Dynagas LNG Partners LP Reports Earnings

It is always amazing how poorly these shipping companies are operated—or maybe it is just amazing that supposedly educated lenders will lend them money knowing odds are high that they will never get their cash back.

Dynagas LNG Partners (DLNG) is one of those shippers that one would think had an opportunity to make a decent profit–they are a small partnership–revenue in the $135 million/annually area. They have only 6 LNG carriers and their sponsor has been in business since 2004. 5 of the 6 LNG ships are ice rated–they can travel the northern seas–up near the Artic circle–in fact their sponsor was the 1st LNG carrier to do so back in 2012.

DLNG was formed in 2013 with an IPO in the 4th quarter. Reviewing the financials for the 9 months prior to the IPO we see a company with stellar numbers–in fact I can clearly remember reviewing these financials and thinking “maybe these LNG carriers have some real potential”. Take a look at the results for 3 months and 9 months ending 9/30/2013. The partnership operated only 3 ships at this time and they were contracted at $76,000/day each. This shows a net income of $1.59/share for 9 months.

Speed ahead to 2019–the company operates 6 LNG carriers now instead of 3. Below is their recently released earnings statement. They are contracted at an average daily rate of $62,000—and they can’t even bring a single damned cent to the bottom line!!

One can look at these income statements and clearly see that while revenue is up 50% in 6 years, interest expense is up 400%–easy money and stupid lenders. But I am sure the sponsor of the partnership is happy – they get their management fees year end and year out irrespective of their incompetence.

Of course there is much more to the story–I’m am sure the sponsors screwed the partnership on ‘drop down’ assets–financed with easy money–but the point really is–BE DARNED CAREFUL WITH THE 2 OUTSTANDING DYNAGAS LNG PARTNERS PREFERRED SHARES–which can be seen here. The shares had big jumps when the company was able to refinance their debt–so instead of a instant bankruptcy they will now go into ‘slow motion’ bankruptcy.

The company has now been restricted from paying any further common share distributions while their new loan is outstanding–BUT the next available source of funds will be the preferred dividends. The company has only a bit of cash, but no doubt they will survive for a few years (the cash you see on the balance sheet 9/30/2019 is already restricted for debt repayment)–lenders will be forced to keep them afloat for a while. Honestly there is a 50/50 chance they will be liquidated within 5 years and common and preferred holders will get ZIP.

For all practical purposes this is now a Zombie company.

Here is their earnings release.

13 thoughts on “Dynagas LNG Partners LP Reports Earnings”

  1. I own a small position in the DLNG preferred so I am interested in everyone’s take on this. My focus is on their ability to not go into default on the covenants of the refinancing, and on their cash. They have a $30 million revolving credit line which has not been used, and their losses are due to the debt, not their operations. I’m nervous about something potentially happening to one or more of their tankers, but otherwise their long term contracts are locked in so why not continue to hold a small amount of the preferred.

  2. I bought the Oct 2019 bonds at 94 in late Spring. They said they’d have the refi done by August. When it wasn’t done with weeks left to go and the bond price was still in the mid-90s with the YTM +60%, I was sweating it out. Never touching this company again.

  3. Refinancing is like kicking the can down the road and throwing a life preserver at some of these companies. In looking at the life preserver, it is cheap, synthetic, and you can get them at the dollar store. Generating FCF to pay down debt, raise credit worthiness, invest FCF back into the company to drive differentiation between competition and value add services… is something different. Those guys make their own life preservers, and don’t have to stop every 100 feet to pick up a % of a penny.

    Just because they got a cheaper loan (every today is), doesn’t mean they are a company that is safe, their books are sound, be competitive in the market, and be around in 10 yrs.

  4. I invest in the shipping space. I am not afraid of taking some risk when it is warranted. I rarely hold anything shipping related long-term however.

    Having said this, stay away from all things $DLNG. Management ran this one into the ground. Why bother?

  5. I agree that is managerial incompetence that leads to problems in marine shipping, not the industry itself. Consider Angeliki Frangou of Navios Maritime shipping. She amassed huge debt within her parent company NM, and then suspended the common div and the divs on 2 preferreds in February 2016. When her parent company got in trouble for cash, she created new baby companies and investors flock in. Rinse and repeat.

    1. Jeff–I’m afraid you are correct. I have owned the Dynagas preferreds before–some years ago and hadn’t looked at the financials for a while. If they can’t even make a cent now–what will happen if shipping rates come back down in a further weakening of global economies?

      1. Tim, I am long the pfd. This partnership refinanced their entire debt at very favorable terms Long term shipping contracts locked in, excess cash is aggressively reducing debt. All positive for the pfd’s. I wasn’t around for the IPO, owned this about 1 year. The aggressive debt pay down will allow the partnership to reinstate the common dividend but that is in about 3 or 4 years.

        1. Wynn, they got way more favorable terms than I thought they would, but in no shape or from would I call what they got very favorable terms. Not even close.

            1. Where do I begin? Easier to just post the deal straight from the company.

              (DLNG), an international owner and operator of liquefied natural gas (LNG) carriers, announced today that it has entered into definitive documentation with leading international banks (collectively, the “Lenders”) for a syndicated $675 million senior secured term loan (the “Credit Facility”). The Credit Facility will be secured by, among other things, first priority mortgages on the six LNG carriers in the Partnership’s fleet.
              Borrowings under the Credit Facility, together with cash on hand, will be utilized to repay in full the Partnership’s existing indebtedness, consisting of the Partnership’s outstanding $470 million Senior Secured Term Loan B upon closing of the Credit Facility and the $250 million aggregate principal amount under the Partnership’s 6.25% senior unsecured notes upon its maturity date of 30th of October 2019 (the “Existing Indebtedness”).
              The Credit Facility is repayable over five years in 20 consecutive quarterly payments (plus a balloon payment in year five) based on a 14 year amortization profile and has a margin of LIBOR plus 300 basis points. The terms of the Credit Facility include financial covenants providing for the maintenance of maximum leverage ratios and minimum liquidity covenants, including the requirement for the Partnership to maintain a minimum cash balance of $50 million throughout the life of the Credit Facility in a restricted collateral account.
              Under the terms of the Credit Facility, the Partnership will be restricted from paying distributions to its common unit-holders while borrowings are outstanding under the Credit Facility. Scheduled distributions to the preferred unit-holders under the existing Series A Preferred Units and Series B Preferred Units will not be restricted provided there is no event of default while the Credit Facility remains outstanding.

              That sounds like a good deal to you? Good luck to them. Hope it works out for you, I don’t want my money anywhere near that.

    2. Jeff, dry bulkers ran into a terrible market. Look at the carnage that industry went through. AF at Navios actually did a very savvy job keeping them afloat. She gets way more flak than she deserves in my opinion. Having said that. I wouldn’t touch $NM with a 10 foot pole.

      I however have dabbled successfully in $NMM, one of those baby companies you are talking about.

      1. “AF at Navios actually did a very savvy job keeping them afloat.”

        Yes, by screwing over preferred shareholders. That said, the BOD has no fiduciary duty toward preferreds so you can argue she did the right thing by throwing preferreds under the bus to benefit common.

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