Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-51442
GENCO SHIPPING & TRADING LIMITED
(Exact name of registrant as specified in its charter)
Republic of the Marshall Islands
98-043-9758
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
299 Park Avenue, 12th Floor, New York, New York 10171
(Address of principal executive offices) (Zip Code)
(646) 443-8550
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 17, 2014: Common stock, $0.01 per share — 61,541,389 shares.
Genco Shipping & Trading Limited
Page
PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
a)
Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013
1
b)
Condensed Consolidated Statements of Operations
2
c)
Condensed Consolidated Statements of Comprehensive (Loss) Income
4
d)
Condensed Consolidated Statements of Equity
5
e)
Condensed Consolidated Statements of Cash Flows
7
f)
Notes to Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
69
Item 4.
Controls and Procedures
71
PART II —OTHER INFORMATION
Legal Proceedings
Item 6.
Exhibits
72
ii
Website Information
We intend to use our website, www.GencoShipping.com, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in our website’s Investor section. Accordingly, investors should monitor the Investor portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. To subscribe to our e-mail alert service, please submit your e-mail address at the Investor Relations Home page of the Investor section of our website. The information contained in, or that may be accessed through, our website is not incorporated by reference into or a part of this document or any other report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.
iii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(U.S. Dollars in thousands, except for share and per share data)
(Unaudited)
Successor
Predecessor
September 30, 2014
December 31, 2013
Assets
Current assets:
Cash and cash equivalents
$
106,620
122,722
Restricted cash
9,850
Due from charterers, net of a reserve of $1,576 and $632, respectively
15,594
14,241
Prepaid expenses and other current assets
25,240
19,065
Time charters acquired
16
—
Total current assets
157,320
165,878
Noncurrent assets:
Vessels, net of accumulated depreciation of $17,215 and $730,662, respectively
1,522,106
2,673,795
Deposits on vessels
31,396
1,013
Deferred drydock, net of accumulated amortization of $69 and $11,107, respectively
3,096
11,069
Deferred financing costs, net of accumulated amortization of $2,562 and $22,279, respectively
6,691
22,011
Fixed assets, net of accumulated depreciation and amortization of $66 and $3,438, respectively
646
5,104
Other noncurrent assets
514
300
Investments
38,463
77,570
Goodwill
166,067
Total noncurrent assets
1,769,279
2,791,376
Total assets
1,926,599
2,957,254
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses
36,949
27,359
Current portion of long-term debt
32,242
1,316,439
Current interest payable
13,199
Convertible senior note payable
115,881
Deferred revenue
893
1,597
Current portion of lease obligations
176
Fair value of derivative instruments
6,975
Total current liabilities:
70,084
1,481,626
Noncurrent liabilities:
Long-term lease obligations
186
3,114
84
Long-term debt
372,803
163,625
Total noncurrent liabilities
372,989
166,823
Total liabilities
443,073
1,648,449
Commitments and contingencies
Equity:
Genco Shipping & Trading Limited shareholders’ equity:
Predecessor Company common stock, par value $0.01; 100,000,000 shares authorized; 44,449,407 shares issued and outstanding at December 31, 2013
445
Predecessor Company additional paid-in capital
846,658
Successor Company common stock, par value $0.01; 250,000,000 shares authorized; 61,410,372 shares issued and outstanding at September 30, 2014
614
Successor Company additional paid-in capital
1,239,439
Accumulated other comprehensive (loss) income
(13,341
)
53,722
Retained (deficit) earnings
(18,290
66,644
Total Genco Shipping & Trading Limited shareholders’ equity
1,208,422
967,469
Noncontrolling interest
275,104
341,336
Total equity
1,483,526
1,308,805
Total liabilities and equity
See accompanying notes to condensed consolidated financial statements.
(U.S. Dollars in Thousands, Except for Earnings Per Share and Share Data)
Period from July 9 to September 30, 2014
Period from July 1 to July 9, 2014
Three Months Ended September 30, 2013
Revenues:
Voyage revenues
43,943
4,034
58,605
Service revenues
756
828
Total revenues
44,699
4,106
59,433
Operating expenses:
Voyage expenses
2,335
200
2,212
Vessel operating expenses
27,248
2,902
27,515
General, administrative, and management fees
15,492
6,147
7,871
Depreciation and amortization
17,356
3,213
35,222
Other operating income
(296
Total operating expenses
62,135
12,462
72,820
Operating loss
(17,436
(8,356
(13,387
Other (expense) income:
Other income (expense)
(45
Interest income
19
14
Interest expense
(3,592
(1,529
(23,079
Other expense
(3,566
(1,528
(23,110
Loss before reorganization items, net
(21,002
(9,884
(36,497
Reorganization items, net
(1,167
902,273
(Loss) income before income taxes
(22,169
892,389
Income tax expense
(393
(38
(479
Net (loss) income
(22,562
892,351
(36,976
Less: Net loss attributable to noncontrolling interest
(4,272
(568
(1,942
Net (loss) income attributable to Genco Shipping & Trading Limited
892,919
(35,034
Net (loss) earnings per share-basic
(0.30
20.49
(0.81
Net (loss) earnings per share-diluted
Weighted average common shares outstanding-basic
60,299,766
43,568,942
43,231,510
Weighted average common shares outstanding-diluted
Dividends declared per share
Period from January 1 to July 9, 2014
Nine Months Ended September 30, 2013
118,759
143,222
1,701
2,457
120,460
145,679
4,140
6,352
64,670
81,400
31,371
24,543
75,952
104,322
176,133
216,617
(55,673
(70,938
(106
(58
45
49
(41,061
(65,922
(41,122
(65,931
(96,795
(136,869
882,167
785,372
(815
(997
784,557
(137,866
(8,734
(9,300
793,291
(128,566
18.21
(2.98
43,196,895
3
(U.S. Dollars in Thousands)
Change in unrealized (loss) gain on investments
2,186
14,514
Unrealized gain on cash flow hedges, net
95
2,076
Other comprehensive (loss) income
2,281
16,590
Comprehensive (loss) income
(35,903
894,632
(20,386
Less: Comprehensive loss attributable to noncontrolling interest
Comprehensive (loss) income attributable to Genco Shipping & Trading Limited
(31,631
895,200
(18,444
(25,766
20,841
2,401
6,763
(23,365
27,604
761,192
(110,262
769,926
(100,962
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive (Loss) Income
Retained (Deficit) Earnings
Genco Shipping & Trading Limited Shareholders’ Equity
Noncontrolling Interest
Total Equity
Balance — January 1, 2014 (Predecessor)
Net loss, exclusive of net gain from fresh-start adjustments
(124,107
(132,841
Unrealized loss on investments
Nonvested stock amortization
2,403
1,949
4,352
Cash dividends paid by Baltic Trading Limited
(5
(2,041
(2,046
Vesting of restricted shares issued by Baltic Trading Limited
74
(74
Subtotal — July 9, 2014 (Predecessor)
849,130
30,357
(57,463
822,469
332,436
1,154,905
Net gain from fresh-start adjustments (see Note 20)
917,399
Balance — July 9, 2014 (Predecessor)
859,936
1,739,868
2,072,304
Fresh-start adjustments:
Cancellation of Predecessor common stock
(445
(849,130
(849,575
Elimination of Predecessor accumulated deficit and accumulated other comprehensive income
(30,357
(859,936
(890,293
Elimination of Predecessor non-controlling interest
(332,436
Issuance of new equity interests in connection with emergence from Chapter 11, including the $100 million Rights Offering
603
1,232,397
1,233,000
Revaluation of non-controlling interest
279,069
Balance — July 9, 2014 (Successor)
1,512,069
Net loss
Issuance of 1,110,600 shares of nonvested stock
11
(11
7,054
818
7,872
(1
(511
(512
Balance — September 30, 2014 (Successor)
Balance — January 1, 2013 (Predecessor)
443
863,303
(11,841
214,391
1,066,296
194,911
1,261,207
Change in unrealized gain on investments
Issuance of 200,634 shares of nonvested stock, less forfeitures of 21,500 shares
(2
2,314
1,156
3,470
Issuance of common stock of Baltic Trading Limited
(16,568
97,609
81,041
(4
(580
(584
(26
26
Balance — September 30, 2013 (Predecessor)
849,021
15,763
85,821
951,050
283,822
1,234,872
6
Cash flows from operating activities:
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Non-cash reorganization items and fresh-start accounting adjustments, net
(917,399
Amortization of deferred financing costs
384
4,461
6,862
Amortization of time charters acquired
434
(68
(283
Amortization of discount on Convertible Senior Notes
1,592
3,653
Interest expense related to the de-designation of the interest rate swap
1,048
Unrealized loss on derivative instruments
Amortization of nonvested stock compensation expense
Change in assets and liabilities:
(Increase) decrease in due from charterers
(2,400
1,047
(3,066
Decrease (increase) in prepaid expenses and other current assets
5,519
(11,735
(244
(Decrease) increase in accounts payable and accrued expenses
(27,998
32,534
146
(Decrease) increase in deferred revenue
(104
(600
98
Increase in lease obligations
195
152
Deferred drydock costs incurred
(2,977
(9,253
(1,873
Net cash used in operating activities
(24,290
(33,317
(24,626
Cash flows from investing activities:
Purchase of vessels, including deposits
(918
(29,995
(41,097
Purchase of other fixed assets
(30
(415
(427
Changes in deposits of restricted cash
125
(125
Net cash used in investing activities
(823
(30,535
(41,524
Cash flows from financing activities:
Repayments on the $100 Million Term Loan Facility
(1,923
(3,846
Repayments on the $253 Million Term Loan Facility
(10,150
Proceeds on the 2010 Baltic Trading Credit Facility
1,000
Proceeds from the Baltic Trading $22 Million Term Loan Facility
22,000
Repayments on the Baltic Trading $22 Million Term Loan Facility
(375
(750
Repayments on the Baltic Trading $44 Million Term Loan Facility
(688
(1,375
Payment of dividend by subsidiary
Cash settlement of non-accredited Note holders
Proceeds from Rights Offering
100,000
Proceeds from issuance of common stock by subsidiary
81,700
Payment of common stock issuance costs by subsidiary
(111
(379
Payment of deferred financing costs
(471
(4,515
(695
Net cash (used in) provided by financing activities
(4,344
77,207
103,042
Net (decrease) increase in cash and cash equivalents
(29,457
13,355
36,892
Cash and cash equivalents at beginning of period
136,077
72,600
Cash and cash equivalents at end of period
109,492
(U.S. Dollars in Thousands, Except Per Share and Share Data)
Notes to Condensed Consolidated Financial Statements (unaudited)
1 - GENERAL INFORMATION
The accompanying condensed consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”), its wholly-owned subsidiaries, and its subsidiary, Baltic Trading Limited (collectively, the “Company”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T is incorporated under the laws of the Marshall Islands and as of September 30, 2014, is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco RE Investments LLC; and the ship-owning subsidiaries as set forth below. As of September 30, 2014, Genco Ship Management LLC is the sole owner of all of the outstanding shares of Genco Management (USA) Limited.
Bankruptcy Filing
On April 21, 2014 (the “Petition Date”), GS&T and its subsidiaries other than Baltic Trading Limited and its subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors continued to operate their businesses in the ordinary course as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Through the Chapter 11 Cases, the Debtors implemented a Prepackaged Plan of Reorganization of the Debtors Pursuant to Chapter 11 of the Bankruptcy Code (the “Prepack Plan”) for which the Company solicited votes from certain classes of its creditors prior to commencement of the Chapter 11 Cases in accordance with the Restructuring Support Agreement that the Debtors entered into with certain of its creditors on April 3, 2014. The Company subsequently emerged from bankruptcy on July 9, 2014.
The filing of the Chapter 11 Cases constituted an event of default with respect to each of the following agreements or instruments:
· the Credit Agreement, dated as of July 20, 2007 (as amended to date), by and among the Company as borrower, the banks and other financial institutions named therein as lenders, Wilmington Trust, N.A., as successor administrative and collateral agent, and the other parties thereto, relating to approximately $1,055,912 of principal plus accrued and unpaid interest, fees, costs, and other expenses (the “2007 Credit Facility”);
· the Loan Agreement, dated as of August 20, 2010 (as amended to date), by and among the Company as borrower, Genco Aquitaine Limited and the other subsidiaries of the Company named therein as guarantors, the banks and financial institutions named therein as lenders, BNP Paribas, Credit Agricole Corporate and Investment Bank, DVB Bank SE, Deutsche Bank AG Filiale Deutschlandgeschaft, Skandinaviska Enskilda Banken AB (publ) as mandated lead arrangers, BNP Paribas, Credit Agricole Corporate and Investment Bank, DVB Bank SE, Deutsche Bank AG, Skandinaviska Enskilda Banken AB (publ) as swap providers, and Deutsche Bank Luxembourg S.A. as agent for the lenders and the assignee, relating to approximately $175,718 of principal and accrued and unpaid interest, fees, costs, and other expenses (the “$253 Million Term Loan Facility”);
· the Loan Agreement, dated as of August 12, 2010 (as amended to date), by and among the Company as borrower, Genco Ocean Limited and the other subsidiaries of the Company named therein as guarantors, the banks and financial institutions named therein as lenders, and Credit Agricole Corporate and Investment Bank as agent and security trustee, relating to approximately $73,561 of principal plus accrued and unpaid interest, fees, costs, and other expenses (the “$100 Million Term Loan Facility”);
· the Indenture and First Supplemental Indenture relating to $125,000 of principal plus accrued and unpaid interest outstanding of the Company’s 5.00% Convertible Senior Notes (the “2010 Notes”) due August 15, 2015 (the “Indenture”); and
· the outstanding interest rate swap with DnB NOR Bank, relating to a liability position of $5,622.
As a result of the filing of the Chapter 11 Cases, all indebtedness outstanding under the 2007 Credit Facility and the Indenture was accelerated and became due and payable, and indebtedness under the other agreements and instruments described above were accelerated and become due and payable upon notice to the Company, subject to an automatic stay of any action to collect, assert, or recover a claim against the Company or the other Debtors and the application of the applicable provisions of the Bankruptcy Code.
On July 2, 2014, the Bankruptcy Court entered an order (the “Confirmation Order”), confirming the First Amended Prepackaged Plan of Reorganization of the Debtors Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”). Capitalized terms used but not defined below shall have the meanings given to them in the Plan. On July 9, 2014 (the “Effective Date”), the Debtors completed their financial restructuring and emerged from Chapter 11 through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms. References to “Successor Company” refer to the Company after July 9, 2014, after giving effect to the application of fresh-start reporting (see “Financial Statement Presentation” section below). References to “Predecessor Company” refer to the Company prior to July 9, 2014.
Key components of the Plan included:
· The conversion of 100% of the Claims under the 2007 Credit Facility into 81.1% of the Successor Company Common Stock (subject to dilution by the warrants issued under the Plan). On the Effective Date, the 2007 Credit Facility was terminated, and the liens and mortgages thereunder were released. Refer to Note 9 — Debt for further information.
· The conversion of 100% of the Claims under the 2010 Notes into 8.4% of the Successor Company Common Stock (subject to dilution by the warrants issued under the Plan). On the Effective Date, the 2010 Notes and the Indenture were fully satisfied and discharged. Refer to Note 10 — Convertible Senior Notes for further information.
· A fully backstopped Rights Offering for approximately 8.7% of the Successor Company Common Stock, in which holders of 2007 Credit Facility Claims were entitled to subscribe for up to 80% of the Successor Company Common Stock offered, and holders of the 2010 Notes Claims were entitled to subscribe for up to 20% of the Successor Company Common Stock being offered under the Rights Offering for an aggregate subscription price of $100,000.
· The amendment and restatement of the $253 Million Term Loan Facility and the $100 Million Term Loan Facility as of the Effective Date, with extended maturities, a financial covenant holiday and certain other amendments, as discussed further in Note 9 - Debt.
· The cancellation of the common stock of the Predecessor Company as of the Effective Date, with the holders thereof receiving warrants to acquire shares of the Successor Company Common Stock. Each of the Successor Company’s Equity Warrants is exercisable for one share of the Successor Company’s Common Stock, and holders received an aggregate of 3,938,298 of the Successor Company’s Equity Warrants for the common stock of the Predecessor Company. The Successor Company’s Equity Warrants in the aggregate are exercisable for approximately 6% of the Successor Company Common Stock (subject to dilution).
· Reinstatement, non-impairment or payment in full in the ordinary course of business during the pendency of the Chapter 11 Cases of all Allowed General Unsecured Claims, including Allowed Claims of trade vendors, suppliers, customers and charterers, per the approval by the Bankruptcy Court.
· The non-impairment of all other General Unsecured Claims under Section 1124 of the Bankruptcy Code.
· The establishment of the Genco Shipping & Trading Limited 2014 Management Incentive Plan (the “MIP”), which provides for the distribution of the Successor Company’s MIP Primary Equity in the form of shares representing 1.8% of the Successor Company’s Common Stock and three tiers of the Successor Company’s MIP Warrants (“MIP Warrants”) with staggered strike prices based on increasing equity values to the participating officers, directors, and other management of the Successor Company. These awards were made on August 7, 2014. Refer to Note 22 — Stock-Based Compensation.
Registration Rights Agreement
On the Effective Date, the Successor Company and the Registration Rights Parties entered into the Registration Rights Agreement. The Registration Rights Agreement provided the Registration Rights Parties who receive 10% or more of the Successor Company’s Common Stock under the Plan with demand and piggyback registration rights. All other Registration Rights Parties have piggyback registration rights only.
9
Reorganization Value
The Plan as confirmed by the Bankruptcy Court estimated the reorganization value of the Debtors to be $1.23 billion. This reorganization value was determined by, among other things, vessel appraisals and other valuation methodologies as well as the Debtors’ equity interests in Baltic Trading and Jinhui Shipping, $100,000 of cash invested through the Rights Offering and approximately $250,000 of debt projected to be on the balance sheet of the Debtors. It also assumed that The Debtors would issue approximately 61.7 million primary shares of New Genco Common Stock valued at $20.00 per share (prior to dilution) in order to satisfy claims pursuant to the Plan.
The foregoing estimates of the post-confirmation equity value of the Debtors and the share price of New Genco Common Stock were based on a number of assumptions, including no material adverse changes in the spot rate market, no further ship arrests, the continuing employment of the Debtors’ vessels, the continuing service revenue from Baltic Trading and MEP, the Rights Offering, and other assumptions. Such valuation assumptions are not a prediction or reflection of postconfirmation trading prices of the Debtors’ common stock. Such securities may trade at substantially lower or higher prices because of a number of factors. The trading prices of securities issued under a plan of reorganization are subject to many unforeseen circumstances and therefore cannot be predicted.
Successor Company Equity Warrant Agreement
On the Effective Date, pursuant to the Plan, the Successor Company’s Equity Warrants totaling 3,938,298 were issued pursuant to the terms of the Successor Company’s Equity Warrant Agreement (the “Equity Warrants”). Each of the Equity Warrants has a 7-year term (commencing on the day following the Effective Date) and are exercisable for one share of the Successor Company’s Common Stock. The Equity Warrants are exercisable on a cashless basis at an exercise price of $20.99 per share. The Successor Company’s Equity Warrant Agreement contains customary anti-dilution adjustments in the event of any stock split, reverse stock split, stock dividend, reclassification, dividend or other distributions (including, but not limited to, cash dividends), or business combination transaction.
The Equity Warrants were distributed to holders of the common stock of the Predecessor Company, which was cancelled as of the Effective Date. Shares of common stock of the Predecessor Company issued to directors, officers and employees of Genco under compensatory plans that were unvested as of the Effective Date were deemed vested automatically on the Effective Date, so that all Equity Warrants received in exchange were therefore deemed vested. Refer to Note 22 — Stock-Based Compensation for further information.
Financial Statement Presentation
Upon the Company’s emergence from the Chapter 11 Cases on July 9, 2014, the Company adopted fresh-start accounting in accordance with provisions of ASC 852, Reorganizations (“ASC 852”). Upon adoption of fresh-start accounting, the Company’s assets and liabilities were recorded at their value as of the fresh-start reporting date. The fair values of the Company’s assets and liabilities in conformance with ASC 805, Business Combinations, as of that date differed materially from the recorded values of its assets and liabilities as reflected in its historical consolidated financial statements. In addition, the Company’s adoption of fresh-start accounting may materially affect its results of operations following the fresh-start reporting dates, as the Company will have a new basis in its assets and liabilities. Consequently, the Company’s historical financial statements may not be reliable indicators of its financial condition and results of operations for any period after it adopted fresh-start accounting. As a result of the adoption of fresh-start reporting, the Company’s condensed consolidated balance sheets and condensed consolidated statements of operations subsequent to July 9, 2014 will not be comparable in many respects to our condensed consolidated balance sheets and condensed consolidated statements of operations prior to July 9, 2014.
Under ASC 852, fresh-start accounting is required upon emergence from Chapter 11 if (i) the value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all post-petition liabilities and allowed claims; and (ii) holders of existing voting shares immediately before confirmation receive less than 50% of the voting shares of the emerging entity. Accordingly, the Company qualified for and adopted fresh-start accounting as of the Effective Date. Adopting fresh-start accounting results in a new reporting entity with no beginning retained earnings or deficit. The cancellation of all existing shares outstanding on the Effective Date and issuance of new shares of the reorganized entity caused a related change of control of the Company under ASC 852.
The following fresh-start balance sheet illustrates the financial effects on the Company of the implementation of the Plan and the adoption of fresh-start reporting. This fresh-start balance sheet reflects the effect of the completion of the transactions included in the Plan, including the issuance of equity and the settlement of old indebtedness.
The effects of the Plan and fresh-start reporting on the Company’s condensed consolidated balance sheet are as follows:
10
Fresh-Start Adjustments
Predecessor July 9, 2014
Debt Discharge and Equity Issuance (a)
Reinstatement of Liabilities (b)
Revaluation of Assets and Liabilities (c)
Successor July 9, 2014
48,551
87,526
9,975
Due from charterers, net
13,194
30,800
(41
30,759
450
102,520
409
190,455
Vessels, net
2,604,731
(1,065,882
1,538,849
28,658
2,317
30,975
Deferred drydock, net
16,584
(16,396
188
Deferred financing costs, net
18,953
(11,893
7,060
Fixed assets, net
4,053
(3,443
610
51,804
2,725,597
(917,337
1,796,367
2,828,117
75,633
(916,928
1,986,822
Current liabilities not subject to compromise:
60,333
(1,086
6,478
65,725
4,250
27,992
997
(16
Total current liabilities not subject to compromise
65,596
34,470
98,964
Noncurrent liabilities not subject to compromise:
2,670
(2,670
161,500
214,289
375,789
Total noncurrent liabilities not subject to compromises
164,170
Total liabilities subject to compromise
1,443,446
(1,194,687
(248,759
1,673,212
(1,195,773
(2,686
474,753
Predecessor Common stock
Predecessor Additional paid-in capital
Successor Common stock
Successor Additional paid-in capital
Accumulated other comprehensive income
4,574
(34,931
936,774
(879,311
1,324,773
(914,242
(53,367
1,271,406
(a) Debt Discharge and Equity Issuance — This column reflects the following adjustments pursuant to the Plan:
· The discharge of the outstanding debt under the 2007 Credit Facility of $1,055,912.
· The discharge of the long-term interest payable due pursuant to the 2007 Credit Facility of $13,199.
· The discharge of the 2010 Notes liability of $117,473 and the bond coupon interest of $1,105.
· Receipt of the $100,000 rights offering pursuant to the Plan.
· The payment of interest expense accrued up until the Effective Date of $1,772, $59 and $156 for the 2007 Credit Facility, the $100 Million Term Loan Facility and the $253 Million Term Loan Facility, respectively.
· The paydown on the Effective Date of $1,923 and $5,075 for the $100 Million Term Loan Facility and $253 Million Term Loan Facility, respectively, which were due on the Effective Date as they were not paid during the pendency of the Chapter 11 Cases.
· The adjustment of net unamortized deferred financing fees of $15,383 for the 2007 Credit Facility, the 2010 Notes as well as the $100 Million and $253 Million Term Loan Facilities prior to the amendments and restatements as per the Plan.
· The payment of deferred financing fees of $3,490 for the Amended and Restated $100 Million and $253 Million Term Loan Facilities.
· Adjustment of equity of $1,271,406 to adjust for the cancellation of the old equity of the Predecessor Company and the issuance of the new equity for the Successor Company.
(b) Reinstatement of Liabilities — This column reflects the reinstatement of the remaining Liabilities subject to compromise for the Predecessor Company which were not already adjusted in the Debt Discharge and Equity Issuance column. It includes the following adjustments:
· The reclassification of the debt outstanding under the Amended and Restated $100 Million Term Loan Facility. This includes $7,692 of current long-term debt and $63,946 of long-term debt.
· The reclassification of the debt outstanding under the Amended and Restated $253 Million Term Loan Facility. This includes $20,300 of current long-term debt and $150,343 of long-term debt.
· The reinstatement of $5,622 related to the termination of the interest rate swap agreement with DnB Nor.
· The reinstatement of the $815 lease obligation.
· The reinstatement of $41 of pre-petition accounts payable due to vendors in the United States.
(c) Revaluation of Assets and Liabilities — Fresh-start accounting adjustments are made to reflect asset values at their estimated fair value, including:
· Adjustment of $179 to prepaid amounts for the Predecessor Company.
· Adjustment to reflect the fair value of time charters acquired of $434.
12
· Adjustment of $1,083,404 to reflect the fair value of vessel assets, vessel deposits, drydocking assets and other fixed assets as of the Effective Date.
· Adjustment of $2,670 to reflect the fair value of the Company’s current lease agreement which was previously recorded as long-term lease obligations. As of the Effective Date, the lease agreement has been valued at below market, therefore we have recorded in Prepaid expenses and other current assets an asset of $138 which will be amortized over the remaining life of the lease agreement.
· An adjustment of $166,067 to reflect the reorganization value of the Successor Company in excess of the fair value of assets, net of liabilities.
Other General Information
Below is the list of GS&T’s wholly owned ship-owning subsidiaries as of September 30, 2014:
Wholly Owned Subsidiaries
Vessel Acquired
Dwt
Delivery Date
Year Built
Genco Reliance Limited
Genco Reliance
29,952
12/6/04
1999
Genco Vigour Limited
Genco Vigour
73,941
12/15/04
Genco Explorer Limited
Genco Explorer
12/17/04
Genco Carrier Limited
Genco Carrier
47,180
12/28/04
1998
Genco Sugar Limited
Genco Sugar
12/30/04
Genco Pioneer Limited
Genco Pioneer
1/4/05
Genco Progress Limited
Genco Progress
1/12/05
Genco Wisdom Limited
Genco Wisdom
1/13/05
1997
Genco Success Limited
Genco Success
47,186
1/31/05
Genco Beauty Limited
Genco Beauty
2/7/05
Genco Knight Limited
Genco Knight
2/16/05
Genco Leader Limited
Genco Leader
Genco Marine Limited
Genco Marine
45,222
3/29/05
1996
Genco Prosperity Limited
Genco Prosperity
4/4/05
Genco Muse Limited
Genco Muse
48,913
10/14/05
2001
Genco Acheron Limited
Genco Acheron
72,495
11/7/06
Genco Surprise Limited
Genco Surprise
11/17/06
Genco Augustus Limited
Genco Augustus
180,151
8/17/07
2007
Genco Tiberius Limited
Genco Tiberius
175,874
8/28/07
Genco London Limited
Genco London
177,833
9/28/07
Genco Titus Limited
Genco Titus
177,729
11/15/07
Genco Challenger Limited
Genco Challenger
28,428
12/14/07
2003
Genco Charger Limited
Genco Charger
28,398
2005
Genco Warrior Limited
Genco Warrior
55,435
12/17/07
Genco Predator Limited
Genco Predator
55,407
12/20/07
Genco Hunter Limited
Genco Hunter
58,729
Genco Champion Limited
Genco Champion
28,445
1/2/08
2006
Genco Constantine Limited
Genco Constantine
180,183
2/21/08
2008
Genco Raptor LLC
Genco Raptor
76,499
6/23/08
Genco Cavalier LLC
Genco Cavalier
53,617
7/17/08
Genco Thunder LLC
Genco Thunder
76,588
9/25/08
Genco Hadrian Limited
Genco Hadrian
169,694
12/29/08
Genco Commodus Limited
Genco Commodus
169,025
7/22/09
2009
Genco Maximus Limited
Genco Maximus
9/18/09
Genco Claudius Limited
Genco Claudius
12/30/09
2010
Genco Bay Limited
Genco Bay
34,296
8/24/10
Genco Ocean Limited
Genco Ocean
34,409
7/26/10
Genco Avra Limited
Genco Avra
34,391
5/12/11
2011
Genco Mare Limited
Genco Mare
34,428
7/20/11
Genco Spirit Limited
Genco Spirit
34,432
11/10/11
Genco Aquitaine Limited
Genco Aquitaine
57,981
8/18/10
Genco Ardennes Limited
Genco Ardennes
8/31/10
Genco Auvergne Limited
Genco Auvergne
8/16/10
Genco Bourgogne Limited
Genco Bourgogne
Genco Brittany Limited
Genco Brittany
9/23/10
Genco Languedoc Limited
Genco Languedoc
9/29/10
Genco Loire Limited
Genco Loire
53,416
8/4/10
Genco Lorraine Limited
Genco Lorraine
7/29/10
Genco Normandy Limited
Genco Normandy
53,596
8/10/10
Genco Picardy Limited
Genco Picardy
55,257
Genco Provence Limited
Genco Provence
55,317
8/23/10
2004
Genco Pyrenees Limited
Genco Pyrenees
Genco Rhone Limited
Genco Rhone
58,018
3/29/11
13
Baltic Trading Limited (“Baltic Trading”) was a wholly-owned indirect subsidiary of GS&T until Baltic Trading completed its initial public offering, or IPO, on March 15, 2010. As of September 30, 2014 and December 31, 2013, Genco Investments LLC owned 6,356,471 shares of Baltic Trading’s Class B Stock, which represented an 11.04% and 11.05% ownership interest in Baltic Trading, respectively, and 65.06% and 65.08% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock, respectively. Additionally, pursuant to the subscription agreement between Genco Investments LLC and Baltic Trading, for so long as GS&T directly or indirectly holds at least 10% of the aggregate number of outstanding shares of Baltic Trading’s common stock and Class B stock, Genco Investments LLC will be entitled to receive an additional number of shares of Baltic Trading’s Class B stock equal to 2% of the number of common shares issued in the future, other than shares issued under Baltic Trading’s Equity Incentive Plans.
Below is the list of Baltic Trading’s wholly owned ship-owning subsidiaries as of September 30, 2014:
Baltic Trading’s Wholly Owned Subsidiaries
Baltic Leopard Limited
Baltic Leopard
53,447
4/8/10
Baltic Panther Limited
Baltic Panther
53,351
4/29/10
Baltic Cougar Limited
Baltic Cougar
53,432
5/28/10
Baltic Jaguar Limited
Baltic Jaguar
53,474
5/14/10
Baltic Bear Limited
Baltic Bear
177,717
Baltic Wolf Limited
Baltic Wolf
177,752
10/14/10
Baltic Wind Limited
Baltic Wind
Baltic Cove Limited
Baltic Cove
34,403
Baltic Breeze Limited
Baltic Breeze
34,386
10/12/10
Baltic Fox Limited
Baltic Fox
31,883
9/6/13
Baltic Hare Limited
Baltic Hare
31,887
9/5/13
Baltic Lion Limited
Baltic Lion
179,185
12/27/13
2012
Baltic Tiger Limited
Baltic Tiger
11/26/13
Baltic Hornet Limited
Baltic Hornet
63,574
10/29/14
2014
Baltic Wasp Limited
Baltic Wasp
64,000
Q4 2014 (1)
2014 (1)
Baltic Scorpion Limited
Baltic Scorpion
Q2 2015 (1)
2015 (1)
Baltic Mantis Limited
Baltic Mantis
Q3 2015 (1)
(1) Built dates and delivery dates for vessels being delivered in the future are estimates based on the guidance received from the sellers and the respective shipyards.
The Company provides technical services for drybulk vessels purchased by Maritime Equity Partners LLC (“MEP”). Peter C. Georgiopoulos, Chairman of the Board of Directors of GS&T, controls and has a minority interest in MEP. These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services. The services are provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs and were provided for an initial term of one year. MEP has the right to cancel provision of services on 60 days’ notice with payment of a one-year termination fee upon a change in control of the Company. The Company may terminate provision of the services at any time on 60 days’ notice.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which include the accounts of GS&T, its wholly-owned subsidiaries and Baltic Trading, a subsidiary in which the Company owns a majority of the voting interests and exercises control. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013 (the “2013 10-K”). The results of operations for the periods January 1, 2014 through July 9, 2014 for the Predecessor Company and July 9, 2014 through September 30, 2014 for the Successor Company are not necessarily indicative of the operating results to be expected for the year ending December 31, 2014.
Vessels, net is stated at cost less accumulated depreciation. Included in vessel costs are acquisition costs directly attributable to the acquisition of a vessel and expenditures made to prepare the vessel for its initial voyage. The Company also capitalizes interest costs for a vessel under construction as a cost which is directly attributable to the acquisition of a vessel. Vessels are depreciated on a straight-line basis over their estimated useful lives, determined to be 25 years from the date of initial delivery from the shipyard. Depreciation expense for vessels for the period from July 9 to September 30, 2014 for the Successor Company was $17,221. Depreciation expense for vessels for the period from July 1 to July 9, 2014 and from January 1 to July 9, 2014 for the Predecessor Company was $3,039 and $71,756, respectively. Depreciation expense for vessels for the three and nine months ended September 30, 2013 for the Predecessor Company was $33,591 and $99,432, respectively.
Depreciation expense is calculated based on cost less the estimated residual scrap value. The costs of significant replacements, renewals and betterments are capitalized and depreciated over the shorter of the vessel’s remaining estimated useful life or the estimated life of the renewal or betterment. Undepreciated cost of any asset component being replaced that was acquired after the initial vessel purchase is written off as a component of vessel operating expense. Expenditures for routine maintenance and repairs are expensed as incurred. Scrap value is estimated by the Company by taking the cost of steel times the weight of the ship noted in lightweight tons (lwt). Effective July 9, 2014, on the Effective Date, the Company increased the estimated scrap value of the vessels from $245 per lwt to $310 per lwt prospectively based on the 15-year average scrap value of steel. The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of the vessel assets. During the period from July 9 to September 30, 2014, the increase in the estimated scrap value resulted in a decrease in depreciation expense of $735 for the Successor Company. The decrease in depreciation expense resulted in a $0.02 change to the basic and diluted net loss per share during the period from July 9 to September 30, 2014. The basic and diluted net loss per share would have been ($0.32) per share if there was no change in the estimated scrap value.
Deferred revenue includes cash received from charterers prior to it being earned. These amounts are recognized as voyage revenue when earned. Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues. As of September 30, 2014 and December 31, 2013, the Company had an accrual of $587 and $536, respectively, related to these estimated customer claims.
Voyage expense recognition
In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer. There are certain other non-specified voyage expenses, such as commissions, which are typically borne by the Company. At the inception of a time charter, the Company records the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses. These differences in bunkers related in a net (gain) loss of ($36) during the period from July 9 to September 30, 2014 for the Successor Company. During the period from July 1 to July 9, 2014 and from January 1 to July 9, 2014, the Predecessor Company recorded net (gains) losses of ($3) and ($252), respectively. During the three and nine months ended September 30, 2013, the Predecessor Company recorded net (gains) losses of
15
$296 and ($47), respectively. Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.
Net loss attributable to noncontrolling interest during the periods from July 9 to September 30, 2014 for the Successor Company was $4,272. Net loss attributable to noncontrolling interest during the period from July 1 to July 9, 2014 and from January 1 to July 9, 2014 for the Predecessor Company was $568 and $8,734. Lastly, net loss attributable to noncontrolling interest during the three and nine months ended September 30, 2013 for the Predecessor Company was $1,942 and $9,300, respectively. The aforementioned amounts reflect the noncontrolling interest’s share of the net loss of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market, in vessel pools or on spot market-related time charters. The spot market represents immediate chartering of a vessel, usually for single voyages. At September 30, 2014, the noncontrolling interest held an 88.96% economic interest in Baltic Trading while only holding 34.94% of the voting power. At December 31, 2013, the noncontrolling interest held an 88.95% economic interest in Baltic Trading while only holding 34.92% of the voting power.
Income taxes
Pursuant to certain agreements, GS&T technically and commercially manages vessels for Baltic Trading, as well as provides technical management of vessels for MEP in exchange for specified fees for these services provided. These services are performed by Genco Management (USA) Limited (“Genco (USA)”), which has elected to be taxed as a corporation for United States federal income tax purposes. As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services. Genco (USA) has entered into a cost-sharing agreement with the Company and Genco Ship Management LLC, collectively Manco, pursuant to which Genco (USA) agrees to reimburse Manco for the costs incurred by Genco (USA) for the use of Manco’s personnel and services in connection with the provision of the services for both Baltic Trading and MEP’s vessels.
Total revenue earned for these services by the Successor Company during the period from July 9 to September 30, 2014 was $1,692, of which $936 eliminated upon consolidation. After allocation of certain expenses, there was taxable income of $847 associated with these activities for the period from July 9 to September 30, 2014. This resulted in estimated tax expense of $381 for the Successor Company for the period from July 9 to September 30, 2014.
Total revenue earned for these services by the Predecessor Company during the period from July 1 to July 9, 2014 and for the period from January 1 to July 9, 2014 was $160 and $3,857, respectively, of which $89 and $2,156, respectively, were eliminated upon consolidation. After allocation of certain expenses, there was taxable income of $73 associated with these activities for the period from July 1 to July 9, 2014. This resulted in estimated income tax expense of $36 for the period from July 1 to July 9, 2014. After allocation of certain expenses, there was taxable income of $1,723 associated with these activities for the period from January 1 to July 9, 2014. This resulted in income tax expense of $776 for the period from January 1 to July 9, 2014.
Total revenue earned for these services by the Predecessor Company during the three and nine months ended September 30, 2013 was $2,010 and $5,015, respectively, of which $772 and $2,148, respectively, were eliminated upon consolidation. After allocation of certain expenses, there was taxable income of $1,045 associated with these activities for the three months ended September 30, 2013. This resulted in estimated income tax expense of $471 for the three month period ended September 30, 2013. After allocation of certain expenses, there was taxable income of $2,262 associated with these activities for the nine months ended September 30, 2013. This resulted in income tax expense of $975 for the nine months ended September 30, 2013.
Baltic Trading is subject to income tax on its United States source income. During the period from July 9 to September 30, 2014, Baltic Trading had United States operations which resulted in United States source income of $588. Baltic Trading’s estimated United States income tax expense for the period from July 9 to September 30, 2014 was $12.
During the period from July 1 to July 9, 2014 and for the period from January 1 to July 9, 2014, Baltic Trading had United States operations which resulted in United States source income of $101 and $1,930, respectively. Baltic Trading’s United States income tax expense for the period from July 1 to July 9, 2014 and for the period from January 1 to July 9, 2014 was $2 and $39, respectively.
During the three and nine months ended September 30, 2013, Baltic Trading had United States operations which resulted in United States source income of $420 and $1,059, respectively. Baltic Trading’s United States income tax expense for the three and nine months ended September 30, 2013 was $8 and $22, respectively.
During the period from July 9 to September 30, 2014, the Successor Company recorded other operating income of $296. Other operating income consisted of $296 related to the third installment which was due on December 30, 2012 from Samsun Logix Corporation (“Samsun”) pursuant to the rehabilitation plan which was approved by the South Korean courts. Refer to Note 21 —Commitments and Contingencies for further information regarding the bankruptcy settlements with Samsun.
Stock-based Compensation
The Company follows ASC Subtopic 718-10, Compensation — Stock Compensation (“ASC 718-10”), for nonvested stock issued under its equity incentive plans. Stock-based compensation costs from nonvested stock have been classified as a component of additional paid-in capital.
Recent accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this adoption on its condensed consolidated financial statements.
3 - SEGMENT INFORMATION
The Company determines its operating segments based on the information utilized by the chief operating decision maker to assess performance. Based on this information, the Company has two reportable operating segments, GS&T and Baltic Trading. Both GS&T and Baltic Trading are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T seeks to deploy its vessels on time charters, spot market-related time charters or in vessel pools trading in the spot market and Baltic Trading seeks to deploy its vessel charters in the spot market, which represents immediate chartering of a vessel, usually for single voyages, or employing vessels on spot market-related time charters or in vessel pools. Segment results are evaluated based on net (loss) income. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s condensed consolidated financial statements. As a result of the adoption of fresh-start accounting on the Effective Date, the cost basis for certain of Baltic Trading’s assets were revalued and are reflected in the Baltic Trading balances in the segment information reported below.
The following table presents a reconciliation of total voyage revenue from external (third party) customers for the Company’s two operating segments to total consolidated voyage revenue from external customers for the Successor Company for the period from July 9 to September 30, 2014 and for the Predecessor Company for the period from July 1 to July 9, 2014, January 1 to July 9, 2014 and for the three and nine months ended September 30, 2013.
Voyage revenue from external customers
GS&T
34,699
3,240
49,503
Baltic Trading
9,244
794
9,102
Total operating segments
Eliminating revenue
Total consolidated voyage revenue from external customers
17
94,171
121,755
24,588
21,467
The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the Successor Company for the period from July 9 to September 30, 2014 and for the Predecessor Company for the period from July 1 to July 9, 2014, January 1 to July 9, 2014 and for the three and nine months ended September 30, 2013. The intersegment revenue noted in the following table represents revenue earned by GS&T pursuant to the management agreement entered into with Baltic Trading, which includes commercial service fees, technical service fees and sale and purchase fees, if any.
Intersegment revenue
936
89
1,187
(936
(89
(1,187
Total consolidated intersegment revenue
2,156
2,563
(2,156
(2,563
The following table presents a reconciliation of total net (loss) income for the Company’s two operating segments to total consolidated net (loss) income for the Successor Company for the period from July 9 to September 30, 2014 and for the Predecessor Company for the period from July 1 to July 9, 2014, January 1 to July 9, 2014 and for the three and nine months ended September 30, 2013. The eliminating net loss (income) noted in the following table consists of the elimination of intercompany transactions between GS&T and Baltic Trading, as well as dividends due to GS&T from Baltic Trading for its Class B shares of Baltic Trading.
(18,823
976,569
(34,277
(3,675
(84,223
(2,270
(22,498
892,346
(36,547
Eliminating net loss (income)
64
429
Total consolidated net (loss) income
18
878,127
(125,422
(93,430
(11,979
784,697
(137,401
Eliminating net loss
140
465
The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated assets as of September 30, 2014 and December 31, 2013. The eliminating assets noted in the following table consist of the elimination of intercompany transactions resulting from the capitalization of fees paid to GS&T by Baltic Trading as vessel assets, including related accumulated depreciation, as well as the outstanding receivable balance due to GS&T from Baltic Trading as of September 30, 2014 and December 31, 2013.
1,447,684
2,404,811
478,951
557,367
1,926,635
2,962,178
Eliminating assets
(36
(4,924
Total consolidated assets
4 - CASH FLOW INFORMATION
As of December 31, 2013, the Company had four interest rate swaps which are described and discussed in Note 11 — Interest Rate Swap Agreements. At December 31, 2013, the four swaps were in a liability position of $6,975, all of which was classified within current liabilities.
For the period from January 1 to July 9, 2014, the Predecessor Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $53 for the purchase of vessels, including deposits and $20 for the purchase of other fixed assets. Additionally, for the period from January 1 to July 9, 2014, the Predecessor Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $456 associated with deferred financing fees.
Of the $35,232 of professional fees and trustee fees recognized in Reorganization items, net for the period from January 1 to July 9, 2014 by the Predecessor Company (refer to Note 20), $2,703 was paid through July 9, 2014 and $32,529 is included in accounts payable and accrued expenses as of July 9, 2014.
For the period from July 9 to September 30, 2014, the Successor Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $34 for the purchase of vessels, including deposits and $92 for the purchase of other fixed assets.
Professional fees and trustee fees in the amount of $1,167 were recognized in Reorganization items, net for the period from July 9 to September 30, 2014 by the Successor Company (refer to Note 20). During this period, $24,740 of professional fees and trustee fees were paid through September 30, 2014 and $8,955 is included in Accounts payable and accrued expenses as of September 30, 2014.
For the nine months ended September 30, 2013, the Predecessor Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $79 for the purchase of vessels and $200 for the purchase of other fixed assets. For the nine months ended September 30, 2013, the Predecessor Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $123 associated with deferred financing fees and $280 for the payment of common stock issuance costs by its subsidiary. For the nine months ended September 30, 2013, the Predecessor Company
had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in current Interest payable consisting of $13,199 associated with deferred financing fees.
During the period from January 1 to July 9, 2014, the Predecessor Company made a reclassification of $984 from fixed assets to vessel assets for items that should be capitalized and depreciated over the remaining life of the respective vessels.
During the period from July 9 to September 30, 2014, cash paid by the Successor Company for interest, net of amounts capitalized, was $1,219. During the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013, cash paid by the Predecessor Company for interest, net of amounts capitalized, and including bond coupon interest paid, was $40,209 and $58,043, respectively.
During the period from July 9 to September 30, 2014, cash paid by the Successor Company for estimated income taxes was $320. During the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013, cash paid by the Predecessor Company for estimated income taxes was $1,495 and $775, respectively.
On August 7, 2014, the Company made grants of nonvested common stock pursuant to the MIP as approved by the Plan in the amount of 1,110,600 shares to the participating officers, directors and other management of the Successor Company. The aggregate fair value of such nonvested stock was $22,212. Additionally, on August 7, 2014, the Company issued 8,557,461 of MIP Warrants to the participating officers directors and other management of the Successor Company. The aggregate fair value of these awards upon emergence from bankruptcy was $54,436.
On April 9, 2014, Baltic Trading made grants of nonvested common stock in the amount of 36,345 shares to directors of Baltic Trading. The aggregate fair value of such nonvested stock was $225.
On May 16, 2013, the Company made grants of nonvested common stock under the Genco Shipping & Trading Limited 2012 Equity Incentive Plan in the amount of 200,634 shares in the aggregate to directors of the Company. The aggregate fair value of such nonvested stock was $315. These nonvested shares were cancelled on the Effective Date and the holder received warrants to acquire shares of New Genco Common Stock. Refer to Note 1 - General Information for information regarding the Chapter 11 Cases. The aggregate fair value of such nonvested stock was $315. On May 16, 2013, Baltic Trading made grants of nonvested common stock in the amount of 59,680 shares to directors of Baltic Trading. These shares vested on April 9, 2014. The aggregate fair value of such nonvested stock was $225.
5 - VESSEL ACQUISITIONS
On July 2, 2013, Baltic Trading entered into agreements to purchase two Handysize drybulk vessels from subsidiaries of Clipper Group for an aggregate purchase price of $41,000. The Baltic Hare, a 2009-built Handysize vessel, was delivered on September 5, 2013 and the Baltic Fox, a 2010-built Handysize vessel, was delivered on September 6, 2013. Baltic Trading financed the vessel acquisitions with proceeds from its May 28, 2013 common stock offering and borrowings under its $22 Million Term Loan Facility entered into on August 30, 2013.
On October 31, 2013, Baltic Trading entered into agreements to purchase two Capesize drybulk vessels from affiliates of SK Shipping Co. Ltd. for an aggregate purchase price of $103,000. The Baltic Lion, a 2012-built Capesize vessel, was delivered on December 27, 2013, and the Baltic Tiger, a 2011-built Capesize vessel, was delivered on November 26, 2013. Baltic Trading financed the vessel acquisitions with cash on hand and borrowings under its $44 Million Term Loan Facility entered into on December 3, 2013.
On November 13, 2013, Baltic Trading entered into agreements to purchase up to four 64,000 dwt Ultramax newbuilding drybulk vessels from Yangfan Group Co., Ltd. for a purchase price of $28,000 per vessel, or up to $112,000 in the aggregate. Baltic Trading agreed to purchase two such vessels, to be renamed the Baltic Hornet and Baltic Wasp, and obtained an option to purchase up to two additional such vessels for the same purchase price, which Baltic Trading exercised on January 8, 2014. These vessels are to be renamed the Baltic Mantis and the Baltic Scorpion. The purchases are subject to completion of customary additional documentation and closing conditions. The first of these vessels, the Baltic Hornet, was delivered to Baltic Trading on October 29, 2014. The Baltic Wasp is expected to be delivered to Baltic Trading during the fourth quarter of 2014. The Baltic Scorpion and the Baltic Mantis are expected to be delivered to Baltic Trading during the second and third quarters of 2015, respectively. As of September 30, 2014 and December 31, 2013, deposits on vessels were $31,396 and $1,013, respectively. Baltic Trading intends to use a combination of cash on hand, future cash flow from operations as well as debt or equity financing, including the 2014 Baltic Trading Term Loan Facilities as described in Note 9 — Debt, to fully finance the acquisition of these four Ultramax newbuilding drybulk vessels.
Refer to Note 1 — General Information for a listing of the vessel delivery dates for the vessels in the Company’s fleet and the estimated delivery dates for vessels that Baltic Trading has entered into agreements to purchase.
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Below market time charters, including those acquired during previous periods, were amortized as an increase to voyage revenue by the Predecessor Company in the amount of $2 and $68 during the period from July 1 to July 9, 2014 and January 1 to July 9, 2014, respectively, and $51 and $283 during the three and nine months ended September 30, 2013, respectively. As part of fresh-start accounting, the remaining liability for below market time charters was expensed during the re-valuation of our liabilities, refer to “Financial Statement Presentation” section in Note 1 — General Information.
Additionally, as part of fresh-start accounting, an asset for above market time charters was recorded in Time charters acquired in the amount of $450 for the Genco Bourgogne, Genco Muse and Genco Spirit. These above market time charters were amortized as a decrease to voyage revenue by the Successor Company in the amount of $434 during the period from July 9 to September 30, 2014.
Capitalized interest expense associated with the newbuilding contracts entered into by Baltic Trading as recorded by the Successor Company for the period from July 9 to September 30, 2014 was $208. Capitalized interest expense associated with the newbuilding contracts entered into by Baltic Trading as recorded by the Predecessor Company for the periods from July 1 to July 9, 2014, January 1 to July 9, 2014, and for the three and nine months ended September 30, 2013 was $20, $295, $0 and $0, respectively.
6 - INVESTMENTS
The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”) and Korea Line Corporation (“KLC”). Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping. KLC is a marine transportation service company which operates a fleet of carriers which includes carriers for iron ore, liquefied natural gas and tankers for oil and petroleum products. These investments are designated as Available For Sale (“AFS”) and are reported at fair value, with unrealized gains and losses recorded in equity as a component of accumulated other comprehensive income (loss) (“AOCI”). At September 30, 2014 and December 31, 2013, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $38,384 and $77,488, respectively, based on the last closing price during each respective quarter on September 30, 2014 and December 30, 2013, respectively. At September 30, 2014 and December 31, 2013, the Company held 3,355 shares of KLC stock which is recorded at its fair value of $79 and $82, respectively, based on the last closing price during each respective quarter on September 30, 2014 and December 30, 2013.
The Company reviews the investment in Jinhui and KLC for impairment on a quarterly basis. There were no impairment charges recognized for the periods from January 1 to July 9, 2014, July 9 to September 30, 2014 or for the nine months ended September 30, 2013.
The unrealized gain (losses) on the Jinhui capital stock and KLC stock are a component of AOCI since these investments are designated as AFS securities. As part of fresh-start reporting, the Company revised its cost basis for its investments in Jinhui and KLC based on their fair values on the Effective Date.
Refer to Note 12 — Accumulated Other Comprehensive Income (Loss) for a breakdown of the components of AOCI.
7 — NET (LOSS) EARNINGS PER COMMON SHARE
The computation of basic net (loss) earnings per share is based on the weighted-average number of common shares outstanding during the year. The computation of diluted net (loss) earnings per share assumes the vesting of nonvested stock awards (refer to Note 22 — Stock-Based Compensation), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive. Of the 1,110,600 and 0 nonvested shares outstanding at September 30, 2014 and July 9, 2014 for the Successor Company and Predecessor Company, respectively (refer to Note 22 — Stock-Based Compensation), all are anti-dilutive. The Successor Company’s diluted net (loss) earnings per share will also reflect the assumed conversion of the Equity Warrants and MIP Warrants issued by the Successor Company if the impact is dilutive under the treasury stock method. The Predecessor Company’s diluted net (loss) earnings per share will also reflect the assumed conversion of the Company’s convertible debt if the impact is dilutive under the “if converted” method. The impact of the shares convertible under the Predecessor Company’s convertible notes is excluded from the computation of diluted earnings per share when the interest expense per common share obtainable upon conversion is greater than basic earnings per share.
The components of the denominator for the calculation of basic net (loss) earnings per share and diluted net (loss) earnings per share are as follows:
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Common shares outstanding, basic:
Weighted-average common shares outstanding, basic
Common shares outstanding, diluted:
Dilutive effect of warrants
Dilutive effect of convertible notes
Dilutive effect of restricted stock awards
Weighted-average common shares outstanding, diluted
The following table sets forth a reconciliation of the net (loss) income attributable to GS&T and the net (loss) income attributable to GS&T for diluted net (loss) earnings per share under the “if-converted” method:
Net (loss) income attributable to GS&T
Interest expense related to convertible notes, if dilutive
Net (loss) income attributable to GS&T for the computation of diluted net loss per share
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8 - RELATED PARTY TRANSACTIONS
The following represent related party transactions reflected in these condensed consolidated financial statements:
The Company makes available employees performing internal audit services to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board. For the period from July 9 to September 30, 2014, the Successor Company invoiced $9 to GMC and for the period from January 1 to July 9, 2014 and for the nine months ended September 30, 2013, the Predecessor Company invoiced $72 and $110, respectively, to GMC. The amounts billed to GMC include time associated with such internal audit services and other expenditures. Additionally, for the period from July 9 to September 30, 2014, the Successor Company incurred travel and other office related expenditures totaling $22. For the period from January 1 to July 9, 2014 and for the nine months ended September 30, 2013, the Predecessor Company incurred travel and other office related expenditures totaling $49 and $82, respectively. These amounts are reimbursable to GMC or its service provider. At September 30, 2014 and December 31, 2013, the amount due to GMC from the Company was $13 and $16, respectively.
During the period from July 9 to September 30, 2014, the Successor Company incurred legal services (primarily in connection with vessel acquisitions) aggregating $2 from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board. Additionally, during the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013, the Predecessor Company incurred legal service aggregating $3 and $20, respectively, from Constantine Georgiopoulos. At September 30, 2014 and December 31, 2013, the amount due to Constantine Georgiopoulos was $2 and $25, respectively.
GS&T and Baltic Trading have entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in their fleets. Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean. During the period from July 9 to September 30, 2014, Aegean supplied lubricating oils to the Successor Company’s vessels aggregating $419. Additionally, during the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013, Aegean supplied lubricating oils to the Predecessor Company’s vessels aggregating $1,087 and $1,022, respectively. At September 30, 2014 and December 31, 2013, $277 and $263 remained outstanding, respectively.
During the period from July 9 to September 30, 2014, the Successor Company invoiced MEP for Technical serviced provided and expenses paid on MEP’s behalf aggregating $766. During the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $1,743 and $2,570, respectively. Peter C. Georgiopoulos, Chairman of the Board, controls and has a minority interest in MEP. At September 30, 2014 and December 31, 2013, $3 and $7, respectively, was due to the Company from MEP. Total service revenue earned by the Successor Company for the technical service provided to MEP for the period from July 9 to September 30, 2014 was $756. Total service revenue earned by the Predecessor Company for technical service provided to MEP for the period from January 1 to July 9, 2014 and for the nine months ended September 30, 2013 was $1,701 and $2,457, respectively.
9 - DEBT
Long-term debt consists of the following:
2007 Credit Facility
1,055,912
$100 Million Term Loan Facility
69,714
75,484
$253 Million Term Loan Facility
170,643
180,793
2010 Baltic Trading Credit Facility
102,250
Baltic Trading $22 Million Term Loan Facility
20,500
21,625
Baltic Trading $44 Million Term Loan Facility
41,938
44,000
Less: Current portion
(32,242
(1,316,439
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On July 20, 2007, the Company entered into the 2007 Credit Facility with DnB NOR Bank ASA. The maximum amount that may be borrowed under the 2007 Credit Facility prior to its termination as part of the Plan was $1,055,912.
In 2009, the Company obtained a waiver of the collateral maintenance covenant under this facility until the Company can represent that it is in compliance with all of its financial covenants and is otherwise able to pay a dividend and purchase or redeem shares of common stock under the terms of the facility in effect before the waiver. The Company’s cash dividends and share repurchases were suspended until the collateral maintenance financial covenant could be satisfied.
The maximum leverage ratio covenant and minimum permitted consolidated interest ratio covenants were waived for the periods ending on and including December 31, 2013 pursuant to the August 1, 2012 agreements to amend or waive certain provisions of the agreements for the 2007 Credit Facility, $100 Million Term Loan Facility and the $253 Million Term Loan Facility (as defined below) (the “August 2012 Agreements”).
The gross interest-bearing debt to total capital covenant ended during the period ending on and including December 31, 2013 pursuant to the August 2012 Agreements. This covenant limited the ratio of the Company’s interest-bearing indebtedness to the sum of its interest-bearing indebtedness and its consolidated net worth in accordance with U.S. GAAP to 62.5% on the last day of any fiscal quarter during the waiver period.
Additionally, pursuant to the August 2012 Agreements, the total applicable margin over LIBOR payable on the principal amount of debt outstanding increased from 2.0% to 3.0% per annum. The minimum cash balance required was also increased from $500 to $750 per vessel mortgaged under this facility pursuant to the August 2012 Agreements.
Pursuant to the amendment to the 2007 Credit Facility which was entered into on December 21, 2011, the Company was subject to a facility fee of 2.0% per annum on the average daily outstanding principal amount of the loans outstanding, payable quarterly in arrears, which was subject to a reduction to 1.0% if the Company consummated an equity offering resulting in an aggregate amount of $50,000 of gross proceeds. On February 28, 2012, the Company completed an equity offering of 7,500,000 shares which resulted in gross proceeds of $53,250. As such, effective February 28, 2012, the facility fee was reduced to 1.0%.
To allow discussions with our creditors concerning our restructuring to continue into April 2014 without the need to file for immediate bankruptcy relief, on March 31, 2014, we entered into agreements with certain of the lenders under our 2007 Credit Facility, our $100 Million Term Loan Facility, and our $253 Million Term Loan Facility (our “Credit Facilities”) to obtain waivers or forbearances with respect to certain potential or actual events of default as of March 31, 2014 as follows (the “Relief Agreements”):
· not making the scheduled amortization payment on March 31, 2014 under our 2007 Credit Facility;
· not meeting the consolidated interest ratio covenant for the period ended March 31, 2014;
· not meeting the maximum leverage ratio covenant for the period ending March 31, 2014;
· not meeting the collateral maintenance test under the 2007 Credit Facility;
· not meeting the minimum cash balance covenant under the 2007 Credit Facility;
· not furnishing audited financial statements to the lenders within 90 days after year end for the year ended December 31, 2013;
· a cross-default with respect to our outstanding interest rate swap with respect to the foregoing;
· cross-defaults among our credit facilities with respect to the foregoing; and
· any related defaults or events of default resulting from the failure to give notice with respect to any of the foregoing.
The Relief Agreement for our 2007 Credit Facility provided that the agent and consenting lenders would forbear to exercise their rights and remedies through 11:59 p.m. on April 1, 2014 with respect to the foregoing potential or actual events of default, subject to earlier termination if a subsequent event of default occurs under our credit agreements other than those described above or if we breach the terms of the Relief Agreement. The Relief Agreements for our other two Credit Facilities provided that the agent and lenders waived through 11:59 p.m. on April 1, 2014 the foregoing potential or actual events of default, subject to earlier termination if
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a subsequent event of default occurs under our credit agreements or if we breach the terms of the Relief Agreements. Notwithstanding such waivers and forbearances, the fact that we did not make the scheduled amortization payment on March 31, 2014 constituted an event of default under our currently outstanding interest rate swap. In addition, under the indenture and supplemental indenture (the “Indenture”) governing our 5.0% Convertible Senior Notes issued on July 27, 2010 (the “2010 Notes”), our failure to make such payment would constitute an event of default under the Indenture if we fail to cure such default within 30 days after notice from the trustee under the Indenture.
On April 1, 2014, we entered into new agreements with the other parties to the Relief Agreements that extended the expiration of the forbearances and waivers under the Relief Agreements from 11:59 p.m. on April 1, 2014 to 11:59 p.m. on April 21, 2014. Also, the forbearances and waivers would have terminated if a definitive agreement for our restructuring was not effective by 11:59 p.m. on April 4, 2014. We avoided this termination through our entry into the Support Agreement. Such new agreements are otherwise on substantially the same terms and conditions as the Relief Agreements.
As of July 9, 2014, the Effective Date, the 2007 Credit Facility was terminated and the liens and mortgages related thereto were released as part of the Plan. Refer to the “Bankruptcy Filing” section of Note 1 — General Information for further information regarding the Chapter 11 Cases.
On August 12, 2010, the Company entered into the $100 Million Term Loan Facility. As of September 30, 2014, the Company had utilized its maximum borrowing capacity of $100,000. The Company has used the $100 Million Term Loan Facility to fund or refund the Company a portion of the purchase price of the acquisition of five vessels from companies within the Metrostar group of companies. As of September 30, 2014, there was no availability under the $100 Million Term Loan Facility.
Pursuant to the amendments to the $100 Million Term Loan Facility that were entered into on December 21, 2011 and the August 2012 Agreements, the maximum leverage ratio covenant and the minimum permitted consolidated interest ratio covenant were waived for the periods ending on and including December 31, 2013.
As of September 30, 2014, the Company believes it is in compliance with all of the financial covenants under the $100 Million Term Loan Facility, as amended.
See above in this note under the heading “2007 Credit Facilities” for a description of the agreement the Company entered into to obtain waivers with respect to certain events of default relating to the $100 Million Term Loan Facility. See the “Bankruptcy Filing” section under Note 1 — General Information for the Company’s restructuring plans, including the filing of its Chapter 11 Cases and the Company’s subsequent emergence from Chapter 11.
On the Effective Date, Genco entered into the Amended and Restated $100 Million Term Loan Facility and the Amended and Restated $253 Million Term Loan Facility. The Amended and Restated Credit Facilities included, among other things:
· A paydown as of the Effective Date with respect to payments which became due under the prepetition credit facilities between the Petition Date and the Effective Date and were not paid during the pendency of the Chapter 11 Cases ($1,923 for the $100 Million Term Loan Facility and $5,075 for the $253 Million Term Loan Facility).
· Extension of the maturity dates to August 31, 2019 from August 17, 2017 for the $100 Million Term Loan Facility and August 15, 2015 for the $253 Million Term Loan Facility.
· Relief from compliance with financial covenants governing the Company’s maximum leverage ratio, minimum consolidated interest coverage ratio and consolidated net worth through and including the quarter ending March 31, 2015 (with quarterly testing commencing June 30, 2015).
· A fleetwide minimum liquidity covenant requiring maintenance of cash of $750 per vessel for all vessels owned by Genco (excluding those owned by Baltic Trading).
· An increase in the interest rate to LIBOR plus 3.50% per year from 3.00% previously for the $100 Million Term Loan Facility and the $253 Million Term Loan Facility.
The obligations under the Amended and Restated $100 Million Term Loan Facility are secured by a first priority security interest in the vessels and other collateral securing the $100 Million Term Loan Facility. The Amended and Restated $100 Million Term Loan Facility requires quarterly repayment installments in accordance with the original terms of the $100 Million Term Loan Facility.
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On August 20, 2010, the Company entered into the $253 Million Term Loan Facility. As of September 30, 2014, the Company had utilized its maximum borrowing capacity of $253,000 to fund or refund to the Company a portion of the purchase price of the 13 vessels purchased from Bourbon SA during the third quarter of 2010 and first quarter of 2011. As of September 30, 2014, there was no availability under the $253 Million Term Loan Facility.
Pursuant to the amendment to the $253 Million Term Loan Facility that was entered into on December 21, 2011 and the August 2012 Agreements, the maximum leverage ratio covenant and the minimum permitted consolidated interest ratio covenant were waived for the periods ending on and including December 31, 2013.
As of September 30, 2014 and December 31, 2013, the Company has deposited $9,750 that has been reflected as restricted cash. Restricted cash will be released only if the underlying collateral is sold or disposed of.
As of September 30, 2014, the Company believes it is in compliance with all of the financial covenants under the $253 Million Term Loan Facility, as amended.
See above in this note under the heading “2007 Credit Facility” for a description of the agreement the Company entered into to obtain waivers with respect to certain events of default relating to the $253 Million Term Loan Facility. See the “Bankruptcy Filing” section under Note 1 — General Information for the Company’s restructuring plans, including the filing of its Chapter 11 Cases and the Company’s subsequent emergence from Chapter 11.
Refer to the “$100 Million Term Loan Facility” section above for a description of the Amended and Restated $253 Million Term Loan Facility that was entered into by the Company on the Effective Date. The obligations under the Amended and Restated $253 Million Term Loan Facility are secured by a first priority security interest in the vessels and other collateral securing the $253 Million Term Loan Facility. The Amended and Restated $253 Million Term Loan Facility requires quarterly repayment installments in accordance with the original terms of the $253 Million Term Loan Facility.
On April 16, 2010, Baltic Trading entered into a $100,000 senior secured revolving credit facility with Nordea Bank Finland plc, acting through its New York branch (as amended, the “2010 Baltic Trading Credit Facility”). An amendment to the 2010 Baltic Trading Credit Facility was entered into by Baltic Trading effective November 30, 2010. Among other things, this amendment increased the commitment amount of the 2010 Baltic Trading Credit Facility from $100,000 to $150,000. An additional amendment to the 2010 Baltic Trading Credit Facility was entered into by Baltic Trading effective August 29, 2013 (the “August 2013 Amendment”). Among other things, the August 2013 Amendment implements the following modifications to the 2010 Baltic Trading Credit Facility:
· The requirement that certain additional vessels acquired by Baltic Trading be mortgaged as collateral under the 2010 Baltic Trading Credit Facility was eliminated.
· Restrictions on the incurrence of indebtedness by Baltic Trading and its subsidiaries were amended to apply only to those subsidiaries acting as guarantors under the 2010 Baltic Trading Credit Facility.
· The total commitment under this facility was reduced to $110,000 and will be further reduced in three consecutive semi-annual reductions of $5,000 commencing on May 30, 2015.
· Borrowings bear interest at an applicable margin over LIBOR of 3.00% per annum if the ratio of the maximum facility amount of the aggregate appraised value of vessels mortgaged under the facility is 55% or less, measured quarterly; otherwise, the applicable margin is 3.35% per annum.
· Financial covenants corresponding to the liquidity and leverage under the Baltic Trading $22 Million Term Loan Facility (as defined below) have been incorporated into the 2010 Baltic Trading Credit Facility.
As of September 30, 2014, $7,750 remained available under the 2010 Baltic Trading Credit Facility as the total commitment was reduced to $110,000 on August 29, 2013. The total available working capital borrowings of $25,000 are subject to the total remaining availability under the 2010 Baltic Trading Credit Facility, therefore, only $7,750 is available for working capital purposes as of September 30, 2014.
As of September 30, 2014, the Company believes Baltic Trading is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility.
On August 30, 2013, Baltic Hare Limited and Baltic Fox Limited, wholly-owned subsidiaries of Baltic Trading, entered into a secured loan agreement with DVB Bank SE for a term loan facility of up to $22,000 (the “Baltic Trading $22 Million Term Loan Facility”). Amounts borrowed and repaid under the Baltic Trading $22 Million Term Loan Facility may not be reborrowed. This facility has a maturity date of the sixth anniversary of the drawdown date for borrowings for the second vessel to be purchased, or September 4, 2019. Borrowings under the Baltic Trading $22 Million Term Loan Facility bear interest at the three-month LIBOR rate plus an applicable margin of 3.35% per annum. A commitment fee of 1.00% per annum is payable on the unused daily portion of the credit facility, which began accruing on August 30, 2013 and ended on September 4, 2013, the date which the entire $22,000 was borrowed. Borrowings are to be repaid in 23 quarterly installments of $375 each commencing three months after the last vessel delivery date, or December 4, 2013, and a final payment of $13,375 due on the maturity date.
Borrowings under the Baltic Trading $22 Million Term Loan Facility are secured by liens on Baltic Trading’s vessels purchased with borrowings under the facility, namely the Baltic Fox and the Baltic Hare, and other related assets. Under a Guarantee and Indemnity entered into concurrently with the Baltic Trading $22 Million Term Loan Facility, Baltic Trading agreed to guarantee the obligations of its subsidiaries under the Baltic Trading $22 Million Term Loan Facility.
On September 4, 2013, Baltic Hare Limited and Baltic Fox Limited made drawdowns of $10,730 and $11,270 for the Baltic Hare and the Baltic Fox, respectively. As of September 30, 2014, Baltic Trading has utilized its maximum borrowing capacity of $22,000 and there was no further availability. At September 30, 2014 and December 31, 2013, the total outstanding debt balance was $20,500 and $21,625, respectively, as required repayments began on December 4, 2013.
As of September 30, 2014 the Company believes Baltic Trading is in compliance with all of the financial covenants under the Baltic Trading $22 Million Term Loan Facility.
On December 3, 2013, Baltic Tiger Limited and Baltic Lion Limited, wholly-owned subsidiaries of Baltic Trading, entered into a secured loan agreement with DVB Bank SE for a term loan facility of up to $44,000 (the “Baltic Trading $44 Million Term Loan Facility”). Amounts borrowed and repaid under the Baltic Trading $44 Million Term Loan Facility may not be reborrowed. The Baltic Trading $44 Million Term Loan Facility has a maturity date of the sixth anniversary of the drawdown date for borrowings for the second vessel to be purchased, or December 23, 2019. Borrowings under the Baltic Trading $44 Million Term Loan Facility bear interest at the three-month LIBOR rate plus an applicable margin of 3.35% per annum. A commitment fee of 0.75% per annum is payable on the unused daily portion of the credit facility, which began accruing on December 3, 2013 and ended on December 23, 2013, the date which the entire $44,000 was borrowed. Borrowings are to be repaid in 23 quarterly installments of $688 each commencing three months after the last drawdown date, or March 24, 2014, and a final payment of $28,188 due on the maturity date.
Borrowings under the Baltic Trading $44 Million Term Loan Facility are secured by liens on Baltic Trading’s vessels to be financed or refinanced with borrowings under the facility, namely the Baltic Tiger and the Baltic Lion, and other related assets. Upon the prepayment of $18,000 plus any additional amounts necessary to maintain compliance with the collateral maintenance covenant, Baltic Trading may have the lien on the Baltic Tiger released. Under a Guarantee and Indemnity entered into concurrently with the Baltic Trading $44 Million Term Loan Facility, Baltic Trading agreed to guarantee the obligations of its subsidiaries under the Baltic Trading $44 Million Term Loan Facility.
On December 23, 2013, Baltic Tiger Limited and Baltic Lion Limited made drawdowns of $21,400 and $22,600 for the Baltic Tiger and Baltic Lion, respectively. As of September 30, 2014, Baltic Trading has utilized its maximum borrowing capacity of $44,000 and there was no further availability. At September 30, 2014 and December 31, 2013, the total outstanding debt balance was $41,938 and $44,000, respectively, as required repayments began on March 24, 2014.
As of September 30, 2014, the Company believes Baltic Trading is in compliance with all of the financial covenants under the Baltic Trading $44 Million Term Loan Facility.
2014 Baltic Trading Term Loan Facilities
On October 8, 2014, Baltic Trading and its wholly-owned subsidiaries, Baltic Hornet Limited and Baltic Wasp Limited, each entered into a loan agreement and related documentation for a credit facility in a principal amount of up to $16,800 with ABN AMRO
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Capital USA LLC and its affiliates (the “2014 Baltic Trading Term Loan Facilities”) to partially finance the newbuilding Ultramax vessel that each subsidiary is to acquire, namely the Baltic Hornet and Baltic Wasp, respectively. Amounts borrowed under the 2014 Baltic Trading Term Loan Facilities may not be reborrowed. The 2014 Baltic Trading Term Loan Facilities have a ten-year term, and the facility amount is to be the lowest of 60% of the delivered cost per vessel, $16,800 per vessel, and 60% of the fair market value of each vessel at delivery. The 2014 Baltic Trading Term Loan Facilities are insured by the China Export & Credit Insurance Corporation (Sinosure) in order to cover political and commercial risks for 95% of the outstanding principal plus interest, which will be recorded in deferred financing fees. Borrowings under the 2014 Baltic Trading Term Loan Facilities bear interest at the three or six-month LIBOR rate plus an applicable margin of 2.50% per annum. Borrowings are to be repaid in 20 equal consecutive semi-annual installments of 1/24 of the facility amount plus a balloon payment of 1/6 of the facility amount at final maturity. Principal repayments will commence six months after the actual delivery date for a vessel.
Borrowings under the 2014 Baltic Trading Term Loan Facilities are to be secured by liens on the Baltic Trading’s vessels acquired with borrowings under these facilities, namely the Baltic Hornet and Baltic Wasp, and other related assets. Baltic Trading guarantees the obligations of the Baltic Hornet and Baltic Wasp under the 2014 Baltic Trading Term Loan Facilities.
The 2014 Baltic Trading Term Loan Facilities require Baltic Trading, Baltic Hornet Limited and Baltic Wasp Limited to comply with covenants comparable to those of the Baltic Trading $44 Million Term Loan Facility, except for a collateral maintenance covenant requiring that the minimum fair market value of the vessel acquired be 135% of the amount outstanding under the 2014 Baltic Trading Term Loan Facilities.
On October 24, 2014, Baltic Trading drew down $16,800 for the purchase of the Baltic Hornet, which was delivered on October 29, 2014.
Change of Control
If the Company’s ownership in Baltic Trading were to decrease to less than 10% of the aggregate number of shares of common stock and Class B Stock of Baltic Trading, the outstanding Baltic Trading Class B Stock held by the Company would automatically convert into common stock, and the voting power held by the Company in Baltic Trading would likewise decrease to less than 30%. This would result in a change of control as defined under the Baltic Trading 2010 Credit Facility, the Baltic Trading $22 Million Term Loan Facility, the Baltic Trading $44 Million Term Loan Facility and the 2014 Baltic Trading Term Loan Facilities, and would therefore constitute an event of default. Additionally, a change of control constituting an event of default under Baltic Trading’s credit facilities would also occur if any party other than the Company or certain other permitted holders beneficially owns more than 30% of the Company’s outstanding voting or economic equity interests, which may occur if a party were deemed to control Genco. Refer to Note 1 — General Information for discussion of the Company’s current economic status. The Prepack Plan did not result, and the Company does not expect the Prepack Plan to result, in a reduction of the Company’s ownership in Baltic Trading. As of the date of this report, no change of control under either of the foregoing tests has occurred. In addition, Baltic Trading has the right to terminate the Management Agreement upon the occurrence of certain events, including a Manager Change of Control (as defined in the Management Agreement), without making a termination payment. Some of these have occurred as a result of the transactions contemplated by the Prepack Plan, including the consummation of any transaction that results in (i) any “person” (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than Peter Georgiopoulos or any of his affiliates, becoming the beneficial owner of 25% of the Company’s voting securities or (ii) the Company’s stock ceasing to be traded on the New York Stock Exchange or any other internationally recognized stock exchange. Therefore, Baltic Trading may have the right to terminate the Management Agreement, although Baltic Trading may be prevented or delayed from doing so because of the effect of applicable bankruptcy law, including the automatic stay provisions of the United States Bankruptcy Code and the provisions of the Prepack Plan and the Confirmation Order. The Prepack Plan did not result in any changes to the Management Agreement. In its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 filed on November 10, 2014, Baltic Trading stated that its Board of Directors had not made any determination as of the date of such report regarding any action in connection with the Management Agreement in light of the foregoing events.
Interest payable
As required under the August 2012 Agreements, lenders under the 2007 Credit Facility will receive a fee equal to 1.25% of the principal amount outstanding following such prepayment, or $13,199, on the earlier date of the maturity date of this facility or the date on which all obligations under this facility have been paid in full. On the Effective Date, the 2007 Credit Facility was terminated, therefore this liability was discharged. Refer to Note 1 — General Information for further information regarding the Chapter 11 Cases.
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Interest rates
The following tables set forth the effective interest rate associated with the interest expense for the Company’s debt facilities noted above included the costs associated with unused commitment fees. For the Predecessor Company for the period from January 1 to July 9, 2014, July 1 to July 9, 2014 and for the three and nine months ended September 30, 2013, the effective interest rate also included the rate differential between the pay fixed, receive variable rate on the interest rate swap agreements that were in effect (refer to Note 11 — Interest Rate Swap Agreements), combined, as well as the 1.0% facility fee for the 2007 Credit Facility as noted above. The following tables also include the range of interest rates on the debt, excluding the impact of swaps and unused commitment fees, if applicable:
Effective Interest Rate
3.62
%
3.94
4.69
Range of Interest Rates (excluding impact of swaps and unused commitment fees)
3.15% to 3.73
3.15% to 5.15
3.18% to 4.31
4.19
4.72
3.18% to 4.38
10 — CONVERTIBLE SENIOR NOTES
The Company issued $125,000 of the 2010 Notes on July 27, 2010. The Indenture for the 2010 Notes includes customary agreements and covenants by the Company, including with respect to events of default. As noted in Note 1 — General Information, the filing of the Chapter 11 Cases by the Company on April 21, 2014 constituted an event of default with respect to the 2010 Notes. On this date, the Company ceased recording interest expense related to the 2010 Notes. During the period from July 1 to July 9, 2014 and January 1 to July 9, 2014, interest expense of $255 and $2,522, including the amortization of the discount of the liability component and the bond coupon interest expense, was not recorded by the Predecessor Company, which would have been incurred had the indebtedness not been reclassified as a Liability subject to compromise. On the Effective Date, when the Company emerged from Chapter 11, the 2010 Notes and the Indenture were fully satisfied and discharged.
The following tables provide additional information about the Company’s 2010 Notes:
Carrying amount of the equity component (additional paid-in capital)
24,375
Principal amount of the 2010 Notes
125,000
Unamortized discount of the liability component
9,119
Net carrying amount of the liability component
Period from January 1 to July 9, 2014 (a)
Effective interest rate on liability component
10.0
Cash interest expense recognized
1,575
1,886
4,687
Non-cash interest expense recognized
1,265
Non-cash deferred financing amortization costs included in interest expense
181
216
537
(a) The amounts and percentage reflect amounts through April 21, 2014 since the Company ceased recording interest expense due to the Chapter 11 Cases.
29
Refer to Note 1 — General Information for additional information regarding defaults relating to the 2010 Notes.
11 - INTEREST RATE SWAP AGREEMENTS
As of December 31, 2013, the Company had four interest swap agreements outstanding with DNB Bank ASA to manage interest costs and the risk associated with variable interest rates related to the Company’s 2007 Credit Facility. The total notional principal amount of the swaps at December 31, 2013 was $306,233 and the swaps had specified rates and durations. Three of the swaps that were outstanding at December 31, 2013 expired during 2014 prior to the Petition Date.
As of March 31, 2014, the Company was in default under covenants of its 2007 Credit Facility due to the default on the scheduled debt amortization payment due on March 31, 2014. Refer to Note 1 — General Information for additional information regarding defaults relating to the swap. The default under the 2007 Credit Facility requires the Company to elect interest periods of only one-month, therefore the Company no longer qualified for hedge accounting under the original designation and hedge accounting was terminated effective March 31, 2014. Additionally, the filing of the Chapter 11 Cases by the Company on the Petition Date constituted an event of default with respect to the outstanding interest rate swap with DNB Bank ASA. As a result, DNB Bank ASA terminated all transactions under the remaining swap agreement effective April 30, 2014 and filed a secured claim with the Bankruptcy Court of $5,622. The claim was paid to DNB Bank ASA by the Successor Company during the period from July 9 to September 30, 2014.
The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of December 31, 2013 for the Predecessor Company:
Interest Rate Swap Detail
Notional
Trade
Fixed
Start Date
End date
Amount
Date
Rate
of Swap
Outstanding
9/6/05
4.485
9/14/05
7/29/15
106,233
3/29/06
5.25
1/2/07
1/1/14
50,000
1/9/09
2.05
1/22/09
1/22/14
2/11/09
2.45
2/23/09
2/23/14
306,233
The following table summarizes the derivative asset and liability balances at December 31, 2013 for the Predecessor Company:
Liability Derivatives
Balance
Fair Value
Sheet Location
Derivatives designated as hedging instruments
Interest rate contracts
Fair value of derivative instruments (Current Assets)
Fair value of derivative instruments (Current Liabilities)
Fair value of derivative instruments (Noncurrent Assets)
Fair value of derivative instruments (Noncurrent Liabilities)
Total derivatives designated as hedging instruments
Total Derivatives
30
The differentials to be paid or received for these swap agreements are recognized as an adjustment to interest expense as incurred. The Company utilized cash flow hedge accounting for these swaps through March 31, 2014, whereby the effective portion of the change in the value of the swaps is reflected as a component of AOCI. The ineffective portion is recognized as other expense, which is a component of other (expense) income. On March 31, 2014, the cash flow hedge accounting on the remaining swap agreement was discontinued. Once cash flow hedge accounting was discontinued, the changes in the fair value of the interest rate swaps are recorded in the Condensed Consolidated Statement of Operations in interest expense and the remaining amounts included in AOCI are amortized to interest expense over the original term of the hedging relationship for the Predecessor Company.
The following tables present the impact of derivative instruments and their location within the Condensed Consolidated Statement of Operations for the Predecessor Company:
The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
For the Period from July 1 to July 9, 2014
Derivatives in Cash Flow Hedging
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
Location of Gain (Loss) Reclassified from AOCI into income (Effective
Amount of Gain (Loss) Reclassified from AOCI into income (Effective Portion)
Location of Gain (Loss) Recognized in Income on Derivative (Ineffective
Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Relationships
Portion)
Interest Expense
(95
Other Income (Expense)
For the Three-Month Period Ended September 30, 2013
2013
(439
(2,515
For the Period from July 1 to July 9, 2014 and for the Three-Month Period Ended September 30, 2013
Amount of Gain (Loss) Recognized in Income on Derivative
Derivatives not designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivative
For the Period from January 1 to July 9, 2014
(179
(2,580
31
For the Nine-Month Period Ended September 30, 2013
(668
(7,431
(3
For the Period from January 1 to July 9, 2014 and for the Nine-Month Period Ended September 30, 2013
(225
The Company was required to provide collateral in the form of vessel assets to support the interest rate swap agreements, excluding vessel assets of Baltic Trading. Prior to the termination of the 2007 Credit Facility on the Effective Date, the Company’s 35 vessels mortgaged under the 2007 Credit Facility served as collateral in the aggregate amount of $100,000.
12 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI included in the accompanying condensed consolidated balance sheets consist of net unrealized gain (loss) on cash flow hedges and net unrealized gains (losses) from investments in Jinhui stock and KLC stock for the Predecessor Company. For the Successor Company, the components of AOCI included in the accompanying condensed consolidated balance sheets consists only of net unrealized gains (losses) from investments in Jinhui stock and KLC stock based on the revised cost basis recorded as part of fresh-start reporting.
Changes in AOCI by Component
For the Period from July 9 to September 30, 2014
Successor Company
Net Unrealized Gain (Loss) on Investments
AOCI — July 9, 2014
OCI before reclassifications
Amounts reclassified from AOCI
Net current-period OCI
AOCI — September 30, 2014
32
Predecessor Company
Net Unrealized Gain (Loss) on Cash Flow Hedges
Total
AOCI — July 1, 2014
(4,670
32,746
28,076
(4,575
34,932
AOCI — July 1, 2013
(11,370
10,543
(827
4,591
19,105
AOCI — September 30, 2013
(9,294
25,057
AOCI — January 1, 2014
(6,976
60,698
(25,945
2,580
AOCI — January 1, 2013
(16,057
4,216
14,194
35,035
33
Reclassifications Out of AOCI
Amount Reclassified from AOCI
Details about AOCI Components
Affected Line Item in the Statement Where Net Loss is Presented
Gains and losses on cash flow hedges
2,515
Total reclassifications for the period
7,431
13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values and carrying values of the Company’s financial instruments at September 30, 2014 and December 31, 2013 which are required to be disclosed at fair value, but not recorded at fair value, are noted below.
Carrying Value
10,150
Floating rate debt
405,045
1,480,064
See Below
2010 Notes
63,438
The fair value of the floating rate debt under the Amended and Restated $100 Million Term Loan Facility and the Amended and Restated $253 Million Term Loan Facility are based on rates obtained upon our emergence from Chapter 11 on the Effective Date. The 2007 Credit Facility was terminated on the Effective Date; however, a portion of the floating rate debt of the 2007 Credit Facility which was outstanding as of December 31, 2013 was traded in a private transaction for an amount that is not determinable by the Company, which Management believed was lower than the debt’s current carrying value as of December 31, 2013. The fair value of the 2010 Baltic Trading Credit Facility is based on rates Baltic Trading has obtained pursuant to the amendment to the existing 2010 Baltic Trading Credit Facility on August 29, 2013. The fair value of the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility is based on rates that Baltic Trading recently obtained upon the effective dates of these facilities on August 30, 2013 and December 3, 2013, respectively. Refer to Note 9 — Debt for further information. Additionally, the Company considers its creditworthiness in determining the fair value of floating rate debt under the credit facilities. The carrying value approximates the fair market value for these floating rate loans, except for the 2007 Credit Facility as of December 31, 2013. The fair value of the convertible senior notes payable represents the market value based on recent transactions of the 2010 Notes at December 31, 2013 without bifurcating the value of the conversion option. The fair value of the interest rate swaps at December 31, 2013 is the estimated amount the Company would receive to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of both the swap counterparty and the Company. The carrying amounts of the Company’s other financial instruments at September 30, 2014 and December 31, 2013 (principally Due from charterers and Accounts payable and accrued expenses), approximate fair values because of the relatively short maturity of these instruments.
ASC Subtopic 820-10, Fair Value Measurements & Disclosures (“ASC 820-10”), applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The fair value framework requires the categorization of assets and liabilities into three levels based upon the
34
assumption (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
· Level 1—Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.
· Level 2—Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
· Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
As of September 30, 2014 and December 31, 2013, the fair values of the Company’s financial assets and liabilities are categorized as follows:
Quoted Market Prices in Active Markets (Level 1)
Significant Other Observable Inputs (Level 2)
Derivative instruments — liability position
The Company holds an investment in the capital stock of Jinhui, which is classified as a long-term investment. The stock of Jinhui is publicly traded on the Oslo Stock Exchange and is considered a Level 1 item. The Company also holds an investment in the stock of KLC, which is classified as a long-term investment. The stock of KLC is publicly traded on the Korea Stock Exchange and is considered a Level 1 item. The Company’s only interest rate derivative instrument is a pay-fixed, receive-variable interest rate swaps based on LIBOR which was outstanding as of December 31, 2013. The Company has elected to use the income approach to value this derivative, using observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Refer to Note 11 — Interest Rate Swap Agreements for further information regarding the Company’s interest rate swap agreements. ASC 820-10 states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position have also been factored into the fair value measurement of the derivative instruments. This credit valuation adjustment did not have a material impact on the fair value measurement of the derivative instruments as of December 31, 2013. Refer to Note 1 — General Information for additional information regarding defaults relating to the swap. Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short-term maturities. Floating rate debt is considered to be a Level 2 item as the Company considers the estimate of rates it could obtain for similar debt or based upon transaction amongst third parties. The 2010 Notes were publicly traded in the over-the-counter market; however, they were not considered to be actively traded. As such, the 2010 Notes are considered to be a Level 2 item as of December 31, 2013. The interest rate swap agreement and 2010 Notes were not outstanding as of September 30, 2014. The Company did not have any Level 3 financial assets or liabilities during the nine months ended September 30, 2014 and 2013.
35
14 - PREPAID EXPENSES AND OTHER CURRENT AND NONCURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
Lubricant inventory, fuel oil and diesel oil inventory and other stores
13,407
11,342
Prepaid items
5,025
5,000
Insurance receivable
2,719
1,096
Other
4,089
1,627
Total prepaid expenses and other current assets
Other noncurrent assets in the amount of $514 at September 30, 2014 and December 31, 2013 represent the security deposit related to the operating lease entered into effective April 4, 2011. Refer to Note 21 — Commitments and Contingencies for further information related to the lease agreement.
15 — DEFERRED FINANCING COSTS
Deferred financing costs include fees, commissions and legal expenses associated with securing loan facilities and other debt offerings and amending existing loan facilities. Total net deferred financing costs consist of the following as of September 30, 2014 and December 31, 2013:
29,568
1,492
1,783
3,135
4,708
3,637
3,339
529
518
758
737
Total deferred financing costs
9,253
44,290
Less: accumulated amortization
2,562
22,279
Amortization expense of deferred financing costs for the Successor Company for the period from July 9 to September 30, 2014 was $384. Amortization expense of deferred financing costs for the Predecessor Company for the period July 1 to July 9, 2014 and for the period from January 1 to July 9, 2014 was $170 and $4,461, respectively. Amortization expense of deferred financing costs for the Predecessor Company for the three and nine months ended September 30, 2013 was $3,171 and $6,862, respectively. This amortization expense is recorded as a component of Interest expense in the Condensed Consolidated Statements of Operations.
On the Effective Date, the Company eliminated the net unamortized deferred financing costs for the 2007 Credit Facility and the 2010 Notes and classified the changes as Restructuring items, net in the Condensed Consolidated Statements of Operation for the Predecessor Company as both the 2007 Credit Facility and 2010 Notes were terminated as part of the Plan. Additionally, the unamortized deferred financing costs for the $100 Million Term Loan Facility and the $253 Million Term Loan Facility prior their Restatements and Amendment pursuant to the Plan were eliminated and the Company classified the changes to Restructuring items, net in the Condensed Consolidated Statements of Operation for the Predecessor Company. Fees and legal expenses for securing the Amended and Restated $100 Million and $253 Million Term Loan Facilities have been capitalized as deferred financing costs and will be amortized over the extended term of the respective loans.
16 - FIXED ASSETS
Fixed assets consist of the following:
36
Fixed assets, at cost:
Vessel equipment
121
4,323
Leasehold improvements
2,679
Furniture and fixtures
462
786
Computer equipment
129
754
Total costs
712
8,542
Less: accumulated depreciation and amortization
66
3,438
Depreciation and amortization expense for fixed assets for the Successor Company for the period from July 9 to September 30, 2014 was $66. Depreciation and amortization expense for fixed assets for the Predecessor Company for the period from July 1 to July 9, 2014 and January 1 to July 9, 2014 was $19 and $458, respectively. Additionally, depreciation and amortization expense for fixed assets for the Predecessor Company for the three and nine months ended September 30, 2013 was $233 and $687, respectively. Refer to Note 4 — Cash Flow Information for information regarding the reclassification from fixed assets to vessels assets during the period from January 1 to July 9, 2014.
17 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
Accounts payable
17,075
5,643
Accrued general and administrative expenses
6,964
8,960
Accrued vessel operating expenses
12,910
12,756
18 — LIABILITIES SUBJECT TO COMPROMISE
As a result of the filing of the Chapter 11 Cases on April 21, 2014, the payment of pre-petition indebtedness is subject to compromise or other treatment under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are stayed. Refer to the Financial Statement Presentation section of Note 1 — General Information for the allocation of the reinstatement of the Liabilities subject to compromise on the Effective Date.
As of July 9, 2014, Liabilities subject to compromise for the Predecessor Company consist of the following:
July 9, 2014
$ 100 Million Term Loan Facility
73,561
$ 253 Million Term Loan Facility
175,718
Terminated interest rate swap liability
5,622
117,473
Bond coupon interest payable
1,105
Lease obligation
815
Pre-petition accounts payable
41
19 - REVENUE FROM TIME CHARTERS
Total voyage revenue includes revenue earned on time charters, including revenue earned in vessel pools and spot market-related time charters, as well as the sale of bunkers consumed during short-term time charters. For the period from July 9 to September 30, 2014, the Successor Company earned $43,943 of voyage revenue. For the period from July 1 to July 9, 2014 and from January 1 to July 9, 2014, the Predecessor Company earned $4,034 and $118,759 of voyage revenue, respectively. For the three and nine months ended September 30, 2013, the Predecessor Company earned $58,605 and $143,222 of voyage revenue, respectively. There was no profit sharing revenue earned during the nine months ended September 30, 2014 and 2013. Future minimum time
37
charter revenue, based on vessels committed to noncancelable time charter contracts as of November 11, 2014, is expected to be $6,051 for the remainder of 2014 and $792 for 2015, assuming off-hire due to any scheduled drydocking and that no additional off-hire time is incurred. For drydockings, the Company assumes twenty days of offhire. Future minimum revenue excludes revenue earned for the vessels currently in pool arrangements and vessels that are currently on or will be on spot market-related time charters, as spot rates cannot be estimated, as well as profit sharing revenue.
20 — REORGANIZATION ITEMS, NET
Reorganization items, net represent amounts incurred and recovered subsequent to the bankruptcy filing as a direct result of the filing of the Chapter 11 Cases and are comprised of the following:
Period from July 9, 2014 to September 30, 2014
Professional fees incurred
857
15,126
34,981
Trustee fees incurred
310
251
Total reorganization fees
1,167
35,232
Gain on settlement of liabilities subject to compromise
(1,187,689
Net gain on debt and equity discharge and issuance
(775,086
Fresh-start reporting adjustments
1,045,376
Total fresh-start adjustment
Total reorganization items, net
(902,273
(882,167
21 - COMMITMENTS AND CONTINGENCIES
In September 2005, the Company entered into a 15-year lease for office space in New York, New York for which there was a free rental period from September 1, 2005 to July 31, 2006. On January 6, 2012, the Company ceased the use of this space. During the period from July 1 to July 9, 2014 and during the three months ended September 30, 2013, the Predecessor Company recorded net rent expense of ($13) and ($39), respectively. During the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013, the Predecessor Company recorded net rent expense of ($41) and $92, representing the adjustment of the present value of the Company’s estimating remaining rent expense for the duration of the lease after taking into account estimated future sublease income based on the sublease agreement entered into effective November 1, 2013. The current and long-term lease obligations related to this lease agreement as of December 31, 2013 of $176 and $744, respectively, are recorded in the condensed consolidated balance sheet in Current portion of lease obligations and Long-term lease obligation, respectively, for the Predecessor Company. Pursuant to the Plan that was approved by the Bankruptcy Court, the Debtors rejected this lease agreement on the Effective Date and the Company believes that it will owe the lessor the remaining liability.
Effective April 4, 2011, the Company entered into a seven-year sub-sublease agreement for additional office space in New York, New York. The term of the sub-sublease commenced June 1, 2011, with a free base rental period until October 31, 2011. Following the expiration of the free base rental period, the monthly base rental payments are $82 per month until May 31, 2015 and thereafter will be $90 per month until the end of the seven-year term. Pursuant to the sub-sublease agreement, the sublessor was obligated to contribute $472 toward the cost of the Company’s alterations to the sub-subleased office space. The Company has also entered into a direct lease with the over-landlord of such office space that will commence immediately upon the expiration of such sub-sublease agreement, for a term covering the period from May 1, 2018 to September 30, 2025; the direct lease provides for a free base rental period from May 1, 2018 to September 30, 2018. Following the expiration of the free base rental period, the monthly base rental payments will be $186 per month from October 1, 2018 to April 30, 2023 and $204 per month from May 1, 2023 to September 30, 2025. For accounting purposes, the sub-sublease agreement and direct lease agreement with the landlord constitutes one lease agreement. As a result of the straight-line rent calculation generated by the free rent period and the tenant work credit, the monthly straight-line rental expense for the term of the entire lease from June 1, 2011 to September 30, 2025 was $130 for the Predecessor Company. On the Effective Date, a revised straight-line rent calculation was completed as part of fresh-start reporting. The revised monthly straight-line rental expense for the term of the lease from the Effective Date to September 30, 2025 is $150. The Company had a long-term lease obligation at September 30, 2014 and December 31, 2013 of $186 and $2,370, respectively. Rent expense pertaining to this lease recorded by the Successor Company for the period from July 9 to September 30, 2014 was $410. Rent expense pertaining to this lease recorded by the Predecessor Company for the period from July 1 to July 9, 2014, January 1 to July 9, 2014 and for the three and nine months ended September 30, 2013 was $34, $813, $389 and $1,168, respectively.
38
Future minimum rental payments on the above lease for the next five years and thereafter are as follows: $245 for the remainder of 2014, $1,037 for 2015, $1,076 annually for 2016 and 2017, $916 for 2018 and a total of $15,590 for the remaining term of the lease.
During the beginning of 2009, the Genco Cavalier, a 2007-built Supramax vessel, was on charter to Samsun when Samsun filed for the equivalent of bankruptcy protection in South Korea, otherwise referred to as a rehabilitation application. On February 5, 2010, the rehabilitation plan submitted by Samsun was approved by the South Korean courts. As part of the rehabilitation process, the Company’s claim of $17,212 will be settled in the following manner; 34.0%, or $5,852, will be paid in cash in annual installments on December 30th of each year from 2010 through 2019 ranging from 8.0% to 17.0%; the remaining 66.0%, or $11,360, was converted to Samsun shares at a specified value per share. On December 30, 2012, a total payment was due from Samsun in the amount of $527 which represents 9.0% of the total $5,852 approved cash settlement. On December 30, 2013, a total payment was due from Samsun in the amount of $468 which represents 8.0% if the total $5,852 approved cash settlement. During the year ended December 30, 2012, Samsun remitted only 50% of the payment due, or $263 and during the year ended December 31, 2013 there was no payment remitted. During the period from July 9 to September 30, 2014, the Successor Company recorded Other operating income of $296 which represents the remaining 50% of the payment that was due on December 30, 2012 including interest earned on those amounts.
22 - STOCK-BASED COMPENSATION
Genco Shipping & Trading — Predecessor Company
The table below summarizes the Predecessor Company’s nonvested stock awards for the period ended July 9, 2014 under the Genco Shipping & Trading Limited 2005 and 2012 Equity Incentive Plans (the “GS&T Plans”). Under the Plan, on the Effective Date, any unvested shares were deemed vested automatically and Equity Warrants were issued. Refer to “Successor Company Equity Warrant Agreement” section in Note 1 — General Information for further information. The vesting of these shares is included in the $1,583 of expense recorded by the Predecessor Company during the period from July 1 to July 9, 2014 as included in the table below.
Number of Shares
Weighted Average Grant Date Price
Outstanding at January 1, 2014 - Predecessor
880,465
7.77
Granted
Vested
(880,465
Cancelled
Outstanding at July 9, 2014 - Predecessor
The total fair value of shares that vested under the GS&T Plans during the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013 for the Predecessor Company was $691 and $110, respectively. The total fair value is calculated as the number of shares vested during the period multiplied by the fair value on the vesting date.
For the periods from July 1 to July 9, 2014 and January 1 to July 9, 2014 and for the three and nine months ended September 30, 2014 and 2013, the Predecessor Company recognized nonvested stock amortization expense for the GS&T Plans, which is included in general, administrative and management fees, as follows:
1,583
749
Genco Shipping & Trading — Successor Company
2014 Management Incentive Plan
On the Effective Date, pursuant to the Chapter 11 Plan, the Company adopted the MIP (as defined in Note 1 — General Information). An aggregate of 9,668,061 shares of Common Stock were available for award under the MIP, which were awarded in the form of restricted stock grants and awards of three tiers of MIP Warrants with staggered strike prices based on increasing equity values. The number of shares of common stock available under the Plan represented approximately 1.8% of the shares of post-
39
emergence Common Stock outstanding as of the Effective Date on a fully-diluted basis. Awards under the MIP were available to eligible employees, non-employee directors and/or officers of the Company and its subsidiaries (collectively, “Eligible Individuals”). Under the MIP, a committee appointed by the Board from time to time (or, in the absence of such a committee, the Board) (in either case, the “Plan Committee”) may grant a variety of stock-based incentive awards, as the Plan Committee deems appropriate, to Eligible Individuals. The MIP Warrants are exercisable on a cashless basis and contain customary anti-dilution protection in the event of any stock split, reverse stock split, stock dividend, reclassification, dividend or other distributions (including, but not limited to, cash dividends), or business combination transaction.
On August 7, 2014, pursuant to the MIP, certain individuals were granted MIP Warrants whereby each warrant can be converted on a cashless basis for the amount in excess of the respective strike price. The MIP Warrants were issued in three tranches, which are exercisable for 2,380,664, 2,467,009, and 3,709,788 shares and have exercise prices of $25.91 (the “$25.91 Warrants”), $28.73 (the “$28.73 Warrants”) and $34.19 (the “$34.19 Warrants”), respectively. The fair value of each warrant upon emergence from bankruptcy was $7.22 for the $25.91 Warrants, $6.63 for the $28.73 Warrants and $5.63 for the $34.19 Warrants. The warrant values were based upon a calculation using the Black-Scholes-Merton option pricing formula. This model uses inputs such as the underlying price of the shares issued when the warrant is exercised, volatility, cost of capital interest rate and expected life of the instrument. The Company has determined that the warrants should be classified within Level 3 of the fair value hierarchy by evaluating each input for the Monte Carlo Model against the fair value hierarchy criteria and using the lowest level of input as the basis for the fair value classification. The Black-Scholes-Merton option pricing formula used a volatility of 43.91% (representing the six-year volatility of a peer group), a risk-free interest rate of 1.85% and a dividend rate of 0%. The aggregate fair value of these awards upon emergence from bankruptcy was $54,436. The warrants vest 33.33% on each of the first three anniversaries of the grant date, with accelerated vesting upon a change in control of the Company.
For the period from August 7, 2012 to September 30, 2014, the Successor Company recognized amortization expense of the fair value of these warrants of $5,010 which is included in the Company’s Condensed Consolidated Statements of Operations as a component of General, administrative, and management fees. Amortization of the unamortized stock-based compensation balance of $49,426 as of September 30, 2014 is expected to be expensed $8,380, $25,941, $11,496, and $3,609 during the years ending December 31, 2014, 2015, 2016 and 2017, respectively. The following table summarizes all the warrant activity for the period July 9, 2014 to September 30, 2014:
Number of Warrants
Weighted Average Exercise Price
Weighted Average Fair Value
Outstanding at July 9, 2014 - Successor
8,557,461
30.31
6.36
Exercised
Forfeited
Outstanding at September 30, 2014 - Successor
The following table summarizes certain information about the warrants outstanding as of September 30, 2014:
40
Warrants Outstanding, September 30, 2014
Warrants Exercisable, September 30, 2014
Weighted Average Remaining Contractual Life
5.86
The table below summarizes the Successor Company’s nonvested stock awards for the period from July 9 to September 30, 2014 that were issued under the 2014 MIP Plan:
1,110,600
20.00
The total fair value of restricted shares that vested under the 2014 MIP Plan during the period from July 9 to September 30, 2014 for the Successor Company was $0. The total fair value is calculated as the number of shares vested during the period multiplied by the fair value on the vesting date.
For the period from July 9 to September 30, 2014, the Successor Company recognized nonvested stock amortization expense for the 2014 MIP Plan restricted shares, which is included in general, administrative and management fees, as follows:
2,044
The Company is amortizing these grants over the applicable vesting periods, net of anticipated forfeitures. As of September 30, 2014, unrecognized compensation cost of $20,168 related to nonvested stock will be recognized over a weighted-average period of 2.85 years.
Baltic Trading Limited
On March 13, 2014, Baltic Trading’s Board of Directors approved an amendment to the Baltic Trading Limited 2010 Equity Incentive Plan (the “Baltic Trading Plan”) that increased the aggregate number of shares of common stock available for awards from 2,000,000 to 6,000,000 shares. Additionally, on April 9, 2014, at Baltic Trading’s 2014 Annual Meeting of Shareholders, Baltic Trading’s shareholders approved the amendment to the Baltic Trading Plan.
The following table presents a summary of Baltic Trading’s nonvested stock awards for the nine months ended September 30, 2014 under the Baltic Trading Plan:
Number of Baltic Trading Common Shares
Outstanding at January 1, 2014
1,381,429
6.03
36,345
6.19
(176,180
10.53
Outstanding at September 30, 2014
1,241,594
5.39
The total fair value of shares that vested under the Baltic Trading Plan during the period from July 9 to September 30, 2014, the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013 was $0, $1,143 and $643, respectively. The total fair value is calculated as the number of shares vested during the period multiplied by the fair value on the vesting date.
The Successor Company and the Predecessor Company recognized nonvested stock amortization expense for the Baltic Trading Plan, which is included in general, administrative and management fees, as follows:
78
341
The Company is amortizing Baltic Trading’s grants over the applicable vesting periods, net of anticipated forfeitures. As of September 30, 2014, unrecognized compensation cost of $3,392 related to nonvested stock will be recognized over a weighted-average period of 2.76 years.
23 - SHARE REPURCHASE PROGRAM
Since the inception of its share repurchase program through July 9, 2014, the Predecessor Company repurchased and retired 278,300 shares of its common stock for $11,500. Prior to the termination of the 2007 Credit Facility pursuant to the Plan, the terms of the 2007 Credit Facility required the Company to suspend all share repurchases until the Company can represent that it is in a position to again satisfy the collateral maintenance covenant. No share repurchases were made by the Predecessor Company during the period from January 1 to July 9, 2014 and during the nine months ended September 30, 2013.
24 - LEGAL PROCEEDINGS
Refer to Note 1 — General Information for information concerning the Chapter 11 Cases.
On March 28, 2014, the Genco Auvergne was arrested due to a disputed claim with the charterer of one of the Company’s other vessels, namely the Genco Ardennes. In order for the Company to release the Genco Auvergne from its arrest, the Company entered into a cash collateralized $900 bank guarantee with Skandinaviska Enskilda Banken AB (the “SEB Bank Guarantee”) on April 3, 2014. The vessel has since been released from its arrest and the bank guarantee will remain in an escrow account until the arbitration related to this case is completed. The SEB Bank Guarantee resulted in additional indebtedness by the Company. As the Company was in default under the covenants of its 2007 Credit Facility due to the default on a scheduled debt amortization payment due on March 31, 2014, on April 3, 2014 the Company received a consent from the lenders under the 2007 Credit Facility to incur this additional indebtedness. Also, under the $253 Million Term Loan Facility for which the Genco Auvergne is collateralized, the Company may not incur additional indebtedness related to its collateralized vessels under this facility. The Company also received a consent from the lenders under the $253 Million Term Loan Facility on April 3, 2014 in order to enter the SEB Bank Guarantee. The $900 to collateralize the bank guarantee has been recorded as Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets as of September 30, 2014.
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material effect on the Company, its financial condition, results of operations or cash flows besides those noted above.
42
25 - SUBSEQUENT EVENTS
On October 29, 2014, Baltic Trading took delivery of the Baltic Hornet, a 63,574 dwt Ultramax newbuilding from Yangfan Group Co., Ltd. Baltic Trading utilized cash on hand and $16,800 of proceeds from the 2014 Baltic Trading Term Loan Facilities to pay the remaining balance of $19,400 for the Baltic Hornet.
On November 4, 2014, Baltic Trading declared a dividend of $0.01 per share to be paid on or about November 26, 2014 to shareholders of record as of November 20, 2014. The aggregate amount of the dividend is expected to be approximately $576, of which approximately $512 will be paid to minority shareholders, which Baltic Trading anticipates will be funded from cash on hand at the time payment is to be made.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,” “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 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 in demand or rates in the drybulk shipping industry; (ii) prolonged weakness 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, repairs, maintenance and general, administrative and management fee expenses; (vii) whether our insurance arrangements are adequate; (viii) changes in general domestic and international political conditions; (ix) acts of war, terrorism, or piracy; (x) changes in the condition of the our 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) our acquisition or disposition of vessels; (xii) the amount of offhire time needed to complete repairs 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 time charters; (xiv) charterers’ compliance with the terms of their charters in the current market environment; (xv) the fulfillment of the closing conditions under, or the execution of additional documentation for, Baltic Trading’s agreements to acquire vessels; (xvi) obtaining, completion of definitive documentation for, and funding of financing for the vessel acquisitions on acceptable terms; (xvii) the extent to which our operating results continue to be affected by weakness in market conditions and charter rates; (xviii) 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; (xix) the timing and realization of the recoveries of assets and the payments of claims and the amount of expenses required to recognize such recoveries and reconcile such claims; (xx) our ability to obtain sufficient and acceptable post-restructuring financing; and 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, 2013 and subsequent reports on Form 8-K and Form 10-Q.
The following management’s discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included in this Form 10-Q.
General
We are a Marshall Islands company that transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes through the ownership and operation of drybulk carrier vessels. Excluding vessels of Baltic Trading Limited (“Baltic Trading”), our fleet currently consists of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize drybulk carriers, with an aggregate carrying capacity of approximately 3,810,000 dwt, and the average age of our fleet is currently approximately 9.5 years, as compared to the average age for the world fleet of approximately 9 years for the drybulk shipping segments in which we compete. We seek to deploy our vessels on time charters, spot market-related time charters or in vessel pools trading in the spot market, to reputable charterers, including Cargill International S.A., Pacific Basin Chartering Ltd., Swissmarine Services S.A. and the Clipper Logger Pool, in which Clipper Group acts as the pool manager. The majority of the vessels in our current fleet are presently engaged under time charter and spot market-related time charter contracts that expire (assuming the option periods in the time charters are not exercised) between November 2014 and December 2015.
In addition, Baltic Trading’s fleet currently consists of four Capesize, one Ultramax, four Supramax and five Handysize drybulk carriers with an aggregate carrying capacity of approximately 1,159,000 dwt. After the expected delivery of the three
additional Ultramax newbuilding vessels that Baltic Trading has agreed to acquire, Baltic Trading will own a fleet of 17 drybulk vessels, consisting of four Capesize, four Ultramax, four Supramax and five Handysize drybulk carriers with a total carrying capacity of approximately 1,351,000 dwt.
See pages 51-55 for a table of all vessels that have been or are expected to be delivered to us, including Baltic Trading’s vessels.
On April 21, 2014, the Debtors filed the Chapter 11 Filing. On July 2, 2014, the Bankruptcy Court entered the Confirmation Order which approved and confirmed the Plan. On the Effective Date of July 9, 2014, the Debtors emerged from Chapter 11 through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms. Refer to Note 1 in our Condensed Consolidated Financial Statements contained in this Quarterly Report for a detailed description of the Plan.
Baltic Trading, formerly our wholly-owned subsidiary, completed its initial public offering, or IPO, on March 15, 2010. On May 28, 2013, Baltic Trading closed an equity offering of 6,419,217 shares of common stock at an offering price of $3.60 per share. Baltic Trading received net proceeds of approximately $21.6 million after deducting underwriters’ fees and expenses. Additionally, on September 25, 2013, Baltic Trading closed an equity offering of 13,800,000 shares of common stock at an offering price of $4.60 per share. Baltic Trading received net proceeds of approximately $59.5 million after deducting underwriters’ fees and expenses. Lastly, on November 18, 2013, Baltic Trading closed an equity offering of 12,650,000 shares of common stock at an offering price of $4.60 per share. Baltic Trading received net proceeds of approximately $55.1 million after deducting underwriters’ fees and expenses. As a result of Baltic Trading’s equity offerings completed on May 28, 2013, September 25, 2013 and November 18, 2013, we were issued 128,383, 276,000 and 253,000 shares, respectively, of Class B stock, which represents 2% of the number of common shares issued. As of September 30, 2014, our wholly-owned subsidiary Genco Investments LLC owned 6,356,471 shares of Baltic Trading’s Class B Stock, which represents an 11.04% ownership interest in Baltic Trading at September 30, 2014 and 65.06% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock. Baltic Trading is consolidated as we control a majority of the voting interest in Baltic Trading. Management’s discussion and analysis of our results of operations and financial condition includes the results of Baltic Trading.
We entered into a long-term management agreement (the “Management Agreement”) with Baltic Trading pursuant to which we apply our expertise and experience in the drybulk industry to provide Baltic Trading with commercial, technical, administrative and strategic services. The Management Agreement is for an initial term of approximately 15 years and will automatically renew for additional five-year periods unless terminated in accordance with its terms. Baltic Trading will pay us for the services we provide it as well as reimburse us for our costs and expenses incurred in providing certain of these services. Management fee income we earn from the Management Agreement net of any allocated shared expenses, such as salary, office expenses and other general and administrative fees, will be taxable to us. Upon consolidation with Baltic Trading, any management fee income earned is eliminated for financial reporting purposes. Baltic Trading has the right to terminate the Management Agreement upon the occurrence of certain events, including a Manager Change of Control (as defined in the Management Agreement), without making a termination payment. Some of these have occurred as a result of the transactions contemplated by the Plan, including the consummation of any transaction that results in (i) any “person” (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than Peter Georgiopoulos or any of his affiliates, becoming the beneficial owner of 25% of the Company’s voting securities or (ii) the Company’s stock ceasing to be traded on the New York Stock Exchange or any other internationally recognized stock exchange. Therefore, Baltic Trading may have the right to terminate the Management Agreement, although Baltic Trading may be prevented or delayed from doing so because of the effect of applicable bankruptcy law, including the automatic stay provisions of the United States Bankruptcy Code and the provisions of the Prepack Plan and the Confirmation Order.
On July 2, 2013, Baltic Trading entered into agreements to purchase two Handysize drybulk vessels from subsidiaries of Clipper Group for an aggregate purchase price of $41.0 million. The Baltic Hare, a 2009-built Handysize vessel, was delivered on September 5, 2013 and the Baltic Fox, a 2010-built Handysize vessel, was delivered on September 6, 2013. Baltic Trading funded a portion of the purchase price of the vessels using proceeds from its registered follow-on common stock offering completed on May 28, 2013. For the remainder of the purchase price, Baltic Trading drew down $22.0 million under its secured loan agreement with DVB Bank SE (the “Baltic Trading $22 Million Term Loan Facility”). Refer to Note 9 — Debt in our condensed consolidated financial statements for further information regarding this credit facility.
On October 31, 2013, Baltic Trading entered into agreements to purchase two Capesize drybulk vessels from affiliates of SK Shipping Co. Ltd. for an aggregate purchase price of $103.0 million. The Baltic Lion, a 2012-built Capesize drybulk vessel, was delivered on December 27, 2013, and the Baltic Tiger, a 2011-built Capesize vessel, was delivered on November 26, 2013. Baltic Trading funded a portion of the purchase price of the vessels using proceeds from its common stock offering completed on September 25, 2013. For the remainder of the purchase price, Baltic Trading drew down $44.0 million under its secured loan agreement with DVB Bank SE (the “Baltic Trading $44 Million Term Loan Facility”). Refer to Note 9 — Debt in our condensed consolidated financial statements for further information regarding this credit facility.
44
On November 13, 2013, Baltic Trading entered into agreements to purchase up to four 64,000 dwt Ultramax newbuilding drybulk carriers from Yangfan Group Co., Ltd. for a purchase of $28.0 million per vessel, or up to $112.0 million in the aggregate. Baltic Trading has agreed to purchase two such vessels, to be renamed the Baltic Hornet and Baltic Wasp, and obtained an option to purchase up to two additional such vessels for the same purchase price, which Baltic Trading exercised on January 8, 2014. These vessels are to be renamed the Baltic Mantis and the Baltic Scorpion. The purchases are subject to completion of customary additional documentation and closing conditions. The first of these vessels, the Baltic Hornet, was delivered on October 29, 2014. The Baltic Wasp is expected to be delivered to Baltic Trading during the fourth quarter of 2014. The Baltic Scorpion and the Baltic Mantis are expected to be delivered to Baltic Trading during the second and third quarters of 2015, respectively. Baltic Trading intends to use a combination of cash on hand, future cash flow from operations as well as debt or equity financing, including the 2014 Baltic Trading Term Loan Facilities as described in Note 9 — Debt in our condensed consolidated financial statements, to fully finance the acquisition of these four Ultramax newbuilding drybulk vessels. If Baltic Trading is unable to obtain such debt or equity financing to fund the vessels, it may pursue alternatives, including refinancing its existing indebtedness or dispositions of assets.
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, voyage charters and spot market-related time charters, and monitoring the performance of our vessels under their charters. Strategic management includes locating, purchasing, financing and selling vessels. We currently contract with three independent technical managers to provide technical management of our fleet at a lower cost than we believe would be possible in-house. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. Members of our New York City-based management team oversee the activities of our independent technical managers.
We hold an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”) and Korea Line Corporation (“KLC”). Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping. KLC is a marine transportation service company which operates a fleet of carriers which includes carriers for iron ore, liquefied natural gas and tankers for oil and petroleum products.
We provide technical services for drybulk vessels purchased by Maritime Equity Partners LLC (“MEP”) under an agency agreement between us and MEP. These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services. The services are provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs and will be provided for an initial term of one year. MEP has the right to cancel provision of services on 60 days’ notice with payment of a one-year termination fee upon a change of our control. We may terminate provision of the services at any time on 60 days’ notice. Peter C. Georgiopoulos, our Chairman of the Board of Directors, controls and has a minority interest in MEP. This arrangement was approved by an independent committee of our Board of Directors.
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, available days, operating days, fleet utilization, TCE rates and daily vessel operating expenses for the three and nine months ended September 30, 2014 and 2013 on a consolidated basis, which includes the operations of Baltic Trading. The period from July 9 to September 30, 2014 (Successor Company) and the period from July 1 to July 9, 2014 and January 1 to July 9, 2014 (Predecessor Company) are distinct reporting periods as a result of our emergence from bankruptcy on July 9, 2014. References in these results of operation and the percentage change combine the Successor Company and Predecessor Company results for the three and nine months ended September 30, 2014 in order to provide comparability of such information to the three and nine-month period ended September 30, 2013.
For the Three Months Ended September 30,
Increase
(Decrease)
% Change
Fleet Data:
Ownership days (1)
Capesize
1,196.0
1,012.0
184.0
18.2
Panamax
736.0
Supramax
1,932.0
Handymax
552.0
Handysize
1,656.0
1,522.1
133.9
8.8
6,072.0
5,754.1
317.9
5.5
Available days (2)
1,179.6
167.6
16.6
719.5
(16.5
(2.2
)%
1,836.0
1,902.7
(66.7
(3.5
516.9
547.7
(30.8
(5.6
1,652.4
1,508.3
144.1
9.6
5,904.4
5,706.7
197.7
3.5
Operating days (3)
1,175.1
163.1
16.1
715.6
(20.4
(2.8
1,815.0
1,882.1
(67.1
(3.6
501.3
539.6
(38.3
(7.1
1,632.8
1,495.1
137.7
9.2
5,839.8
5,664.8
175.0
3.1
Fleet utilization (4)
99.6
100.0
(0.4
99.5
(0.5
98.9
97.0
98.5
(1.5
98.8
99.1
(0.3
Fleet average
99.3
(U.S. dollars)
Average Daily Results:
Time Charter Equivalent (5)
12,131
18,178
(6,047
(33.3
5,474
8,528
(3,054
(35.8
6,978
8,196
(1,218
(14.9
6,502
7,811
(1,309
(16.8
6,670
7,855
(1,185
(15.1
7,696
9,882
(2,186
(22.1
Daily vessel operating expenses (6)
5,532
5,154
378
7.3
4,767
4,524
243
5.4
4,929
4,724
205
4.3
5,781
5,241
540
10.3
4,414
4,565
(151
(3.3
4,965
4,782
183
3.8
46
For the Nine Months Ended September 30,
3,549.0
3,003.0
546.0
2,184.0
5,733.0
1,638.0
4,914.0
4,418.1
495.9
11.2
18,018.0
16,976.1
1,041.9
6.1
3,532.6
2,986.6
18.3
2,097.9
(86.1
(3.9
5,448.3
5,649.6
(201.3
1,556.1
1,614.0
(57.9
4,826.3
4,378.2
448.1
10.2
17,461.2
16,812.4
648.8
3.9
3,525.4
2,985.1
540.3
18.1
2,090.0
2,165.5
(75.5
5,373.7
5,611.5
(237.8
(4.2
1,516.8
1,593.9
(77.1
(4.8
4,699.6
4,349.1
350.5
8.1
17,205.5
16,705.1
500.4
3.0
99.8
99.9
(0.1
99.2
0.4
98.6
(0.7
97.5
(1.3
97.4
(1.9
99.4
(0.9
13,095
10,081
3,014
29.9
7,016
7,396
(380
(5.1
8,246
8,119
127
1.6
7,979
7,137
842
11.8
7,854
7,588
266
8,947
8,141
806
9.9
5,430
5,341
1.7
5,232
4,824
408
8.5
5,166
4,711
455
9.7
5,280
4,841
439
9.1
4,672
4,502
170
5,101
4,795
306
6.4
Definitions
In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that influence our results of operations.
47
(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) Available days. We define available days as the number of our ownership days in a period less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels between time charters. 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.
(3) Operating days. We define operating days as the number of our 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.
(4) Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning.
(5) TCE rates. We define TCE rates as net voyage revenue (voyage revenues less voyage expenses) divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not expressed in per-day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
Voyage revenues (in thousands)
47,977
162,702
Voyage expenses (in thousands)
2,535
6,475
45,442
56,393
156,227
136,870
Total available days
Total TCE rate
(6) Daily vessel operating expenses. We define daily vessel operating expenses as vessel operating expenses divided by ownership days for the period. Vessel operating expenses 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.
Operating Data
The following tables represent the operating data for the three and nine months ended September 30, 2014 and 2013 on a consolidated basis, which includes the operations of Baltic Trading. The period from July 9 to September 30, 2014 (Successor Company) and the period from July 1 to July 9, 2014 and January 1 to July 9, 2014 (Predecessor Company) are distinct reporting periods as a result of our emergence from bankruptcy on July 9, 2014. References in these results of operation and the percentage change combine the Successor Company and Predecessor Company results for the three and nine months ended September 30, 2014 in order to provide comparability of such information to the three and nine-month period ended September 30, 2013. We did not compare the share and per share amounts, since the change in our capital structure as a result of the bankruptcy renders these not comparable between the Successor Company and Predecessor Company.
48
Combined
Three Months Ended September
30, 2014
Change
(U.S. dollars in thousands, except for per share amounts)
Revenue:
(10,628
(18.1
48,805
(17.9
Operating Expenses:
323
14.6
30,150
2,635
General, administrative and management fees
21,639
13,768
174.9
20,569
(14,653
(41.6
74,597
1,777
2.4
(25,792
(12,405
92.7
(5,094
18,016
(78.0
(30,886
5,611
(15.4
901,106
870,220
906,717
(2,484.4
(431
(10.0
869,789
906,765
(2,452.3
(4,840
(2,898
149.2
874,629
909,663
(2,596.5
Net (loss) earnings per share - basic
N/A
Net (loss) earnings per share - diluted
Dividends declared and paid per share
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
EBITDA (1)
3,032
897,699
900,731
23,732
876,999
3,695.4
Period from January 1
to July 9,
Nine Months Ended September 30, 2014
19,480
13.6
165,159
13.4
123
1.9
91,918
10,518
12.9
46,863
22,320
90.9
93,308
(11,014
(10.6
238,268
21,651
(73,109
(2,171
(44,688
21,243
(32.2
(117,797
19,072
(13.9
881,000
763,203
900,072
(657.6
(1,208
(211
21.2
761,995
899,861
(652.7
(13,006
(3,706
39.8
775,001
903,567
(702.8
911,074
914,106
42,626
871,480
2,044.5
(1) EBITDA represents net (loss) income attributable to Genco Shipping & Trading Limited plus net interest expense, taxes and depreciation and amortization. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common performance measure to compare results across peers. Our management uses EBITDA as a performance measure in our consolidated internal financial statements, and it is presented for review at our board meetings. We believe that EBITDA is useful to investors as the shipping industry is capital intensive which often results in significant depreciation and cost of financing. EBITDA presents investors with a measure in addition to net income to evaluate our performance prior to these costs. EBITDA is not an item recognized by U.S. GAAP and should not be considered as an alternative to net income, operating income or any other indicator of a company’s operating performance required by U.S. GAAP. EBITDA is not a measure of liquidity or cash flows as shown in our consolidated statements of cash flows. The definition of EBITDA used here may not be comparable to that used by other companies. The foregoing definition of EBITDA differs from the definition of Consolidated EBITDA used in the financial covenants of our 2007 Credit Facility, our $253 Million Term Loan Credit Facility, and our $100 Million Term Loan Credit Facility. Specifically, Consolidated EBITDA substitutes gross interest expense (which includes amortization of deferred financing costs) for net interest expense used in our definition of EBITDA, includes adjustments for restricted stock amortization and non-cash charges for deferred financing costs related to the refinancing of other credit facilities or any non-cash losses from our investment in Jinhui, and excludes extraordinary gains or losses and gains or losses from derivative instruments used for hedging purposes or sales of assets other than inventory sold in the ordinary course of business. The following table demonstrates our calculation of EBITDA and provides a reconciliation of EBITDA to net (loss) income attributable to Genco Shipping & Trading Limited for each of the periods presented above:
50
Net interest expense
3,573
1,529
23,065
41,016
65,873
393
479
Results of Operations
The following tables set forth information about the vessels in our fleet, including Baltic Trading’s vessels, as of November 17, 2014:
Vessel
Charterer
Charter Expiration (1)
Cash Daily Rate (2)
Capesize Vessels
Cargill International S.A.
April 2015
104% of BCI
December 2014
102% of BCI
100% of BCI
Swissmarine Services S.A.
Dec. 2014/May 2015
100%/104.5% of BCI(3)
February 2015
October 2015
98.5% of BCI
March 2015
September 2015
99% of BCI
Panamax Vessels
Navig8 Inc.
94.5% of BPI
99% of BPI
TTMI/Swissmarine Asia Pte. Ltd.
Nov. 2014/Aug. 2015
100%/96.5% of BPI(4)
98% of BPI
100% of BPI
May 2015
Global Maritime Investments Ltd.
Supramax Vessels
Cargill Ocean Transportation Pte. Ltd.
January 2015
$9,500(5)
Western Bulk Pte. Ltd.
$9,500(6)
Pacific Basin Chartering Ltd.
107% of BSI
Harmony Innovation Shipping Ltd.
$9,500(7)
Pioneer Navigation Ltd.
Nov. 2014/Mar. 2015
$7,500/$9,500(8)
Caltrek Freight and Trading Ltd.
91.5% of BSI
Bulkhandling Handymax A/S
Spot Pool(9)
December 2015
100% of BSI(10)
November 2014
$10,500(11)
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Navig8 Bulk Pool Inc.
Spot Pool(12)
D’Amico Dry Ltd.
100% of BSI
Oldendorff GMBH & Co.
$6,500(13)
101% of BSI
July 2015
100% of BSI(14)
$10,250(15)
November 2015
Handymax Vessels
Transbulk Shipping Corporation Ltd.
$6,250(16)
Centurion Bulk Pte. Ltd.
$11,000(17)
Dragon Carriers Ltd.
$6,500(18)
ED & F MAN Shipping Ltd.
90% of BSI
Goodwang Shipping & Trading Co. Ltd.
$7,250(19)
Aquavita International S.A.
$7,000(20)
Handysize Vessels
Clipper Logger Pool
Spot Pool(21)
100% of BHSI
August 2015
107% of BHSI
107% BHSI
115% of BHSI
$8,500-$13,500 with 50% profit sharing(22)
(1) The charter expiration dates presented represent the earliest dates that our charters may be terminated in the ordinary course. Under the terms of each contract, the charterer is entitled to extend the time charter from two to four months in order to complete the vessel’s final voyage plus any time the vessel has been off-hire.
(2) Time charter rates presented are the gross daily charterhire rates before third-party brokerage commission generally ranging from 1.25% to 6.25%. In a time charter, the charterer is responsible for voyage expenses such as bunkers, port expenses, agents’ fees and canal dues.
(3) We have agreed to an extension with Swissmarine Services S.A. on a spot market-related time charter for 4.5 to 7.5 months based on 104.5% of the Baltic Capesize Index, published by the Baltic Exchange, as reflected in daily reports. Hire is paid every 15 days in arrears less a 5.00% third-party brokerage commission. Genco maintains the option to convert to a fixed rate based on Capesize FFA values at 104.5%. The vessel is estimated to enter drydocking for scheduled repairs between October 15, 2014 and December 15, 2014. The extension will begin once the drydocking is completed.
(4) We have reached an agreement with Swissmarine Asia Pte. Ltd. on a spot market-related time charter for 8.5 to 12.5 months based on 96.5% of the Baltic Panamax Index, published by the Baltic Exchange, as reflected in daily reports. Hire is paid every 15 days in arrears less a 5.00% third-party brokerage commission. Genco maintains the option to convert to a fixed rate based on Panamax FFA values at 96.5%. The vessel is expected to deliver to charterers on or about December 10, 2014 after repositioning.
(5) We have reached an agreement with Cargill Ocean Transportation Pte. Ltd. on a time charter for approximately 50 days at a rate of $9,500 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel is expected to deliver to charterers on or about November 20, 2014 after repositioning. A ballast bonus will be awarded for the repositioning period. The vessel completed drydocking for scheduled repairs on October 30, 2014.
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(6) We have reached an agreement with Western Bulk Pte. Ltd. on a time charter for approximately 75 days at a rate of $9,500 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel delivered to charterers on November 4, 2014 after completion of drydocking for schedule repairs.
(7) We have reached an agreement with Harmony Innovation Shipping Ltd. on a time charter for approximately 20 days at a rate of $9,500 per day. Hire is paid every 15 days in advance less a 5.00% third party brokerage commission. The vessel delivered to charterers on November 12, 2014 after repositioning. The vessel redelivered to Genco on November 6, 2014.
(8) We have agreed to an extension with Pioneer Navigation Ltd. on a time charter for 3.5 to 6.5 months at a rate of $9,500 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The extension is expected to begin on or about November 18, 2014.
(9) We have reached an agreement to enter these vessels into the Bulkhandling Handymax A/S Pool, a vessel pool trading in the spot market of which Torvald Klaveness acts as the pool manager. The vessels will remain in the pool for a minimum period of four months at which point Genco can withdraw the vessel with three months’ notice.
(10) We have reached an agreement with Pioneer Navigation Ltd. on a spot market-related time charter for 13.5 to 18 months based on 100% of the Baltic Supramax Index (BSI), published by the Baltic Exchange, as reflected in daily reports, except for the initial 40 days in which hire is based on the average of the Baltic Supramax S2 and S3 routes. Genco maintains the option to convert to a fixed rate based on Supramax FFA values at 100%. The vessel delivered to charterers on October 31, 2014 after completion of drydocking for scheduled repairs.
(11) We have reached an agreement with Harmony Innovation Shipping Ltd. on a time charter for approximately 25 days at a rate of $10,500 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel delivered to charterers on October 28, 2014 after repositioning. The vessel redelivered to Genco on October 21, 2014.
(12) We have reached an agreement with Navig8 Bulk Pool Inc. to enter this vessel into the Supra8 Pool, a vessel pool trading in the spot market of which Navig8 Inc. acts as the pool manager. The minimum and maximum expiration dates of the agreement are January 15, 2015 and March 1, 2015, respectively. The vessel entered the pool on September 30, 2014.
(13) We have agreed to an extension with Oldendorff GMBH & Co. on a time charter for two to three laden legs at a rate of $6,500 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The extension began on June 7, 2014.
(14) We have reached an agreement with Pioneer Navigation Ltd. on a spot market-related time charter for 10.5 to 13.5 months based on 100% of the Baltic Supramax Index (BSI), published by the Baltic Exchange, as reflected in daily reports. Hire is paid every 15 days in arrears less a 5.00% third-party brokerage commission. Genco maintains the option to convert to a fixed rate based on Supramax FFA values at 100%. The vessel delivered to charterers on September 12, 2014.
(15) We have reached an agreement with Harmony Innovation Shipping Ltd. on a time charter for approximately 20 days at a rate of $10,250 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel delivered to charterers on October 26, 2014 after repositioning. The vessel redelivered to Genco on October 19, 2014.
(16) We have reached an agreement with Transbulk Shipping Corporation Ltd. on a time charter for approximately 65 days at a rate of $6,250 per day. If the time charter exceeds 65 days, the vessel will earn a hire rate of $9,750 per day thereafter. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel delivered to charterers on July 22, 2014.
(17) We have reached an agreement with Centurion Bulk Pte. Ltd. on a time charter for approximately 25 days at a rate of $11,000 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel is expected to deliver to charterers on or about November 17, 2014.
(18) We have reached an agreement with Dragon Carriers Ltd. on a time charter for approximately 30 days at a rate of $6,500 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel delivered to charterers on November 10, 2014 after repositioning. The vessel redelivered to Genco on November 4, 2014.
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(19) We have reached an agreement with Goodwang Shipping & Trading Co. on a time charter for approximately 20 days at a rate of $7,250 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel is expected to deliver to charterers on or about November 21, 2014 after repositioning. The vessel re-delivered from the previous charterer on November 15, 2014.
(20) We have reached an agreement with Aquavita International S.A. on a time charter for approximately 50 days at a rate of $7,000 per day. Hire is paid every 15 days in advance less a 5.00% third-party brokerage commission. The vessel delivered to charterers on October 7, 2014.
(21) We have reached an agreement to enter these vessels into the Clipper Logger Pool, a vessel pool trading in the spot market of which Clipper Group acts as the pool manager. We can withdraw the vessels with a minimum notice of six months.
(22) The rate for the spot market-related time charter is linked with a floor of $8,500 and a ceiling of $13,500 daily with a 50% profit sharing arrangement to apply to any amount above the ceiling. The rate is based on 115% of the average of the daily rates of the Baltic Handysize Index (BHSI), published by the Baltic Exchange, as reflected in daily reports. Hire is paid every 15 days in advance net of a 5.00% third-party brokerage commission. This vessel was acquired with an existing time charter with a below-market rate. For the below-market time charter, Genco allocates the purchase price between the vessel and an intangible liability for the value assigned to the below-market charter-hire. This intangible liability is amortized as an increase to voyage revenues over the minimum remaining terms of the applicable charter, at which point the liability will be amortized to zero and the vessel will begin earning the ‘‘Cash Daily Rate.’’ For cash flow purposes, Genco will continue to receive the rate presented in the ‘‘Cash Daily Rate’’ column until the charter expires. Specifically, for the Genco Spirit, the daily amount of amortization associated with the below-market rate is approximately $200 per day over the actual cash rate earned.
Charter Expiration(1)
Employment Structure
Expected Delivery(2)
101.5% of BCI (3)
100% of BCI (4)
Swissmarine Services S.A
Dec. 2014/ Oct. 2015
102.75%/103% of BCI (5)
102.75% of BCI (6)
Ultramax Vessels
Swissmarine Asia Pte. Ltd.
115.5% of BSI (7)
TBD
Q4 2014
2015
Q2 2015
Q3 2015
Spot Pool (8)
Trammo Bulk Carriers
January 2016
107% of BHSI (9)
106% of BHSI (10)
Clipper Bulk Shipping Ltd.
$6,500 (11)
Spot Pool (12)
(1) The charter expiration dates presented represent the earliest dates that our charters may be terminated in the ordinary course. Under the terms of each contract, the charterer is entitled to extend the time charters from two to four months in order to complete the vessel’s final voyage plus any time the vessel has been off-hire.
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(2) The dates for the vessels being delivered in the future are estimates based on guidance received from the sellers.
(3) We have agreed to an extension with Swissmarine Services S.A. on a spot market-related time charter based on 101.5% of the average of the daily rates of the Baltic Capesize Index (BCI), published by the Baltic Exchange, as reflected in daily reports. Hire is paid in arrears net of a 6.25% brokerage commission, which includes the 1.25% commission payable to Genco Shipping & Trading Limited (“Genco”). The minimum and maximum expiration dates of the time charter are February 1, 2015 and April 15, 2015, respectively.
(4) We have reached an agreement with Cargill International S.A. on a spot market-related time charter based on 100% of the average of the daily rates of the BCI, as reflected in daily reports. Hire is paid every 15 days in arrears net of a 5.00% brokerage commission, which includes the 1.25% commission payable to Genco. The duration of the spot market-related time charter is 21.5 to 26.5 months.
(5) We have agreed to an extension with Swissmarine Services S.A. on a spot market-related time charter for 10.5 to 13.5 months based on 103% of the average of the daily rates of the BCI, as reflected in daily reports. Hire is paid every 15 days in arrears net of a 6.25% brokerage commission, which includes the 1.25% commission payable to Genco. The extension is expected to begin on or about December 1, 2014.
(6) We have reached an agreement with Cargill International S.A. on a spot market-related time charter for 10.5 to 13.5 months based on 102.75% of the average of the daily rates of the BCI, as reflected in daily reports. Hire is paid every 15 days in arrears net of a 6.25% brokerage commission, which includes the 1.25% commission payable to Genco.
(7) We have reached an agreement with Swissmarine Asia Pte. Ltd. on a spot market-related time charter for 12 to 15 months based on 115.5% of the average of the daily rates of the Baltic Supramax Index (BSI), published by the Baltic Exchange, as reflected in daily reports. Hire is paid every 15 days in arrears net of a 6.25% brokerage commission, which includes the 1.25% commission payable to Genco. The vessel delivered to charterers on November 1, 2014.
(8) We have reached an agreement to enter these vessels into the Bulkhandling Handymax A/S Pool, a vessel pool trading in the spot market of which Torvald Klaveness acts as the pool manager. Baltic Trading can withdraw a vessel with three months’ notice.
(9) We have reached an agreement with Trammo Bulk Carriers on a spot-market related time charter for 15.5 to19.5 months based on 107% of the average of the daily rates of the Baltic Handysize Index (BHSI), published by the Baltic Exchange, as reflected in daily reports. Hire is paid every 15 days in arrears net of a 6.25% brokerage commission, which includes the 1.25% commission payable to Genco. The vessel delivered to charterers on October 3, 2014.
(10) We have reached an agreement with Trammo Bulk Carriers on a spot market-related time charter for 10.5 months to a maximum expiration date of April 1, 2015 based on 106% of the average of the daily rates of the BHSI, as reflected in daily reports. Hire is paid every 15 days in arrears net of a 6.25% brokerage commission, which includes the 1.25% commission payable to Genco.
(11) We have reached an agreement with Clipper Bulk Shipping Ltd. on a spot-market related time charter based on 103.5% of the BHSI, as reflected in daily reports except for the initial 40 days in which hire will be $5,000 per day. Hire is paid every 15 days in arrears net of a 6.25% brokerage commission, which includes the 1.25% commission payable to Genco. The minimum and maximum expiration dates of the time charter are July 17, 2015 and October 1, 2015, respectively. The vessel is expected to delivered to charterers on November 7, 2014.
(12) We have reached an agreement to enter these vessels into the Clipper Logger Pool, a vessel pool trading in the spot market of which Clipper Group acts as the pool manager. The vessels will remain in the pool for a minimum period of two years.
Three months ended September 30, 2014 compared to the three months ended September 30, 2013
VOYAGE REVENUES-
For the three months ended September 30, 2014, voyage revenues decreased 18.1% to $48.0 million as compared to $58.6 million for the three months ended September 30, 2013. The decrease in voyage revenues was primarily due to lower spot market rates achieved by the majority of the vessels in our fleet. This decrease was partially offset by an increase in revenues earned by Baltic Trading’s vessels of $0.9 million due to the increase in the size of Baltic Trading’s fleet partially offset by lower spot market rates achieved by its other vessels.
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The average Time Charter Equivalent (“TCE”) rate of our fleet decreased 22.1% to $7,696 a day for the three months ended September 30, 2014 from $9,882 a day for the three months ended September 30, 2013. The decrease in TCE rates was primarily due to lower spot market achieved by the vessels in our fleet partially offset by the operation of two additional Capesize vessels during the third quarter of 2014 as compared to the third quarter of 2013. During the third quarter of 2014, excess vessel supply continued to weigh on the drybulk market. Lower Brazilian iron ore fixtures than historically observed in the third quarter of each year, a decline in Chinese coal imports due to increased hydro power production, and an increase of Capesize deliveries in September of this year all contributed to a softer freight rate environment. More recently, a relative increase of Brazilian iron ore fixtures since the week of October 20, 2014 has helped support Capesize rates, and the onset of the North American grain season has positively impacted the Panamax sector.
For the three months ended September 30, 2014 and 2013, we had 6,072.0 and 5,754.1 ownership days, respectively. The increase in ownership days is a result of the delivery of four Baltic Trading vessels during the second half of 2013. Fleet utilization decreased to 98.9% during the three months ended September 30, 2014 as compared to 99.3% during the same period during 2013 primarily due to additional offhire for our Handymax vessels during the three months ended September 30, 2014.
SERVICE REVENUES-
Service revenues consist of revenues earned from providing technical services to MEP pursuant to the agency agreement between us and MEP. These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services. The services are provided for a fee of $750 per ship per day. During the three months ended September 30, 2014 and 2013, total service revenue was $0.8 million during both periods.
VOYAGE EXPENSES-
In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer. 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 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 and the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.
Voyage expenses increased by $0.3 million from $2.2 million during the three months ended September 30, 2013 as compared to $2.5 million during the three months ended September 30, 2014. The increase in voyage expenses was primarily due to an increase in bunker consumption during the third quarter of 2014 as there were additional ballast legs of time charters during which we consumed bunkers during the third quarter of 2014 as compared to the same period last year, as well as an increase in bunkers consumed during drydocking. These increases were partially offset by a decrease in the cost of bunkers consumed during short-term time charters, as well as a decrease in third-party broker commissions as a result of the overall decrease in voyage revenue earned during the third quarter of 2014 as compared to the same period during 2013.
VESSEL OPERATING EXPENSES-
Vessel operating expenses increased by $2.6 million to $30.2 million for the three months ended September 30, 2014 as compared to $27.5 million for the three months ended September 30, 2013. This increase was primarily due to the operation of a larger fleet as a result of the delivery of four Baltic Trading vessels during the second half of 2013, as well as higher maintenance related expenses incurred during drydocking for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013.
Daily vessel operating expenses increased to $4,965 per vessel per day for the three months ended September 30, 2014 from $4,782 per day for the three months ended September 30, 2013. The increase in daily vessel operating expenses was primarily due to higher maintenance related expenses incurred during drydocking, as well as higher crew costs and purchases of stores. We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Our actual daily vessel operating expenses per vessel for the three months ended September 30, 2014 were $325 below the weighted-average budgeted rate of $5,290 per vessel per day.
Our vessel operating expenses, which generally represent fixed costs for each vessel, will increase if 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.
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GENERAL, ADMINISTRATIVE AND MANAGEMENT FEES-
For the three months ended September 30, 2014 and 2013, general, administrative and management fees were $21.6 million and $7.9 million, respectively. The increase was primarily due to higher non-cash compensation expenses associated with restricted shares and warrants issued under the MIP. We incur management fees to third-party technical management companies for the day-to-day management of our vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. Management fees increased marginally due to the delivery of four Baltic Trading vessels during the second half of 2014.
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization expense decreased by $14.7 million to $20.6 million during the three months ended September 30, 2014 as compared $35.2 million during to the three months ended September 30, 2013 primarily due to the revaluation of our vessel assets on the Effective Date as part of fresh-start accounting which resulted in a decrease in vessel assets, vessel equipment recorded as part of other fixed assets and drydocking assets. Additionally, on the Effective Date, we increased the scrap value of our vessels from $245/lwt to $310/lwt which will result in an overall decrease in vessel depreciation expense over the remaining life of the vessels. These decreases were partially offset by the operation of a larger fleet during the third quarter of 2014, including the four Baltic Trading vessels delivered during the second half of 2013.
OTHER OPERATING INCOME
For the three months ended September 30, 2014 and 2013, other operating income was $0.3 million and $0, respectively. During the three months ended September 30, 2014, we received the remaining 50%, including interest, of the cash settlement that was originally due from Samsun on December 30, 2012 as included in the rehabilitation plan approved by the South Korean courts during 2010. Refer to Note 21 — Commitments and Contingencies in our condensed consolidated financial statements for further information regarding the settlement payments.
OTHER (EXPENSE) INCOME-
NET INTEREST EXPENSE-
For the three months ended September 30, 2014 and 2013, net interest expense was $5.1 million and $23.1 million, respectively. Net interest expense during the three months ended September 30, 2014 and 2013 consisted of interest expense under our $100 Million Term Loan Facility, $253 Million Term Loan Facility, Baltic Trading’s $150 million senior secured revolving credit facility (the “2010 Baltic Trading Credit Facility”) and the Baltic Trading $22 Million Term Loan Facility, which was entered into August 30, 2013. Additionally, interest income, unused commitment fees associated with the aforementioned credit facilities as well as the amortization of deferred financing costs related to the aforementioned credit facilities are included in net interest expense during the three months ended September 30, 2014 and 2013. Net interest expense during the three months ended September 30, 2013 and 2014 also includes interest expense related our 5.0% Convertible Senior Notes (the “2010 Notes”) up until the Petition Date and for the 2007 Credit Facility until the Effective Date. Lastly, net interest expense during the three months ended September 30, 2014 also includes interest expense under the Baltic Trading $44 Million Term Loan Facility, which was entered into on December 3, 2013.
The decrease in net interest expense for the third quarter of 2014 as compared to the third quarter of 2013 was primarily due to a decrease in interest expense associated with the 2007 Credit Facility, which was terminated pursuant to the Plan on the Effective Date, and the interest rate swap agreements as three interest rate swap agreements expired during the first quarter of 2014. Additionally, there was a decrease in interest expense related to the 2010 Notes as we ceased accreting the liability related to the 2010 Notes and accruing for the related coupon payment on the Petition Date of April 21, 2014. Refer to Note 9 — Debt, Note 10 — Convertible Senior Notes and Note 11 — Interest Rate Swap Agreements in our condensed consolidated financial statements. These decreases were partially offset by the interest expense and the amortization of deferred financing costs recorded during the third quarter of 2014 associated with the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility, which were entered into by Baltic Trading effective August 30, 2013 and December 3, 2013, respectively. Refer to Note 9 — Debt in our condensed consolidated financial statements and the 2013 10-K for more information regarding the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility.
REORGANIZATION ITEMS, NET-
For the three months ended September 30, 2014, reorganization items, net were $901.1 million. These reorganization items include trustee fees, professional fees incurred after the Petition Date in relation to the Chapter 11 Cases, the revaluation of assets and liabilities recorded as part of fresh-start accounting, the gain on the settlement of liabilities subject to compromise, as well as a net gain on debt and equity discharge and issuance pursuant to the
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Plan. Refer to Note 20 — Reorganization items, net in our Condensed Consolidated Financial Statements for further detail. There were no reorganization items during the three months ended September 30, 2013, as the Petition Date was April 21, 2014.
INCOME TAX EXPENSE-
For the three months ended September 30, 2014, income tax expense was $0.4 million as compared to $0.5 million during the three months ended September 30, 2013. This income tax expense consists primarily of federal, state and local income taxes on net income earned by Genco Management (USA) Limited (“Genco (USA)”), one of our wholly-owned subsidiaries. Pursuant to certain agreements, we technically and commercially manage vessels for Baltic Trading, as well as provide technical management of vessels for MEP in exchange for specified fees for these services provided. These services are provided by Genco (USA), which has elected to be taxed as a corporation for United States federal income tax purposes. As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services. Refer to the “Income taxes” section of Note 2 — Summary of Significant Accounting Policies included in our condensed consolidated financial statements. Income tax expense decreased during the three months ended September 30, 2014 as compared to the same period during the prior year primarily due to higher commercial service revenue due to Genco (USA) from Baltic Trading pursuant to the Management Agreement primarily as a result of sales and purchase fees for the two Baltic Trading vessels delivered during the third quarter of 2013. This decrease was partially offset by higher charter rates achieved by Baltic Trading’s fleet during the third quarter of 2014, as well as an increase in commercial service revenue and technical management fees earned for the four vessels delivered to Baltic Trading during the second half of 2013.
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST-
For the three months ended September 30, 2014 and 2013, net loss attributable to noncontrolling interest was $4.8 million and $1.9 million, respectively. These amounts represent the net loss attributable to the noncontrolling interest of Baltic Trading.
Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013
For the nine months ended September 30, 2014, voyage revenues increased 13.6% to $162.7 million versus $143.2 million for the nine months ended September 30, 2013. Revenues increased by approximately $19.5 million primarily due to higher charter rates achieved by our Capesize vessels. Included in the increase in voyage revenues was an increase in revenues earned by Baltic Trading’s vessels of $12.4 million due to higher spot market rates achieved by a majority of it vessels, as well as the increase in the size of its fleet.
The average TCE rate of our fleet increased 9.9% to $8,947 a day for the nine months ended September 30, 2014 from $8,141 a day for the nine months ended September 30, 2013. The increase in the TCE rate was due to higher charter rates achieved by our Capesize vessels as well as the operation of the two additional Capesize vessels delivered to Baltic Trading during the fourth quarter of 2013, namely the Baltic Lion and Baltic Tiger.
For the nine months ended September 30, 2014 and 2013, we had 18,018.0 and 16,976.1 ownership days, respectively. The increase in ownership days is a result of the delivery of four Baltic Trading vessels during the second half of 2013. Fleet utilization decreased to 98.5% during the nine months ended September 30, 2014 as compared to 99.4% during the same period during 2013 due to additional offhire days for our Handymax and Handysize vessels.
Service revenues consist of revenues earned from providing technical services to MEP pursuant to the agency agreement between us and MEP. These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services. The services are provided for a fee of $750 per ship per day. During the nine months ended September 30, 2014 and 2013, total service revenue was $2.5 million during both periods.
For the nine months ended September 30, 2014 and 2013, voyage expenses increased to $6.5 million from $6.4 million, respectively. The $0.1 million increase is primarily due to an increase in broker commissions as a result of an increase in voyage revenue earned during the nine months ended September 30, 2014 as compared to the same period last year. This increase was partially offset by a decrease in the cost of bunkers consumed during short-term time charters during the nine months ended September 30, 2014 as compared to the same period last year.
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Vessel operating expenses increased by $10.5 million to $91.9 million for the nine months ended September 30, 2014 as compared to $81.4 million for the nine months ended September 30, 2013. This increase was primarily due to the operation of a larger fleet as a result of the delivery of four Baltic Trading vessels during the second half of 2013, as well as an increase in crew costs and higher maintenance related expenses incurred during drydocking for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013.
Daily vessel operating expenses increased to $5,101 per vessel per day for the nine months ended September 30, 2014 from $4,795 per day for the nine months ended September 30, 2013. The increase in daily vessel operating expenses was primarily due to higher maintenance related expenses incurred during drydocking and higher crew costs. We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Our actual daily vessel operating expenses per vessel for the nine months ended September 30, 2014 were $189 below the weighted-average budgeted rate of approximately $5,290 per vessel per day, which includes Baltic Trading’s vessels.
For the nine months ended September 30, 2014 and 2013, general, administrative and management fees increased to $46.9 million during the nine months ended September 30, 2014 as compared to $24.5 million during the nine months ended September 30, 2013. The increase was primarily due to our pre-petition expenses related to our Chapter 11 Cases incurred during the nine months ended September 30, 2014, as well as an increase in non-cash compensation expense associated with restricted shares and warrants issued under the MIP. We incur management fees to third-party technical management companies for the day-to-day management of our vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. Management fees increased marginally due to the delivery of four Baltic Trading vessels during the second half of 2014.
Depreciation and amortization expense decreased by $11.0 million to $93.3 million during the nine months ended September 30, 2014 as compared to $104.3 million during the nine months ended September 30, 2013 primarily due to the revaluation of our vessel assets on the Effective Date as part of fresh-start accounting which resulted in a decrease in vessel assets, vessel equipment recorded as part of other fixed assets and drydocking assets. Additionally, on the Effective Date, we increased the scrap value of our vessels from $245/lwt to $310/lwt which will result in an overall decrease in vessel depreciation expense over the remaining life of the vessels. These decreases were partially offset by the operation of a larger fleet during the nine months ended September 30, 2014, including the four Baltic Trading vessels delivered during the second half of 2013.
For the nine months ended September 30, 2014 and 2013, other operating income was $0.3 million and $0, respectively. During the three months ended September 30, 2014, we received the remaining 50%, including interest, of the cash settlement that was originally due from Samsun on December 30, 2012 as included in the rehabilitation plan approved by the South Korean courts during 2010. Refer to Note 21 — Commitments and Contingencies in our condensed consolidated financial statements for further information regarding the settlement payments.
For the nine months ended September 30, 2014 and 2013, net interest expense was $44.6 million and $65.9 million, respectively. Net interest expense during the nine months ended September 30, 2014 and 2013 consisted of interest expense under our $100 Million Term Loan Facility, $253 Million Term Loan Facility, the 2010 Baltic Trading Credit Facility and the Baltic Trading $22 Million Term Loan Facility, which was entered into August 30, 2013. Additionally, interest income, unused commitment fees associated with the aforementioned credit facilities as well as the amortization of deferred financing costs related to the aforementioned credit facilities are included in net interest expense during the nine months ended September 30, 2014 and 2013. Net interest expense during the nine months ended September 30, 2013 and 2014 also includes interest expense related our 5.0% Convertible Senior Notes (the “2010 Notes”) up until the Petition Date and for the 2007 Credit Facility until the Effective Date. Lastly, net interest expense during the nine months ended September 30, 2014 also includes interest expense under the Baltic Trading $44 Million Term Loan Facility, which was entered into on December 3, 2013.
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The decrease in net interest expense for the nine months ended September 30, 2014 as compared to the same period during 2013 was primarily due to a decrease in interest expense associated with the 2007 Credit Facility, which was terminated pursuant to the Plan on the Effective Date, and the interest rate swap agreements as three interest rate swap agreements expired during the first quarter of 2014. Additionally, there was a decrease in interest expense related to the 2010 Notes as we ceased accreting the liability related to the 2010 Notes and accruing for the related coupon payment on the Petition Date of April 21, 2014. Refer to Note 9 — Debt, Note 10 — Convertible Senior Notes and Note 11 — Interest Rate Swap Agreements in our condensed consolidated financial statements. These decreases were partially offset by the interest expense and the amortization of deferred financing costs recorded during the nine months ended September 30, 2014 associated with the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility, which were entered into by Baltic Trading effective August 30, 2013 and December 3, 2013, respectively. Refer to Note 9 — Debt in our condensed consolidated financial statements and the 2013 10-K for more information regarding the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility.
For the nine months ended September 30, 2014, income tax expense was $1.2 million as compared to $1.0 million during the nine months ended September 30, 2013. This income tax expense consists primarily of federal, state and local income taxes on net income earned by Genco Management (USA) Limited (“Genco (USA)”), one of our wholly-owned subsidiaries. Pursuant to certain agreements, we technically and commercially manage vessels for Baltic Trading, as well as provide technical management of vessels for MEP in exchange for specified fees for these services provided. These services are provided by Genco (USA), which has elected to be taxed as a corporation for United States federal income tax purposes. As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services. Refer to the “Income taxes” section of Note 2 — Summary of Significant Accounting Policies included in our condensed consolidated financial statements for further information. Income tax expense increased during the nine months ended September 30, 2014 as compared to the same period during the prior year primarily due to higher commercial service revenue due to Genco (USA) from Baltic Trading pursuant to the Management Agreement as a result of higher charter rates achieved by Baltic Trading’s fleet, as well as an increase in commercial service revenue and technical management fees earned for the four vessels delivered to Baltic Trading during the second half of 2013.
For the nine months ended September 30, 2014, reorganization items, net were $881.0 million. These reorganization items include trustee fees, professional fees incurred after the Petition Date in relation to the Chapter 11 Cases, the revaluation of assets and liabilities recorded as part of fresh-start accounting, the gain on the settlement of liabilities subject to compromise as well as a net gain on debt and equity discharge and issuance pursuant to the Plan. Refer to Note 20 — Reorganization items, net in our Condensed Consolidated Financial Statements for further detail. There were no reorganization items during the nine months ended September 30, 2013 as the Petition Date was April 21, 2014.
For the nine months ended September 30, 2014 and 2013, net loss attributable to noncontrolling interest was $13.0 million and $9.3 million, respectively. These amounts represent the net loss attributable to the noncontrolling interest of Baltic Trading.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds are operating cash flows, equity financings, issuance of long-term debt securities, and long-term bank borrowings. Our principal use of funds is capital expenditures to establish and grow our fleet, maintain the quality of our vessels, comply with international shipping standards and environmental laws and regulations, fund working capital requirements and repayments on outstanding loan facilities. Historically, we had also used funds to pay dividends and to repurchase our common stock from time to time. We have not declared or paid any dividends since the third quarter of 2008 and currently do not plan to resume the payment of dividends. Moreover, pursuant to restrictions under our debt instruments, we are prohibited from paying dividends. Future dividends, if any, will depend on, among other things, our cash flows, cash requirements, financial condition, results of operations, required capital expenditures or reserves, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant.
Our historical practice has been to acquire vessels or newbuilding contracts using a combination of issuances of equity securities, bank debt secured by mortgages on our vessels and shares of the common stock of our shipowning subsidiaries, and long-term debt securities.
Our current liquidity needs arise primarily from drydocking for our vessels, and working capital requirements as may be needed to support our business and payments required under our indebtedness. Our primary sources of liquidity are cash flow from
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operations, cash on hand, and the proceeds of the $100 million rights offering that was consummated in connection with the Chapter 11 Cases. We believe that internally generated cash flow, cash on hand, and such rights offering proceeds will be sufficient to fund the operations of our fleet, including our working capital requirements, for the next twelve months. We expect that our liquidity needs will continue to arise primarily from capital expenditures for our vessels, working capital requirements as may be needed to support our business and payments required under our indebtedness. Notwithstanding our emergence from bankruptcy, our current and future liquidity will greatly depend upon our operating results. 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, weakness in 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 post-restructuring indebtedness, and other factors. Additionally, the Chapter 11 Cases, including the fact that we have been subject to bankruptcy proceedings, and related matters could negatively impact our financial condition.
Under the collateral maintenance covenants of our $253 Million Term Loan Facility, our $100 Million Term Loan Facility, the 2010 Baltic Trading Credit Facility, the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility, the aggregate valuations of our vessels pledged under each facility must at least be a certain percentage of loans outstanding (or, in the case of the 2010 Baltic Trading Credit Facility, the total amount we may borrow), which percentages currently are 135%, 130%, 140%, 130% and 125%, respectively.
On May 28, 2013, Baltic Trading closed on an equity offering of 6,419,217 shares of Baltic Trading common stock at an offering price of $3.60 per share. Baltic Trading received net proceeds of $21.6 million after deducting underwriters’ fees and expenses. On September 25, 2013, Baltic Trading closed on an equity offering of 13,800,000 shares of Baltic Trading common stock at an offering price of $4.60 per share. Baltic Trading received net proceeds of $59.5 million after deducting underwriters’ fees and expenses. On November 18, 2013, we closed an equity offering of 12,650,000 shares of common stock at an offering price of $4.60 per share. We received net proceeds of $55.1 million after deducting underwriters’ fees and expenses. Our wholly-owned subsidiary Genco Investments LLC was issued 128,383, 276,000 and 253,000 shares of Baltic Trading’s Class B Stock on May 28, 2013, September 25, 2013 and November 18, 2013, respectively, which represented 2% of the number of common shares issued pursuant to the Subscription Agreement between Genco Investments LLC and Baltic Trading. As of September 30, 2014, Genco Investments LLC owns 6,356,471 shares of Baltic Trading’s Class B Stock, which represents an 11.04% ownership interest in Baltic Trading and 65.06% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock.
On April 16, 2010, Baltic Trading entered into the 2010 Baltic Trading Credit Facility with Nordea Bank Finland plc, acting through its New York branch. The 2010 Baltic Trading Credit Facility was subsequently amended effective November 30, 2010 which increased the borrowing capacity from $100 million to $150 million. The amended 2010 Baltic Trading Credit Facility matures on November 30, 2016. There was an additional amendment entered into effective August 29, 2013 which reduced the borrowing capacity to $110 million and allowed Baltic Trading to incur additional indebtedness under new credit facilities. Refer to Note 9 — Debt of our condensed consolidated financial statements for a description of this amendment. To remain in compliance with a net worth covenant in the 2010 Baltic Trading Credit Facility, Baltic Trading would need to maintain a net worth of $300.9 million after the payment of any dividends.
On July 2, 2013, Baltic Trading entered into agreements to purchase two Handysize drybulk vessels from subsidiaries of Clipper Group for an aggregate purchase price of $41.0 million. The Baltic Hare, a 2009-built Handysize vessel, was delivered on September 5, 2013 and the Baltic Fox, a 2010-built Handysize vessel, was delivered on September 6, 2013. Baltic Trading funded a portion of the purchase price of the vessels using proceeds from its registered follow-on common stock offering completed on May 28, 2013. For the remainder of the purchase price, Baltic Trading drew down $22.0 million on the Baltic Trading $22 Million Term Loan Facility on September 4, 2013. The Baltic Trading $22 Million Term Loan Facility is to be repaid in 23 quarterly repayment installments of approximately $0.4 million each, the first of which is payable three months after the last drawdown date, or December 4, 2013, and a balloon payment of approximately $13.4 million payable on September 4, 2019. Interest on borrowings is payable at the three-month LIBOR rate plus a margin of 3.35%. Refer to Note 9 — Debt in our condensed consolidated financial statements for further information regarding this credit facility.
On October 31, 2013, Baltic Trading entered into agreements to purchase two Capesize drybulk vessels from affiliates of SK Shipping Co. Ltd. for an aggregate purchase price of $103.0 million. The Baltic Lion, a 2012-built Capesize vessel, was delivered on December 27, 2013 and the Baltic Tiger, a 2011-built Capesize vessel, was delivered on November 26, 2013. Baltic Trading funded a portion of the purchase price of the vessels using proceeds from its registered follow-on common stock offering completed on September 25, 2013. For the remainder of the purchase price, Baltic Trading drew down $44.0 million on the Baltic Trading $44 Million Term Loan Facility on December 23, 2013. The Baltic Trading $44 Million Term Loan Facility is to be repaid in 23 quarterly repayment installments of approximately $0.7 million each, the first of which is payable three months after the last drawdown date, or March 24, 2014, and a balloon payment of approximately $28.2 million payable on December 23, 2019. Interest on borrowings is payable at the three-month LIBOR rate plus a margin of 3.35%. Refer to Note 9 — Debt in our condensed consolidated financial statements for further information regarding this credit facility.
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On November 13, 2013, Baltic Trading entered into agreements to purchase up to four 64,000 dwt Ultramax newbuilding drybulk vessels from Yangfan Group Co., Ltd. for a purchase price of $28.0 million per vessel, or up to $112.0 million in the aggregate. Baltic Trading agreed to purchase two such vessels, to be renamed the Baltic Hornet and Baltic Wasp, and obtained an option to purchase up to two additional such vessels for the same price, which Baltic Trading exercised on January 8, 2014. These vessels are to be renamed the Baltic Mantis and the Baltic Scorpion. The purchases are subject to completion of customary additional documentation and closing conditions. The first of these vessels, the Baltic Hornet, was delivered on October 29, 2014. The Baltic Wasp is expected to be delivered to Baltic Trading during the fourth quarter of 2014. The Baltic Scorpion and the Baltic Mantis are expected to be delivered to Baltic Trading during the second and third quarters of 2015, respectively. Baltic Trading intends to use a combination of cash on hand, future cash flow from operations as well as debt or equity financing, including the 2014 Baltic Trading Term Loan Facilities as described below and in Note 9 — Debt in our condensed consolidated financial statement, to fully finance the acquisition of these four Ultramax newbuilding drybulk vessels. If Baltic Trading is unable to obtain such debt or equity financing to fund the vessels, it may pursue alternatives, including refinancing its existing indebtedness or disposition of assets.
On October 8, 2014, Baltic Trading and its wholly-owned subsidiaries, Baltic Hornet Limited and Baltic Wasp Limited, each entered into a loan agreement and related documentation for a credit facility in a principal amount of up to $16,800 with ABN AMRO Capital USA LLC and its affiliates (the “2014 Baltic Trading Term Loan Facilities”)to partially finance the newbuilding Ultrama vessel that each subsidiary is to acquire, namely the Baltic Hornet and Baltic Wasp, respectively. Amounts borrowed may not be reborrowed. The 2014 Baltic Trading Term Loan Facilities have a ten-year term and is to be repaid in 20 equal consecutive semi-annual installments of 1/24 of the facility amount a balloon payment of 1/6 of the facility amount to be paid at final maturity. Principal repayments will comment six months after the actual delivery date for the vessel and borrowing bear interest at three or six-month LIBOR rate plus an applicable margin of 2.50%. Refer to Note 9 — Debt in our condensed consolidated financial statements for additional information regards the 2014 Baltic Trading Term Loan Facilities. On October 24, 2014, Baltic Trading drew down $16,800 for the purchase of the Baltic Hornet, which was delivered on October 29, 2014.
Cash Flow
Net cash used in operating activities for the nine months ended September 30, 2014 and 2013 was $57.6 million and $24.6 million, respectively. The increase in cash used by operating activities was primarily due to the loss of $155.4 million for the nine months ended September 30, 2014, which represents the net of the net loss of $762.0 million and the $917.4 million of non-cash reorganization items and fresh-start accounting adjustments, compared to a net loss of $137.9 million for the nine months ended September 30, 2013, which was primarily due to pre-petition and post-petition reorganization expenses incurred related to our Chapter 11 Cases during the nine months ended September 30, 2014. Deprecation decreased by $11.0 million as a result of the adoption of fresh-start accounting on the Effective Date which required us to revalue our vessel assets at market partially offset by the increase in the size of our fleet due to the delivery of four Baltic Trading vessels during the second half of 2014. Additionally, there was an $8.8 million increase in the amortization of nonvested stock compensation due to the amortization of the MIP Warrants and restricted shares issued after the Effective Date by the Successor Company. Lastly, there was a $10.4 million increase in deferred drydocking costs incurred during the nine months ended September 30, 2014 as a total of 21 vessels completed drydocking during the nine months ended September 30, 2014, including six of Baltic Trading’s vessels.
Net cash used in investing activities for the nine months ended September 30, 2014 and 2013 was $31.4 million and $41.5 million, respectively. Net cash used in investing activities for the nine months ended September 30, 2014 consisted primarily of $30.9 million of vessel asset purchases, including deposits. This consisted primarily of deposits made by Baltic Trading for its four newbuilding Ultramax vessels that it has agreed to acquire. For the nine months ended September 30, 2013, cash used in investing activities consisted primarily of the purchase of vessels assets of $41.1 million for the purchase of the Baltic Fox and Baltic Hare, which were delivered to Baltic Trading during the third quarter of 2014.
Net cash provided by financing activities was $72.9 million during the nine months ended September 30, 2014 as compared to $103.0 million during the nine months ended September 30, 2013. Net cash provided by financing activities during the nine months ended September 30, 2014 was primarily a result of the $100,000 received from the Rights Offering pursuant to the Plan. This was partially offset by a $10.2 million repayment of debt under the $253 Million Term Loan Facility, a $5.8 million repayment of debt under the $100 Million Term Loan Facility, a $2.1 million repayment of debt under the Baltic Trading $44 Million Term Loan Facility, $5.0 million for payments of deferred financing costs, a $1.1 million repayment of debt under the Baltic Trading $22 Million Term Loan Facility as well as a $0.1 million for payment of common stock issuance costs by Baltic Trading. Additionally, there was a $0.4 million settlement payment made to non-accredited 2010 Note holders. Net cash provided by financing activities during the nine months ended September 30, 2013 was primarily a result of $81.3 million of net proceeds from common stock issued by Baltic Trading, $22.0 million of proceeds from the Baltic Trading $22 Million Term Loan Facility, as well as $1.0 million of proceeds from the 2010 Baltic Trading Credit Facility. Cash dividends paid by our subsidiary, Baltic Trading, to its outside shareholders were $2.6 million during the nine months ended September 30, 2014 as compared to $0.6 million during the nine months ended September 30, 2013.
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Credit Facilities
Refer to the 2013 10-K for a summary and description of our outstanding credit facilities, including the underlying financial and non-financial covenants. On August 29, 2013, Baltic Trading entered into an amendment to the 2010 Baltic Trading Credit Facility. Additionally, on August 30, 2013, wholly-owned subsidiaries of Baltic Trading entered into the Baltic Trading $22 Million Term Loan Facility to fund a portion of the purchase of the Baltic Fox and Baltic Hare and on December 3, 2013, wholly-owned subsidiaries of Baltic Trading entered into the Baltic Trading $44 Million Term Loan Facility to fund or refund a portion of the purchase of the Baltic Tiger and Baltic Lion. Lastly, on October 8, 2014, wholly-owned subsidiaries of Baltic Trading entered into the 2014 Baltic Trading Term Loan Facilities to fund a portion of the purchase of the Baltic Hornet and Baltic Wasp. Refer to Note 9 —Debt in our condensed consolidated financial statements for further information regarding the terms and fees associated with these agreements.
On July 2, 2014, the Bankruptcy Court entered the Confirmation Order, confirming the Plan. On July 9, 2014 (the “Effective Date”), we completed our financial restructuring and emerged from Chapter 11 through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms
Key components of the Plan regarding the credit facilities and 2010 Notes included:
· The conversion of 100% of the Claims under the 2007 Credit Facility into 81.1% of the New Genco Common Stock (subject to dilution by the warrants issued under the Plan). On the Effective Date, the 2007 Credit Facility was terminated, and the liens and mortgages thereunder were released. Refer to Note 9 — Debt in our condensed consolidated balance sheet for further information.
· The conversion of 100% of the Claims under the 2010 Notes into 8.4% of the New Genco Common Stock (subject to dilution by the warrants issued under the Plan). On the Effective Date, the 2010 Notes and the Indenture were fully satisfied and discharged. Refer to Note 10 — Convertible Senior Notes in our condensed consolidated financial statements for further information.
· The amendment and restatement of the $253 Million Term Loan Facility and the $100 Million Term Loan Facility as of the Effective Date, with extended maturities, a financial covenant holiday and certain other amendments, as discussed further in Note 9 — Debt in our condensed consolidated financial statements.
As of September 30, 2014, we believe we were in compliance with all of the financial covenants under the Amended and Restated $253 Million Term Loan Facility; the Amended and Restated $100 Million Term Loan Facility; the 2010 Baltic Trading Credit Facility, as amended; the Baltic Trading $22 Million Term Loan Facility; and the Baltic Trading $44 Million Term Loan Facility.
Convertible Notes Payable
Refer to Note 10 — Convertible Senior Notes of our condensed consolidated financial statements for a summary of the convertible notes payable. On the Effective Date when the Company emerged from Chapter 11, the 2010 Notes and the Indenture were fully satisfied and discharged.
Interest Rate Swap Agreements, Forward Freight Agreements and Currency Swap Agreements
At December 31, 2013, we had four interest rate swap agreements with DnB NOR Bank to manage interest costs and the risk associated with changing interest rates. The total notional principal amount of the swaps was $306.2 million and the swaps had specified rates and durations. Notwithstanding the forbearances under the Relief Agreements, the fact that we did not make the scheduled amortization payment under our 2007 Credit Facility on March 31, 2014 constituted an event of default under our currently outstanding interest rate swap.
As of March 31, 2014, we were in default under covenants of our 2007 Credit Facility due to the default on the scheduled debt amortization payment due on March 31, 2014. The default under the 2007 Credit Facility required us to elect interest periods of only one month; therefore, we no longer qualified for hedge accounting under the original designation and hedge accounting was terminated effective March 31, 2014. Additionally, the filing of the Chapter 11 Cases on the Petition Date constituted an event of default with respect to the outstanding interest rate swap with DNB Bank ASA. As a result, DNB Bank ASA terminated all transactions under the remaining swap agreement effective April 30, 2014 and issued a secured claim with the Bankruptcy Court of $5,622. The interest rate swap was settled on the Effective Date upon our emergence from bankruptcy. This liability was paid by the Successor Company during the period from July 9 to September 30, 2014.
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Refer to the table in Note 11 — Interest Rate Swap Agreements of our condensed consolidated financial statements for further information.
We have considered the creditworthiness of both ourselves and the counterparty in determining the fair value of the interest rate derivatives, and such consideration resulted in an immaterial adjustment to the fair value of derivatives on the balance sheet. Valuations prior to any adjustments for credit risk are validated by comparison with counterparty valuations. Amounts are not and should not be identical due to the different modeling assumptions. Any material differences are investigated.
As part of our business strategy, we may enter into arrangements commonly known as forward freight agreements, or FFAs, to hedge and manage market risks relating to the deployment of our existing fleet of vessels. These arrangements may include future contracts, or commitments to perform in the future a shipping service between ship owners, charterers and traders. 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. Although FFAs can be entered into for a variety of purposes, including for hedging, as an option, for trading or for arbitrage, if we decided to enter into FFAs, our objective would be to hedge and manage market risks as part of our commercial management. It is not currently our intention to enter into FFAs to generate a stream of income independent of the revenues we derive from the operation of our fleet of vessels. If we determine to enter into FFAs, we may reduce our exposure to any declines in our results from operations due to weak market conditions or downturns, but may also limit our ability to benefit economically during periods of strong demand in the market. We have not entered into any FFAs as of September 30, 2014 and December 31, 2013.
Contractual Obligations
The following table sets forth our contractual obligations and their maturity dates as of September 30, 2014. The table incorporates the employment agreement entered into in September 2007 with our Chief Financial Officer, John Wobensmith. The table reflects Baltic Trading’s agreements to acquire four newbuilding Ultramax drybulk vessels from Yangfan Group Co., Ltd. for an aggregate purchase price of $112.0 million. Baltic Trading plans to finance these vessel acquisitions with a combination of cash on hand, future cash flow from operations, as well as debt or equity financing, including the 2014 Baltic Trading Term Loan Facilities, as discussed above under “Liquidity and Capital Resources.” The interest and borrowing fees and credit agreement payments below reflect the $100 Million Term Loan Facility, the $253 Million Term Loan Facility, 2010 Baltic Trading Credit Facility, the Baltic Trading $22 Million Term Loan Facility, the Baltic Trading $44 Million Term Loan Facility and the 2014 Baltic Trading Term Loan Facilities, as well as other fees associated with these facilities. The following table also incorporates the future lease payments associated with the lease for our current space and excludes the lease from our former space as we have filed a motion to reject the lease for our former space in the bankruptcy proceedings which was accepted on the Effective Date upon our emergence from Chapter 11. Refer to Note 21 — Commitments and Contingencies in our condensed consolidated financial statements for further information regarding the terms of our two lease agreements.
Less than One Year (1)
One to Three Years
Three to Five Years
More than Five Years
(U.S. dollars in thousands)
Credit Agreements (2)
421,847
8,061
169,535
67,285
176,966
Interest and borrowing fees
55,430
7,141
27,200
15,706
5,383
Remainder of purchase price of vessels (3)
84,000
44,800
39,200
Executive employment agreement
504
131
373
Office leases
19,940
245
2,113
1,992
15,590
Totals
581,721
60,378
238,421
84,983
197,939
(1) Represents the three-month period ending December 31, 2014.
(2) On October 24, 2014, $16,800 was drawn down from the 2014 Baltic Trading Term Loan Facilities in order to fund the purchase of the Baltic Hornet, which was delivered to Baltic Trading on October 29, 2014.
(3) The timing of this obligation is based on the estimated delivery dates for the Baltic Wasp, Baltic Scorpion and Baltic Mantis. Upon the delivery of the Baltic Hornet on October 29, 2014, the remaining purchase price of $19,600 was paid by Baltic Trading to Yangfan Group Co., Ltd..
Interest expense has been estimated using 0.23% plus the applicable bank margin of 3.50% for the $100 Million Term Loan Facility and the $253 Million Term Loan Facility, as amended pursuant to the Plan, 3.00% for the 2010 Baltic Trading Credit Facility and 2.50% for the 2014 Baltic Trading Term Loan Facilities. For the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility, interest expense has been estimated using 0.23% plus the applicable margin of 3.35%.
Capital Expenditures
We make capital expenditures from time to time in connection with our vessel acquisitions. Excluding Baltic Trading’s vessels, our fleet currently consists of nine Capesize drybulk carriers, eight Panamax drybulk carriers, 17 Supramax drybulk carriers, six Handymax drybulk carriers and 13 Handysize drybulk carriers. Baltic Trading’s fleet currently consists of four Capesize drybulk carriers, one Ultramax drybulk carrier, four Supramax drybulk carriers and five Handysize drybulk carriers. After the expected delivery of the remaining three Ultramax vessels that Baltic Trading has agreed to acquire, Baltic Trading’s fleet will consists of four Capesize drybulk carriers, four Ultramax drybulk carriers, four Supramax drybulk carriers and five Handysize drybulk carriers. Baltic Trading intends to use a combination of cash on hand, future cash flow from operations as well as debt or equity financing, including the 2014 Baltic Trading Term Loan Facilities, to fully finance the acquisition of these four Ultramax newbuilding drybulk vessels.
As previously announced, we have initiated a fuel efficiency upgrade program for certain of our vessels. We believe this program will generate considerable fuel savings going forward and increase the future earnings potential for these vessels. The cost of the upgrades, which will be performed under the planned drydocking schedule, is expected to be approximately $0.3 million for a Supramax vessel and $0.5 million for a Capesize vessel and is included in GS&T and Baltic Trading’s estimated drydocking costs below. We expect these upgrades to be installed on one of GS&T’s Supramax vessels and one of GS&T’s Capesize vessels during the remainder of 2014. Additionally, during 2015, we expect these upgrades to be installed on four of GS&T’s Supramax vessels and two of Baltic Trading’s Capesize vessels. The updgrades have been successfully installed on two of our vessels, the Genco Aquitaine and Genco Ardennes, which completed their planned drydockings during the third quarter of 2014. Additionally, the upgrades have been successfully installed on five of Baltic Trading’s vessels, the Baltic Cougar, the Baltic Panther, the Baltic Leopard, the Baltic Jaguar and the Baltic Wind, which completed their planned drydockings during the first half of 2014.
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. We estimate our drydocking costs, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, and scheduled off-hire days for our fleet, excluding Baltic Trading’s vessels, through 2015 to be:
Year
Estimated Drydocking Cost
Estimated Off-hire Days
(U.S. dollars in millions)
2014 (October 1- December 31, 2014)
4.2
100
12.1
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 from operations. These costs do not include drydock expense items that are reflected in vessel operating expenses.
We estimate that each drydock will result in 20 days of off-hire. Actual length will vary based on the condition of the vessel, yard schedules and other factors.
During the nine months ended September 30, 2014 and 2013, we incurred a total of $8.8 million and $1.9 million of drydocking costs, respectively.
Fifteen of our vessels completed their drydockings during the nine months ended September 30, 2014, including the Genco Acheron and Genco Loire, which entered the drydocking yard during the fourth quarter of 2013. We estimate that five of our vessels will be drydocked during the remainder of 2014 and an additional 15 of our vessels will be drydocked during 2015.
In addition to acquisitions that Baltic Trading may undertake in future periods, Baltic Trading will incur additional capital expenditures due to special surveys and drydockings for its fleet. We estimate our drydocking costs, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, and scheduled off-hire days for Baltic Trading’s fleet through 2015 to be:
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4.6
Baltic Trading incurred drydocking costs of $3.4 million and $0 during the nine months ended September 30, 2014 and 2013, respectively.
Six of Baltic Trading’s vessels were drydocked during the nine months ended September 30, 2014. We estimated that none of our vessels will be drydocked during the remainder of 2014 and five of our vessels will be drydocked during 2015.
Under U.S. Federal law and 33 CFR, Part 151, Subpart D, U.S. approved ballast water treatment systems will be required to be installed in all vessels at the first out of water drydocking after January 1, 2016 if these vessels are to discharge ballast water inside 12 nautical miles of the coast of the United States. Currently, we do not believe there are any ballast water treatment systems that are approved by U.S. authorities; however, an alternative management system (AMS) may be installed in lieu. 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. The cost of these systems will vary based on the size the vessel, and the Company estimates the cost of the systems to be $950 for Capesize, $800 for Panamax, $750 for Supramax, $700 for Handymax and $650 for Handysize vessels. Any newbuilding vessels that we acquire will have an AMS installed when the vessel is being built. The costs of ballast water treatment systems will be capitalized and depreciated over the remainder of the life of the vessel, assuming the system the Company installs becomes approved.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Inflation
Inflation has only a moderate effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, general and administrative, and financing costs.
CRITICAL ACCOUNTING POLICIES
There have been no changes or updates to the critical accounting policies as disclosed in the 2013 10-K, with the exception of the accounting policies noted below.
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. Effective July 9, 2014, the Effective Date, we increased the estimated scrap value of the vessels from $245/lwt to $301/lwt prospectively based on the 15-year average scrap value of steel. This increase in the residual value of the vessels will decrease the annual deprecation charge over the remaining useful life of the vessels. During the period from July 9 to September 30, 2014, the increase in the estimated scrap value resulted in a decrease in depreciation expense of approximately $0.7 million for the Successor Company. 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 2013 10-K. Excluding the three Bourbon vessels we resold immediately upon delivery to MEP
at our cost, we have sold three of our vessels since our inception and realized a profit in each instance. However, we did determine to cancel an acquisition of six drybulk newbuildings in November 2008, incurring a $53.8 million loss from the forfeiture of our deposit and related interest.
Pursuant to our bank credit facilities, we regularly submit to the lenders valuations of our vessels on an individual charter free basis in order to evidence our compliance with the collateral maintenance covenants under our bank credit facilities. Such a valuation is not necessarily the same as the amount any vessel may bring upon sale, which may be more or less, and should not be relied upon as such. We were in compliance with the collateral maintenance covenants under the $100 Million Term Loan Facility, as amended; the $253 Million Term Loan Facility, as amended; the 2010 Baltic Trading Credit Facility; the Baltic Trading $22 Million Term Loan Facility; and the Baltic Trading $44 Million Term Loan Facility at September 30, 2014. The first such valuations to be submitted under the 2014 Baltic Trading Term Loan Facilities are to be as of December 31, 2013. We obtained valuations for all of the vessels in our fleet, included Baltic Trading, as of July 9, 2014, the Effective Date, when we emerged from bankruptcy. These valuations were utilized when we adopted fresh-start accounting on the Effective Date. For purposes of comparing the carrying value of our vessels with the vessel valuations, we utilized the July 9, 2014 valuations. In the chart below, we list each of our vessels that represent the collateral for the aforementioned credit facilities, the year it was built, the year we acquired it, and its carrying value at September 30, 2014 and December 31, 2013.
At September 30, 2014, the vessel valuations of all of our vessels as of the Effective Date of July 9, 2014 were higher than their carrying values at September 30, 2014, as all of the vessels were revalued as of July 9, 2014 using those valuations and depreciated over the period from July 9 to September 30, 2014 for the Successor Company. At December 31, 2013, the vessel valuations of all of our vessels for covenant compliance purposes under our bank credit facilities as of the most recent compliance testing date, with the exception of the Baltic Fox, Baltic Hare and Baltic Lion, were lower than their carrying values at December 31, 2013. For the Genco Ocean, Genco Bay, Genco Avra, Genco Mare and Genco Spirit, the last compliance testing date prior to December 31, 2013 was August 17, 2013 in accordance with the terms of the $100 Million Term Loan Facility; for all other vessels, the compliance testing date used at December 31, 2013 was December 31, 2013, in accordance with the terms of the applicable credit facility.
The amount by which the carrying value at December 31, 2013 of all of the vessels in our fleet, with the exception of the Baltic Fox, Baltic Hare and Baltic Lion, exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual vessel basis, from $0.3 million to $64.3 million per vessel, and $1,171.3 million on an aggregate fleet basis. The average amount by which the carrying value of our vessels exceeded the valuation of such vessels for covenant compliance purposes was $18.6 million as of December 31, 2013. However, neither such valuation nor the carrying value in the table below reflects the value of long-term time charters related to some of our vessels.
Carrying Value (U.S. dollars in thousands) as of
Vessels
Year Acquired
Unencumbered
9,573
14,135
12,292
19,393
9,567
13,981
11,492
14,087
8,697
13,016
9,560
13,849
9,566
14,035
10,626
13,238
10,619
13,139
12,291
19,514
12,282
19,205
12,280
19,183
9,622
12,382
10,632
13,318
14,883
19,371
67
12,275
18,981
11,289
17,974
42,278
98,002
42,279
98,193
40,703
99,694
41,026
100,199
13,060
30,169
14,934
33,537
20,607
48,971
20,624
50,309
22,992
54,614
15,927
35,080
44,652
105,126
20,036
71,552
18,919
58,506
20,040
71,782
44,064
103,504
46,550
105,973
46,554
105,990
48,785
107,688
TOTAL
751,576
1,647,690
21,046
30,024
21,049
30,100
22,170
31,194
22,171
31,107
22,174
31,732
108,610
154,157
21,190
31,601
21,192
31,752
21,357
31,745
22,163
31,734
22,164
31,799
31,966
20,545
28,870
20,543
28,565
18,923
26,311
20,611
25,705
19,493
25,299
22,167
31,742
23,287
33,347
275,799
390,436
20,547
30,312
20,548
30,389
20,549
30,540
20,550
30,459
47,680
63,754
47,688
63,561
20,050
29,081
21,047
29,437
21,051
30,002
239,710
337,535
68
20,669
21,017
19,550
19,955
40,219
40,972
54,150
52,589
52,042
50,416
106,192
103,005
Consolidated Total
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on our earnings and cash flow in relation to our borrowings. We held four interest rate swap agreements with DnB NOR Bank at December 31, 2013 to manage future interest costs and the risk associated with changing interest rates. The total notional principal amount of the swaps was $306.2 million and the swaps have specified rates and durations. Three swaps expired during the three months ended March 31, 2014. Refer to the table in Note 11 — Interest Rate Swap Agreements of our condensed consolidated financial statements which summarizes the interest rate swaps in place as of December 31, 2013.
As of March 31, 2014, we were in default under covenants of our 2007 Credit Facility due to the default on the scheduled debt amortization payment due on March 31, 2014. The default under the 2007 Credit Facility required us to elect interest periods of only one-month, therefore we no longer qualified for hedge accounting under the original designation and hedge accounting was terminated effective March 31, 2014. Additionally, the filing of the Chapter 11 Cases on the Petition Date constituted an event of default with respect to the outstanding interest rate swap with DNB Bank ASA. As a result, DNB Bank ASA terminated all transactions under the remaining swap agreement effective April 30, 2014 and issued a secured claim with the Bankruptcy Court of $5,622. The interest rate swap was settled on the Effective Date upon our emergence from bankruptcy. This liability was paid by the Successor Company during the period from July 9 to September 30, 2014. Refer to Note 11 — Interest Rate Swap Agreements for additional information.
The swap agreements outstanding as of December 31, 2013 synthetically converted variable rate debt to fixed rate debt at the fixed interest rate of the swap plus the applicable margin of 3.00%.
The total liability associated with the swaps at December 31, 2013 was $7.0 million and is presented as Fair value of derivative instruments on the Condensed Consolidated Balance Sheets. As of December 31, 2013, we had accumulated other comprehensive income (loss) (“AOCI”) of ($7.0) million. The interest rate swap that was terminated April 30, 2014 as mentioned above was not hedged as cash flow hedge accounting was discontinued beginning on March 31, 2013 as a result of the default under the 2007 Credit Facility (see above). Once cash flow hedge accounting was discontinued, the changes in the fair value of the interest rate swaps were recorded in the Condensed Consolidated Statement of Operations in interest expense and the remaining amounts included in AOCI are amortized to interest expense over the original term of the hedging relationship. Hedge ineffectiveness associated with the interest rate swaps resulted in a minimal amount of other income (expense) during the three and nine months ended September 30, 2013, and there was no hedge ineffectiveness during the three and nine months ended September 30, 2014.
We are subject to market risks relating to changes in LIBOR rates because we have significant amounts of floating rate debt outstanding. For the 2007 Credit Facility, which was terminated on the Effective Date pursuant to the Plan, we were subject to a facility fee of 1.0% per annum on the average daily outstanding principal amount of the outstanding loan under the 2007 Credit Facility, as well as LIBOR plus 3.00% on the outstanding debt until the termination date of the facility. Additionally, during the period from January 1 to July 9, 2014, the Effective Date, we paid LIBOR plus 3.00% on the outstanding debt under the $100 Million Term Loan Facility and $253 Million Term Loan Facility. Pursuant to the amendments to these facilities which were effective on the Effective Date of the Plan, the margin was increased from 3.00% to 3.50% for the period from July 9 to September 30, 2014. Additionally, we paid LIBOR plus 3.00% on the outstanding debt under the 2010 Baltic Trading Credit Facility as well as three-month LIBOR plus 3.35% on the outstanding debt under the Baltic Trading $22 Million Term Loan Facility and the Baltic Trading $44 Million Term Loan Facility. A 1% increase in LIBOR would result in an increase of $7.8 million in interest expense for the nine months ended September 30, 2014, considering the increase would be only on the unhedged portion of the debt. For any unpaid loan payments due under the $100 Million Term Facility and the $253 Million Term Loan Facility during the bankruptcy period, the Company incurred an additional 2.00% default interest only on the unpaid loan amounts due during the bankruptcy period.
Derivative financial instruments
As of December 31, 2013, we held four interest rate swap agreements with DnB NOR Bank to manage interest costs and the risk associated with changing interest rates. The total notional principal amount of the swaps was $306.2 million and the swaps had specified rates and durations. Three swaps expired during the three months ended March 31, 2014. Refer to the table in Note 11 — Interest Rate Swap Agreements of our condensed consolidated financial statements, which summarizes the interest rate swaps in place as of December 31, 2013.
The differential to be paid or received for these swap agreements is recognized as an adjustment to interest expense as incurred. The interest rate differential pertaining to the interest rate swaps for the three months ended September 30, 2014 and 2013 was $0.1 million and $2.5 million, respectively. The interest rate differential pertaining to the interest rate swaps for the nine months ended September 30, 2014 and 2013 was $2.6 million and $7.4 million, respectively. The Company was utilizing cash flow hedge accounting for the swaps whereby the effective portion of the change in value of the swaps is reflected as a component of AOCI until March 31, 2014. The ineffective portion was recognized as other (expense) income, which is a component of other (expense) income. If for any period of time we did not designate the swaps for hedge accounting, the change in the value of the swap agreements prior to designation would be recognized as other (expense) income.
As of March 31, 2014, we were in default under covenants of our 2007 Credit Facility due to the default on the scheduled debt amortization payment due on March 31, 2014. The default under the 2007 Credit Facility required us to elect interest periods of only one-month, therefore we no longer qualified for hedge accounting under the original designation and hedge accounting was terminated effective March 31, 2014. Additionally, the filing of the Chapter 11 Cases on the Petition Date constituted an event of default with respect to the outstanding interest rate swap with DNB Bank ASA. As a result, DNB Bank ASA terminated all transactions under the remaining swap agreement effective April 30, 2014 and made a secured claim with the Bankruptcy Court of $5,622. The interest rate swap was settled on the Effective Date upon our emergence from bankruptcy. This liability was paid by the Successor Company during the period from July 9 to September 30, 2014. Refer to Note 11 — Interest Rate Swap Agreements for additional information.
Amounts receivable or payable arising at the settlement of hedged interest rate swaps are deferred and amortized as an adjustment to interest expense over the period of interest rate exposure provided the designated liability continues to exist. Amounts receivable or payable arising at the settlement of unhedged interest rate swaps are reflected as other (expense) income and is listed as a component of other (expense) income.
Refer to the “Interest rate risk” section above for further information regarding the interest rate swap agreements.
Currency and exchange rates risk
The international shipping industry’s functional currency is the U.S. Dollar. Virtually all of our revenues and most of our operating costs are in U.S. Dollars. We incur certain operating expenses in currencies other than the U.S. dollar, and the foreign exchange risk associated with these operating expenses is immaterial.
As part of our business strategy, we may enter into short-term forward currency contracts to protect ourselves from the risk arising from the fluctuation in the exchange rate associated with the cost basis of the Jinhui shares.
At September 30, 2014, we hold investments in Jinhui with a carrying amount of $38.4 million and investments in KLC with a carrying amount of $0.1 million, both of which are classified as available for sale (“AFS”) under Accounting Standards Codification 320-10, Investments — Debt and Equity Securities (“ASC 320-10”). These investments are classified as noncurrent assets based on our intent to hold the investment at each reporting date. The investments that are classified as AFS are subject to risk of changes in market value, which if determined to be impaired (other than temporarily impaired), could result in realized impairment losses. We review the carrying value of such investments on a quarterly basis to determine if any valuation adjustments are appropriate under ASC 320-10. We will continue to evaluate our investment in Jinhui and KLC on a quarterly basis to determine the likelihood of any significant adverse effects on the fair value and amount of any impairment. As a result of the adoption of fresh-start accounting on the Effective Date, we revalued these investments so that the new cost basis going forward is the fair market value on the Effective Date with revaluation adjustment being recorded in Reorganization items, net. For the three and nine months ended September 30, 2014 and 2013, we have not deemed our investments to be impaired. In the event we determine that the Jinhui or KLC investment are subject to any impairment, the amount of the impairment would be reclassified from AOCI and recorded as a loss in the Condensed Consolidated Statement of Operations for the amount of the impairment.
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ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our President and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We commenced the Chapter 11 Cases to implement our restructuring. Pursuant to the Bankruptcy Code, the filing of a bankruptcy petition automatically stays certain actions against us, including actions to collect pre-petition indebtedness or to exercise control over the property of our bankruptcy estates. The Plan provided for the treatment of allowed claims against our bankruptcy estates, including pre-petition liabilities. The treatment of such liabilities under the Plan resulted in a material adjustment to our financial statements and has been recorded in Reorganization items, net in our condensed consolidated statements of operation.
On March 28, 2014, the Genco Auvergne was arrested due to a disputed claim with the charterer of one of our other vessels, namely the Genco Ardennes. In order for us to release the Genco Auvergne from its arrest, we entered into a cash collateralized $0.9 million bank guarantee with Skandinaviska Enskilda Banken AB (the “SEB Bank Guarantee”) on April 3, 2014. The vessel has since been released from its arrest and the bank guarantee will remain in an escrow account until the arbitration related to this case is completed. The SEB Bank Guarantee resulted in additional indebtedness. As we were in default under the covenants of our 2007 Credit Facility due to the default on a scheduled debt amortization payment due on March 31, 2014, on April 3, 2014 we received a consent from the lenders under the 2007 Credit Facility to incur this additional indebtedness. Also, under the $253 Million Term Loan Facility for which the Genco Auvergne is collateralized, we may not incur additional indebtedness related to its collateralized vessels under this facility. We also received a consent from the lenders under the $253 Million Term Loan Facility on April 3, 2014 in order to enter the SEB Bank Guarantee.
We have not been involved in any other legal proceedings which we believe are likely to have, or have had a significant effect on our business, financial position, results of operations or cash flows, nor are we aware of any proceedings that are pending or threatened which we believe are likely to have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
ITEM 6. EXHIBITS
Exhibit
Document
2.1
Confirmation Order, dated July 2, 2014.(1)
2.2
First Amended Prepackaged Plan of Reorganization of the Debtors Pursuant to Chapter 11 of the Bankruptcy Code.(1)
Second Amended and Restated Articles of Incorporation of Genco Shipping & Trading Limited.(2)
3.2
Amended and Restated By-Laws of Genco Shipping & Trading Limited, dated as of July 9, 2014.(2)
4.1
Form of Specimen Stock Certificate of Genco Shipping & Trading Limited.(2)
Form of Specimen Warrant Certificate of Genco Shipping & Trading Limited.(2)
10.1
Second Supplemental Agreement dated as of July 19, 2014 to $253,000,000 Secured Loan Facility Agreement dated August 20, 2010, by and among Genco Shipping & Trading Limited as Borrower; BNP Paribas, Crédit Agricole Corporate and Investment Bank, DVB Bank SE, Deutsche Bank AG Filiale Deutschlandgeschäft, and Skandinaviska Enskilda Banken AB (publ), as Lenders; Deutsche Bank Luxembourg S.A., as Agent; BNP Paribas, Crédit Agricole, Corporate and Investment Bank, DVB Bank SE, Deutsche Bank AG Filiale Deutschlandgeschäft, and Skandinaviska Enskilda Banken Ab (publ), as Mandated Lead Arrangers; BNP Paribas, Crédit Agricole Corporate and Investment Bank, DVB Bank SE, Deutsche Bank AG, and Skandinaviska Enskilda Banken AB (publ), as Swap Providers; Deutsche Bank AG Filiale Deutschlandgeschäft, as Security Agent and Bookrunner; and the subsidiaries of Genco listed therein as Guarantors.(2)
Amendment and Restatement Agreement, dated as of July 9, 2014, by and among Genco Shipping & Trading Limited as Borrower, the companies listed in Schedule 2 of Appendix A thereto as Guarantors, the banks and financial institutions listed in Schedule 1 of Appendix A thereto as Lenders, and Crédit AgricoleCorporate and Investment Bank, as Agent and Security Trustee.(2)
Registration Rights Agreement as of July 9, 2014 by and between Genco Shipping & Trading Limited and the Holders party thereto.(2)
10.4
Warrant Agreement, dated as of July 9, 2014, between Genco Shipping & Trading Limited and Computershare Inc., as Warrant Agent.(2)
10.5
Genco Shipping & Trading Limited 2014 Management Incentive Plan.(3)
10.6
Restricted Stock Grant Agreement dated as of August 7, 2014 between Genco Shipping & Trading Limited and Peter C. Georgiopoulos.*
10.7
Restricted Stock Grant Agreement dated as of August 7, 2014 between Genco Shipping & Trading Limited and John C. Wobensmith.*
10.8
Warrant Certificate No. W-1 dated as of August 7, 2014 and issued to Peter C. Georgiopoulos.*
10.9
Warrant Certificate No. W-2 dated as of August 7, 2014 and issued to Peter C. Georgiopoulos.*
10.10
Warrant Certificate No. W-3 dated as of August 7, 2014 and issued to Peter C. Georgiopoulos.*
10.11
Warrant Certificate No. W-4 dated as of August 7, 2014 and issued to John C. Wobensmith.*
10.12
Warrant Certificate No. W-5 dated as of August 7, 2014 and issued to John C. Wobensmith.*
10.13
Warrant Certificate No. W-6 dated as of August 7, 2014 and issued to John C. Wobensmith.*
31.1
Certification of President pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.*
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.*
32.1
Certification of President pursuant to 18 U.S.C. Section 1350.*
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.*
101
The following materials from Genco Shipping & Trading Limited’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited), (ii) Condensed Consolidated Statements of Operations (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited), (iv) Condensed Consolidated Statements of Equity (Unaudited), (v) Condensed Consolidated Statements of Cash Flows (Unaudited), and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).**
(*)
Filed with this report.
(**)
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
(1)
Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2014.
(2)
Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 15, 2014.
(3)
Incorporated by reference to Genco Shipping & Trading Limited’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 7, 2014.
(Remainder of page left intentionally blank)
73
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATE: November 17, 2014
By:
/s/ Robert Gerald Buchanan
Robert Gerald Buchanan
President
(Principal Executive Officer)
/s/ John C. Wobensmith
John C. Wobensmith
Chief Financial Officer & Secretary
(Principal Financial and Accounting Officer)
Exhibit Index
75
76