GENCO SHIPPING & TRADING LIMITED "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as "anticipate," "budget", "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on our management's current expectations and observations. Included among the factors that, in our view, could cause actual results to differ materially from the forward looking statements contained in this report are the following: (i) declines or sustained weakness in demand in the drybulk shipping industry; (ii) continuation of weakness or declines in drybulk shipping rates; (iii) changes in the supply of or demand for drybulk products, generally or in particular regions; (iv) changes in the supply of drybulk carriers including newbuilding of vessels or lower than anticipated scrapping of older vessels; (v) changes in rules and regulations applicable to the cargo industry, including, without limitation, legislation adopted by international organizations or by individual countries and actions taken by regulatory authorities; (vi) increases in costs and expenses including but not limited to: crew wages, insurance, provisions, lube oil, bunkers, repairs, maintenance, general and administrative expenses, and management fee expenses; (vii) whether our insurance arrangements are adequate; (viii) changes in general domestic and international political conditions; (ix) acts of war, terrorism, or piracy; (x) changes in the condition of the Company's vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs) and unanticipated drydock expenditures; (xi) the Company's acquisition or disposition of vessels; (xii) the amount of offhire time needed to complete maintenance, repairs, and installation of equipment to comply with applicable regulations on vessels and the timing and amount of any reimbursement by our insurance carriers for insurance claims, including offhire days; (xiii) the completion of definitive documentation with respect to charters; (xiv) charterers' compliance with the terms of their charters in the current market environment; (xv) the extent to which our operating results continue to be affected by weakness in market conditions and freight and charter rates; (xvi) our ability to maintain contracts that are critical to our operation, to obtain and maintain acceptable terms with our vendors, customers and service providers and to retain key executives, managers and employees; (xvii) completion of documentation for vessel transactions and the performance of the terms thereof by buyers or sellers of vessels and us; (xviii) the relative cost and availability of low sulfur and high sulfur fuel, worldwide compliance with sulfur emissions regulations that took effect onJanuary 1, 2020 and our ability to realize the economic benefits or recover the cost of the scrubbers we have installed; (xix) our financial results for the year endingDecember 31, 2021 and other factors relating to determination of the tax treatment of dividends we have declared; (xx) the financial results we achieve for each quarter that apply to the formula under our new dividend policy, including without limitation the actual amounts earned by our vessels and the amounts of various expenses we incur, as a significant decrease in such earnings or a significant increase in such expenses may affect our ability to carry out our new value strategy; (xxi) the exercise of the discretion of our Board regarding the declaration of dividends, including without limitation the amount that our Board determines to set aside for reserves under our dividend policy; (xxii) our ability to fulfill conditions for borrowings under the$450 Million Credit Facility in order to refinance our$495 Million Credit Facility and our$133 Million Credit Facility; (xxiii) the duration and impact of the COVID-19 novel coronavirus epidemic, which may negatively affect general global and regional economic conditions, our ability to charter our vessels at all and the rates at which are able to do so; our ability to call on or depart from ports on a timely basis or at all; our ability to crew, maintain, and repair our vessels, including without limitation the impact diversion of our vessels to perform crew rotations may have on our revenues, expenses, and ability to consummate vessel sales, expense and disruption to our operations that may arise from the inability to rotate crews on schedule, and delay and added expense we may incur in rotating crews in the current environment; our ability to staff and maintain our headquarters and administrative operations; sources of cash and liquidity; our ability to sell vessels in the secondary market, including without limitation the compliance of purchasers and us with the terms of vessel sale contracts, and the prices at which vessels are sold; and other factors relevant to our business described from time to time in our filings with theSecurities and Exchange Commission ; (xxiv) completion of definitive documentation for the technical management joint venture we plan to enter into; and (xxv) other factors listed from time to time in our filings with theSecurities and Exchange Commission , including, without limitation, our Annual Report on Form 10-K for the year endedDecember 31, 2020 and subsequent reports on Form 8-K and Form 10-Q. Our ability to pay dividends in any period will depend upon various factors, including the limitations under any credit agreements to which 26
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we may be a party, applicable provisions ofMarshall Islands law and the final determination by the Board of Directors each quarter after its review of our financial performance, market developments, and the best interests of the Company and its shareholders. The timing and amount of dividends, if any, could also be affected by factors affecting cash flows, results of operations, required capital expenditures, or reserves. As a result, the amount of dividends actually paid may vary. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The following 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 aMarshall 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. After the anticipated sale of one of our Supramax vessels and the anticipated acquisition of six Ultramax vessels during the remainder of 2021 andJanuary 2022 , our fleet will consist of 44 drybulk vessels, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers and twelve Supramax drybulk carriers, with an aggregate carrying capacity of approximately 4,636,000 dwt and an average age of approximately 10.0 years. We seek to deploy our vessels on time charters, spot market voyage charters, spot market-related time charters or in vessel pools trading in the spot market, to reputable charterers.
See pages 38 - 39 for a table of our current fleet.
Genco's approach towards fleet composition is to own a high-quality fleet of vessels that focuses primarily on Capesize, Ultramax and Supramax vessels. Capesize vessels represent our major bulk vessel category and the other vessel classes, including Ultramax, Supramax and Handysize vessels, represent our minor bulk vessel category. OnFebruary 24, 2021 , we disposed of the last Handysize vessel in our fleet. Our major bulk vessels are primarily used to transport iron ore and coal, while our minor bulk vessels are primarily used to transport grains, steel products and other drybulk cargoes such as cement, scrap, fertilizer, bauxite, nickel ore, salt and sugar. This approach of owning ships that transport both major and minor bulk commodities provide us with exposure to a wide range of drybulk trade flows. We employ an active commercial strategy which consists of a global team located in theU.S. ,Copenhagen andSingapore . Overall, we utilize a portfolio approach to revenue generation through a combination of short-term, spot market employment as well as opportunistically booking longer term coverage. Our fleet deployment strategy currently remains weighted towards short-term fixtures, which provides us with optionality on our sizeable fleet. However, depending on market conditions, we may seek to enter into longer term time charter contracts. In addition to both short and long-term time charters, we fix our vessels on spot market voyage charters as well as spot market-related time charters depending on market conditions and management's outlook.
Drawing on one of the strongest balance sheets in the drybulk industry, inApril 2021 we announced a new comprehensive value strategy. Specifically, we intend to use a phased in approach to further reduce our debt and refinance our current credit facilities in order to lower our cash flow breakeven levels and position us to pay a sizeable quarterly dividend across diverse market environments. Utilizing this approach, we maintain significant flexibility to grow the fleet through accretive vessel acquisitions. We have entered into an agreement for a new$450 Million Credit Facility under which we intend to use for a global refinance of our existing credit facilities, thereby increasing flexibility, improving key terms and lowering our cash flow breakeven rates. We are targeting the fourth quarter of 2021 results for our anticipated first dividend under our new corporate strategy, which would be payable in the first quarter of 2022.
In implementing this strategy, we will focus on the following specific priorities for the remainder of 2021:
Continue to pay down debt through regularly scheduled quarterly repayments and
? prepayments from a combination of cash flow generation and cash on the balance
sheet; and
? Opportunistically grow the fleet on a low levered basis utilizing proceeds from
previous vessel sales
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COVID-19
In March 2020 , the World Health Organization (the "WHO") declared the outbreak
of a novel coronavirus strain, or COVID-19, to be a pandemic. The COVID-19
pandemic is having widespread, rapidly evolving, and unpredictable impacts on
global society, economies, financial markets, and business practices. Over the
course of the pandemic, governments have implemented measures in an effort to
contain the virus, including social distancing, travel restrictions, border
closures, limitations on public gatherings, working from home, supply chain
logistical changes, and closure of non-essential businesses. This led to a
significant slowdown in overall economic activity levels globally and a decline
in demand for certain of the raw materials that our vessels transport.
Drybulk shipping rates, and therefore our voyage revenues, depend to a
significant degree on global economic activity levels and specifically, economic
activity in China . As the world's second largest economy, China is the largest
importer of drybulk commodities globally, which drives demand for iron ore, coal
and other cargoes we carry. In particular, earlier in 2020, the COVID-19
pandemic resulted in reduced industrial activity in China on which our business
is substantially dependent, with temporary closures of factories and other
facilities. The pandemic resulted in a 6.8% contraction in China's GDP during
the first quarter of 2020, with the most significant impact occurring in January
and February. Since March 2020 , China's economy has substantially improved, as
various economic indicators such as fixed asset investment and industrial
production rose as compared to the previous months of the year, which led to a
return to GDP growth for the balance of 2020 and into the first half of 2021.
Economic activity levels in regions outside of China declined significantly
beginning in the first quarter of 2020 and continuing into the second quarter of
the year due to various forms of nationwide shutdowns being imposed to prevent
the spread of COVID-19. India , Japan , Europe and the U.S. , which are important
drivers of demand for drybulk trade, saw meaningful contractions in economic
output in 2020. Several economies around the world gradually eased measures
taken earlier in 2020 resulting in improved activity levels from earlier year
lows. The impact of the economic contraction remains highly dependent on the
trajectory of COVID-19, potential variants, and the timing of wide-scale vaccine
distribution, which remains uncertain.
While global economic activity levels, led by China , have improved, the outlook
for China and the rest of the world remains uncertain and is highly dependent on
the path of COVID-19 and measures taken by governments around the world in
response to it. Drybulk commodities that are closely tied to global GDP growth
and energy demand, experienced reduced trade flows in 2020 due to lower end user
demand resulting from a decline in global economic activity. As countries
worldwide gradually reopened their respective economies in mid-2020, trade flows
and demand for raw materials increased. Drybulk spot freight rates rebounded
from the 2020 lows towards the end of the second quarter and remained firm in
the second half of 2020. In 2021 to date, spot rates for Capesize and Supramax
vessels have reached levels not seen since 2010. While vaccinations are rising
in developed countries, developing countries vaccination rates have lagged.
Global vaccination rates, vaccine effectiveness together with the onset of
variants, could impact the sustainability of this recovery in addition to
drybulk specific seasonality described in further detail below.
As our vessels trade commodities globally, we have taken measures to safeguard
our crew and work toward preventing the spread of COVID-19. Crew members have
received gloves, face masks, hand sanitizer, goggles and handheld thermometers.
Genco requires its vessel crews to wear masks when in contact with other
individuals who board the vessel. We continue to monitor the Centers for Disease
Control and Prevention (the "CDC") and the WHO guidelines and are also limiting
access of shore personnel boarding our vessels. Specifically, no shore personnel
with fever or respiratory symptoms are allowed on board, and those that are
allowed on board are restricted to designated areas that are thoroughly cleaned
after their use. Face masks are also provided to shore personnel prior to
boarding a vessel. Precautionary materials are posted in common areas to
supplement safety training while personal hygiene best practices are strongly
encouraged on board.
We have implemented protocols with regard to crew rotations to keep our crew
members safe and healthy which includes polymerase chain reaction (PCR) antibody
testing as well as a 14-day quarantine period prior to boarding a vessel. Genco
is enacting crew changes where permitted by regulations of the ports and of the
country of origin of the mariners, in addition to strict protocols that
safeguard our crews against COVID-19 exposure. Crew rotations have been
challenging due to port and travel restrictions globally, as well as promoting
the health and safety of both on and off signing crew members.
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The COVID-19 pandemic and measures to contain its spread thus have negatively
impacted and could continue to impact regional and global economies and trade
patterns in markets in which we operate, the way we operate our business, and
the businesses of our charterers and suppliers. These impacts may continue or
become more severe. Although we have successfully completed many crew changes
over the course of the pandemic to date, additional crew changes could remain
challenging due to COVID-19 related factors. The extent to which the COVID-19
pandemic impacts our business going forward will depend on numerous evolving
factors we cannot reliably predict, including the duration and scope of the
pandemic; governmental, business, and individuals' actions in response to the
pandemic; and the impact on economic activity, including the possibility of
recession or financial market instability.
U.S. -China Trade Dispute
Over the course of 2018 and 2019, the United States imposed a series of tariffs
on several goods imported from various countries. Certain of these countries,
including China , undertook retaliatory actions by implementing tariffs on select
U.S. products. Most notably in terms of drybulk trade volumes is China's tariff
placed upon U.S. soybean exports, which could adversely affect drybulk rates.
With the signing of the "phase one" trade agreement between China and the U.S.
in January 2020 , China has agreed in principle to purchase meaningful quantities
of agricultural products, including soybeans, from the U.S. Peak North American
grain season historically ramps up during the fourth quarter and extends into
the early first quarter of the following year. In recent months, China has
purchased large amounts of agricultural products that are transported on drybulk
vessels which has helped support freight rates for the mid-sized and smaller
vessel classes. It remains to be seen the stance the current U.S. administration
will take towards China as well as any previously agreed upon trade deals. Any
deterioration in the trading relationship or a re-escalation of protectionist
measures taken between these countries or others could lead to reduced volumes
of drybulk trade.
IMO 2020 Compliance
On October 27, 2016 , the Marine Environment Protection Committee ("MEPC") of the
International Maritime Organization ("IMO") announced the ratification of
regulations mandating reduction in sulfur emissions from 3.5% currently to 0.5%
as of the beginning of 2020 rather than pushing the deadline back to 2025.
Accordingly, ships now have to reduce sulfur emissions, for which the principal
solutions are the use of exhaust gas cleaning systems ("scrubbers") or buying
fuel with low sulfur content. If a vessel is not retrofitted with a scrubber, it
will need to use low sulfur fuel, which is currently more expensive than
standard marine fuel containing 3.5% sulfur content. This increased demand for
low sulfur fuel resulted in an increase in prices for such fuel during the
beginning of 2020. Following a decrease during the second quarter of 2020, fuel
prices began to increase again during the third quarter of 2020 and continue to
increase due to such demand.
We have installed scrubbers on our 17 Capesize vessels, 16 of which were
completed during 2019 and one of which was completed in
Vessel Sales and Acquisitions OnJuly 2, 2021 , we entered into an agreement to purchase two 2017-built, 63,000 dwt Ultramax vessels for a purchase price of$24.6 million each, to be renamed the Genco Mayflower and Genco Constellation, and one 2014-built, 63,000 dwt Ultramax vessel for a purchase price of$21.9 million , to be renamed the Genco Madeleine. The vessels are expected to be delivered during the third quarter of 2021, and we intend to use a combination of cash on hand and debt to finance the purchase. OnMay 18, 2021 , we entered into agreements to acquire two 2022-built 61,000 dwt newbuilding Ultramax vessels fromDalian Cosco KHI Ship Engineering Co. Ltd. for a purchase price of$29.2 million each, to be renamed the Genco Mary and the Genco Laddey. The vessels are expected to be delivered duringJanuary 2022 and we intend to use a combination of cash on hand and credit facility borrowings to finance the purchase. 29 Table of Contents OnApril 20, 2021 , we entered into an agreement to purchase a 2016-built, 64,000 dwt Ultramax vessel for a purchase price of$20.2 million , to be renamed the Genco Enterprise. The vessel is expected to deliver during the third quarter of 2021, and we intend to use cash on hand and debt to finance the purchase. OnDecember 17, 2020 , we entered into an agreement to acquire three modern, eco Ultramax vessels in exchange for six of our older Handysize vessels. The Genco Magic, a 2014-built Ultramax vessel, and the Genco Vigilant and the Genco Freedom, both 2015-built Ultramax vessels, were delivered to the Company onDecember 23, 2020 ,January 28, 2021 andFebruary 20, 2021 , respectively. We delivered theGenco Ocean , Baltic Cove and Baltic Fox, all 2010-built Handysize vessels, and the Genco Spirit,Genco Avra andGenco Mare , all 2011-built Handysize vessels, onDecember 29, 2020 ,January 30, 2021 ,February 2, 2021 ,February 15, 2021 ,February 21, 2021 andFebruary 24, 2021 , respectively. DuringJuly 2021 , we completed the sale of one Supramax vessel which was classified as held for sale as ofJune 30, 2021 . During the first half of 2021, we completed the sale of nine of our vessels, including three Supramax vessels and six Handysize vessels, which includes five of the Handysize vessels in the exchange described above. We have entered in agreements to sell one additional Supramax vessel duringJuly 2021 for which the sale is expected to be completed during the fourth quarter of 2021. During 2020, we completed the sale of nine of our vessels, including one of the Handysize vessels in the exchange described above. Three vessels were classified as held for sale as ofDecember 31, 2020 and the five Handysize vessels were classified as held for exchange as ofDecember 31, 2020 .
We will continue to seek opportunities to renew our fleet going forward.
Our Operations We report financial information and evaluate our operations by charter revenues and not by the length of ship employment for our customers, i.e., spot or time charters. Each of our vessels serves the same type of customer, has similar operations and maintenance requirements, operates in the same regulatory environment, and is subject to similar economic characteristics. Based on this, we have determined that we operate in one reportable segment in which we are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. Our management team and our other employees are responsible for the commercial and strategic management of our fleet. Commercial management includes the negotiation of charters for vessels, managing the mix of various types of charters, such as time charters, spot market voyage charters and spot market-related time charters, and monitoring the performance of our vessels under their charters. Strategic management includes locating, purchasing, financing and selling vessels. We currently contract with three independent technical managers to provide technical management of our fleet. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. During the third quarter of 2021, we plan to enter into a joint venture withSynergy Marine Pte. Ltd. , one of our technical managers, to which we intend to transfer the technical management of all vessels in our fleet. This joint venture, to be calledGS Shipmanagement Pte. Ltd. , aims to provide a unique and differentiated service to the management of our vessels. For us, we expect this joint venture to increase visibility and control over our vessel operations, augment fleet-wide fuel efficiency to lower our carbon footprint through an advanced data platform and potentially provide vessel operating expense savings over time. Members of ourNew York City -based management team oversee the activities of our technical managers. 30 Table of Contents
Factors Affecting Our Results of Operations
We believe that the following table reflects important measures for analyzing trends in our results of operations. The table reflects our ownership days, chartered-in days, available days, operating days, fleet utilization, TCE rates and daily vessel operating expenses for the three and six months endedJune 30, 2021 and 2020 on a consolidated basis. For the Three Months Ended June 30, Increase 2021 2020 (Decrease) % Change Fleet Data: Ownership days (1) Capesize 1,547.0 1,547.0 - - % Panamax - - - - % Ultramax 819.0 546.0 273.0 50.0 % Supramax 1,281.5 1,820.0 (538.5) (29.6) % Handymax - - - - % Handysize - 910.0 (910.0) (100.0) % Total 3,647.5 4,823.0 (1,175.5) (24.4) % Chartered-in days (2) Capesize - - - - % Panamax - - - - % Ultramax 111.7 114.2 (2.5) (2.2) % Supramax 334.2 98.7 235.5 238.6 % Handymax - - - - % Handysize - 35.6 (35.6) (100.0) % Total 445.9 248.5 197.4 79.4 % Available days (owned & chartered-in fleet) (3) Capesize 1,514.4 1,530.1 (15.7) (1.0) % Panamax - - - - % Ultramax 930.7 637.2 293.5 46.1 % Supramax 1,595.6 1,782.0 (186.4) (10.5) % Handymax - - - - % Handysize - 942.5 (942.5) (100.0) % Total 4,040.7 4,891.8 (851.1) (17.4) % Available days (owned fleet) (4) Capesize 1,514.4 1,530.1 (15.7) (1.0) % Panamax - - - - % Ultramax 819.0 523.0 296.0 56.6 % Supramax 1,261.4 1,683.3 (421.9) (25.1) % Handymax - - - - % Handysize - 906.9 (906.9) (100.0) % Total 3,594.8 4,643.3 (1,048.5) (22.6) % Operating days (5) Capesize 1,505.6 1,529.6 (24.0) (1.6) % Panamax - - - - % Ultramax 923.3 635.6 287.7 45.3 % Supramax 1,568.6 1,765.2 (196.6) (11.1) % Handymax - - - - % Handysize - 896.7 (896.7) (100.0) % Total 3,997.5 4,827.1 (829.6) (17.2) % 31 Table of Contents For the Three Months Ended June 30, Increase 2021 2020 (Decrease) % Change Fleet utilization (6) Capesize 99.1 % 98.9 % 0.2 % 0.2 % Panamax - % - % - % - % Ultramax 99.2 % 99.7 % (0.5) % (0.5) % Supramax 97.1 % 97.7 % (0.6) % (0.6) % Handymax - % - % - % - % Handysize - % 94.8 % (94.8) % (100.0) % Fleet average 98.3 % 97.8 % 0.5 % 0.5 % For the Three Months Ended June 30, Increase 2021 2020 (Decrease) % Change Average Daily Results: Time Charter Equivalent (7) Capesize$ 23,760 $ 9,466 $ 14,294 151.0 % Panamax - - - - % Ultramax 19,524 7,848 11,676 148.8 % Supramax 19,027 5,301 13,726 258.9 % Handymax - - - - % Handysize - 3,952 (3,952) (100.0) % Fleet average 21,137 6,693 14,444 215.8 % Major bulk vessels 23,760 9,466 14,294 151.0 % Minor bulk vessels 19,227 5,331 13,896 260.7 % Daily vessel operating expenses (8) Capesize$ 5,461 $ 5,049 $ 412 8.2 % Panamax - - - - % Ultramax 4,684 3,829 855 22.3 % Supramax 4,966 4,190 776 18.5 % Handymax - - - - % Handysize - 3,864 (3,864) (100.0) % Fleet average 5,151 4,366 785 18.0 % For the Six Months Ended June 30, Increase 2021 2020 (Decrease) % Change Fleet Data: Ownership days (1) Capesize 3,077.0 3,094.0 (17.0) (0.5) % Panamax - 64.8 (64.8) (100.0) % Ultramax 1,550.8 1,092.0 458.8 42.0 % Supramax 2,689.2 3,640.0 (950.8) (26.1) % Handymax - - - - % Handysize 227.5 1,874.7 (1,647.2) (87.9) % Total 7,544.5 9,765.5 (2,221.0) (22.7) % Chartered-in days (2) Capesize - - - - % Panamax - - - - % Ultramax 344.2 292.5 51.7 17.7 % Supramax 442.5 302.8 139.7 46.1 % Handymax - 14.5 (14.5) (100.0) % Handysize - 60.7 (60.7) (100.0) % 32 Table of Contents For the Six Months Ended June 30, Increase 2021 2020 (Decrease) % Change Total 786.7 670.5 116.2 17.3 % Available days (owned & chartered-in fleet) (3) Capesize 3,020.0 3,058.4 (38.4) (1.3) % Panamax - 64.4 (64.4) (100.0) % Ultramax 1,886.4 1,305.6 580.8 44.5 % Supramax 3,107.7 3,753.0 (645.3) (17.2) % Handymax - 14.5 (14.5) (100.0) % Handysize 227.5 1,924.6 (1,697.1) (88.2) % Total 8,241.6 10,120.5 (1,878.9) (18.6) % Available days (owned fleet) (4) Capesize 3,020.0 3,058.4 (38.4) (1.3) % Panamax - 64.4 (64.4) (100.0) % Ultramax 1,542.2 1,013.1 529.1 52.2 % Supramax 2,665.2 3,450.2 (785.0) (22.8) % Handymax - - - - % Handysize 227.5 1,863.9 (1,636.4) (87.8) % Total 7,454.9 9,450.0 (1,995.1) (21.1) % Operating days (5) Capesize 3,004.8 3,057.8 (53.0) (1.7) % Panamax - 60.1 (60.1) (100.0) % Ultramax 1,874.0 1,303.3 570.7 43.8 % Supramax 3,050.3 3,707.8 (657.5) (17.7) % Handymax - 14.5 (14.5) (100.0) % Handysize 191.3 1,807.1 (1,615.8) (89.4) % Total 8,120.4 9,950.6 (1,830.2) (18.4) % Fleet utilization (6) Capesize 99.3 % 99.4 % (0.1) % (0.1) % Panamax - % 92.7 % (92.7) % (100.0) % Ultramax 98.9 % 99.8 % (0.9) % (0.9) % Supramax 97.4 % 98.1 % (0.7) % (0.7) % Handymax - % 100.0 % (100.0) % 100.0 % Handysize 84.1 % 93.4 % (9.3) % (10.0) %
Fleet average 98.1 % 97.8 % 0.3 % 0.3 %
For the Six Months Ended
June 30, Increase
2021 2020 (Decrease) % Change
Average Daily Results:
Time Charter Equivalent (7)
Capesize $ 18,692 $ 13,062 $ 5,630 43.1 %
Panamax - 5,256 (5,256) (100.0) %
Ultramax 15,331 7,973 7,358 92.3 %
Supramax 15,480 5,911 9,569 161.9 %
Handymax - - - - %
Handysize 8,008 4,867 3,141 64.5 %
Fleet average 16,508 8,251 8,257 100.1 %
Major bulk vessels 18,692 13,062 5,630 43.1 %
Minor bulk vessels 15,020 5,949 9,071 152.5 %
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For the Six Months Ended
June 30, Increase
2021 2020 (Decrease) % Change
Daily vessel operating expenses (8)
Capesize $ 5,335 $ 4,968 $ 367 7.4 %
Panamax - 3,338 (3,338) (100.0) %
Ultramax 4,820 4,233 587 13.9 %
Supramax 4,714 4,200 514 12.2 %
Handymax - - - - %
Handysize 5,541 3,874 1,667 43.0 %
Fleet average 5,015 4,390 625 14.2 %
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.
(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) Chartered-in days. We define chartered-in days as the aggregate number of days in a period during which we chartered-in third-party vessels.
(3) Available days (owned and chartered-in fleet). We define available days, which we have recently updated and incorporated in the table above to better demonstrate the manner in which we evaluate our business, as the number of our ownership days and chartered-in days less the aggregate number of days that our vessels are off-hire due to familiarization upon acquisition, repairs or repairs under guarantee, vessel upgrades or special surveys. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be capable of generating revenues.
(4) Available days (owned fleet). We define available days for the owned fleet as available days less chartered-in days.
(5) Operating days. We define operating days as the number of our total
available days in a period less the aggregate number of days that our vessels
are off-hire due to unforeseen circumstances. The shipping industry uses
operating days to measure the aggregate number of days in a period during which
vessels actually generate revenues.
(6) Fleet utilization. We calculate fleet utilization, which we have recently
updated and incorporated in the table above to better demonstrate the manner in
which we evaluate our business, as the number of our operating days during a
period divided by the number of ownership days plus chartered-in days less
drydocking days.
(7) TCE rates. We define TCE rates as our voyage revenues less voyage expenses
and charter-hire expenses, divided by the number of the available days of our
owned fleet during the period. TCE rate is a common shipping industry
performance measure used primarily to compare daily earnings generated by
vessels on time charters with daily earnings generated by vessels on voyage
charters, because charterhire rates for vessels on voyage charters are generally
not
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expressed in per-day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
Entire Fleet Major Bulk Minor Bulk
For the Three Months Ended For the Three Months Ended For the Three Months Ended
June 30, June 30, June 30,
2021 2020 2021 2020 2021 2020
Voyage revenues (in thousands)
36,702 41,695 18,640 19,929 18,062 21,766
Charter hire expenses (in thousands) 8,325 1,432 - - 8,325 1,432
75,981 31,079 35,981 14,484 40,000 16,595
Total available days for owned fleet 3,595 4,643
1,514 1,530 2,080 3,113
Total TCE rate $ 21,137 $ 6,693 $ 23,760 $ 9,466 $ 19,227 $ 5,331
Entire Fleet Major Bulk Minor Bulk
For the Six Months Ended For the Six Months Ended For the Six Months Ended
June 30, June 30, June 30,
2021 2020 2021 2020 2021 2020Voyage revenues (in thousands)$ 208,599 $ 172,542 $ 92,278 $ 78,861 $ 116,321 $ 93,681 Voyage expenses (in thousands) 71,775 90,063 35,827 38,913 35,948 51,150 Charter hire expenses (in thousands) 13,761 4,507 - - 13,761 4,507 123,063 77,972 56,451 39,948 66,612 38,024 Total available days for owned fleet 7,455 9,450 3,020 3,058 4,435 6,392 Total TCE rate$ 16,508 $ 8,251 $ 18,692 $ 13,062 $ 15,020 $ 5,949 (8) Daily vessel operating expenses. We define daily vessel operating expenses to include crew wages and related costs, the cost of insurance expenses relating to repairs and maintenance (excluding drydocking), the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period. 35 Table of Contents Operating Data
The following table represents the operating data for the three and six months
ended
For the Three Months Ended
June 30,
2021 2020 Change % Change
(U.S. dollars in thousands, except for per share amounts)
Revenue:
Voyage revenues $ 121,008 $ 74,206 $ 46,802 63.1 %
Total revenues 121,008 74,206 46,802 63.1 %
Operating Expenses:
Voyage expenses 36,702 41,695 (4,993) (12.0) %
Vessel operating expenses 18,789 21,058 (2,269) (10.8) %
Charter hire expenses 8,325 1,432 6,893 481.4 %
General and administrative expenses
(inclusive of nonvested stock amortization
expense of $551 and $476 , respectively) 5,854 5,471 383 7.0 %
Technical management fees 1,305 1,724 (419) (24.3) %
Depreciation and amortization 13,769 15,930 (2,161) (13.6) % Loss on sale of vessels 15 - 15 100.0 % Total operating expenses 84,759 87,310 (2,551) (2.9) % Operating income (loss) 36,249 (13,104) 49,353 (376.6) % Other expense, net (4,212) (5,100) 888 (17.4) % Net income (loss) $ 32,037$ (18,204) $ 50,241 (276.0) %
Net earnings (loss) per share - basic $ 0.76 $ (0.43)$ 1.19 (276.7) % Net earnings (loss) per share - diluted $ 0.75 $ (0.43)$ 1.18 (274.4) % Weighted average common shares outstanding - basic 42,071,019 41,900,901 170,118 0.4 % Weighted average common shares outstanding - diluted 42,612,132 41,900,901 711,231 1.7 % EBITDA (1) $ 50,228 $ 2,946$ 47,282 1,605.0 % 36 Table of Contents For the Six Months Ended June 30, 2021 2020 Change % Change (U.S. dollars in thousands, except for per share amounts) Revenue: Voyage revenues$ 208,599 $ 172,542 $ 36,057 20.9 % Total revenues 208,599 172,542 36,057 20.9 % Operating Expenses: Voyage expenses 71,775 90,063 (18,288) (20.3) % Vessel operating expenses 37,834 42,871 (5,037) (11.7) % Charter hire expenses 13,761 4,507 9,254 205.3 % General and administrative expenses (inclusive of nonvested stock amortization expense of$1,073 and$957 , respectively) 11,957 11,238 719 6.4 % Technical management fees 2,769 3,578 (809) (22.6) % Depreciation and amortization 27,209
33,504 (6,295) (18.8) % Impairment of vessel assets - 112,814 (112,814) (100.0) % Loss on sale of vessels 735 486 249 51.2 % Total operating expenses 166,040 299,061 (133,021) (44.5) % Operating income (loss) 42,559 (126,519) 169,078 (133.6) % Other expense (8,537) (12,035) 3,498 (29.1) % Net income (loss) $ 34,022$ (138,554) $ 172,576 (124.6) %
Net earnings (loss) per share - basic $ 0.81 $ (3.31) 4.12 (124.5) % Net earnings (loss) per share - diluted $ 0.80 $ (3.31) 4.11 (124.2) % Weighted average common shares outstanding - basic 42,022,669 41,883,629 139,040 0.3 % Weighted average common shares outstanding - diluted 42,445,184 41,883,629 561,555 1.3 % EBITDA (1) $ 70,124$ (93,479) $ 163,603 (175.0) % 37 Table of Contents
EBITDA represents net income (loss) 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 (1) investors with a measure in addition to net income to evaluate our
performance prior to these costs. EBITDA is not an item recognized by
GAAP (i.e., non-GAAP measure) 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
liquidity or cash flows as shown in our Condensed Consolidated Statements of
Cash Flows. The definition of EBITDA used here may not be comparable to that
used by other companies. The following table demonstrates our calculation of
EBITDA and provides a reconciliation of EBITDA to net income (loss) for each
of the periods presented above:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2021 2020 2021 2020Net income (loss)$ 32,037 $ (18,204) $ 34,022 $ (138,554) Net interest expense 4,422 5,220 8,893 11,571 Income tax expense - - - - Depreciation and amortization 13,769 15,930
27,209 33,504
EBITDA (1) $ 50,228 $ 2,946 $ 70,124 $ (93,479)
Results of Operations
The following tables set forth information about the current employment of the
vessels in our fleet as of
Year Charter
Vessel Built Expiration(1) Cash Daily Rate(2)
Capesize Vessels
Genco Augustus 2007 September 2021 Voyage
Genco Tiberius 2007 August 2021 $36,500
Genco London 2007 August 2021 Voyage
Genco Titus 2007 August 2021 Voyage
Genco Constantine 2008 August 2021 Voyage
Genco Hadrian 2008 August 2021 Voyage
Genco Commodus 2009 August 2021 Voyage
Genco Maximus 2009 August 2021 $35,000
Genco Claudius 2010 September 2021 Voyage
Genco Tiger 2011 September 2021 Voyage
Baltic Lion 2012 September 2021 Voyage
Baltic Bear 2010 March 2022 $32,000
Baltic Wolf 2010 August 2021 Voyage
Genco Resolute 2015 August 2021 Voyage
Genco Endeavour 2015 August 2021 Voyage
Genco Defender 2016 September 2021 Voyage
Genco Liberty 2016 February 2022 $31,000
Ultramax Vessels
Baltic Hornet 2014 April 2023 $24,000
Baltic Wasp 2015 June 2023 $25,500
Baltic Scorpion 2015 September 2021 Voyage
Baltic Mantis 2015 September 2021 Voyage
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Year Charter
Vessel Built Expiration(1) Cash Daily Rate(2)
Genco Weatherly 2014 September 2021 Voyage
Genco Columbia 2016 August 2021 Voyage
Genco Magic 2014 October 2021 $25,000
Genco Vigilant 2015 September 2022 $17,750
Genco Freedom 2015 March 2023 $23,375
Supramax Vessels
Genco Predator 2005 August 2021 $30,000
Genco Warrior 2005 August 2021 $31,500
Genco Hunter 2007 August 2021 Voyage
Genco Aquitaine 2009 September 2021 Voyage
Genco Ardennes 2009 September 2021 $37,500
Genco Auvergne 2009 September 2021 $28,000
Genco Bourgogne 2010 August 2021 $25,500
Genco Brittany 2010 September 2021 $47,000
Genco Languedoc 2010 August 2021 Voyage
Genco Picardy 2005 September 2021 Voyage
Genco Provence 2004 August 2021 $40,000
Genco Pyrenees 2010 October 2021 $23,000
Genco Rhone 2011 August 2021 $29,350 The charter expiration dates presented represent the earliest dates that our
charters may be terminated in the ordinary course. Under the terms of certain (1) contracts, 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.
Time charter rates presented are the gross daily charterhire rates before (2) 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.
Three months ended
VOYAGE REVENUES- For the three months endedJune 30, 2021 , voyage revenues increased by$46.8 million , or 63.1%, to$121.0 million as compared to$74.2 million for the three months endedJune 30, 2020 . The increase in voyage revenues was primarily due higher rates achieved by both our major and minor bulk vessels, as well as our third party time chartered-in vessels, which was partially offset by the operation of fewer vessels in our fleet. During the second quarter of 2021, the drybulk earnings environment reached multi-year highs led by increased global economic activity, recovering steel production and augmented demand for drybulk commodities. This resulted in a meaningful year-over-year uplift in revenues as compared to the second quarter of 2020, a period in which the drybulk operating landscape was most severely impacted by the demand destruction from the onset of the COVID-19 pandemic.
The average TCE rate of our overall fleet increased 215.8% to$21,137 a day during the second quarter of 2021 from$6,693 a day during the second quarter of 2020. The TCE for our major bulk vessels increased by 151.0% from$9,466 a day during the second quarter of 2020 to$23,760 a day during the second quarter of 2021. This increase was primarily a result of higher rates achieved by our Capesize vessels. The TCE for our minor bulk vessels increased by 260.7% from$5,331 a day during the second quarter of 2020 to$19,227 a day during the second quarter of 2021 primarily a result of higher rates achieved by our Ultramax and Supramax vessels. The overall uncertainty surrounding the impact of COVID-19 on our business, together with reduced economic activity and in turn trade flows, could negatively impact the revenue generated by our vessels. While we believe that the gradual reopening of economies affected by COVID-19 has led to increased global trade flows and a rise in drybulk shipping rates, the sustainability of the recovery cannot be predicted and could be affected by a resurgence of the virus, variants and the timing of wide-scale vaccine distribution. Furthermore, deviation time associated with positioning our 39
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vessels to countries in which we can undertake a crew rotation due to various travel and port restrictions related to COVID-19, resulted in days in the second quarter of 2021 in which our vessels were unable to earn revenue and may continue to do so. For the three months endedJune 30, 2021 and 2020, we had 3,647.5 and 4,823.0 ownership days, respectively. The decrease in ownership days is primarily due to the sale of nine vessels during 2020 and nine vessels during the first half of 2021, partially offset by the delivery of one and two vessels during 2020 and the first quarter of 2021, respectively. Fleet utilization increased from 97.8% during the second quarter of 2020 to 98.3% during the second quarter of 2021. 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. These expenses are borne by the Company during spot market voyage charters. There are certain other non-specified voyage expenses such as commissions, which are typically borne by us. Voyage expenses include port and canal charges, fuel (bunker) expenses and brokerage commissions payable to unaffiliated third parties. Port and canal charges and bunker expenses primarily increase in periods during which vessels are employed on spot market voyage charters because these expenses are for the account of the vessel owner. At the inception of a time charter, we record the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses. Voyage expenses also include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement. Additionally, we may record lower of cost and net realizable value adjustments to re-value the bunker fuel on a quarterly basis for certain time charter agreements where the inventory is subject to gains and losses. Refer to Note 2 - Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements. Due to various travel and port restrictions relating to COVID-19 and our strong emphasis on maintaining the health and safety of both our on-signing and off-signing crew members, we experienced increased deviation time for certain of our vessels to undertake crew rotations during the second half of 2020 and the first half of 2021. As such, we have experienced higher voyage expenses for certain crew changes that we have completed, which we expect to continue as a result of COVID-19 restrictions imposed by various counties. These increased voyage expenses are due to the incremental fuel consumption of deviating to certain ports on which we would ordinarily not call during a typical voyage. Additionally, during the first half of 2021, fuel prices began to increase, which could result in higher bunker expenses during the remainder of 2021. Voyage expenses were$36.7 million and$41.7 million during the three months endedJune 30, 2021 and 2020, respectively. This decrease was primarily due to the operation of fewer vessels, partially offset by an increase in bunker consumption. VESSEL OPERATING EXPENSES- Vessel operating expenses decreased by$2.3 million from$21.1 million during the three months endedJune 30, 2020 to$18.8 million during the three months endedJune 30, 2021 . The decrease was primarily due to fewer owned vessels during the second quarter of 2021 as compared to the second quarter of 2020, partially offset by COVID-19 related expenditures and higher crew related and spare expenses. Restrictions on crew rotations led to a temporary decline in crewing related expenses during the first half of 2020. However, such costs began to increase inJune 2020 , which also contributed to higher crew related expenses during the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Average daily vessel operating expenses for our fleet increased to$5,151 per vessel per day for the three months endedJune 30, 2021 from$4,366 per day for the three months endedJune 30, 2020 . The increase in daily vessel operating expense was predominantly due to COVID-19 related expenditures and higher crew related expenses, as well higher spares and stores related expenditures. 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 40
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fleet will incur over a full year of operation. Our actual daily vessel operating expenses per vessel for the three months endedJune 30, 2021 were$151 above the weighted-average budgeted rate of$5,000 per vessel per day for the entire year. The budgeted rate reflects the larger weighting of our fleet towards Capesize vessels following our sales of smaller Supramax and Handysize vessels, as well as an anticipated increase in COVID-19 related expenses. The potential impacts of COVID-19 are beyond our control and are difficult to predict due to uncertainties surrounding the pandemic. As a result of COVID-19 restrictions with regard to crew rotations, we still expect higher crew related costs. Travel and port restrictions together with promoting the health of the on-signing crew boarding the ship while the off-signing crew gets home safely have all been increasing challenges that shipowners are facing globally. As crew members worldwide have in many cases, including on certain of our vessels, exceeded the duration of their contracts there is an increased urgency to work towards completing more crew rotations in the coming months. Given this urgency, sinceJune 2020 , certain of these crew rotations have led to and could continue to lead to additional deviation time of our vessels as well as unbudgeted expenses due to testing, PPE, quarantine periods and higher than normal travel expenses due to increased airfare costs. The timing of crew rotations remains dependent on the duration and severity of COVID-19 in countries from which our crews are sourced as well as any restrictions in place at ports in which our vessels call. In cases when crew rotations have been delayed further, we have paid additional costs related to crew bonuses to retain the existing crew members on board sinceJune 2020 and may continue to do so. Our vessel operating expenses, which generally represent fixed costs for each vessel, increase to the extent our fleet expands. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for crewing, lubes, and insurance, may also cause these expenses to increase. The impact of COVID-19 could result in potential shortages or a lack of access to required spare parts for the operation of our vessels, potential delays in any unscheduled repairs, deviations for crew changes or increased costs to successfully execute a crew change, which could lead to business disruptions and delays. We expect that crew costs for the crew that we utilize on our vessels will increase going forward due to expected higher wages, as well as the impact of COVID-19 restrictions. CHARTER HIRE EXPENSES- Charter hire expenses increased by$6.9 million from$1.4 million during the three months endedJune 30, 2020 to$8.3 million during the three months endedJune 30, 2021 . The increase was primarily due to higher charter in rates during the second quarter of 2021 as compared to the second quarter of 2020, in addition to an increase in chartered-in days.
GENERAL AND ADMINISTRATIVE EXPENSES-
We incur general and administrative expenses that relate to our onshore non-vessel-related activities. Our general and administrative expenses include our payroll expenses, including those relating to our executive officers, operating lease expense, legal, auditing and other professional expenses. General and administrative expenses include nonvested stock amortization expense which represent the amortization of stock-based compensation that has been issued to our Directors and employees pursuant to the 2015 Equity Incentive Plan. Refer to Note 14 - Stock-Based Compensation in our Condensed Consolidated Financial Statements. General and administrative expenses also include legal and professional fees associated with our credit facilities, which are not capitalizable to deferred financing costs. We also incur general and administrative expenses for our overseas offices located inSingapore andCopenhagen .
For the three months ended
TECHNICAL MANAGEMENT FEES-
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
41
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supplies. Technical management fees were$1.3 million and$1.7 million during the three months endedJune 30, 2021 and 2020, respectively. The decrease was a result of fewer owned vessels during the second quarter of 2021 as compared
to the second quarter of 2020.
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization expense decreased by$2.2 million to$13.8 million during the three months endedJune 30, 2021 as compared to$15.9 million during the three months endedJune 30, 2020 . This decrease was primarily due to a decrease in depreciation for vessels that were sold during the second half of 2020 and the first half of 2021, as well as a decrease in depreciation for certain vessels in our fleet that were impaired during 2020. These decreases were partially offset by an increase in depreciation expense for the three vessels acquired during Q4 2020 and Q1 2021. LOSS ON SALE OF VESSELS- During the second quarter of 2021, we recorded a net loss on sale of vessels of$15 thousand related primarily to the sale of the Baltic Leopard. There were no vessels sold during the second quarter of 2020. OTHER INCOME (EXPENSE)- NET INTEREST EXPENSE -
Net interest expense decreased by$0.8 million from$5.2 million during the three months endedJune 30, 2020 to$4.4 million during the three months endedJune 30, 2021 . Net interest expense during the three months endedJune 30, 2021 and 2020 consisted primarily of interest expense under our credit facilities and amortization of deferred financing costs for those facilities. This decrease was primarily due to a$1.0 million decrease in interest expense as a result of lower interest rates, as well as lower outstanding debt. This was offset by a$0.2 million decrease in interest income due to a decrease in interest earned on our time deposits.
Six months ended
VOYAGE REVENUES- For the six months endedJune 30, 2021 , voyage revenues increased by$36.1 million , or 20.9%, to$208.6 million as compared to$172.5 million for the six months endedJune 30, 2020 . The increase in voyage revenues was primarily due higher rates achieved by both our major and minor bulk vessels, as well as our third party time chartered-in vessels, which was partially offset by the operation of fewer vessels in our fleet. Refer to the discussion above included under the section "Three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 - Voyage Revenues" for further information. The average TCE rate of our overall fleet increased by 100.1% to$16,508 a day for the six months endedJune 30, 2021 from$8,251 a day for the six months endedJune 30, 2020 . The TCE for our major bulk vessels increased by 43.1% from$13,062 a day during the first half of 2020 to$18,692 a day during the first half of 2021. This increase was primarily a result of higher rates achieved by our Capesize vessels. The TCE for our minor bulk vessels increased by 152.5% from$5,949 a day during the first half of 2020 to$15,020 a day during the first half of 2021 primarily a result of higher rates achieved by our Ultramax and Supramax vessels.
For the six months endedJune 30, 2021 and 2020, we had 7,544.5 and 9,765.5 ownership days, respectively. The decrease in ownership days is primarily due to the sale of nine vessels during 2020 and nine vessels during the first half of 2021, partially offset by the delivery of one and two vessels during 2020 and the first quarter of 2021, 42 Table of Contents
respectively. Fleet utilization increased to 98.1% during the six months ended
VOYAGE EXPENSES- Voyage expenses decreased by$18.3 million from$90.1 million during the six months endedJune 30, 2020 as compared to$71.8 million during the six months endedJune 30, 2021 . This decrease was primarily due to the operation of fewer vessels, as well as a decrease in bunker consumption. During the first quarter of 2020, there was an increase in bunker prices that was primarily due to the onset of IMO 2020, in which our non-scrubber fitted minor bulk fleet consumed more expensive low sulfur fuel as opposed to high sulfur fuel in order to comply with sulfur emissions regulations that took effect onJanuary 1, 2020 . Although fuel prices subsequently decreased during the second quarter of 2020, the initial low sulfur fuel that was purchased for our vessels during the end of 2019 and the first quarter of 2020 and consumed during the six months endedJune 30, 2020 was at a higher cost basis. This was partially offset by savings in fuel costs on our Capesize vessels, which are all fitted with scrubbers and continue to consume the less expensive high sulfur fuel. VESSEL OPERATING EXPENSES- Vessel operating expenses decreased by$5.1 million from$42.9 million during the six months endedJune 30, 2020 to$37.8 million during the six months endedJune 30, 2021 . The decrease was primarily due to fewer owned vessels during the first half of 2021 as compared to the first half of 2020, partially offset by COVID-19 related expenditures and higher crew related expenses. Restrictions on crew rotations led to a temporary decline in crewing related expenses during the first half of 2020. However, such costs began to increase inJune 2020 , which also contributed to higher crew related expenses during the first half of 2021 as compared to the first half of 2020. Daily vessel operating expenses increased to$5,015 per vessel per day for the six months endedJune 30, 2021 from$4,390 per day for the six months endedJune 30, 2020 . The increase in daily vessel operating expense was predominantly due to COVID-19 related expenditures and higher crew related expenses, as well higher spares related expenditures. 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 six months endedJune 30, 2021 were$15 above the weighted-average budgeted rate of$5,000 per vessel per day for the entire
year. CHARTER HIRE EXPENSES- Charter hire expenses increased by$9.3 million from$4.5 million during the six months endedJune 30, 2020 to$13.8 million during the six months endedJune 30, 2021 . The increase was primarily due to higher charter in rates during the first half of 2021 as compared to the first half of 2020, in addition to an increase in chartered-in days.
GENERAL AND ADMINISTRATIVE EXPENSES-
For the six months ended
TECHNICAL MANAGEMENT FEES-
Technical management fees were$2.8 million and$3.6 million during the six months endedJune 30, 2021 and 2020, respectively. The decrease was a result of fewer owned vessels during the first half of 2021 as compared to the first
half
of 2020.
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DEPRECIATION AND AMORTIZATION-
Depreciation and amortization expense decreased by$6.3 million to$27.2 million during the six months endedJune 30, 2021 as compared to$33.5 million during the six months endedJune 30, 2020 . This decrease was primarily due to a decrease in depreciation for vessels that were sold during the second half of 2020 and the first half of 2021, as well as a decrease in depreciation for certain vessels in our fleet that were impaired during 2020. These decreases were partially offset by an increase in depreciation expense for the three vessels acquired during Q4 2020 and Q1 2021. IMPAIRMENT OF VESSEL ASSETS- During the six months endedJune 30, 2020 , we recorded$112.8 million of impairment of vessel assets. There was no vessel impairment recorded during the six months endedJune 30, 2021 . During the six months endedJune 30, 2020 , we recorded impairment losses for four of our Supramax vessels and ten of our Handysize vessels.
Refer to Note 2 - Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements for further information regarding the impairment of these vessels.
For our impairment analysis, we utilize the ten-year historical one-year time charter average to project future charter rates, which we believe appropriately takes into account the volatility and highs and lows of the shipping cycle.
In
addition, we consider the current market rate environment and, if necessary, adjust our estimates of undiscounted cash flows to reflect the current rate environment. For our older vessels, those vessels in operation for at least 18 years, we evaluate the current rate environment compared to the ten-year historical one-year time charter rate and adjust the rate to better reflect the expected cash flows over the remaining useful lives of those vessels. Please see "Critical Accounting Policies - Impairment of long-lived assets" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2020 10-K. LOSS ON SALE OF VESSELS-
During the first half of 2021, we recorded a net loss on sale of vessels of$0.7 million related primarily to the sale of the Baltic Panther, Baltic Hare, Baltic Cougar and Baltic Leopard, as well as net losses associated with the exchange the Baltic Cove, Baltic Fox, Genco Spirit,Genco Avra andGenco Mare . During the first half of 2020, we recorded a net loss on sale of vessels of$0.5 million related primarily to the sale of the Genco Charger andGenco Thunder . OTHER INCOME (EXPENSE)- NET INTEREST EXPENSE - Net interest expense decreased by$2.7 million from$11.6 million during the six months endedJune 30, 2020 to$8.9 million during the six months endedJune 30, 2021 . Net interest expense during the six months endedJune 30, 2021 and 2020 consisted of interest expense under our credit facilities and amortization of deferred financing costs for those facilities. This decrease was primarily due to a$3.4 million decrease in interest expense as a result of lower interest rates, as well as lower outstanding debt. This was offset by a$0.7 million decrease in interest income due to a decrease in interest earned on our time deposits and cash accounts.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flow from operations, cash on hand,
equity offerings and credit facility borrowings. We currently use our funds
primarily for the acquisition of vessels generally and under our ongoing fleet
renewal program, drydocking for our vessels, and satisfying working capital
requirements as may be needed to support our business and make required payments
under our indebtedness. 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
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operate, shipping industry conditions, the financial condition of our customers, vendors and service providers, our ability to comply with the financial and other covenants of our indebtedness, and other factors.
We believe, given our current cash holdings, if drybulk shipping rates do not decline significantly from current levels, our capital resources, including cash anticipated to be generated within the year, are sufficient to fund our operations for at least the next twelve months. Such resources include unrestricted cash and cash equivalents of$116.3 million as ofJune 30, 2021 , which compares to a minimum liquidity requirement under our $495Million Credit Facility and our$133 Million Credit Facility of$30 million as of the date of this report, as well as the$17.3 million availability under the revolver of the$133 Million Credit Facility. Given future quarterly amortization payments of$14.0 million under our credit facilities, anticipated capital expenditures related to drydockings and the installation of ballast water treatment systems ("BWTS"), as well as any quarterly dividend payments, we anticipate to continue to have significant cash expenditures. However, if market conditions were to worsen significantly due to the current COVID-19 pandemic or other causes, then our cash resources may decline to a level that may put at risk our ability to service timely our debt and capital expenditure commitments. Through the implementation phase of our comprehensive value strategy, the Company has been utilizing this strong drybulk earnings environment to proactively pay down debt to reduce cash flow breakeven rates from previous levels. As ofJune 30, 2021 , our credit facilities contained collateral maintenance covenants that require the aggregate appraised value of collateral vessels to be at least 135% of the principal amount of the loan outstanding under each such facility. If the values of our vessels were to decline as a result of COVID-19 or otherwise, we may not satisfy this collateral maintenance requirement. If we do not satisfy the collateral maintenance requirement, we will need to post additional collateral or prepay outstanding loans to bring us back into compliance, or we will need to seek waivers, which may not be available or
may be subject to conditions.
In the future, we may require capital to fund acquisitions or to improve or support our ongoing operations and debt structure, particularly in light of economic conditions resulting from the ongoing COVID-19 pandemic. We may from time to time seek to raise additional capital through equity or debt offerings, selling vessels or other assets, pursuing strategic opportunities, or otherwise. We may also from time to time seek to incur additional debt financing from private or public sector sources, refinance our indebtedness or obtain waivers or modifications to our credit agreements to obtain more favorable terms, enhance flexibility in conducting our business, or otherwise. We may also seek to manage our interest rate exposure through hedging transactions. We may seek to accomplish any of these independently or in conjunction with one or more of these actions. However, if market conditions are unfavorable, we may be unable to accomplish any of the foregoing on acceptable terms or at all. OnAugust 3, 2021 , we entered into a five-year$450 Million Credit Agreement with Nordea Bank Abp,New York Branch ("Nordea"), as administrative agent, collateral agent, security trustee, and sustainability coordinator, Nordea, Skandinaviska Enskilda Banken AB (publ) andDNB Markets, Inc. , as Mandated Lead Arrangers and Bookrunners, ING Bank N.V.,London Branch andCIT Bank, N.A ., as Co-Arrangers, and the guarantors and lenders party thereto for a new credit facility (the "$450 Million Credit Facility"). We intend to use borrowings under the$450 Million Credit Facility to refinance our$495 Million Credit Facility and our$133 Million Credit Facility by the end ofAugust 2021 . Key terms of the$450 Million Credit Facility are as follows:
The total aggregate principal amount that may be borrowed is up to
million, which is allocated between a
? facility and an up to
Such amounts are subject to a limit of the ratio of the principal amount
outstanding to the value of collateral ("LTV") of 55%.
There is a non-committed accordion term loan facility whereby additional
borrowings of up to
? collateral is provided; such additional borrowings are subject to a LTV ratio
of 60% for collateral vessels less than five years old or 55% for collateral
vessels at least five years old but not older than seven years.
? There are scheduled quarterly commitment reductions of
quarter followed by a balloon payment of
Borrowings bear interest at LIBOR plus a margin of 2.15% to 2.75% based on our
? quarterly total net leverage ratio (our ratio of total net indebtedness to
consolidated EBITDA), which may be increased or decreased by a
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margin of up to 0.05% based on our performance regarding emissions targets. Upon
cessation of the LIBOR rate, borrowings will bear interest at a rate based on
the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve
to above.
Collateral includes forty of our current vessels, leaving five vessels expected
? to be delivered unencumbered after completion of all currently anticipated
vessel purchases and sales.
? Commitment fees are 40% of the applicable margin for unutilized commitments.
We can sell or dispose of collateral vessels without loan prepayment if a
? replacement vessel or vessels meeting certain requirements are included as
collateral within 360 days. We are subject to customary financial covenants, including a collateral
maintenance covenant requiring the aggregate appraised value of collateral
vessels to be at least 140% of the principal amount of loans outstanding, a
minimum liquidity covenant requiring our unrestricted cash and cash equivalents
? to be the greater of
working capital covenant requiring consolidated current assets (excluding
restricted cash) minus current liabilities (excluding the current portion of
debt) to be not less than zero, and a debt to capitalization covenant requiring
the ratio of total net indebtedness to total capitalization to be not more than
70%.
We may declare and pay dividends and other distributions so long as, at the
time of declaration, (1) no event of default has occurred and is continuing or
? would occur as a result of the declaration and (2) we are in pro forma
compliance with our financial covenants after giving effect to the dividend.
Other restrictions in the dividend covenants of our existing credit facilities
are eliminated.
Borrowings under the
We entered into the$495 Million Credit Facility onMay 31, 2018 , which was initially used to refinance our prior credit facilities: the $400Million Credit Facility, the$98 Million Credit Facility and the 2014 Term Loan Facilities onJune 5, 2018 and originally allowed borrowings of up to$460 million . OnFebruary 28, 2019 , we entered into an amendment to the $495Million Credit Facility that provides for an additional tranche of up to$35 million to finance a portion of the acquisitions, installations, and related costs for exhaust cleaning systems (or "scrubbers") for 17 of the Company's Capesize vessels. This additional tranche used to finance the purchase of scrubbers was fully repaid during the second quarter of 2021. The scrubber tranche was fully repaid during the second quarter of 2021. OnJune 5, 2020 , we entered into an amendment to the$495 Million Credit Facility to extend the period that collateral vessels can be sold or disposed of without prepayment of the loan if a replacement vessel or vessels meeting certain requirements are included as collateral from 180 days to 360 days. OnDecember 17, 2020 , we entered into an amendment to the$495 Million Credit Facility that allowed us to enter into a vessel transaction in which we agreed to acquire three modern Ultramax vessels in exchange for six of our
older Handysize vessels.
We entered into the$133 Million Credit Facility onAugust 14, 2018 , which was initially used to finance a portion of the purchase price for the six vessels that were purchased during the third quarter of 2018 and originally allowed borrowings of up to$108 million . OnJune 11, 2020 , we entered into an amendment to the$133 Million Credit Facility that provides us with a$25 million revolving credit facility to be used for general corporate and working capital purposes. The revolver was fully repaid during the first quarter of 2021. We currently have$17.3 million of availability remaining under the revolving credit facility. Refer to Note 7 - Debt in our Condensed Consolidated Financial Statements.
At
Dividends We disclosed onApril 19, 2021 that, on management's recommendation, our Board of Directors adopted a new quarterly dividend policy for dividends payable commencing in the first quarter of 2022 in respect of our financial results for the fourth quarter of 2021. Under the new quarterly dividend policy, the amount available for quarterly dividends is to be calculated based on the following formula: 46 Table of Contents Operating cash flow Less: Debt repayments
Less: Capital expenditures for drydocking
Less: Reserve
Cash flow distributable as dividends
The amount of dividends payable under the foregoing formula for each quarter of the year will be determined on a quarterly basis.
For purposes of the foregoing calculation, operating cash flow is defined as voyage revenue less voyage expenses, charter hire expenses, vessel operating expenses, general and administrative expenses other than non-cash restricted stock expenses, technical management fees, and interest expense other than non-cash deferred financing costs. Anticipated uses for the reserve include, but are not limited to, vessel acquisitions, debt repayments, and general corporate purposes. In order to set aside funds for these purposes, the reserve will be set on a quarterly basis in the discretion of our Board and is anticipated to be based on future quarterly debt repayments and interest expense. OnAugust 3, 2021 , our Board declared a quarterly dividend of$0.10 per share. Our quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with applicable law and contractual obligations (including our credit facilities) and our Board's determination that each declaration and payment is at that time in the best interests of the Company and its shareholders after its review of our financial performance. In connection with our new dividend policy, we will seek to pay down additional indebtedness under our credit facilities and use the $450Million Credit Facility to refinance our two prior credit facilities as noted above. If we do not meet conditions for borrowings under the$450 Million Facility to refinance our prior credit facilities, dividends under our new quarterly dividend policy will continue to be subject to the terms of our credit facilities, which are described below. OnNovember 5, 2019 , we entered into amendments with our lenders to the dividend covenants of the credit agreements for our$495 Million Credit Facility and our$133 Million Credit Facility. Under the terms of these two facilities as so amended, dividends or repurchases of our stock are subject to customary conditions. We may pay dividends or repurchase stock under these facilities to the extent our total cash and cash equivalents are greater than$100 million and 18.75% of our total indebtedness, whichever is higher; if we cannot satisfy this condition, we are subject to a limitation of 50% of consolidated net income for the quarter preceding such dividend payment or stock repurchase if the collateral maintenance test ratio is 200% or less for such quarter, for which purpose the full commitment of up to$35 million of our new scrubber tranche is assumed to be drawn. As ofJune 30, 2021 , we had unrestricted cash and cash equivalents of$116.3 million . We have commitments for quarterly amortization payments of$14.0 million under our credit facilities, which reflects the reset of amortization payments under the$495 Million Credit Facility. Therefore, if we do not generate cash flow from operations, we would be unlikely to be able to declare or pay dividends in the future under the terms of our existing credit facilities, except to the extent of permissible dividends from net income. The declaration and payment of any dividend or any stock repurchase is subject to the discretion of our Board of Directors. Our Board of Directors and management continue to closely monitor market developments together with the evaluation of our quarterly dividend policy in the current market environment. The principal business factors that our Board of Directors expects to consider when determining the timing and amount of dividend payments or stock repurchases include our earnings, financial condition, and cash requirements at the time.Marshall Islands law generally prohibits the declaration and payment of dividends or stock repurchases other than from surplus.Marshall Islands law also prohibits the declaration and payment of dividends or stock repurchases while a company is insolvent or would be rendered insolvent by the payment of such a dividend or such a stock repurchase. Heightened economic uncertainty and the potential for renewed drybulk market weakness as a result of the COVID-19 pandemic and related economic conditions may result in our suspension, reduction, or termination of future quarterly dividends. 47 Table of Contents
U.S. Holders
For purposes of this discussion, the term "U.S. Holder" means a beneficial owner of our common stock that is, forU.S. federal income tax purposes, (i) an individualU.S. citizen or resident, (ii) a corporation that is created or organized in or under the laws ofthe United States , any state thereof or theDistrict of Columbia , or any otherU.S. entity taxable as a corporation, (iii) an estate the income of which is subject toU.S. federal income taxation regardless of its source, or (iv) a trust if either (x) a court withinthe United States is able to exercise primary jurisdiction over the administration of the trust and one or moreU.S. persons have the authority to control all substantial decisions of the trust, or (y) the trust has a valid election in effect under applicable Treasury Regulations to be treated as aU.S. person. If a partnership, or an entity treated forU.S. federal income tax purposes as a partnership, such as a limited liability company, holds common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. If you are a partner in such a partnership holding our common stock, you are encouraged to consult your tax advisor. A beneficial owner of our common stock (other than a partnership) that is not aU.S. Holder is referred to below as a "Non-U.S. Holder." Subject to the discussion of passive foreign investment company (PFIC) status on pages 33 - 34 in the 2020 10-K, any distributions made by us to aU.S. Holder with respect to our common shares generally will constitute dividends to the extent of our current or accumulated earnings and profits, as determined underU.S. federal income tax principles. Distributions in excess of those earnings and profits will be treated first as a nontaxable return of capital to the extent of theU.S. Holder's tax basis in our common shares (determined on a share-by-share basis), and thereafter as capital gain.U.S. Holders that own at least 10% of our shares may be able to claim a dividends-received-deduction and should consult their tax advisors. Dividends paid on our common shares to aU.S. Holderwho is an individual, trust or estate, or a "non-corporateU.S. Holder," will generally be treated as "qualified dividend income" that is taxable to such non-corporateU.S. Holder at preferential tax rates, provided that (1) our common shares are readily tradable on an established securities market inthe United States (such as the NYSE, on which our common shares are traded); (2) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we have been, are, or will be); (3) the non-corporateU.S. Holder's holding period of our common shares includes more than 60 days in the 121-day period beginning 60 days before the date on which our common shares becomes ex-dividend; and (4) the non-corporateU.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. A non-corporateU.S. Holder will be able to take qualified dividend income into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case, the dividend will be taxed at ordinary income rates. Non-corporateU.S. Holders also may be required to pay a 3.8% surtax on all or part of such holder's "net investment income," which includes, among other items, dividends on our shares, subject to certain limitations and exceptions. Investors are encouraged to consult their own tax advisors regarding the effect, if any, of this surtax on their ownership of our shares. Amounts taxable as dividends generally will be treated as passive income from sources outside theU.S. However, if (a) we are 50% or more owned, by vote or value, byU.S. Holders and (b) at least 10% of our earnings and profits are attributable to sources within theU.S. , then for foreign tax credit purposes, a portion of our dividends would be treated as derived from sources within theU.S. With respect to any dividend paid for any taxable year, theU.S. source ratio of our dividends for foreign tax credit purposes would be equal to the portion of our earnings and profits from sources within theU.S. for such taxable year divided by the total amount of our earnings and profits for such taxable year. The rules related toU.S. foreign tax credits are complex andU.S. Holders should consult their tax advisors to determine whether and to what extent a credit would be available. Special rules may apply to any "extraordinary dividend" - generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder's adjusted basis (or fair market value in certain circumstances) in a share of our common shares - paid by us. If we pay an "extraordinary dividend" on our common shares that is treated as "qualified dividend income", then any loss derived by a non-corporateU.S. Holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend. 48 Table of Contents
Tax Consequences if We Are a
As discussed in "U.S. tax authorities could treat us as a 'passive foreign investment company,' which could have adverseU.S. federal income tax consequences toU.S. shareholders" in Item 1.A Risk Factors in our 2020 10-K, a foreign corporation generally will be treated as a PFIC forU.S. federal income tax purposes if, after applying certain look through rules, either (1) at least 75% of its gross income for any taxable year consists of "passive income" or (2) at least 50% of the average value or adjusted bases of its assets (determined on a quarterly basis) produce or are held for the production of passive income, i.e., "passive assets." As discussed above, we do not believe that our past or existing operations would cause, or would have caused, us to be deemed a PFIC with respect to any taxable year. No assurance can be given that theIRS or a court of law will accept our position, and there is a risk that theIRS or a court of law could determine that we are a PFIC. Moreover, there can be no assurance that we will not become a PFIC in any future taxable year because the PFIC test is an annual test, there are uncertainties in the application of the PFIC rules, and although we intend to manage our business so as to avoid PFIC status to the extent consistent with our other business goals, there could be changes in the nature and extent of our operations in future taxable years. If we were to be treated as a PFIC for any taxable year in which aU.S. Holder owns shares of our common stock (and regardless of whether we remain a PFIC for subsequent taxable years), the tax consequences to such aU.S. holder upon the receipt of distributions in respect of such shares that are treated as "excess distributions" would differ from those described above. In general, an excess distribution is the amount of distributions received during a taxable year that exceed 125% of the average amount of distributions received by aU.S. Holder in respect of the common shares during the preceding three taxable years, or if shorter, during theU.S. Holder's holding period prior to the taxable year of the distribution. The distributions that are excess distributions would be allocated ratably over theU.S. Holder's holding period for the common shares. The amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated to each of the other taxable years would be subject to tax at the highest marginal rate in effect for theU.S. Holder for that taxable year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such other taxable years. The tax liability with respect to the amount allocated to taxable years prior to the year of the distribution cannot be offset by net operating losses. As an alternative to such tax treatment, aU.S. Holder may make a "qualified electing fund" election or "mark to market" election, to the extent available, in which event different rules would apply. TheU.S. federal income tax consequences to aU.S. Holder if we were to be classified as a PFIC are complex. AU.S. Holder should consult with his or her own advisor with regard to those consequences, as well as with regard to whether he or she is eligible to and should make either of the elections described above. Non-U.S. Holders Non-U.S. Holders generally will not be subject toU.S. federal income tax on dividends received from us on our common shares unless the income is effectively connected with the conduct by the Non-U.S. Holder of a trade or business inthe United States ("effectively connected income") (and, if an applicable income tax treaty so provides, the dividends are attributable to a permanent establishment maintained by the Non-U.S. Holder in theU.S. ). Effectively connected income (or, if an income tax treaty applies, income attributable to a permanent establishment maintained in theU.S. ) generally will be subject to regularU.S. federal income tax in the same manner discussed above relating to taxation ofU.S. Holders. In addition, earnings and profits of a corporate Non-U.S. Holder that are attributable to such income, as determined after allowance for certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable income tax treaty. Non-U.S. Holders may be subject to tax in jurisdictions other thanthe United States on dividends received from us on our common shares.
Dividends paid on our common shares to a non-corporate
? fails to provide us with an accurate taxpayer identification number;
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is notified by the
? because they previously failed to report all interest and dividends required to
be shown on their federal income tax returns; or
? fails to comply with applicable certification requirements
A holder that is not aU.S. Holder or a partnership may be subject toU.S. federal backup withholding with respect to such dividends unless the holder certifies that it is a non-U.S. person, under penalties of perjury, or otherwise establishes an exemption therefrom. Backup withholding tax is not an additional tax. Holders generally may obtain a refund of any amounts withheld under backup withholding rules that exceed their income tax liability by timely filing a refund claim with theIRS . You are encouraged to consult your own tax advisor concerning the overall tax consequences arising in your own particular situation underU.S. federal, state, local, or foreign law from the payment of dividends on our common stock. Cash Flow
Net cash provided by operating activities for the six months endedJune 30, 2021 was$62.6 million as compared to net cash used in operating activities of$9.0 million for the six months endedJune 30, 2020 . This increase in cash provided by operating activities was primarily due to higher rates achieved by our major and minor bulk vessels, changes in working capital, as well as a decrease in drydocking related expenditures and interest expense. Net cash provided by investing activities for the six months endedJune 30, 2021 was$4.2 million as compared to net cash used in investing activities of$0.6 million for the six months endedJune 30, 2020 . This fluctuation was primarily due to an increase in net proceeds from the sale of vessels during the first half of 2021 as compared to the first half of 2020, as well as a decrease in scrubber related expenditures. These fluctuations were partially offset by an increase in deposits made on three Ultramax vessels that we entered into agreements to purchase during the second quarter of 2021. Net cash used in financing activities during the six months endedJune 30, 2021 and 2020 was$85.2 million and$9.8 million , respectively. The increase was primarily due to an increase in repayments of$45.6 million under the$495 Million Credit Facility and the$133 Million Credit Facility. During the first half of 2021, we made a$21.2 million repayment of the revolver under the$133 Million Credit Facility, and we made a$20.0 million repayment of the scrubber tranche under the$495 Million Credit Facility. Additionally, this increase in net cash used in financing activities was due to the$24.0 million drawdown and$11.3 million drawdown on the$133 Million Credit Facility and the$495 Million Credit Facility, respectively, during the first half of 2020. These increases were partially offset by a$5.1 million decrease in the payment of dividends during the first half of 2021 as compared to the first half of 2020. Credit Facilities
We entered into the$133 Million Credit Facility onAugust 14, 2018 , which was initially used to finance a portion of the purchase price for the six vessels that were purchased during the third quarter of 2018. OnJune 11, 2020 , we entered into an amendment to the$133 Million Credit Facility which provided us with a$25 million revolving credit facility to be used for general corporate and working capital purposes. Additionally, we entered into the$495 Million Credit Facility onMay 31, 2018 , which was initially used to refinance our prior credit facilities. OnFebruary 28, 2019 , we entered into an amendment to the$495 Million Credit Facility, which provides for an additional tranche of up to$35 million to finance a portion of the acquisitions, installations, and related costs for exhaust cleaning systems (or "scrubbers") for 17 of our Capesize vessels. OnJune 5, 2020 , we entered into an amendment to the$495 Million Credit Facility to extend the period that collateral vessels can be sold or disposed of without prepayment of the loan if a replacement vessel or vessels meeting certain requirements are included as collateral from 180 days to 360 days. OnDecember 17, 2020 , we entered into an amendment to the$495 Million Credit Facility that allowed us to enter into a vessel transaction in which we agreed to acquire three modern Ultramax vessels in exchange for six of our older Handysize vessels. OnAugust 3, 2021 , we entered into the $450Million Credit Facility, which we intend to use to refinance the$495 Million Credit Facility and the$133 Million Credit Facility. 50 Table of Contents
Interest Rate Swap and Cap Agreements, Forward Freight Agreements and Currency Swap Agreements
AtJune 30, 2021 , we had three interest rate cap agreements to manage interest costs and the risk associated with changing interest rates. Such agreements cap the borrowing rate on our variable debt to provide a hedge against the risk of rising rates. AtJune 30, 2021 , the total notional principal amount of the interest rate cap agreements is$200.0 million . AtDecember 31, 2020 , we did not have any material interest rate cap or interest rate swap agreements.
Refer to the table in Note 8 - Derivative instruments of our Condensed
Consolidated Financial Statements which summarizes the interest rate cap
agreements in place as of
As part of our business strategy, we may enter into interest rate swap agreements to manage interest costs and the risk associated with changing interest rates. In determining the fair value of interest rate derivatives, we would consider the impact of the creditworthiness of both the counterparty and ourselves immaterial. Valuations prior to any adjustments for credit risk would be validated by comparison with counterparty valuations. Amounts would not and should not be identical due to the different modeling assumptions. Any material differences would be investigated. As part of our business strategy, we may enter into arrangements commonly known as forward freight agreements, or FFAs, to hedge and manage our exposure to the charter market risks relating to the deployment of our vessels. Generally, these arrangements would bind us and each counterparty in the arrangement to buy or sell a specified tonnage freighting commitment "forward" at an agreed time and price and for a particular route. Upon settlement, if the contracted charter rate is less than the average of the rates (as reported by an identified index) for the specified route and period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the settlement rate multiplied by the number of days in the specific period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. Although FFAs can be entered into for a variety of purposes, including for hedging, as an option, for trading or for arbitrage, if we decided to enter into FFAs, our objective would be to hedge and manage market risks as part of our commercial management. It is not currently our intention to enter into FFAs to generate a stream of income independent of the revenues we derive from the operation of our fleet of vessels. If we determine to enter into FFAs, we may reduce our exposure to any declines in our results from operations due to weak market conditions or downturns, but may also limit our ability to benefit economically during periods of strong demand in the market. We have not entered into any FFAs as ofJune 30, 2021 andDecember 31, 2020 . Capital Expenditures We make capital expenditures from time to time in connection with our vessel acquisitions. After the anticipated sale of one of our Supramax vessels and the anticipated acquisition of six Ultramax vessels during the remainder of 2021 andJanuary 2022 , our fleet will consist of 44 drybulk vessels, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers and eleven Supramax drybulk carriers. As previously announced, we have implemented a fuel efficiency upgrade program for certain of our vessels in an effort to generate fuel savings and increase the future earnings potential for these vessels. Twenty-two of our vessels are outfitted with energy saving devices which are meant to reduce the fuel consumption of these vessels. The upgrades have been successfully installed during previous drydockings. UnderU.S. Federal law and 33 CFR, Part 151, Subpart D,U.S. approved BWTS will be required to be installed in all vessels at the first out of water drydocking afterJanuary 1, 2016 if these vessels are to discharge ballast water inside 12 nautical miles of the coast of theU.S. U.S. authorities did not approve ballast water treatment systems untilDecember 2016 . Therefore, theU.S. Coast Guard ("USCG") has granted us extensions for our vessels with 2016 drydocking deadlines untilJanuary 1, 2018 ; however, an alternative management system ("AMS") may be installed in lieu. For example, inFebruary 2015 , the USCG added Bawat to the list of ballast water treatment systems that received AMS acceptance. An AMS is valid for five years from the date of required compliance with ballast water discharge standards, by which time it must be replaced by an approved system unless the AMS itself achieves approval. Furthermore, we received extensions for vessels drydocking in 2016 that allowed for further
extensions to the vessels'
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next scheduled drydockings in year 2021. Additionally, for our vessels that
were scheduled to drydock in 2017 and 2018, the USCG has granted an extension
that enables us to defer installation to the next scheduled out of water
drydocking. Any newbuilding vessels that we acquire will have a USCG approved
system or at least an AMS installed when the vessel is being built.
In addition, on September 8, 2016 , the Ballast Water Management ("BWM")
Convention was ratified and had an original effective date of September 8,
2017 . However, on July 7, 2017 , the effective date of the BWM Convention was
extended two years to September 8, 2019 for existing ships. This will require
vessels to have a BWTS installed to coincide with the vessels' next
International Oil Pollution Prevention Certificate ("IOPP") renewal survey after
September 8, 2019 . In order for a vessel to trade in U.S. waters, it must be
compliant with the installation date as required by the USCG as outlined above.
During the second half of 2018, we have entered into agreements for the purchase
of BWTS for 36 of our vessels. The cost of these systems will vary based on the
size and specifications of each vessel and whether the systems will be installed
in China . Based on the contractual purchase price of the BWTS and the estimated
installation fees, the Company estimates the cost of the systems to be
approximately $0.9 million for Capesize vessels and $0.6 million for Supramax
vessels. The BWTS will be installed during a vessel's scheduled drydocking and
these costs will be capitalized and depreciated over the remainder of the life
of the vessel. During the years ended December 31, 2020 and 2019, we completed
the installation of BWTS on nine and 17 of our vessels, respectively. There were
no BWTS installations completed during the first half of 2021. Nine of these
vessels have since been sold as of June 30, 2021 . We anticipate that we will
complete the installation of BWTS on 5 vessels during 2021 and five vessels
during 2022. We intend to fund the remaining BWTS purchase price and
installation fees using cash on hand.
Under maritime regulations that went into effect January 1, 2020 , our vessels
were required to reduce sulfur emissions, for which the principal solutions are
the use of scrubbers or buying fuel with low sulfur content. We have completed
the installation of scrubbers on our 17 Capesize vessels, 16 of which were
completed as of December 31, 2019 and the last one of which was completed on
January 17, 2020 . The remainder of our vessels are consuming VLSFO. The costs
for the scrubber equipment and installation will be capitalized and depreciated
over the remainder of the life of the vessel. This does not include any lost
revenue associated with offhire days due to the installation of the scrubbers.
During February 2019 , we entered into an amendment to our $495 Million Credit
Facility for an additional tranche of up to $35 million to cover a portion of
the expenses to the acquisition and installation of scrubbers on our 17 Capesize
vessels. We have funded the remainder of the costs with cash on hand.
In addition to acquisitions that we may undertake in future periods, we will
incur additional expenditures due to special surveys and drydockings for our
fleet. Furthermore, we plan to upgrade a portion of our fleet with energy
saving devices and apply high performance paint systems to our vessels in order
to reduce fuel consumption and emissions. Through June 30, 2021 , we have paid
$42.8 million in cash installments towards our scrubber program and have drawn
down $32.8 million under the scrubber tranche under our $495 Million Credit
Facility. During the second quarter of 2021, we paid down the debt balanceunder the scrubber tranche. We estimate our drydocking costs, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, BWTS costs, fuel efficiency upgrades and scheduled off-hire days for our fleet through 2022
to
be:
Estimated Fuel
Estimated Drydocking Estimated BWTS Efficiency Estimated Off-hire
Year Cost Cost Upgrade Costs Days
(U.S. dollars in millions)
July 1 - December 31, 2021 $ 6.5 $ 2.6 $ 4.7 150
2022 $ 8.0 $ 4.0 $ 4.7 210
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The costs reflected are estimates based on drydocking our vessels inChina . Actual costs will vary based on various factors, including where the drydockings are actually performed. We expect to fund these costs with cash on hand. These costs do not include drydock expense items that are reflected in vessel operating expenses. Actual length of drydocking will vary based on the condition of the vessel, yard schedules and other factors. Higher repairs and maintenance expense during drydocking for vessels which are over 15 years old typically result in a higher number of off-hire days depending on the condition of the vessel.
During the six months ended
We completed the drydockings for two of our vessels during the six months endedJune 30, 2021 . We estimate that seven of our vessels will be drydocked during the remainder of 2021 and eight of our vessels will be drydocked during 2022.
As of
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 our critical accounting policies as disclosed in the 2020 10-K.
Vessels and Depreciation We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation. We depreciate our drybulk vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years from the date of initial delivery from the shipyard. Depreciation is based on cost less the estimated residual scrap value of$310 /lwt based on the 15-year average scrap value of steel. An increase in the residual value of the vessels will decrease the annual depreciation charge over the remaining useful life of the vessels. Similarly, an increase in the useful life of a drybulk vessel would also decrease the annual depreciation charge. Comparatively, a decrease in the useful life of a drybulk vessel or in its residual value would have the effect of increasing the annual depreciation charge. However, when regulations place limitations over the ability of a vessel to trade on a worldwide basis, we will adjust the vessel's useful life to end at the date such regulations preclude such vessel's further commercial use. The carrying value of each of our vessels does not represent the fair market value of such vessel or the amount we could obtain if we were to sell any of our vessels, which could be more or less. UnderU.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 2020 10-K. There were no impairment losses recorded during the three and six months endedJune 30, 2021 and the three months endedJune 30, 2020 . During the six months endedJune 30, 2020 , we recorded losses of$112.8 million related 53
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to the impairment of vessel assets. During the six months endedJune 30, 2020 , we recorded an impairment loss for ten of our Handysize vessels (theGenco Avra , theGenco Bay , the Genco Mare, theGenco Ocean , the Genco Spirit, the Baltic Breeze, the Baltic Cove, the Baltic Fox, the Baltic Hare and the Baltic Wind) and four of our Supramax vessels (the Genco Picardy, the Genco Predator, the Genco Provence and the Genco Warrior). Refer to Note 2 - Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statement for further information regarding the impairment recorded during the six month period endedJune 30, 2020 . Pursuant to our 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 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 covenant under our$495 Million Credit Facility and$133 Million Credit Facility as ofJune 30, 2021 . We obtained valuations for all of the vessels in our fleet pursuant to the terms of the$495 Million Credit Facility and the$133 Million Credit Facility. In the chart below, we list each of our vessels, the year it was built, the year we acquired it, and its carrying value atJune 30, 2021 andDecember 31, 2020 . Vessels have been grouped according to their collateralized status as ofJune 30, 2021 and does not include any vessels held for sale or held for exchange. The carrying value of our thirteen and fifteen Supramax vessels that were not held for sale as ofJune 30, 2021 andDecember 31, 2020 , respectively, reflect the impairment loss recorded during the year endedDecember 31, 2020 . As ofJune 30, 2021 , the vessel valuations of all of our vessels for covenant compliance purposes under our credit facilities as of the most recent compliance testing date were lower than their carrying values atJune 30, 2021 , with the exception of our 13 Supramax vessels that were impaired during the year endedDecember 31, 2020 , the Baltic Lion, the Genco Tiger, five of our Ultramax vessels (the Baltic Scorpion, the Baltic Hornet, the Baltic Wasp, the GencoColumbia and the Genco Weatherly) and the three Ultramax vessels acquired during the fourth quarter of 2020 (theGenco Magic ) and the first quarter of 2021 (the Genco Vigilant and the Genco Freedom). As ofDecember 31, 2020 , the vessel valuations of all of our vessels for covenant compliance purposes under our credit facility as of the most recent compliance testing date were lower than their carrying values atDecember 31, 2020 , with the exception of nine of the Supramax vessels that were impaired as ofDecember 31, 2020 (the Genco Aquitaine, the Genco Ardennes, the Genco Auvergne, the Genco Bourgogne, the Genco Brittany, the Genco Hunter, the Genco Languedoc, the Genco Pyrenees and the Genco Rhone) and the Genco Magic that was acquired during the fourth quarter of 2020. The amount by which the carrying value atJune 30, 2021 of all of the vessels in our fleet, with the exception of the 23 aforementioned vessels, exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual vessel basis, from$0.2 million to$9.6 million per vessel, and$104.1 million on an aggregate fleet basis. The amount by which the carrying value atDecember 31, 2020 of all of the vessels in our fleet, with the exception of the ten aforementioned vessels, exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual vessel basis, from$0 million to$18.3 million per vessel, and$260.8 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$6.5 million atJune 30, 2021 and$9.0 million as ofDecember 31, 2020 . However, neither such valuation nor the carrying value in the table below reflects the value of long-term time charters, if any, related to some of our vessels. Carrying Value (U.S. dollars in thousands) as of Year June 30, December 31,
Vessels Year Built Acquired 2021 2020$495 Million Credit Facility Genco Commodus 2009 2009$ 36,291 $ 37,356 Genco Maximus 2009 2009 36,295 37,355 Genco Claudius 2010 2009 37,992 39,091 Baltic Bear 2010 2010 37,756 38,813 Baltic Wolf 2010 2010 38,009 39,050 Baltic Lion 2009 2013 30,250 30,811 Genco Tiger 2010 2013 28,876 29,020 54 Table of Contents Carrying Value (U.S. dollars in thousands) as of Year June 30, December 31, Vessels Year Built Acquired 2021 2020 Baltic Scorpion 2015 2015 23,992 24,520 Baltic Mantis 2015 2015 24,239 24,768 Genco Hunter 2007 2007 8,021 8,250 Genco Warrior 2005 2007 7,167 7,422 Genco Aquitaine 2009 2010 8,795 9,000 Genco Ardennes 2009 2010 8,797 9,000 Genco Auvergne 2009 2010 8,800 9,000 Genco Bourgogne 2010 2010 9,526 9,750 Genco Brittany 2010 2010 9,528 9,750 Genco Languedoc 2010 2010 9,529 9,750 Genco Lorraine 2009 2010 - 7,751 Baltic Leopard 2009 2009 - 7,840 Genco Picardy 2005 2010 7,618 7,890 Genco Provence 2004 2010 6,695 6,930 Genco Pyrenees 2010 2010 9,532 9,750 Genco Rhone 2011 2011 10,658 10,625 Genco Constantine 2008 2008 33,063 34,179 Genco Augustus 2007 2007 31,481 32,049 Genco London 2007 2007 30,586 31,587 Genco Titus 2007 2007 31,279 32,306 Genco Tiberius 2007 2007 30,882 32,007 Genco Hadrian 2008 2008 33,610 34,633 Genco Predator 2005 2007 7,543 7,816 Baltic Hornet 2014 2014 22,542 23,055 Baltic Wasp 2015 2015 22,795 23,308 Genco Magic 2014 2020 14,696 14,683 Genco Vigilant 2015 2021 15,765 - Genco Freedom 2015 2021 15,833 - TOTAL$ 688,441 $ 689,115 $133 Million Credit Facility Genco Endeavour 2015 2018 43,147 44,069 Genco Resolute 2015 2018 43,428 44,320 Genco Columbia 2016 2018 25,023 25,553 Genco Weatherly 2014 2018 20,277 20,740 Genco Liberty 2016 2018 46,738 47,676 Genco Defender 2016 2018 46,775 47,641$ 225,388 $ 229,999 Consolidated Total$ 913,829 $ 919,114 If we were to sell a vessel or hold a vessel for sale, and the carrying value of the vessel were to exceed its fair market value, we would record a loss in the amount of the difference. Refer to Note 2 - Summary of Significant Accounting Policies and Note 4 - Vessel Acquisitions and Dispositions in our Condensed Consolidated Financial Statements for information regarding the sale of vessel assets and the classification of vessel assets held for sale and exchange as ofJune 30, 2021 andDecember 31, 2020 . 55 Table of Contents
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