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No. of Recommendations: 6
My big three shipping positions currently are Navios Maritime Partners (NMM), Starbulk (SB) & Golden Ocean (GOGL). But more recently, another dry bulk shipper has caught my attention - Genco Shipping & Trading Ltd (GNK), and seems worthy of a little deeper dive. Genco Shipping has been around awhile (at least 17 years) and over the years have tried a couple of interesting endeavors. There was a joint venture involving some Cape vessels, an investment in a shipping rival (Jinhui Shipping), and the creation of a "more nimble" subsidiary, Baltic Trading. The latter was folded back in with the parent about 6 years ago.

What makes Genco Shipping a potentially interesting investment?
1. Reduced leverage: IMHO, currently at a good place, but GNK plan on reducing their debt further. When GNK reported Q2 2021 results debt was at $367M, early-mid Sept 2021 debt was at $350M, and by year-end the company have targeted $250M. For a company with 39 - 43 owned vessels, that's very good. Sure, the vessels range from a 2004-build to a 2017-build. But, it still means the debt per vessel average is less than $10M/vessel. And targeted to go down further.

2. More focused fleet -Own three types of vessels: Cape (major bulk), Supramax & Ultramax (minor bulk). An Ultramax is a vessel of 60K - 65K DWT, and a Supramax ranges from 48K - 60K. So, a larger Supramax is equivalent to a smaller-end Ultramax. Both types of vessels carry minor bulk - cement, fertilizer, steel, some agricultural products, etc. The Cape vessels handle iron ore and coal. That covers a majority of dry bulk types and also help Genco not worry too much about a vessel category squeeze.

3. New financing facility: In mid-2021, Genco simplified their financing and consolidated all their debt to one $450M facility consisting of a $150M loan, plus a $300M revolver. The facility has other nice features e.g. subject to documentation, there is an accordian-type expansion feature,and a vessel swap feature. The latter aspect is nice. Currently, Genco have 4-8 vessels unencumbered. If Genco are offered a nice deal for one of their vessels that is currently collateral under the loan, the company has the flexibility of swapping the vessel out with an unencumbered vessel.

Risks:
Three items of concern
1. Dry bulk market is roaring currently. But, the dry bulk shipping arena has always been volatile. Clear the congestion at a few of those ports, and will rates stay strong across all vessel categories? Not sure. However, GNK have hedged a little here and taken about 18 months coverage on each of 3 Ultramax vessels. At way above break-even rates too.

2. Aggressive target of 20%. Genco had $161M in cash balances at the end of Q2 2021. Mid-September 2021, it is down to $111M, and at the end of the year, the company expects to be down to $70M. First part I get. Genco paid around $53M in installments on three Ultramax vessels. Which means minimal debt added to Genco's books. The second part of cash consumption I don't quite get. In my mind, holding onto cash gives the company more flexibility. See #3.

3. Energy Efficiency Design Index (EEDI) is coming. In 2023, all shipping companies will be required to address Carbon emmissions. At this time, I think most shipping companies have pointed to slower sailing speeds as an answer. Will that meet the requirements in 99% of the cases? 90%? 75%? 50%? I don't know. But, for most ships, there will be some spending required. Genco have recently announced plans to explore Ammonia as a replacement fuel. Any additional costs to the vessel for such a switch? No idea.

I suppose, Genco management could argue that revolver availability of around $200M (if company is successful in trimming debt down to $250M by EOY) offers the company a good shield. That does provide Genco with near term options. I do think the company's pivot to the Ultramax category (Dec 2020 - 6 Ultramax, Feb 2022 - 15 Ultramax) is a blend of fleet replacement and better preparation for EEDI. In general, a newer vessel will require less spending to become EEDI compliant.

If calculated 6 months ago, I would have said the fleet value was about 5 - 10% too high. With the stronger spot and time-charter markets, I think there is probably some undervaluation on the fleet. Though GNK currents trades above NAV, I think the current market environment and the lower leverage affords the shares a higher multiple. My estimate is based on $425M full year revenue & 2.5X multiple.
I figure the shares have about 18-33% upside from here.

One other item. One has to dig deeper for this item. Genco enhance their fleet with charter-in vessels. It isn't discussed in investor presentations or even earnings slides. One finds the data in minutiae of the earnings release. On a full quarter basis (90 days), it is the equivalent of about 5 vessels, but it might be more vessels (chartered in for less than a quarter). In Q2 2021, only Supramax and Ultramax vessels were chartered-in. In general, this is typically a side bet. However, for the
charter-in company (GNK in this case), a chance to evaluate a vessel (possibly for a future purchase)

Recent Genco presentation:
http://s21.q4cdn.com/456963137/files/doc_presentations/2021/...

Genco Q2 2021 release:
http://investors.gencoshipping.com/investor-relations/press-...
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When ships are delayed getting into ports, what happens to earnings? Who pays the extra costs?

Probably depends on charter details. But both shippers and owners must be aware of the risks and negotiate the split.
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No. of Recommendations: 5
When ships are delayed getting into ports, what happens to earnings? Who pays the extra costs?

Generally, earnings go up. Typically the vessel charterer pays the extra costs.

In the tanker sector, there are well established routes e.g. TD3C is Middle East to China. For a spot voyage, normally a well established window is determined for delivery of cargo to destination. If the tanker arrives at the destination location within that window, the vessel owner or vessel lessee is entitled to a fees for any days the vessel is unable to unload its cargo.

The shipping sector has been doing this for long enough there is even a term for this - demurrage.

Demurrage within the tanker sector is a well established process. Not sure how it is handled with dry bulk or container shipping. But, there are likely similar processes in place.
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No. of Recommendations: 3
A month later (11/4)

Genco (GNK) reported Q3 2021 results yesterday.
- Voyage revenue of $155.3M
- Net Income of $57.1M
- Dividend hiked to 15c/sh
- With reduced debt, GNK have announced plans for a dividend value strategy.

http://investors.gencoshipping.com/investor-relations/press-...

In terms of Q3 results, based on mid-quarter evaluation, I was thinking that dry bulk shippers will generally have a good quarter. Still, GNK's Q3 revenue numbers did surprise me. In the OP, I had suggested a revenue of $425M for the full year. That's somewhere near a mid-point in my range of $415M - $440M. GNK have generated rev of $363.8M for the first 9M of 2021.

In the OP, I had suggested the dry bulk shipping market can be quite volatile. Oct 2021 is a perfectly good example of this. The first half of the month, the Baltic Dry Index (BDI) managed to regain highs not seen in 13 years. The second half of the month, the BDI and its primary component, BCI (Baltic Cape Index), both took major dives. Cape rates that had seen levels above $85K daily dropped to around $64K daily, => $51K daily => $33K daily within 2-3 weeks. The good news, $33K is still a very profitable Cape rate.

On a more positive note, the Supramax/Ultramax vessel category has not seen such dramatic plunges. Maybe I should add, ... yet. Still, if fleet mix is part of company strategy, then Genco's strategy still seems to be working. The smaller vessels have buffered the company from more spiky revenue trends. More charter coverage would help there too. But taking charter coverage during a rate downtrend has its own issues.

Overall debt load still makes Genco an interesting shipping idea.
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No. of Recommendations: 4
3/17 About 4.5 months from last post on GNK. Big event was q4 2021 results

In threaded mode, one can scroll up to the OP where I suggest the company's plan for the end-of-the-year (2021). The high hurdle was getting the debt down to $250M. Were GNK successful?
The answer is Yes. LT debt was $246M on 12/31/21, and in Jan 2022 took delivery of two newbuilds.

Other stats:
Q4 2021 rev $183.3M Full Year $547.1M
Q4 2021 net income $90.9M Full year $182M
Q4 2021 dividend was $0.67/sh. Significant hike from $0.15/sh paid in Q3 2021.
Going forward, GNK mgmt laid out a formula for calculating the dividend.
Operating CashFlow - (Debt repayments + Capex + Reserve of $10.75M)/ Outstanding shares = dividend

Since the sector is dry bulk shipping, quarterly rev will be variable and all the other derived stats will thus be variable too.

http://investors.gencoshipping.com/investor-relations/press-...

Going back to the risks mentioned in the OP
1. Market conditions: Certainly dry bulk rates have cooled off significantly from Q3 - early Q4 2021. That said, the smaller vessel categories have held up better than expected. In many cases, smaller vessels earning more than their larger Cape counterparts. Still, an item to watch.
2. Company made the target. At least for a few years, the company will have access to a significant revolver (over $180M currently). As noted in the URL, no mandatory debt payments until 2026. That's a long runway.
3. Slight correction on the EEDI risk. That standard is for vessels delivering in 2023 and beyond. There is a counterpart standard for existing vessels - Energy Efficiency Existing vessels Index (EEXI). Genco's fleet will have to meet the EEXI standards. Like most other vessel owners, I think GNK mgmt will spend 2022 evaluating individual vessels in their fleet, especially the older vessels in their fleet.

The company has also added a little more charter coverage. So, that's an additional way to address the market variability.

Though NMM owns and operates a mixed fleet, I still think of them as a dry bulker. So, I still have my big three (SBLK, NMM & GOGL) holdings. However, I do think GNK represents good value at this time. Certainly from a risk perspective, I would say GNK is less risky than either NMM or GOGL currently.


Small GNK position.
HohumYNWA
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Announced Q1 2022 results 05/05/22
Genco (GNK) continue to surprise
- Rev of $136.2M vs $87.6M (Q1 2021)
- Net income of $41.9M vs $2M (Q1 2021)
- Dividend (via the new formula) of 79c/sh
- Used their huge revolving credit facility to pay down additional debt (now under $200M)

https://static.seekingalpha.com/uploads/sa_presentations/597...

New data-point (for me): All their Capes have scrubbers. Good explanation of why their Cape rate avg came in higher that I expected.

Positives:
- Debt pay-down
- Nice dividend payout
- Proactive steps to try and address emission standards coming in 2023

Risks:
- What's happening with China's economy still worries me.
- Genco, like most shipping companies, are taking steps to prepare for tighter emission standards in 2023. But, that is still a big unknown. The older vessels are a big concern - GNK have 8 vessels turning 15-years, or older in 2022.
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