Q3 2023 Genco Shipping & Trading Ltd Earnings Call

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Good morning, ladies and gentlemen on the walk on to the Genco shipping and trading Ltd third quarter 2023 earnings conference call and presentation.

Before we begin please note that there will be a slide presentation accompanying today's conference call. The presentation can be obtained from genco spreads site at Www Dot Genco shipping dotcom.

To inform everyone. Today's conference is being recorded and is now being webcast at the company's website at Www Dot Genco shipping dotcom.

We'll conduct a question and answer session. After the opening remarks and instructions will follow at that time I.

A replay of the conference will be accessible at any time during the next two weeks by dialing in 187767470 70, narrow and entering the passcode 329256 at this time I will now turn the conference over to the company. Please go ahead.

Good morning, before we begin our presentation I note that in this conference call with 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 in other words in 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 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, 2022, and the Companys reports on Form 10-Q and form 8-K subsequently filed with the SEC at this time I would like to introduce John Robin Smith, Chief Executive Officer, Genco shipping and trading limited.

Everyone welcome to <unk> third quarter 2023 conference call.

I will begin today's call by reviewing our Q3 2023 and year to date highlights providing an update on our comprehensive value strategy financial results for the quarter and the industry's current fundamentals before opening the call up for questions for additional information. Please also refer to our earnings presentation posted on our website.

During the third quarter, we continued to advance our value strategy, providing shareholders with a sizable dividend, while continuing to take steps to renew our fleet for the quarter, we declared a dividend of <unk> 15 per share as we utilized the built in optionality and flexibility within our dividend policy.

Highlights Genco has differentiated capital structure and industry low breakeven levels for providing sizable dividends to shareholders, even during a lower freight rate environment.

Notably the third quarter represents our 17th consecutive quarterly dividend highlighting our commitment and success returning significant capital to shareholders. Over this time, we have declared dividends of $4 74, and a half cents per share or 36% of the current share price.

Wireless our stated formula It did not produce the dividends for the quarter. The board of directors elected on management's recommendation to declare the 15 cents per share dividend <unk> industry, low cash flow breakeven rate and low financial leverage position together with improved freight rates in Q4 to date gave the company confidence.

Declared a <unk> 15 per share dividend.

Regarding the dividend calculation, we have consolidated the previous voluntary quarterly reserve of $10 $75 million and voluntary quarterly debt repayments of $8 $75 million, which totaled $19 $5 million in one line item. This voluntary quarterly reserve was reduced to $4 four.

For the purpose of the Q3 dividend given that both the reserve and debt repayments are fully in Genco has discretion. We felt it was appropriate to consolidate that consolidate them into one voluntary quarterly reserve.

Furthermore, with our new 100% revolving credit facility. This advantageous structure allows us more flexibility than with previous term loan structures to actively manage our debt outstanding to reduce interest expense, while providing meaningful capacity to partially fund future vessel acquisitions.

In Q4, we received a commitment for a $500 million revolving credit facility significantly expanding our borrowing capacity, reducing interest expense expense and extending debt maturities. This facility aligns well with our value strategy as the revolving credit facility structure enables gentex genco to continue to vol.

All entirely pay down debt in line with our medium term goal of net debt zero without losing the capacity drawdown to fund growth.

This point, we took advantage of the company's strong liquidity position to opportunistically enter into an agreement to acquire a modern high specification capesize vessel the vessel to be renamed the Genco Ranger is a 2016 belt Swf's scrubber fitted 181000 deadweight ton capesize vessel.

Which we anticipate taking delivery of in mid November of this year.

Modern eco Cape sizes rarely trade with only a handful of transactions in a given year as such we are pleased with this purchase to further modernize our fleet, we continue to assess additional sale and purchase transactions in the market in line with our fleet renewal strategy.

Regarding the current dry bulk market beginning in September we have seen a significant uplift in dry bulk freight rates led by firm iron ore coal and bauxite shipments, which is reflected in our solid estimated Q4 TCE today moving forward, while we expect volatility to persist we view commodity demand growth from <unk>.

China and developing Asia, coupled with capacity constraints that have resulted in a historically low order book to be supportive for the dry bulk market given the recent rate improvement. We have also seen asset values strengthen in addition firm new building prices and lower shipyard capacity continued to be supportive of second.

Hand asset values lastly in October we are pleased to become a signatory to the operational efficiency ambition statements focused on emissions reductions and reducing our carbon footprint footprint and initiatives led by the global Maritime Forum I will now return the call over to Peter Allen, Our Chief Financial Officer.

Thanks, John for Q3 2023, the company recorded a net loss of $32 million or 75 basic and diluted loss per share, which included a noncash vessel impairment charge of $28 $1 million. Excluding this noncash charge adjusted net loss was $3 $9 million or nine.

Basic and diluted loss per share this noncash vessel impairment charges recorded as the estimated future on discounted cash flows for three of our 170000 deadweight ton capesize vessels that were that we were evaluating divesting as part of our fleet renewal with third Special survey is scheduled in 2024 did not exceed their net book values and we therefore adjusted their values.

Fair market value during the third quarter.

Adjusted EBITDA for Q3 totaled $14 $6 million, bringing the nine months of 2023 total to $64 $4 million as of September 30th our cash position was $52 million and our debt outstanding was $144 $8 million, bringing our net debt to $92 $5 million and net loan to value to 10% with one.

$98 $8 million of Undrawn revolver availability, our total liquidity position at the end of the third quarter was $251 million. Subsequently in Q4, we received commitments for $500 million revolving credit facility, which can be utilized to support fleet growth as well as general corporate purposes.

Key terms include an increase in borrowing capacity by nearly 50% or over $150 million lower pricing on margin of 185% to two.

2.2, 15% plus ofer.

Compared to $2, 15% to 275% plus so for previously.

Extended maturities at the end of 2028, and a 100% revolving credit facility.

Structure provides further flexibility. We appreciate the continued support of our high quality lending group that participated in the revolving facility, including leading international shipping banks that are both existing and new lenders to genco. The amended facility is subject to definitive documentation of fulfillment of customary closing conditions and is expected to close in Q4 2012.

Three.

Upon closing the amended facility and acquisition, we anticipate pro forma debt outstanding to be $179 $8 million in undrawn revolver availability of $323 million. This includes a $35 million drawdown in Q4 to partially fund the acquisition of the Genco Ranger looking ahead to Q4 2023, we anticipate our cash flow breakeven rate.

To be $8170 per vessel per day, well below our Q4 TCE estimates to date of $16665 for 69% fixed after a slow start to the third quarter freight rates began to rise in September specifically multi capesize index rose from approximately $8300 to end the quarter at 20.

Dollars rates continued to push higher in October reaching a year to date high of $31000, while we expect volatility to persist in the near term current spot and Super Max rates of $20000 and $12000 remains firm.

The year to date iron ore and coal trades into China have increased by 6% and 67% respectively. In the second half of 2023, we have seen mundane cargo availability from major iron ore miners in Brazil, and Australia supporting these solid import figures given the general tight supply and demand balance freight rates continue to be sensitive to the fluctuation of port congestion.

In levels in Q3, we saw meaningful unwinding, which offset some of the firm trade volumes that pressure freight rates falling in October increased congestion off of Q3 lows helped to reduce effective capacity and push rates higher despite the challenges within the China within China's property sector. Several key indicators within the China steel complex continue to convey a positive.

These include multiyear low iron ore port inventories iron ore prices above a $125 per ton and steel mill utilization above 90%. Furthermore, ex China steel production has now risen for three straight months. After an elongated period of contraction potentially signaling an increase in demand in developed countries and support for the secondary trade routes outside of Asia.

Regarding the supply side annualized net fleet growth in the year to date is two 7% primarily due to the front loaded nature of the delivery schedule on those scrapping levels. The historical historically low order book as a percentage of the fleet as well as near term and longer term environmental regulations are expected to keep net fleet growth low in the coming years, while we expect volatility for the balance of the year and into <unk>.

Early part of next year the foundation of a low supply growth picture provides a solid basis for a constructive view of the dry bulk market going forward. This concludes our presentation and we'd now be happy to take your questions.

Thank you and ladies and gentlemen, we will now begin the question and answer session should you have a question simply press the star followed by the number one on your telephone keypad.

We'll hear from acknowledging your request and Youre questions from people in the order of <unk> <unk>.

You have a steady climb from the polling process. Please press the star followed by denim break you if youre using a speakerphone. Please keep your handset before pressing any key one moment. Please for your first question.

Your first question comes from the line of AMR enough back from Jefferies. Your line is open.

Thank you Hey, John and Peter Good morning model first off I guess, congrats on the $500 million revolver, obviously, not every day that you see a facility of that size that's fully revolving.

So congrats on that.

Wanted to just sort of asked ask about the Cape.

You acquired in 2016 built ship just in general you also sort of signaled in our release being a bit more active on the sale and purchase front and it sounds like it's going to be both sale and purchase is the way I kind of read that could you give us maybe a bit more color.

Or maybe expand a bit on that comment and how youre thinking about genco moving forward here in the near term in the S&P market.

Yes, Thanks Omar.

So if you.

If you look at our fleet, we had some older capes.

Some of the 170 <unk>.

Our intention is to.

Ultimately replace those with newer.

Hi, spec eco vessels.

So we're looking at that.

And in working out a few things right now and then also on the on the Super Max's we have the genco over and they are Dan that Bogo and then the Aqua pain.

Which are which are older and are coming up for Drydocking next year. So those those vessels were also focused on replacing with a higher spec ultra Max.

Ego better.

Better fuel efficiency type vessels.

We have.

All those vessels that I just mentioned our Drydocking next year. So the intention would be to try to save on the Capex numbers Bye bye.

By disposing of those and.

And deploying capital for for newer vessels and I think.

You have the Capex side, we have we're obviously also trying to reduce our carbon footprint, but we have the the EU ETS.

Coming into play starting starting next year, so, particularly with the.

With the Altra and supers, we want to be as efficient as we can to keep those costs down.

And be in a better position.

<unk> two to trade to Europe.

Thanks, John that's helpful and maybe just was going to come back to the ultra stupid clearly over the past several years in terms of acquisitions, John because theyre more focused on the ultras.

And it's been sometime since you've acquired a Cape.

Is this a shift perhaps in thinking.

And wanted to be in a bit higher.

And sort of future investments or is it still kind of that.

That barbell approach.

I would say it this way.

I would say, it's still a barbell approach, we like the Capesize exposure.

<unk>.

The.

It's very it's very difficult to to get your hands on on eco tonnage right now and really over the last few years, we've always seen a few trade this year in 2023, including the including the Genco Ranger So when they do come up.

You want to move on them quickly and be very precise about it which is which is what we did here.

But.

Again with.

With the focus on environmental regulations and reducing emissions.

Each of the vessels are going to have more and more value and certainly more flexibility trading.

Going forward then there may be some of some of the older ships.

Yeah definitely thanks, John and maybe just.

Maybe one final one for me and I'll turn it over.

Clearly the revolver gives you a lot more flexibility are the new one and you pushed out the maturity by a couple of years plus.

When we think about sort of the you know the dividend policy and the ongoing reserve, which is obviously very conservative, giving you plenty of flexibility to toggle with it but in general is there any kind of shifts or changes that you see happening with sort of the numbers that go into the reserve once the new facility.

Completed.

I don't see any change at this point, though so we've put out guidance for <unk> for the fourth quarter and when we get into announcing fourth quarter, and we and we have our normal board meeting there obviously will be discussion about how we want to set that for 2024.

And as we did with 2022 and 2023.

We announced that ahead of time, so I would say stay tuned and we will see and see how the conversations go and our strategy session for for 2024 plays out.

Okay, very good alright, well, thanks, John and congrats again on the on the facility.

Great. Thanks, so much I appreciate it.

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

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

Good morning, good morning.

John.

Supply side are you seeing any.

Additional tightening either through congestion or a slow steaming.

Mobile fleet.

Look I think that the global feed is actually going fairly slow as it is already.

The congestion side of it particularly in China has started to move up again.

Let's see there's a lot of flow of iron ore and coal that is a that is driving that.

I I still think as.

As we get into as we get into next year. There is positive there theres upside risk on on congestion winding back up again or are we going to get to the levels of <unk>.

And COVID-19, probably not but certainly we can get back to more historical averages, which which should help take supply out of the market and push up rates as we get into next year.

Okay, you did mention in your prepared comments Brad.

The outlook for the Capesize market.

I had mentioned.

Commodities that are Hawks.

As we look down the road.

Do you still see them fitting in vis vis new castle, Max where there seems to be a larger percent of the order book there.

I.

In terms of the Capesize sitting in with the new castle axis with that yes.

Yes, yes.

Yes, I so personally we like the flexibility of the Capesize more so than the Newcastle Max's.

There are times, where youre still not filling up the Newcastle Max two to its full capacity. So in terms of return on capital, we still like the the Capesize sector.

And but we obviously like the modern ones that are that are more fuel efficient.

But.

If you look at the trades Liam.

Its iron ore coal or the bauxite trade, which is growing quite significantly.

Capes are extremely active in all three of those all three of those markets and I think that it's going to be that be the case for quite a while.

Great. Thank you Jonathan.

Thanks Sam.

Okay.

Your next question comes from the line of Sharon Al Maguire from BT Agee. Your line is open.

Hey, good morning, Thanks for taking my questions.

Good morning.

Good morning.

First is chartered I charter in days roughly doubled.

Q2, but they are still pretty far below what we've seen for the last couple of years.

So you know rates have seen a pretty significant improvement from Q3 to Q4. So should we expect charter in days tick higher for the end of the year I.

I guess any general color on how you're thinking about chartering in would be helpful.

Yes, so keep in mind that the chartering and that we're doing is very short term.

Is used to create arbitrage trades on our existing fleet.

Cargo that we have booked.

Forward.

And and used to create alpha over the indices, which we've obviously been very successful at particularly in the midsize sector.

I would expect to see some higher charter in days as we get into the as we get into the fourth quarter.

Alright, I guess, we're really in the fourth quarter, but but as we get towards to the adage.

The market has moved up.

We also have been fixing forward for first quarter, which is what we typically do.

So I think youll see more charter in tonnage in the first quarter as well, but keep in mind that that chartering in tonnage again is not long term, it's usually for short term cargo lifting where we've identified an arbitrage opportunity.

Use somebody else's ship and then take our ship and go to perform another cargo.

That's that's very helpful. And then and then maybe a bit more macro.

North and South American grain story, we've got a record grain season in Brazil.

And in the U S. We have low inland water levels kind of constraining exports. So I'm wondering how you see seaborne winter grain exports shaking out, especially given the low water low water levels on the Mississippi could persist kind of into Q1.

Yeah, absolutely. Thanks for the question Yeah look, it's obviously been a terrific grain season out of South America.

It has extended its been definitely supportive to the overall Atlantic market.

We've seen and it's been good to offset some of the reduced volumes out of out of Ukraine in particular in.

In the fourth quarter, yes, wheat exports out of the U S likely to be lower.

But again the.

And then not too distant future, we'll have south American grain season picking back up towards the end of Q1, so should be relatively short lived and we are getting some help on the Panama canal situation, which is extending ton miles and taking ships instead of going to the Panama canal, they're going through Suez. So it's extending ton miles there. So there are some fleet inefficiencies that.

Are supportive to the current market and.

Like John mentioned in prepared remarks, as well as during the Q&A.

We do expect volatility in Q1, but we're doing a good job of fixing over that we have three three.

Three period, the short period deals on the ultra supers at 15 to 16 K better fixed over through March so.

Pretty pretty good job on that side.

Okay. Thanks for taking my questions.

Thank you.

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