developments in the Ukrainein relation to the war, as well as Chinain 35
in connection with the country’s COVID-19 response measures, may continue to affect the dry bulk industry and our business in unpredictable ways.
The average TCE rate of our overall fleet increased 97.5% to
$24,093a day during the first quarter of 2022 from $12,197a day during the first quarter of 2021. The TCE for our major bulk vessels increased by 81.1% from $13,595a day during the first quarter of 2021 to $24,627a day during the first quarter of 2022. This increase was primarily a result of higher rates achieved by our Capesize vessels. The TCE for our minor bulk vessels increased by 110.0% from $11,303a day during the first quarter of 2021 to $23,739a day during the first quarter of 2022 primarily a result of higher rates achieved by our Ultramax and Supramax vessels. For the three months ended March 31, 2022and 2021, we had 3,949.9 and 3,897.0 ownership days, respectively. Fleet utilization decreased from 97.8% during the first quarter of 2021 to 94.4% during the first quarter of 2022 primarily due to additional offhire and repair periods for our Supramax vessels.
In time charters and spot market-related time charters, 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
$38.5 millionand $35.1 millionduring the three months ended March 31, 2022and 2021, respectively. This increase was primarily due to higher bunker expenses as a result of increased fuel prices during the first quarter of 2022 due to oil supply disruptions as a result of the war in Ukraine.
VESSEL OPERATING EXPENSES-
Vessel operating expenses increased by
$8.0 millionfrom $19.0 millionduring the three months ended March 31, 2021to $27.0 millionduring the three months ended March 31, 2022. The increase was primarily due to higher crew expenses as a result of increased crew wages, COVID-19 related expenses and disruptions, and the timing of crew changes. COVID-19 expenses were higher during this quarter due to costs associated with repatriating Chinese crew during the implementation of China'szero COVID policies as we completed the transition of our crews to Indian and Filipino crews. Additionally, there were higher repair and maintenance costs, as well as an increase in the purchase of initial stores and spare parts. Average daily vessel operating expenses ("DVOE") for our fleet increased to $6,839per vessel per day for the three months ended March 31, 2022from $4,887per day for the three months ended March 31, 2021. The increase in daily vessel operating expense was primarily due to higher crew expenses as a result of increased crew wages, COVID-19 related expenses and disruptions, and the timing of crew changes. COVID-19 expenses were higher during this quarter due to costs associated with repatriating Chinese crew during the implementation of China'szero COVID policies as we completed the transition of our crews to Indian and Filipino crews. Additionally, there were higher repair and maintenance costs, as well as an increase in the purchase of initial stores and spare parts. 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 March 31, 2022were $1,014above the weighted-average budgeted rate 36
$5,825per vessel per day for the first quarter of 2022. Based on estimates provided by GSSM, our DVOE budget for the second quarter of 2022 is $6,000per vessel per day on a fleet-wide basis, which includes an estimated amount for COVID-19 related expenses. For 2022, we anticipate meeting our full year budget of $5,825per vessel per day as we expect vessel operating expenses to be lower and COVID-related expenses to abate in the second half of the year as we have transitioned from Chinese crews. However, the potential impacts of COVID-19 and the war in Ukraineare unpredictable, and the actual amount of our DVOE could be higher or lower than budgeted as a result. As a result of COVID-19 restrictions with regard to crew rotations, we expect higher crew related costs due to ongoing 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, these have all been increasing challenges that shipowners are facing globally. 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. As crew members worldwide have in many cases (including on certain of our vessels) exceeded the duration of their contracts, there is an 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, higher than normal travel expenses due to increased airfare costs, and crew bonuses to retain the existing crew during rotation delays. Our vessel operating expenses 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 and the war in Ukraine. We also experienced higher costs during the first quarter of 2022 and expect higher costs during the remainder of 2022 in relation to crew, spares and parts primarily due to industry-wide inflationary pressures and higher regulatory-related costs.
Charter hire expenses increased by
$2.2 millionfrom $5.4 millionduring the three months ended March 31, 2021to $7.6 millionduring the three months ended March 31, 2022. The increase was primarily due to higher charter in rates during the first quarter of 2022 as compared to the first quarter of 2021, partially offset by a decrease 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
Singaporeand Copenhagen. For the three months ended March 31, 2022and 2021, general and administrative expenses were $6.0 millionand $6.1 million, respectively. The decrease was primarily due lower legal and professional fees partially offset by an increase in nonvested stock amortization expense. 37 Table of Contents TECHNICAL MANAGEMENT FEES-
Technical management fees include the direct costs incurred by GSSM for the technical management of the vessels under its management. Additionally, prior to the transfer of our vessels to GSSM for technical management, we incurred management fees payable 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. Technical management fees were
$0.9 millionand $1.5 millionduring the three months ended March 31, 2022and 2021, respectively. The decrease was primarily due to the savings realized by transferring the management of the majority of the vessels of our fleet to GSSM during the second half of 2021 and first quarter of 2022.
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization expense increased by
$0.6 millionto $14.1 millionduring the three months ended March 31, 2022as compared to $13.4 millionduring the three months ended March 31, 2021. This increase was primarily due to the delivery of eight Ultramax vessels during 2021 and the first quarter of 2022, partially offset by a $1.1 milliondecrease in depreciation due to the increase in the estimated scrap value of the vessels from $310per lwt to $400per lwt effective January 1, 2022. Refer to Note 2 - Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements for further information regarding the increase in the scrap value.
LOSS ON SALE OF VESSELS-
During the first quarter of 2021, we recorded a net loss on sale of vessels of
$0.7 millionrelated primarily to the sale of the Baltic Panther, the Baltic Hare and the Baltic Cougar, as well as net losses associated with the exchange of the Baltic Cove, the Baltic Fox, the Genco Spirit, the Genco Avra and the Genco Mare. There were no vessel sales during the first quarter of 2022.
OTHER INCOME (EXPENSES)-
NET INTEREST CHARGE –
Net interest expense decreased by
$2.2 millionfrom $4.5 millionduring the three months ended March 31, 2021to $2.2 millionduring the three months ended March 31, 2022. Net interest expense during the three months ended March 31, 2022and 2021 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 $2.3 milliondecrease in interest expense primarily as a result of lower outstanding debt.
OTHER INCOME –
Other income increased by
$1.9 millionfrom $0.1 millionduring the three months ended March 31, 2021to $2.0 millionduring the three months ended March 31, 2022. The increase was due to an increase in realized and unrealized gains related to our bunker swap and forward fuel purchase agreements as a result of the increasing prices of fuel.
CASH 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, fleet renewal, drydocking for our vessels, payment of dividends, debt repayments and satisfying working capital requirements as may be needed to support our business. Our ability to continue to meet our liquidity 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. 38
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
$43.1 millionas of March 31, 2022in addition to the $221.8 millionavailability under the revolver of the $450 MillionCredit Facility as of March 31, 2022, which compares to a minimum liquidity requirement under our credit facility of approximately $22 millionas 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 of $32.2 millionand $2.4 millionduring the remainder of 2022 and 2023, respectively, as well as any quarterly dividend payments, we anticipate to continue to have significant cash expenditures. Refer to "Capital Expenditures" below for further details. However, if market conditions were to worsen significantly due to the current COVID-19 pandemic, the war in Ukraine, or other causes, then our cash resources may decline to a level that may put at risk our ability to pay dividends per our capital allocation strategy or at all. During the first quarter of 2022, the Company made $48.8 millionof voluntary debt prepayments, resulting in a reduced cash flow breakeven rate from previous levels. Of that amount, $8,8 millionwas the previously announced quarterly debt reduction payment as part of our plan to reduce our debt. This amount was deducted from operating cash flow in our first quarter 2022 dividend payment. The remainder of the debt we paid down was $40.0 millionwhich was prepaid to optimize our working capital management, using our revolver to keep funds available while saving interest expense. This $40.0 millionprepayment is not part of the dividend calculation detailed below under "Dividends." Currently there will be no mandatory debt repayments until we must repay $197.3 millionin 2026. Although we do not have any mandatory debt repayments until 2026, we intend to continue to pay down debt on a voluntary basis with a medium term goal of zero net debt. As of March 31, 2022, the $450 MillionCredit 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 MillionCredit Facility on August 3, 2021. Proceeds from the $450 MillionCredit Facility were used to refinance our $495 MillionCredit Facility and our $133 MillionCredit 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 MillionCredit Facility, which information is incorporated herein by reference.
We disclosed on
April 19, 2021that, on management's recommendation, our Board of Directors adopted a new quarterly dividend policy for dividends payable which commenced 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 39 Table of Contents Less: Debt repayments
Less: Capital expenditures for dry-docking
Distributable cash flow in the form of dividends
The amount of dividends payable according to 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, realized gains or losses on fuel hedges, 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
May 4, 2022, we announced a quarterly dividend of $0.79per 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.
As part of our new dividend policy, we repaid additional debt under our credit facilities and used
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 Islandslaw generally prohibits the declaration and payment of dividends or stock repurchases other than from surplus. Marshall Islandslaw 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 or the war in Ukraineand economic conditions related to these events may result in our suspension, reduction, or termination of future quarterly dividends.
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 Statesis 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." 40
Subject to the discussion of passive foreign investment company (PFIC) status on pages 36 - 37 in the 2021 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. 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 whois 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
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 2021 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 IRSor a court of law will accept our position, and there is a risk that the IRSor 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. 41 Table of Contents 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 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.
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 Stateson dividends received from us on our common shares.
Dividends paid on our common shares to a corporation
? does not provide us with an accurate tax identification number;
is notified by the
? because they had previously failed to declare all interest and dividends required to
appear on their federal tax returns; or
? fails to meet 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. 42 Table of Contents Cash Flows
Net cash provided by operating activities for the three months ended
March 31, 2022and March 31, 2021was $52.6 millionand $13.5 million, respectively. This increase in cash provided by operating activities was primarily due to higher rates achieved by our major and minor bulk vessels and changes in working capital, as well as a decrease in interest expense. Net cash used in investing activities for the three months ended March 31, 2022was $47.0 millionas compared to net cash provided by investing activities of $20.0 millionfor the three months ended March 31, 2021. This fluctuation was primarily due to the purchase of two Ultramax vessels which delivered during the first quarter of 2022. Additionally there was a decrease in net proceeds from the sale of vessels as there were no vessels sold during the first quarter 2022, as well as an increase in the purchase of other fixed assets during the three months ended March 31, 2022as compared to the three months ended March 31, 2021. Net cash used in financing activities during the three months ended March 31, 2022and 2021 was $77.1 millionand $49.1 million, respectively. The increase was primarily due to a $27.4 millionincrease in the payment of dividends during the three months ended March 31, 2022as compared to the same period during 2021.
August 3, 2021, we entered into the $450 MillionCredit Facility, which we used to refinance the existing debt outstanding under the $495 Million CreditFacility and the $133 MillionCredit Facility as of August 31, 2021. Refer to Note 7 - Debt of our Condensed Consolidated Financial Statements for further details regarding these credit facilities.
Interest Rate and Cap Swap Agreements, Forward Freight Agreements and Currency Swap Agreements
March 31, 2022, 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 March 31, 2022, the total notional principal amount of the interest rate cap agreements is $200.0 million.
Refer to the table in Note 8 – Derivative instruments to our condensed consolidated financial statements which summarizes the interest rate cap agreements in place at
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 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 43
economically during periods of high market demand. We have not entered into any FFAs
We make capital expenditures from time to time in connection with our vessel acquisitions. Our fleet currently consists of 44 drybulk vessels, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers and twelve Supramax drybulk carriers. 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. 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, 2016if 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 Conventionwas extended two years to September 8, 2019for 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 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 $1.0 millionfor Capesize vessels and $0.6 millionfor 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 three months ended March 31, 2022, we completed the installation of BWTS on one of our vessels. Additionally, during the years ended December 31, 2020and 2019, we completed the installation of BWTS on nine and 17 of our vessels, respectively. Eleven of these vessels have since been sold. There were no BWTS installations completed during 2021. We anticipate that we will complete the installation of BWTS on nine vessels during the remainder of 2022, one of which was in the process of completing its scheduled drydocking as of March 31, 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, 2019and the last one of which was completed on January 17, 2020. The remainder of our vessels are consuming very low sulfur fuel oil (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. 44
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. 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 2023 to be: Estimated Fuel Estimated Drydocking Estimated BWTS Efficiency Estimated Off-hire Year Cost Cost Upgrade Costs Days (U.S. dollars in millions) April 1 - December 31, 2022 $ 18.3 $ 5.0 $ 8.9 390 2023 $ 2.4 $ - $ - 70
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 three months ended March 31, 2022and 2021, we incurred a total of $1.7 millionand $0.9 millionof drydocking costs, respectively, excluding costs incurred during drydocking that were capitalized to vessel assets or vessel equipment. We completed the drydockings for three of our vessels during the first quarter of 2022, which all began during the fourth quarter of 2-21 and did not complete until the first quarter of 2022. One additional vessel began its drydocking during the first quarter of 2022 and did not complete until the second quarter of 2022. In addition to this vessel, we estimate that eleven of our vessels will be drydocked during the remainder of 2022 and two of our vessels will be drydocked during 2023.
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 has only a moderate effect on our expenses given current economic conditions. In the event that significant global inflationary pressures materialize, these pressures will increase our operating, travel, general and administrative and financing costs.
CRITICAL ACCOUNTING METHODS
Except as described below, there have been no changes or updates to our critical accounting policies as noted in the 2021 10-K.
45 Table of Contents 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
$400/lwt based on the 15-year average scrap value of steel. Effective January 1, 2022, we increased the estimated scrap value of the vessels from $310per lwt to $400per lwt prospectively based on the 15-year average scrap value of steel. This change resulted in a 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 2021 10-K.
No impairment was incurred during the three months ended
Under our credit facility, 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 bank credit facility. 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 MillionCredit Facility as of March 31, 2022. We obtained valuations for all of the vessels in our fleet pursuant to the terms of the $450 MillionCredit 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 March 31, 2022and December 31, 2021. Vessels have been grouped according to their collateralized status as of March 31, 2022and does not include any vessels held for sale or held for exchange. As of March 31, 2022and December 31, 2021, 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 higher than their carrying values at March 31, 2022and December 31, 2021, respectively, with the exception of eleven of our Capesize vessels. The amount by which the carrying value at March 31, 2022of eleven of our Capesize vessels exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual vessel basis, from $4.8 millionto $8.2 millionper vessel, and $71.0 millionon an aggregate fleet basis. The amount by which the carrying value at December 31, 2021of eleven of our Capesize vessels exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual vessel basis, from $4.3 millionto $7.0 millionper vessel, and $62.7 millionon an aggregate fleet basis. The average amount by which the carrying value of these vessels exceeded the valuation of such vessels for covenant compliance purposes was $6.5 millionat March 31, 2022and $5.7 millionas of December 31, 2021. 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 March 31, December 31,
Vessels Year Built Acquired 2022 2021
$450 MillionCredit Facility Genco Commodus 2009 2009 $ 34,735 $ 35,200Genco Maximus 2009 2009 34,758 35,215 Genco Claudius 2010 2009 36,396 36,872 Baltic Bear 2010 2010 36,175 36,666 46 Table of Contents Carrying Value (U.S. dollars in thousands) as of Year March 31, December 31, Vessels Year Built Acquired 2022 2021 Baltic Wolf 2010 2010 36,466 36,948 Baltic Lion 2009 2013 30,237 29,971 Genco Tiger 2010 2013 28,438 28,658 Baltic Scorpion 2015 2015 23,207 23,456 Baltic Mantis 2015 2015 23,451 23,701 Genco Hunter 2007 2007 7,760 7,788 Genco Warrior 2005 2007 6,808 6,909 Genco Aquitaine 2009 2010 8,505 8,588 Genco Ardennes 2009 2010 8,509 8,591 Genco Auvergne 2009 2010 8,516 8,597 Genco Bourgogne 2010 2010 9,207 9,299 Genco Brittany 2010 2010 9,211 9,303 Genco Languedoc 2010 2010 9,213 9,304 Genco Picardy 2005 2010 7,236 7,347 Genco Pyrenees 2010 2010 9,257 9,311 Genco Rhone 2011 2011 10,536 10,512 Genco Constantine 2008 2008 31,644 32,152 Genco Augustus 2007 2007 30,306 30,822 Genco London 2007 2007 29,809 29,708 Genco Titus 2007 2007 30,473 30,503 Genco Tiberius 2007 2007 30,190 30,161 Genco Hadrian 2008 2008 32,137 32,570 Genco Predator 2005 2007 7,155 7,266 Baltic Hornet 2014 2014 21,782 22,022 Baltic Wasp 2015 2015 22,034 22,275 Genco Endeavour 2015 2018 41,777 42,207 Genco Resolute 2015 2018 42,088 42,507 Genco Columbia 2016 2018 24,232 24,484 Genco Weatherly 2014 2018 19,589 19,806 Genco Liberty 2016 2018 45,310 45,760 Genco Defender 2016 2018 45,338 45,792 Genco Magic 2014 2020 14,292 14,381 Genco Vigilant 2015 2021 15,331 15,476 Genco Freedom 2015 2021 15,428 15,577 Genco Enterprise 2016 2021 20,395 20,591 TOTAL $ 897,931 $ 906,296Unencumbered Genco Madeleine 2014 2021 23,034 23,266 Genco Constellation 2017 2021 25,313 25,574 Genco Mayflower 2017 2021 25,745 26,005 Genco Laddey 2022 2022 29,950 - Genco Mary 2022 2022 29,975 - $ 134,017 $ 74,845Consolidated Total $ 1,031,948 $ 981,141If 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. 47 Table of Contents
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