EDGAR 10-K Filing

Company CIK: 1326200
Filing Year: 2021
Filename: 1326200_10-K_2021_0001558370-21-001621.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
OVERVIEW
General
We are a New York City-based company incorporated in the Marshall Islands in 2004. We transport 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 sale of two of our Supramax vessels, our fleet will consist of 39 drybulk carriers, including 17 Capesize drybulk carriers, nine Ultramax drybulk carriers, and thirteen Supramax drybulk carriers with an aggregate carrying capacity of approximately 4,315,000 deadweight tons (“dwt”). The average age of our current fleet is approximately 10.1 years. All of the vessels in our fleet were built in shipyards with reputations for constructing high-quality vessels. 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. Of the vessels in our fleet, 27 are currently on spot market voyage charters, 13 are on fixed-rate time charter contracts and we are currently time chartering-in three third party vessels.
See pages 3 - 4 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. 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 the U.S., Copenhagen and Singapore. Overall, our fleet deployment strategy remains weighted towards short-term fixtures, which provides us with optionality on our sizeable fleet. 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.
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 at a lower cost than we believe would be possible in-house. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. Members of our New York City-based management team oversee the activities of our independent technical managers.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements, and other documents with the SEC, under the Securities Exchange Act of 1934, or the Exchange Act. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov.
In addition, our company website can be found on the Internet at www.gencoshipping.com. The website contains information about us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge after the reports and amendments are electronically filed with or furnished to the SEC. To view the reports, access www.gencoshipping.com, click on Investor, then SEC Filings. No information on our company website is incorporated by reference into this annual report on Form 10-K.
Any of the above documents can also be obtained in print by any shareholder upon request to our Investor Relations Department at the following address:
Corporate Investor Relations
Genco Shipping & Trading Limited
299 Park Avenue, 12th Floor
New York, NY 10171
BUSINESS STRATEGY
Our strategy is to manage and expand our fleet in a manner that maximizes our cash flows from operations. To accomplish this objective, we intend to:
● Continue to operate a high-quality fleet - We intend to maintain a modern, high-quality fleet that meets or exceeds stringent industry standards and complies with charterer requirements through our technical managers’ rigorous and comprehensive maintenance program. In addition, our technical managers maintain the quality of our vessels by carrying out regular inspections, both while in port and at sea.
● Utilize an active commercial strategy - Our current fleet of 41 drybulk vessels concentrates on the transportation of major and minor bulk commodities globally. In 2017, the Company made a strategic decision to augment its existing in-house commercial operating platform shifting to an active commercial approach as compared to the previous tonnage provider model in order to improve margins and grow our network of customers. We expanded our presence globally with the establishment of offices in Singapore and Copenhagen in addition to our corporate headquarters in New York. As a result of this strategic shift, we have been fixing an increasing number of vessels on spot market voyage charters, where we provide a vessel for the transportation of goods between a load port and discharge port at a specified per-ton or on a lump sum basis, as well as on contracts of affreightment directly with cargo providers. We believe that our active platform provides added flexibility to changing market conditions and improves operational efficiencies within our owned fleet. Furthermore, we also assess arbitrage opportunities on cargoes through utilizing vessel positions by time chartering-in third party vessels and/or reletting cargo commitments on a voyage basis. In addition to these options, we continue to fix our vessels on both short and medium-term time charters, as well as spot market-related time charters, depending on market conditions and outlook. Overall, our fleet deployment strategy is currently weighted towards short-term fixtures which provide optionality for the Company. We continuously monitor the drybulk market and may in the future pursue other market opportunities for our vessels to capitalize on market conditions, including arranging longer charter periods and entering into vessel pools.
● Strategically expand the size of our fleet - We may acquire additional modern, high-quality, fuel-efficient drybulk vessels through timely and selective acquisitions in a manner that is accretive to our cash flows. If we make such acquisitions, we may consider additional debt or equity financing alternatives.
● Maintain low-cost, highly efficient operations - We currently outsource technical management of our fleet to Wallem Shipmanagement Limited (“Wallem”), Anglo-Eastern Group (“Anglo”) and Synergy Marine Group (“Synergy”), third party independent technical managers. Our management team actively monitors and controls vessel operating expenses incurred by the independent technical managers by overseeing their activities. We also seek to maintain low-cost, highly efficient operations by capitalizing on the cost savings and economies of scale that result from operating sister ships. Sister ships are ships of the same class that are of virtually identical design and are of similar size. In the future, we may explore opportunities to outsource to other third party independent technical managers, as well as providing in-house technical management for our vessels.
● Capitalize on our management team’s reputation - We seek to capitalize on our management team’s reputation for high standards of performance, reliability and safety, and maintain strong relationships with major international charterers and cargo providers, many of whom consider the reputation of a vessel owner and operator when entering into time charters. We believe that our management team’s track record improves our relationships with high quality shipyards and vendors, as well as financial institutions, many of which consider reputation to be an indicator of creditworthiness.
OUR FLEET
The table below summarizes the characteristics of our vessels that have been delivered to us that are currently in our fleet:
Vessel
Class
Dwt
Year Built
Genco Augustus
Capesize
180,151
Genco Claudius
Capesize
169,001
Genco Constantine
Capesize
180,183
Genco Commodus
Capesize
169,098
Genco Hadrian
Capesize
169,025
Genco London
Capesize
177,833
Genco Maximus
Capesize
169,025
Genco Tiberius
Capesize
175,874
Genco Tiger
Capesize
179,185
Genco Titus
Capesize
177,729
Baltic Bear
Capesize
177,717
Baltic Lion
Capesize
179,185
Baltic Wolf
Capesize
177,752
Genco Endeavour
Capesize
181,060
Genco Resolute
Capesize
181,060
Genco Defender
Capesize
180,021
Genco Liberty
Capesize
180,032
Baltic Hornet
Ultramax
63,574
Baltic Wasp
Ultramax
63,389
Baltic Scorpion
Ultramax
63,462
Baltic Mantis
Ultramax
63,470
Genco Weatherly
Ultramax
61,556
Genco Columbia
Ultramax
60,294
Genco Magic
Ultramax
63,446
Genco Vigilant
Ultramax
63,498
Vessel
Class
Dwt
Year Built
Genco Freedom
Ultramax
63,671
Genco Aquitaine
Supramax
57,981
Genco Ardennes
Supramax
58,018
Genco Auvergne
Supramax
58,020
Genco Bourgogne
Supramax
58,018
Genco Brittany
Supramax
58,018
Genco Hunter
Supramax
58,729
Genco Languedoc
Supramax
58,018
Genco Lorraine
Supramax
53,417
Genco Picardy
Supramax
55,257
Genco Predator
Supramax
55,407
Genco Provence
Supramax
55,317
Genco Pyrenees
Supramax
58,018
Genco Rhone
Supramax
58,018
Genco Warrior
Supramax
55,435
Baltic Leopard
Supramax
53,446
The following groups of sister ships are included in our current fleet except as noted below:
Group
Vessels
Genco Constantine and Genco Augustus
Baltic Lion and Genco Tiger
Genco London, Baltic Wolf, Genco Titus and Baltic Bear
Genco Commodus, Genco Hadrian, Genco Maximus and Genco Claudius
Genco Resolute and Genco Endeavour
Genco Liberty and Genco Defender
Baltic Hornet, Baltic Mantis, Baltic Scorpion and Baltic Wasp
Genco Auvergne, Genco Rhone, Genco Ardennes, Genco Aquitaine, Genco Brittany, Genco Languedoc, Genco Pyrenees and Genco Bourgogne
Genco Warrior, Genco Predator, Genco Provence and Genco Picardy
Baltic Cougar, Genco Lorraine, Baltic Panther and Baltic Leopard (1)
Genco Spirt, Genco Mare, Genco Ocean, Baltic Cove and Genco Avra (2)
Baltic Hare and Baltic Fox (3)
(1) The Baltic Panther and the Baltic Cougar were sold on January 4, 2021 and February 24, 2021, respectively, and the sale of the Genco Lorraine and the Baltic Leopard are expected to be completed during the second quarter of 2021.
(2) The Genco Ocean, the Baltic Cove, the Genco Spirit, the Genco Avra and the Genco Mare were sold on December 29, 2020, January 30, 2021, February 15, 2021, February 21, 2021 and February 24, 2021, respectively.
(3) The Baltic Hare and the Baltic Fox were sold on January 15, 2021 and February 2, 2021, respectively.
FLEET MANAGEMENT
Our management team and other employees are responsible for the commercial and strategic management of our fleet. Commercial management involves negotiating charters for vessels, managing the mix of various types of charters, such as time charters, spot market voyage charters, vessel pools and spot market-related time charters, and monitoring the performance of our vessels under their charters. Strategic management involves locating, purchasing, financing and selling vessels.
We utilize the services of reputable independent technical managers, Wallem, Anglo and Synergy, for the 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. Members of our New York City-based management team oversee the activities of our independent technical managers. The head of our technical management team has over 30 years of experience in the shipping industry.
Wallem, founded in 1971, Anglo, founded in 1974, and Synergy, founded in 2006, are among the largest ship management companies in the world. These technical managers are known worldwide for their agency networks, covering all major ports in China, Hong Kong, Japan, Vietnam, Taiwan, Thailand, Malaysia, Indonesia, the Philippines and Singapore. These technical managers provide services to over 1,100 vessels of all types, including Capesize, Ultramax, Supramax and Handysize drybulk carriers that meet strict quality standards.
Under our technical management agreements, our technical manager is obligated to:
● provide personnel to supervise the maintenance and general efficiency of our vessels;
● arrange and supervise the maintenance of our vessels to our standards to assure that our vessels comply with applicable national and international regulations and the requirements of our vessels’ classification societies;
● select and train the crews for our vessels, including assuring that the crews have the correct certificates for the types of vessels on which they serve;
● check the compliance of the crews’ licenses with the regulations of the vessels’ flag states and the International Maritime Organization, or IMO;
● arrange the supply of spares and stores for our vessels; and
● report expense transactions to us, and make its procurement and accounting systems available to us.
OUR CHARTERS
As of February 23, 2021, we employed 27 of our vessels on spot market voyage charters where we provide a vessel for the transportation of goods between a load port and discharge port at a specified per-ton or on a lump sum basis. Under spot market voyage charters, voyage expenses such as fuel and port charges are borne by us. Additionally, as of February 23, 2021, we employed 13 of our vessels under fixed-rate time charters. A time charter involves the hiring of a vessel from its owner for a period of time pursuant to a contract under which the vessel owner places its ship (including its crew and equipment) at the disposal of the charterer. Under a time charter, the charterer periodically pays a fixed daily charterhire rate to the owner of the vessel and bears all voyage expenses, including the cost of bunkers (fuel), port expenses, agents’ fees and canal dues. Additionally, as of February 23, 2021, we were chartering in three third party vessels.
Our vessels operate worldwide within the trading limits imposed by our insurance terms. The technical operation and navigation of the vessel at all times remains the responsibility of the vessel owner, which is generally responsible for the vessel’s operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses.
For the vessels that we employ on time charters or spot market-related time charters, agreements expire within a range of dates (for example, a minimum of 4 months and maximum of 6 months following delivery), with the exact end of the time charter left unspecified to account for the uncertainty of when a vessel will complete its final voyage under the time charter. The charterer may extend the charter period by any time that the vessel is off-hire. If a vessel remains off-hire for more than 30 consecutive days, the time charter may be cancelled at the charterer’s option.
In connection with the charter of each of our vessels, we incur commissions generally ranging from 1.25% to 6.25% of the total daily charterhire rate of each charter or total freight revenue to third parties, depending on the number of brokers involved with arranging the relevant charter.
We monitor developments in the drybulk shipping industry on a regular basis and strategically adjust the time and duration of employment for our vessels according to market conditions as they become available for hire.
The following table sets forth information about the current employment of the vessels in our fleet as of February 23, 2021:
Year
Charter
Vessel
Built
Expiration(1)
Cash Daily Rate(2)
Capesize Vessels
Genco Augustus
March 2021
Voyage
Genco Tiberius
February 2021
Voyage
Genco London
April 2021
$11,600
Genco Titus
February 2021
Voyage
Genco Constantine
May 2021
Voyage
Genco Hadrian
March 2021
Voyage
Genco Commodus
March 2021
Voyage
Genco Maximus
March 2021
Voyage
Genco Claudius
March 2021
Voyage
Genco Tiger
March 2021
Voyage
Baltic Lion
March 2021
Voyage
Baltic Bear
February 2021
Voyage
Baltic Wolf
April 2021
Voyage
Genco Resolute
May 2021
Voyage
Genco Endeavour
May 2021
Voyage
Genco Defender
March 2021
Voyage
Genco Liberty
March 2021
Voyage
Ultramax Vessels
Baltic Hornet
June 2021
$13,250
Baltic Wasp
April 2021
Voyage
Baltic Scorpion
April 2021
Voyage
Baltic Mantis
February 2021
$10,500
Genco Weatherly
February 2021
$12,750
Genco Columbia
March 2021
Voyage
Genco Magic
April 2021
$18,000
Genco Vigilant
June 2021
$10,000
Genco Freedom
-
-
Supramax Vessels
Genco Predator
March 2021
Voyage
Genco Warrior
March 2021
$14,000
Genco Hunter
March 2021
$9,750
Genco Lorraine
March 2021
$13,500
Genco Aquitaine
April 2021
Voyage
Genco Ardennes
March 2021
Voyage
Genco Auvergne
March 2021
$8,400
Genco Bourgogne
March 2021
Voyage
Year
Charter
Vessel
Built
Expiration(1)
Cash Daily Rate(2)
Genco Brittany
April 2021
Voyage
Genco Languedoc
April 2021
$14,000
Genco Picardy
March 2021
Voyage
Genco Provence
March 2021
Voyage
Genco Pyrenees
March 2021
$8,500
Genco Rhone
February 2021
$25,000
Baltic Leopard
March 2021
Voyage
(1) The charter expiration dates presented represent the earliest dates that our charters may be terminated in the ordinary course. Under the terms of certain 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.
(2) Time charter rates presented are the gross daily charterhire rates before third party brokerage commission generally ranging from 1.25% to 6.25%. In a time charter, the charterer is responsible for voyage expenses such as bunkers, port expenses, agents’ fees and canal dues.
CLASSIFICATION AND INSPECTION
All of our vessels have been certified as being “in class” by the American Bureau of Shipping (“ABS”), DNVGL or Lloyd’s Register of Shipping (“Lloyd’s”). Each of these classification societies is a member of the International Association of Classification Societies. Every commercial vessel’s hull and machinery is evaluated by a classification society authorized by its country of registry. The classification society certifies that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member. Each vessel is inspected by a surveyor of the classification society in three surveys of varying frequency and thoroughness: every year for the annual survey, every two to three years for the intermediate survey and every four to five years for special surveys. Special surveys always require drydocking. Vessels that are 15 years old or older are required, as part of the intermediate survey process, to be drydocked every 24 to 36 months for inspection of the underwater portions of the vessel and for necessary repairs stemming from the inspection.
In addition to the classification inspections, many of our customers regularly inspect our vessels as a precondition to chartering them for voyages. We believe that our well-maintained, high-quality vessels provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality.
We have implemented the International Safety Management Code, which was promulgated by the International Maritime Organization, or IMO (the United Nations agency for maritime safety and the prevention of marine pollution by ships), to establish pollution prevention requirements applicable to vessels. We obtained documents of compliance and safety management certificates for all of our vessels, which are required by the IMO.
CREWING AND EMPLOYEES
Each of our vessels is crewed with 21 to 24 officers and seamen. We do not provide any seaborne personnel to crew our vessels. Instead, our technical managers are responsible for locating and retaining qualified officers for our vessels. The crewing agencies are responsible for each seaman’s training, travel and payroll and ensuring that all the seamen on our vessels have the qualifications and licenses required to comply with international regulations and shipping conventions. Our vessels are typically manned with more crew members than are required by the country of the vessel’s flag in order to allow for the performance of routine maintenance duties.
We currently employ approximately 40 shore-based personnel, which includes personnel in our Singapore and Copenhagen offices. In addition, approximately 920 seagoing personnel are employed on our vessels.
CUSTOMERS
Our assessment of a charterer’s financial condition and reliability is an important factor in negotiating employment for our vessels. We generally charter our vessels to major trading houses (including commodities traders), major producers and government-owned entities rather than to more speculative or undercapitalized entities. Our customers include national, regional and international companies, such as Rio Tinto Shipping (Asia) Pte. Ltd., Cargill International S.A., Gavilon Grain LLC, BHP, FMG International Pte Ltd, ADMIntermare, a division of ADM International Sarl, and Vale International S.A. For the year ended December 31, 2020, no customer accounted for more than 10% of our voyage revenue.
COMPETITION
Our business fluctuates in line with the main patterns of trade of the major drybulk cargoes and varies according to changes in the supply and demand for these items. We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location and size, age and condition of the vessel, as well as on our reputation as an owner and operator. We compete with other owners of drybulk carriers in the Capesize, Panamax, Ultramax, Supramax and Handysize class sectors, some of whom may also charter our vessels as customers. Ownership of drybulk carriers is highly fragmented and is divided among approximately 2,200 independent drybulk carrier owners.
PERMITS AND AUTHORIZATIONS
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and other authorizations with respect to our vessels. The kinds of permits, licenses, certificates and other authorizations required for each vessel depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel’s crew and the age of the vessel. We believe that we have all material permits, licenses, certificates and other authorizations necessary for the conduct of our operations. However, additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of our doing business.
INSURANCE
General
The operation of any drybulk vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. The United States (“U.S.”) Oil Pollution Act of 1990, or OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the U.S.-exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the U.S. market.
While we maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, and freight, demurrage and defense cover and loss of hire insurance for our fleet in amounts that we believe to be prudent to cover normal risks in our operations, we may not be able to achieve or maintain this level of coverage throughout a vessel’s useful life. Furthermore, while we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates. Additionally, an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.
Hull and Machinery, War Risks, Kidnap and Ransom Insurance
We maintain marine hull and machinery, war risks and kidnap and ransom insurance, which cover the risk of actual or constructive total loss for all of our vessels. Our vessels are each covered up to at least fair market value with
deductibles, which depend primarily on the class of the insured vessel and are subject to change. We are covered, subject to limitations in our policy, to have the crew released in the case of kidnapping due to piracy in the Gulf of Aden off the coast of Somalia and the Gulf of Guinea.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which insure our third party liabilities in connection with our shipping activities. This includes third party liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to other third party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.” Subject to the “capping” discussed below, our coverage, except for pollution, is unlimited.
We maintain protection and indemnity insurance coverage for pollution of $1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. The International Group’s website states that the pool provides a mechanism for sharing all claims in excess of $10 million up to, currently, approximately $8.2 billion. We are a member of P&I Associations, which are members of the International Group. As a result, we are subject to calls payable to the associations based on the group’s claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group.
Loss of Hire Insurance
We maintain loss of hire insurance, which covers business interruptions and related losses that result from the loss of use of a vessel. Our loss of hire insurance has a 14-day deductible and provides claim coverage for up to 90 days.
ENVIRONMENTAL AND OTHER REGULATIONS
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications, procurement of specialized fuels and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard (“USCG”), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict our ability to comply and the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future
serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
As one of the largest drybulk shipping companies in the world, we recognize the need to operate a safe, responsible and sustainable business built for the long term. We regularly integrate Environmental, Social and Governance (ESG) practices into our operational and strategic decision making. As such, we aim to meet and, if possible and appropriate for our business, exceed minimum compliance levels set forth in rules and regulations governing the maritime industry, including certain rules and regulations described below.
Over the last several years, we have taken various steps to reduce our carbon footprint and improve the environment, including through investments made to our fleet. Specifically, we have:
● Purchased modern, fuel-efficient vessels with lower overall fuel consumption than older vessels in order to reduce our fleet’s greenhouse gas emissions;
● Divested of certain older, less fuel-efficient vessels
● 22 of our vessels are outfitted with Energy Saving Devices (ESD) which are meant to reduce the fuel consumptions of these vessels. ESDs include Mewis Ducts, Fins and Propeller Boss Cap Fins.
● Installed performance-monitoring systems on board 33 of our vessels to gather real-time fuel consumption data to optimize the voyage efficiency of these vessels;
● Utilized a third-party data collection platform that analyzes information from our vessels in an effort to reduce fuel consumption, CO2 and greenhouse gas emissions;
● Established and executed a compliance program regarding IMO 2020 fuel regulations (as described below);
● Ballast water treatment systems are installed on 31 vessels in our current fleet, representing approximately 76% of our current fleet; and
● Partnered with a third-party firm to conduct internal audits of our vessels with a goal of identifying areas of potential improvement on the daily maintenance and operation of our vessels in order to improve the quality of the services our vessels provide and to mitigate operational risks.
● Installation of Engine Power Limitation (EPL) systems on certain major bulk vessels to increase the level of energy efficiency by ensuring the ship’s engine power is maintained within optimal levels.
International Maritime Organization (IMO)
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the “IMO”), has adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as “MARPOL,” the International Convention for the Safety of Life at Sea of 1974 (“SOLAS Convention”), and the International Convention on Load Lines of 1966 (the “LL Convention”). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to drybulk, tanker and LNG carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.
In 2013, the IMO’s Marine Environmental Protection Committee, or the “MEPC,” adopted a resolution amending MARPOL Annex I Condition Assessment Scheme, or “CAS.” These amendments became effective on October 1, 2014, and require compliance with the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, or “ESP Code,” which provides for enhanced inspection programs. We may need to make certain financial expenditures to comply with these amendments, which could be significant.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits “deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of “volatile organic compounds” from certain vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs) are also prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.
The MEPC adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Ships are now required to obtain bunker delivery notes and International Air Pollution Prevention (“IAPP”) Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were adopted and took effect March 1, 2020, with the exception of vessels fitted with exhaust gas cleaning equipment (“scrubbers”) which can carry fuel of higher sulfur content. These regulations subject ocean-going vessels to stringent emissions controls, and may cause us to incur substantial costs, including those related to the purchase, installation and operation of scrubbers and the purchase of compliant fuel oil.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or (“ECAs”). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Certain ports in which our vessels call, including China and Singapore, are currently or may become subject to local regulations that impose stricter emission controls. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency (“EPA”) or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations. Refer to “Capital Expenditures” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and “We are subject to regulation and liability under environmental and operational safety laws that could require significant expenditures and affect our cash flows and net income and could subject us to increased liability under applicable law or regulation” in Item 1A. Risk Factors for further details of our plan for compliance and potential costs.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in 2010 and we are compliant with the Tier I and Tier II requirements for NOx emissions under the EPA standards and Annex VI. We do not currently own any vessels subject to the Tier III requirements, although we may acquire such vessels in the future. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection having commenced on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans (“SEEMPS”), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index (“EEDI”). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014. Additionally, MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEI’s “phase 3” requirements from January 1, 2025 to April 1, 2022 for several ship types, including gas carriers, general cargo ships, and LNG carriers.
Additionally, MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. These amendments introduce requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon intensity of international shipping. The requirements include (1) a technical requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (“EEXI”), and (2) operational carbon intensity reduction requirements, based on a new operational carbon intensity indicator (“CII”). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship types and categories. With respect to the CII, the draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual operational CII achieved against a determined required annual operational CII. Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1, 2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP would need to include certain mandatory content. The draft amendments introduced at MEPC 75 may be adopted at the MEPC 76 session, to be held during 2021.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for Maritime Claims (the “LLMC”) sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. Our technical managers have valid documents
of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificate are renewed as required.
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code (“IMDG Code”). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements. Amendments that took effect on January 1, 2020, also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provision regarding IMO type 9 tank, (2) new abbreviations for segregations groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). As of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
The IMO's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (the “Polar Code”). The Polar Code, which entered into force on January 1, 2017, covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions. The Polar Code applies to new ships constructed after January 1, 2017, and after January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”) in 2004. The BWM Convention entered into force on September 8, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date “existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (IOPP) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters.
The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial. Additionally, in November 2020, MEPC 75 adopted amendments to the BWM Convention which would require a commissioning test of the ballast water management system for the initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have an installed BWM system certified under the BWM Convention. These amendments are expected to enter into force on June 1, 2022.
During the fourth quarter of 2018, we originally entered into agreements for the purchase of ballast water treatments systems for 36 of our vessels. We have installed such systems on 18 vessels that were not already fitted with a ballast water treatment system upon purchase (excluding eight vessels that have been sold), and we expect the remaining ten to be installed by 2022. After the installation of these ballast water treatment systems, all of our vessels will be in compliance with these standards. The costs of compliance may be substantial and adversely affect our revenues and profitability.
Once mid-ocean ballast exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. The system specification requirements for trading in the U.S. have been formalized and we have been installing ballast water treatment systems on our vessels as their special survey deadlines come due. These ballast water treatment systems range in cost from $0.5 million to $0.9 million each, primarily dependent on the size of the vessel. Refer to “Capital Expenditures” section for further information.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000 (the “CLC”). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”) to impose strict liability on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation
regime (but not exceeding the amount calculated in accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the CLC or the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling Convention.” The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. The exteriors of vessels constructed prior to January 1, 2003 that have not been in drydock must, as of September 17, 2008, either not contain the prohibited compounds or have coatings applied to the vessel exterior that act as a barrier to the leaching of the prohibited compounds. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti-fouling System Certificate is issued for the first time; and subsequent surveys when the anti-fouling systems are altered or replaced.
In November 2020, MEPC 75 approved draft amendments to the Anti-fouling Convention to prohibit anti-fouling systems containing cybutryne, which amendments would apply to ships from January 1, 2023, or, for ships already bearing such an anti-fouling system, at the next scheduled renewal of the system after that date, but no later than 60 months following the last application to the ship of such a system. These amendments may be formally adopted at MEPC 76 in 2021.
We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-fouling Convention.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all “owners and operators” whose vessels trade or operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.’s territorial sea and its 200 nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to include:
i. injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
ii. injury to, or economic losses resulting from, the destruction of real and personal property;
iii. loss of subsistence use of natural resources that are injured, destroyed or lost;
iv. net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
v. lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
vi. net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective November 12, 2019, the USCG adjusted the limits of OPA liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,200 per gross ton or $997,100 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG’s financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives and statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling, and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement’s (“BSEE”) revised Production Safety Systems Rule (“PSSR”), effective December 27, 2018, modified and relaxed certain environmental and safety
protections under the 2016 PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019, which rolled back certain reforms regarding the safety of drilling operations, and former U.S. President Trump had proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling. The effects of these changes and proposals are currently unknown, and recently, current U.S. President Biden signed an executive order temporarily blocking new leases for oil and gas drilling in federal waters. Compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining vessel owners’ responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.
While we do not carry oil as cargo, we do carry fuel and lube oil in our drybulk carriers. We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have a material adverse effect on our business, financial condition, and results of operations, cash flows, and ability to pay dividends.
Other United States Environmental Regulations
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, or SIPs, some of which regulate emissions resulting from vessel loading and unloading operations which may affect our vessels.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of “waters of the United States” (“WOTUS”), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of “waters of the United States.” The proposed rule was published in the Federal Register on February 14, 2019, and was subject to public comment. On October 22, 2019, the agencies published a final rule repealing the 2015 Rule defining “waters of the United States” and recodified the regulatory text that existed prior to the 2015 Rule. The final rule became effective on December 23, 2019. On January 23, 2020, the EPA published the “Navigable Waters Protection Rule,” which replaces the rule published on October 22, 2019, and redefines “waters of the United States.” This rule became effective on June 22, 2020, although the effective date has been stayed in at least one U.S. state pursuant to court order. The effect of this rule is currently unknown.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018 and replaces the 2013 Vessel General Permit (“VGP”) program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast
water management regulations adopted under the U.S. National Invasive Species Act (“NISA”), such as mid-ocean ballast exchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge National Standards of Performance under VIDA. By approximately 2022, the U.S. Coast Guard must develop corresponding implementation, compliance and enforcement regulations regarding ballast water. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. Regulations also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic, the North Sea and the English Channel (the so-called “SOx-Emission Control Area”). As of January 2020, EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control are, use fuels with a 0.5% maximum sulfur content.
On September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime sector in the European Union’s carbon market from 2022. This will require shipowners to buy permits to cover these emissions. Contingent on another formal approval vote, specific regulations are forthcoming and are expected to be proposed in 2021.
Greenhouse Gas Regulation
Our industry currently is heavily dependent on the consumption of fossil fuels, which has been linked by certain experts to greenhouse gas emissions and the warming of the global climate system. We are committed to working to reduce our carbon footprint, including by transitioning to low-carbon fuels while continuing to deliver for our customers.
Our governance, strategy, risk management and performance monitoring efforts with respect to managing this challenge continue to evolve.
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The U.S. initially entered into the agreement, but on June 1, 2017, former U.S. President Trump announced that the United States intends to withdraw from the Paris Agreement and the withdrawal became effective on November 4, 2020. On January 20, 2021, U.S. President Biden signed an executive order to rejoin the Paris Agreement. It will take 30 days for the United States to rejoin.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies “levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information. As noted above, regulations relating to the inclusion of greenhouse gas emissions from the maritime sector in the European Union’s carbon market are also forthcoming.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources, and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, former U.S. President Trump signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions, and in August 2019, the Administration announced plans to weaken regulations for methane emissions. Further, on August 13, 2020, the EPA released rules rolling back standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S. President Biden recently directed the EPA to publish a proposed rule suspending, revising, or rescinding certain of the rules issued by the EPA under the prior administration. The EPA or individual U.S. states could enact environmental regulations that would affect our operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
International Labour Organization
The International Labour Organization (the “ILO”) is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 (“MLC 2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between ports, in another country. We believe that all of our vessels are in substantial compliance with and are certified to meet MLC 2006.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 (“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port Facility Security Code (“the ISPS Code”). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s flag state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; the development of vessel security plans; ship identification number to be permanently marked on a vessel’s hull; a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area, as well as off the coast of Western Africa. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified “in class” by a classification society which is a member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or “the Rules,” which apply to oil tankers and bulk carriers contracted for construction on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. All of our vessels are
certified as being “in class” by all the applicable Classification Societies (American Bureau of Shipping, DNVGL, or Lloyd's Register of Shipping). All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard agreements.
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be surveyed every 30 to 36 months for inspection of the underwater parts of the vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
SEASONALITY
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, freight and charter rates. We may seek to mitigate the risk of these seasonal variations by entering into long-term time charters for certain of our vessels, where possible. However, this seasonality may result in quarter-to-quarter volatility in our operating results, depending on when we enter into our time charters or if our vessels trade on the spot market. The drybulk sector is typically stronger in the fall and winter months in anticipation of increased consumption of coal and raw materials in the northern hemisphere during the winter months. As a result, our revenues could be weaker during the fiscal quarters ended June 30 and September 30, and conversely, our revenues could be stronger during the quarters ended December 31 and March 31.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
The following risk factors and other information included in this report should be carefully considered. If any of the following risks actually occur, our business, financial condition, operating results or cash flows could be materially and adversely affected, and the trading price of our common stock could decline.
RISK FACTORS RELATED TO OUR BUSINESS AND OPERATIONS
Industry Specific Risk Factors
The COVID-19 pandemic and measures to contain its spread have impacted the markets in which we operate and could have a material adverse impact on our business and its operations.
The COVID-19 pandemic and measures to contain it have negatively impacted 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 negative impacts could continue or worsen, even after the pandemic diminishes or ends. The pandemic may have far-reaching repercussions on our business and industry that are currently unknown. Governments in affected countries have imposed or reimposed travel bans, quarantines, and other emergency public health measures, and some have implemented lockdown measures. Companies, including us, have also taken precautions, such as requiring employees to work remotely and imposing travel restrictions, while some other businesses have been required to close entirely. The pandemic resulted in reduced industrial activity in China on which our business substantially depends, with temporary closures of factories and other facilities. Economic activity has also declined in other major industrial and financial centers, including the U.S., the E.U., Japan, India, South Korea and Brazil. Deterioration of worldwide, regional, or national economic conditions and activity could result in further reduced demand for drybulk cargoes and shipping services and may also negatively affect our charters, suppliers, and other parties with which we do business.
We also face significant risks to our personnel and operations due to the pandemic. Our crews face risk of exposure to COVID-19 as a result of travel to ports in which COVID-19 cases have been reported. Our shore-based personnel likewise face such exposure risk, as we are headquartered in New York, an area that has been severely impacted by COVID-19. Ongoing disruption of normal business activities due to COVID-19 and the imposition of measures against its spread may result in severe operational disruptions and delays. Measures against COVID-19 in a number of countries have restricted crew rotations on our vessels, which may continue or become more severe. We have experienced and may continue to experience disruptions to our normal vessel operations caused by increased deviation time from positioning our vessels where we can undertake a crew rotation. Delays in crew rotations have led to crew fatigue and may continue to do so, which may result in delays or other operational issues.
Restrictions on crew rotations resulting from measures against COVID-19 pose risks to our financial condition and liquidity in a number of ways. As crew members worldwide have exceeded the duration of their contracts in many cases, including on certain of our vessels, there is increased urgency to work towards completing more crew rotations in the coming months. Accordingly, we have had and expect to continue to have increased expenses due to incremental fuel consumption and days in which our vessels are unable to earn revenue in order to deviate to certain ports on which we would not call during a typical voyage. We have and may continue to incur additional expenses associated with testing, personal protective equipment, quarantines, and travel expenses such as airfare costs in order to perform crew rotations in the current environment. Delays in crew rotations have also caused us to incur additional costs related to crew bonuses paid to retain the existing crew members on board and may continue to do so. Some ports reimposed restrictions that may affect crew rotations from the beginning of this year which may continue through at least the first half of 2021, depending on worldwide availability of the vaccine.
Moreover, COVID-19 and measures against it have led to a highly difficult environment in which to dispose of vessels. The ability and willingness of potential buyers to consummate vessel transactions has been limited as a result of general economic conditions, the availability of financing, and their ability to inspect vessels. Constraints regarding crew changes have caused us to incur additional expenses and waiting time that has reduced earnings from our vessels in order to comply with agreements for the disposition of certain of our vessels. These conditions may continue, and we
may be unable to comply with such terms at all. As a result of the foregoing, we may therefore experience a material adverse impact on our financial condition, compliance with our credit facility covenants, and ability to pay dividends.
Our credit facilities contain 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 further significantly as a result of COVID-19 or otherwise, we may not satisfy this covenant. Outstanding borrowings under our revolving credit facility, which total $21.2 million as of December 31, 2020, may make it more difficult to satisfy the collateral maintenance requirement under our $133 Million Credit Facility. If we do not satisfy it, 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.
We also reduced our quarterly dividend to $0.02 per share in order to maintain our cash reserves. Our credit facilities permit the payment of dividends to the extent our unrestricted cash and cash equivalents are greater than $100 million and 18.75% of our total indebtedness, whichever is higher (or a specified percentage of consolidated net income for the preceding quarter). As of December 31, 2020, we had cash for this purpose of $143.9 million. We have commitments for amortization payments of $20.2 million per quarter under our credit facilities. 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, except to the extent of permissible dividends from net income.
A downturn in the global economic environment may negatively impact our business.
If the current global economic environment worsens or does not sufficiently recover, we may be negatively affected in a number of ways.
As a result of low freight and charter rates that in some instances do not allow us to operate our vessels profitably, our earnings and cash flows could decline. Continuation of these conditions for a prolonged period may leave us with insufficient cash resources for our operations or make required debt repayments under our credit facilities, which would potentially accelerate the repayment of our outstanding indebtedness.
If our earnings and cash flows decline for a prolonged period, we may also breach one or more of our credit facility covenants, such as those relating to our minimum cash balance, collateral maintenance, or minimum working capital. This also would potentially accelerate the repayment of outstanding indebtedness. Additionally, our charterers may fail to meet their obligations under our time charter and freight agreements.
A significant number of our vessels’ port calls involve loading or discharging raw materials and semi-finished products in the Asia Pacific region. As a result, a negative change in economic conditions in any Asia Pacific country, particularly in China, India, or Japan, could adversely affect our business. In recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product. To the extent the Chinese government does not pursue economic growth and urbanization, including infrastructure stimulus spending, the level of imports to and exports from China could be adversely affected, as well as by changes in political, economic and social conditions or other Chinese government policies. The Chinese government may adopt policies that favor domestic drybulk shipping companies and may hinder our ability to compete with them effectively. The Chinese government has also taken actions seen as protecting domestic industries such as coal or steel, which may reduce the demand for China-bound drybulk cargoes and negatively impact the drybulk industry. Moreover, a significant or protracted slowdown in the economies of the U.S., the European Union or various Asian countries may adversely affect economic growth in China and elsewhere.
Any increased trade barriers or restrictions, especially involving China, could adversely impact global economic conditions and, as a result, the amount of cargo transported on drybulk vessels. As an example of such restrictions, and most notable in term of drybulk trade volumes, China imposed tariffs on U.S. soybean exports in 2019 as part of the U.S.-China trade dispute. A deterioration in the trading relationship or a re-escalation of protectionist measures taken between these countries or others could lead to reduced drybulk trade volumes.
Freight and charterhire rates for drybulk carriers could remain low from a historical perspective or further decrease in the future, which may adversely affect our earnings.
A prolonged downturn in the drybulk charter market, from which we derive the large majority of our revenues, has severely affected the drybulk shipping industry for several years. The Baltic Dry Index (“BDI”), an index published by The Baltic Exchange of shipping rates for key drybulk routes, declined in 2020, principally as a result of the global economic slowdown caused by the COVID-19 pandemic.
Shipping capacity supply and demand strongly influences freight rates. Factors that influence demand for vessel capacity include demand for and production of drybulk products; global and regional economic and political conditions, including developments in international trade, fluctuations in industrial and agricultural production and armed conflicts; the distance drybulk cargo is to be moved by sea; environmental and other regulatory developments; events impacting production of the commodities that we carry; and changes in seaborne and other transportation patterns. Factors that influence the supply of vessel capacity include the number of newbuilding deliveries; port and canal congestion; scrapping of older vessels; vessel casualties; conversion of vessels to other uses; the number of vessels out of service (laid-up, drydocked, awaiting repairs or otherwise not available for hire); and environmental concerns and regulations.
In addition to prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of fuel and other operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage, the efficiency and age profile of the existing fleet in the market and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations.
Adverse economic, political, social or other developments, including a change in worldwide fleet capacity, could have a material adverse effect on our business, results of operations, cash flows, financial condition, ability to pay dividends, and ability to continue as a going concern.
Although vessel supply growth rates have slowed in recent years, if the supply of newbuilding vessels outpaces the demand for vessels, it could negatively impact freight rates and charterhire rates. If market conditions deteriorate following our vessels’ current employment, we may not be able to employ our vessels at profitable rates or at all. The occurrence of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition, ability to pay dividends, and ability to continue as a going concern.
Prolonged declines in freight and charter rates, changes in the useful life of vessels, and other market deterioration could cause us to incur impairment charges.
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require us to evaluate our vessels for an impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential impairment indicators and projection of future cash flows related to the vessels is complex and requires us to make various estimates including future freight rates and earnings from the vessels. All of these items have been historically volatile.
We determine each vessel’s recoverable amount by estimating the vessel’s undiscounted future cash flows. If the recoverable amount is less than the vessel’s carrying amount, the vessel is deemed impaired and written down to its fair market value. Our vessels’ carrying values may not represent their fair market value because market prices of secondhand vessels tend to fluctuate with freight and charter rate changes and the cost of newbuildings. Any impairment charges incurred as a result of declines in freight and charter rates could have a material adverse effect on our business, results of operations, cash flows, financial condition, ability to pay dividends, and ability to continue as a going concern.
We are subject to regulation and liability under environmental and operational safety laws that could require significant expenditures or subject us to increased liability.
Governments regulate our business and vessel operations through international conventions and national, state and local laws and regulations. Various governmental and quasi-governmental agencies require us to obtain permits, licenses, certificates, and financial assurances regarding our operations. Given frequent regulatory changes, we cannot
predict their effect on our ability to do business, the cost of complying with them, or their impact on vessels’ useful lives or resale value. Our failure to comply with any such conventions, laws, or regulations could cause us to incur substantial liability. See “Overview - Environmental and Other Regulation” in Item 1, “Business” of this annual report.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of the contents of our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us. Changes to inspection procedures could impose additional financial and legal obligations on us. Such changes could also impose additional costs and obligations on our customers and may render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
Our vessels are exposed to international risks that could reduce revenue or increase expenses.
Our vessels are at risk of damage or loss because of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss and bad weather. All these can result in death or injury to persons, repair and other increased costs, loss of revenues, loss or damage to property (including cargo), environmental damage, higher insurance rates, damage to our customer relationships, harm to our reputation as a safe and reliable operator and delay or rerouting. Public health threats, such as COVID-19, influenza and other highly communicable diseases or viruses, could adversely impact our and our customers’ operations. Changing economic, regulatory and political conditions, including political and military conflicts, have resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. Our vessels may operate in dangerous areas, including areas of the South China Sea, the Arabian Sea, the Indian Ocean, the Gulf of Aden off the coast of Somalia, the Gulf of Guinea, and the Red Sea. In November 2013, the Chinese government announced an Air Defense Identification Zone (ADIZ) covering much of the East China Sea. A number of nations do not honor the ADIZ, which includes certain maritime areas that have been contested among various nations in the region. Tensions relating to the Chinese ADIZ or other territorial disputes may escalate and result in interference with shipping routes or in market disruptions. Any of the foregoing could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
Our vessels may suffer damage, resulting in unexpected drydocking costs.
If our vessels suffer damage, they may need to be repaired at a drydocking facility for substantial and unpredictable costs that may not be fully covered by insurance. Space at drydocking facilities is sometimes limited, and not all drydocking facilities are conveniently located. The loss of earnings while our vessels are not operable could negatively impact our business, results of operations, cash flows, financial condition and ability to pay dividends.
The operation of drybulk vessels has certain unique operational risks which could affect our earnings and cash flow.
A drybulk vessel’s cargo and its interaction with the vessel can be an operational risk. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. Drybulk vessels are often subjected to battering treatment that may damage the vessel during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. Vessels so damaged may be more susceptible to hull breaches, which may lead to the flooding of the vessels’ holds. This may cause the bulk cargo to become so dense and waterlogged that its pressure buckles the vessel’s bulkheads, leading to the loss of a vessel. If we are unable to adequately maintain our vessels, we may be unable to prevent these events. Any of these circumstances or events may have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.
Acts of piracy on ocean-going vessels have continued and could adversely affect our business.
Acts of piracy have historically affected vessels trading in such regions as the South China Sea, the Arabian Sea, the Indian Ocean, the Gulf of Aden off the coast of Somalia, the Gulf of Guinea, and the Red Sea. Piracy incidents
continue to occur particularly in the Gulf of Aden, the Gulf of Guinea and increasingly in Southeast Asia. Our vessels could be subject to detention hijacking as a result of acts of piracy, rendering our vessels unable to perform their charters and earn revenues. Moreover, if these piracy attacks result in regions characterized by insurers as “war risk” zones, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain, if available at all. In addition, crew costs, including costs that may be incurred to the extent we employ onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents. The occurrence of any of any of the foregoing could have a material adverse impact on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
In response to piracy incidents, following consultation with regulatory authorities, we may station guards on some of our vessels. This may increase our risk of liability for death or injury to persons or damage to personal property, and we may not have adequate insurance in place to cover such liability.
Terrorist attacks and other acts of violence or war may have an adverse effect on our business.
Terrorist attacks continue to cause uncertainty in the world’s financial markets and may affect our business. Continuing conflicts and recent developments in the Middle East and the presence of U.S. and other armed forces in the Middle East and Afghanistan may lead to additional acts of terrorism and armed conflict, which may contribute to further economic instability. Following the U.S.’ withdrawal from the Joint Comprehensive Plan of Action agreed to on July 14, 2015 regarding the Iranian nuclear program, tensions have been rising between Iran on the one hand and the U.S. and its allies on the other. As our vessels transit the Arabian Gulf from time to time, they may face increased risk of damage or seizure. Political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Any of these occurrences could have a material adverse impact on our business, results of operation, financial condition, and ability to pay dividends.
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our net cash flows and net income.
The hull and machinery of commercial vessels must be certified as being “in class” by a classification society authorized by its country of registry and undergo annual surveys, intermediate surveys and special surveys as described in Item 1., “Business - Classification and Inspection” in this report. If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and unemployable, and we could be in violation of certain covenants in our credit facilities, which could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
If our vessels call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, that could adversely affect our reputation and the market for our common shares.
All of our charters with customers prohibit our vessels from entering any countries or conducting any trade prohibited by the U.S. However, on such customers’ instructions, our vessels could call on ports in countries subject to sanctions or embargoes imposed by the U.S. government or countries identified by the U.S. government as state sponsors of terrorism, such as Iran, Sudan and Syria. Any violation of sanctions and embargo laws and regulations could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. Additionally, some investors may decide to divest their interest, or not to invest, in us simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. War, terrorism, civil unrest and governmental actions in these and surrounding countries may adversely affect investor perception of the value of our common stock.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, UK Bribery Act, and other applicable worldwide anti-corruption laws.
The U.S. Foreign Corrupt Practices Act (“FCPA”) and other applicable worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. These laws include the U.K. Bribery Act, which is broader in scope than the FCPA, as it contains no facilitating payments exception. We charter our vessels into some jurisdictions that international monitoring groups have identified as having high levels of corruption. Our activities create the risk of unauthorized payments or offers of payments by our employees or agents that could violate the FCPA or other applicable anti-corruption laws. Our policies mandate compliance with applicable anti-corruption laws. If we violate the FCPA or other applicable anti-corruption laws, we could suffer from civil and criminal penalties or other sanctions.
We may be unable to attract and retain qualified, skilled employees or crew necessary to operate our business.
Our success largely depends on attracting and retaining highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract and retain qualified crew members is intense. Any inability our third party technical managers or we experience in the future to hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business, which could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
Labor interruptions could disrupt our business.
Our vessels are manned by masters, officers and crews employed by third parties. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our normal operations and could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels sometimes call in ports in South America and other areas where smugglers attempt to hide drugs and other contraband on vessels. To the extent our vessels are found with contraband, whether inside or attached to the hull and regardless of our crew’s knowledge, we may face governmental or other regulatory claims, which could have an adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the related off-hire period.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could result in a significant loss of earnings for the related off-hire period. In addition, in jurisdictions where the “sister ship” theory of liability applies, a claimant may arrest the vessel subject to the claimant’s maritime lien and any associated vessel, which is any vessel owned or controlled by the same owner.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government of a vessel’s registry could requisition for title or seize our vessels. A government could also requisition our vessels for hire, becoming the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Such requisitioning of one or more of our vessels could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
Changes in fuel prices could adversely affect our profits.
We operate a large portion of our vessels on spot market voyage charters, which generally require the vessel owner to bear the cost of fuel in the form of bunkers, a significant operating expense. Depending on the timing of increases in the price of fuel and market conditions, we may be unable to pass along fuel price increases to our customers. In standard time charter arrangements, under which the balance of our vessels operate, the charterer bears the cost of fuel bunkers. At the commencement of a charter, the charterer purchases fuel from us at then-prevailing market rates, and we must repurchase fuel at that same initial rate when the charterer redelivers the vessel to us. Market rates at the time the charterer redelivers the vessel may be more or less than the prevailing market rates at the commencement of the charter. In certain of our short-term time charter agreements, we sell the charterer the amount of the bunkers actually consumed and the charterer is required to redeliver the vessel to us without replenishment of the bunkers consumed. The date of redelivery of vessels and fluctuations in the price and supply of fuel are unpredictable, and therefore, these arrangements could result in losses or reductions in working capital that are beyond our control.
As part of our approach to comply with IMO regulations that limit sulfur emissions, we have retrofitted our 17 Capesize vessels with scrubbers. The performance of our investment in scrubbers depends in part upon the fuel spread between compliant low sulfur fuel and high sulfur fuel. Any decrease in the spread between these two fuel types could lengthen the anticipated payback period for this investment. In addition, certain countries have imposed regulations regarding the operations of scrubbers. These restrictions could become more restrictive or widespread, and we may be further limited in or prevented from operating scrubbers on our vessels as a result. See “General - IMO 2020 Compliance” in Item 7, Management’s Discussion and Analysis of Financial Condition for further details. To the extent we cannot operate scrubbers on our vessels, we would no longer be able to recover our investment in scrubbers and would have to use low sulfur fuel instead. Low sulfur fuel, which we currently use in our minor bulk fleet is more expensive than standard marine fuel. Increased demand for low sulfur fuel has resulted in an increase in prices for such fuel and may result in further increases, which we may not be able to include in our freight rates.
To mitigate the risk associated with fuel price increases, we may enter into forward bunker contracts from time to time that permit us to purchase fuel at a fixed price in exchange for payment of a certain amount. We may incur a loss on such contracts if the price of fuel declines below the price at which the contract permits us to purchase fuel, or a significant increase in the price of fuel may not be mitigated by our entry into any such contracts. Either occurrence could have a material adverse effect on our business, financial condition, and results of operations, cash flows, and ability to pay dividends.
Our results of operations are subject to seasonal fluctuations, which may adversely affect our financial condition.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, freight and charter rates. This seasonality may result in quarterly volatility in our operating results, depending on when and whether we enter into time charters or trade on the spot market. The drybulk sector is typically stronger in the fall and winter months in anticipation of increased consumption of coal and raw materials in the northern hemisphere during the winter months. As a result, our revenues could be weaker during the fiscal quarters ended June 30 and September 30, and conversely, our revenue could be stronger during the quarters ended December 31 and March 31. This seasonality could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
Company Specific Risk Factors
We may face liquidity issues if conditions in the drybulk market worsen for a prolonged period.
While supply and demand fundamentals have improved starting in 2017, persistent, historically low rates prior to 2017 in the drybulk shipping market resulted in decreases in our prior period revenues. As a result, we experienced negative cash flows, and in turn, our liquidity was negatively impacted. If the market environment declines over a prolonged period of time, we may have insufficient liquidity to fund ongoing operations or satisfy our obligations under our credit facilities, which may lead to a default under one or more of our credit facilities.
If we are in default of any of our credit facilities, the repayment of our indebtedness under the relevant facility could potentially be accelerated. In addition, each of our credit facilities contain cross default provisions that could be triggered by a default under any of our other credit facilities, with the result that the repayment of some or all of our indebtedness could potentially be accelerated.
As a result, we could experience a material adverse effect on our business, results of operations, cash flows, financial condition, ability to pay dividends, and we may cease to continue as a going concern. For a further discussion of our liquidity issues, see “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” below.
The market values of our vessels may decrease, which could adversely affect our operating results.
If the book value of one of our vessels is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that could adversely affect our financial results. See “Impairment of long-lived assets” section under the heading “Critical Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
Our earnings and our ability to pay dividends will be adversely affected if we do not successfully employ our vessels.
The charterhire rates for our vessels have sometimes declined below the operating costs of our vessels. Because we currently charter most of our vessels on spot market voyage charters and spot market-related time charters, we are exposed to the cyclicality and volatility of the spot charter market, and we do not have significant long-term, fixed-rate time charters to ameliorate the adverse effects of downturns in the spot market. Capesize vessels, which we operate as part of our fleet, have been particularly susceptible to significant freight rate fluctuations in spot charter rates.
Spot market voyage charter rates may fluctuate dramatically based primarily on the worldwide supply of drybulk vessels and the worldwide demand for transportation of drybulk cargoes. Future freight rates and charterhire rates may not enable us to operate our vessels profitably. Further, our standard time charter contracts with our customers specify certain performance parameters that can result in customer claims if not met. Such claims may have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
To the extent our vessels undertake spot market voyages, we face operational risks from responsibility for delays in delivery of the cargo, which may be due to weather, vessel breakdown, port congestion, or other factors that may be beyond our control. Such delays can result in customer claims. In addition, spot market voyages require us to make payments directly to third parties that our charters would ordinarily make. Such arrangements carry a risk of disputes and fraud by third parties. As a result of any of these circumstances, we may experience a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
In addition, while we try to capture arbitrage opportunities by taking cargo positions, a significant fluctuation in the rate environment could adversely affect profitability.
Restrictive covenants under our credit facilities may restrict our growth and operations.
Our credit facilities impose operating and financial restrictions that may limit our ability to utilize cash above a certain amount; incur additional indebtedness on satisfactory terms or at all; incur liens on our assets; sell our vessels or the capital stock of our subsidiaries; make investments; engage in mergers or acquisitions; pay dividends; make capital expenditures; compete effectively or change management arrangements relating to any of our vessels. Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions, which we may not be able to obtain when needed. This may prevent us from taking actions that are in our best interest and from executing our business strategy of growth and may restrict or limit our ability to pay dividends and finance our future operations.
We depend upon ten charterers for a large part of our revenues. The loss of any significant customers could adversely affect our financial performance.
For the year ended December 31, 2020, approximately 40% of our revenues were derived from ten charterers. While we are seeking to expand customer relationships with cargo providers, this may not sufficiently diversify our customer base to mitigate this risk. If we were to lose any of our major customers or if any of them significantly reduced use of our services or were unable to make payments to us, it could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
The aging of our fleet and our practice of purchasing and operating previously owned vessels may result in increased operating costs and vessels off-hire, which could adversely affect our earnings.
The majority of our drybulk carriers were previously owned by third parties. We may seek additional growth by acquiring previously owned vessels. The pre-inspection of such vessels does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. We may not detect all defects or problems before purchase. Any such defects or problems may be expensive to repair, and if not timely detected, may result in accidents or other incidents for which we may become liable. Also, we do not receive the benefit of any builder warranties if the vessels we buy are older than one year.
The costs to maintain a vessel in good operating condition generally increase with its age. Older vessels are typically less fuel efficient than newer ones due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. We may not be able to incur borrowings on favorable terms or at all to fund the cost of maintaining our vessels.
Governmental regulations and safety and other equipment standards related to vessel age may require expenditures for vessel equipment and restrict our vessels’ activities. Market conditions may not justify such expenditures or enable us to operate our vessels profitably. As a result, regulations and standards could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
An increase in interest rates could adversely affect our cash flow and financial condition.
We are subject to market risks relating to changes in LIBOR rates because we have significant amounts of floating rate debt outstanding. Moreover, in the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association (“BBA”) in connection with the calculation of LIBOR may have been underreporting or otherwise manipulating the inter-bank lending rate applicable to them. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged LIBOR manipulation, and investigations by regulators and governmental authorities in various jurisdictions are ongoing. In addition, on July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. If LIBOR or any alternative reference rate were to increase significantly, the amount of interest payable on our outstanding indebtedness could increase significantly and could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
We depend to a significant degree upon third party managers to provide the technical management of our fleet.
We have contracted the technical management of our fleet, including crewing, maintenance, and repair services, to third party technical management companies. The failure of these technical managers to perform their obligations could materially and adversely affect our business, results of operations, cash flows, financial condition and ability to pay dividends. Although we may have rights against our third party managers if they default on their obligations to us, our shareholders will share that recourse only indirectly to the extent that we recover funds.
We may not be able to compete for charters with new entrants or established companies with greater resources in the drybulk industry.
We employ our vessels in a highly competitive, capital intensive, and fragmented market. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than ours. Competition for the
transportation of drybulk cargoes can be intense and depends on price, location, size, age, condition and the acceptability of the vessel and its managers to the charterers. Competitors with greater resources could enter and operate larger and better fleets that offer better prices than ours.
Future dividends are subject to the discretion of our Board of Directors; dividends and share repurchases are limited under our credit facilities.
Our declaration and payment of dividends is subject to legally available funds, compliance with law and contractual obligations and our Board of Directors’ determination that each declaration and payment is in the best interest of the Company and our shareholders. Our policy may change in the future, and we have no legal obligation to continue paying dividends at the same rate or at all.
Under the terms of our credit facilities, our payment of 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. The declaration and payment of any dividend or any stock repurchase is subject to the discretion of our Board of Directors. 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 or while a company is insolvent or would be rendered insolvent by such a payment or repurchase.
We may incur other expenses or liabilities that would reduce or eliminate cash available for dividends. We may also enter into agreements or the Marshall Islands or another jurisdiction may adopt laws or regulations that further restrict our ability to pay dividends. If we decrease, suspend or terminate our dividends, our stock price may decline.
We may not be able to grow or effectively manage our growth, which could cause us to incur additional indebtedness and other liabilities.
Our future growth depends on a number of factors, some of which we cannot control. These factors include our ability to identify vessels for acquisition; consummate acquisitions or establish joint ventures on favorable terms; integrate acquired vessels successfully with our existing operations; expand our customer base; and obtain required financing for our existing and new operations. Currently, there is no availability under our existing credit facilities. These limitations place significant restrictions on financing that we could use for our growth.
We currently maintain all of our cash and cash equivalents with five financial institutions, which causes credit risk.
We currently maintain all of our cash and cash equivalents with four financial institutions. None of our balances are covered by insurance in the event of default by the financial institutions
As a holding company, we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations or to make dividend payments.
As a holding company, we have no significant assets other than the equity interests in our wholly owned subsidiaries. As a result, our ability to satisfy our financial obligations and to pay dividends depends on the ability of our subsidiaries, which are all directly or indirectly wholly owned, to distribute funds to us. In turn, the ability of our subsidiaries to make dividend payments to us depends on their results of operations.
We are at risk for the creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, or market conditions affecting the time charter market and the credit markets, may materially affect our ability to obtain the additional capital resources that may be required to purchase additional vessels or may significantly increase our costs of obtaining such
capital. Our inability to obtain additional financing at all or at a higher than anticipated cost may have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
If we cannot obtain certain reports as to the effectiveness of our internal control over financial reporting, it could result in a decrease in the value of our common stock.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in this and each of our future annual reports on Form 10-K a report containing our management’s assessment of the effectiveness of our internal control over financial reporting and, if we are an accelerated or large accelerated filer, a related attestation of our independent registered public accounting firm. If, in such future annual reports on Form 10-K, our management cannot provide a report as to the effectiveness of our internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified attestation report as to the effectiveness of our internal control over financial reporting if required by Section 404, investors could lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our common stock.
We may not have adequate insurance to compensate us if we lose our vessels or to compensate third parties.
We are insured against tort claims and some contractual claims (including claims related to environmental damage and pollution) through memberships in protection and indemnity associations or clubs, or P&I associations. A P&I association provides mutual insurance based on the aggregate tonnage of a member’s vessels entered into the association. Claims are paid through the aggregate premiums of all members, although members remain subject to calls for additional funds if the aggregate premiums are insufficient to cover claims submitted to the association. Claims submitted to the association may include those incurred by members of the association, as well as claims submitted to the association from other P&I associations with which our P&I association has entered into interassociation agreements. The P&I associations to which we belong might not remain viable, or we may become subject to funding calls that could adversely affect us.
We also carry hull and machinery insurance and war risk insurance for our fleet. We also currently maintain insurance against loss of hire, which covers business interruptions that result in the loss of use of a vessel. We may not be able to renew our insurance policies on commercially reasonable terms, or at all, in the future. In addition, our insurance may be voidable by the insurers as a result of certain of our actions. Further, our insurance policies may not cover all losses that we incur, and disputes over insurance claims could arise with our insurance carriers. Any claims covered by insurance would be subject to deductibles. In addition, our insurance policies are subject to limitations and exclusions, which may increase our costs or lower our revenues. Any uninsured or underinsured loss could harm our business, results of operations, cash flows, financial condition, and ability to pay dividends.
We may have to pay U.S. tax on U.S. source income, which will reduce our net income and cash flows.
If we do not qualify for an exemption pursuant to Section 883 of the U.S. Internal Revenue Code of 1986, as amended, or the “Code” (which we refer to as the “Section 883 exemption”), then we will be subject to U.S. federal income tax on our shipping income that is derived from U.S. sources. If we are subject to such tax, our net income and cash flows would be reduced by the amount of such tax.
We will qualify for the Section 883 exemption if, among other things, (i) our stock is treated as primarily and regularly traded on an established securities market in the U.S. (the “publicly traded test”), or (ii) we satisfy the qualified shareholder test or (iii) we satisfy the controlled foreign corporation test (the “CFC test”). Under applicable Treasury Regulations, the publicly-traded test cannot be satisfied in any taxable year in which persons who actually or constructively own 5% or more of our stock (which we sometimes refer to as “5% shareholders”), together own 50% or more of our stock (by vote and value) for more than half the days in such year (the “five percent override rule”), unless an exception applies. A foreign corporation satisfies the qualified shareholder test if more than 50% of the value of its outstanding shares is owned (or treated as owned by applying certain attribution rules) for at least half of the number of days in the foreign corporation’s taxable year by one or more “qualified shareholders.” A qualified shareholder includes a foreign corporation that, among other things, satisfies the publicly traded test. A foreign corporation satisfies the CFC
test if it is a “controlled foreign corporation” and one or more qualified U.S. persons own more than 50% of the total value of all the outstanding stock.
Based on the ownership and trading of our stock in 2020 and 2019, we believe that we satisfied the publicly traded test and qualified for the Section 883 exemption in 2020 and 2019. If we do not qualify for the Section 883 exemption, our U.S. source shipping income, i.e., 50% of our gross shipping income attributable to transportation beginning or ending in the U.S., would be subject to a 4% tax without allowance for deductions (the “U.S. gross transportation income tax”). We can provide no assurance that changes and shifts in the ownership of our stock by 5% shareholders will not preclude us from qualifying for the Section 883 exemption in 2021 or future taxable years. In fact, we did not qualify for the Section 883 exemption in 2017. Refer to Note 2 - Summary of Significant Accounting Policies in our Consolidated Financial Statements for further information.
To the extent Genco's U.S. source shipping income, or other U.S. source income, is considered to be effectively connected income, any such income, net of applicable deductions, would be subject to the U.S. federal corporate income tax, currently imposed at a 21% rate. In addition, Genco may be subject to a 30% "branch profits" tax on such income, and on certain interest paid or deemed paid attributable to the conduct of such trade or business. Shipping income is generally sourced 100% to the U.S. if attributable to transportation exclusively between U.S. ports (Genco is prohibited from conducting such voyages), 50% to the U.S. if attributable to transportation that begins or ends, but does not both begin and end, in the U.S. and otherwise 0% to the U.S.
Genco's U.S. source shipping income would be considered effectively connected income only if (i) Genco has,
or is considered to have, a fixed place of business in the U.S. involved in the earning of U.S. source shipping income; and (ii) substantially all of Genco's U.S. source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the U.S.
Genco does not intend to have, or permit circumstances that would result in having, any vessel sailing to or from the U.S. on a regularly scheduled basis. Based on the current shipping operations of Genco and Genco’s expected future shipping operations and other activities, Genco believes that none of its U.S. source shipping income will constitute effectively connected income. However, Genco may from time to time generate non-shipping income that may be treated as effectively connected income.
If Genco qualifies for the Section 883 exemption in respect of its shipping income, gain from the sale of a vessel likewise should be exempt from tax under Section 883 of the Code. If, however, Genco's shipping income does not qualify for the Section 883 exemption, and assuming that any gain derived from the sale of a vessel is attributable to Genco's U.S. office, as Genco believes would likely be the case, such gain would likely be treated as effectively connected income (determined under rules different from those discussed above) and subject to the net income and branch profits tax regime described above.
U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
A foreign corporation generally will be treated as a “passive foreign investment company,” which we sometimes refer to as a PFIC, for U.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.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to distributions they receive from the PFIC and gain, if any, they derive from the sale or other disposition of their stock in the PFIC.
For purposes of these tests, “passive income” generally includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations. Income derived from the performance of services does not constitute “passive income.” By contrast, rental
income would generally constitute passive income unless such income was treated under specific rules as derived from the active conduct of a trade or business. 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. In this regard, we treat the gross income we derive or are deemed to derive from our time and spot chartering activities as services income, rather than rental income. Accordingly, we believe that (1) our income from our time and spot chartering activities does not constitute passive income and (2) the assets that we own and operate in connection with the production of that income do not constitute passive assets.
While there is no direct legal authority under the PFIC rules addressing our method of operation, there is legal authority supporting this position consisting of pronouncements by the U.S. Internal Revenue Service (which we sometimes refer to as the “IRS”), concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also legal authority, consisting of case law, which characterizes time charter income as rental income rather than services income for other tax purposes.
No assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS 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 (and regardless of whether we remain a PFIC for subsequent taxable years), our U.S. shareholders would face adverse U.S. tax consequences. Under the PFIC rules, unless a shareholder makes certain elections available under the Code (which elections could themselves have adverse consequences for such shareholder), such shareholder would be liable to pay U.S. federal income tax at the highest applicable ordinary income tax rates upon the receipt of excess distributions and upon any gain from the disposition of our common stock, plus interest on such amounts, as if such excess distribution or gain had been recognized ratably over the shareholder’s holding period of our common stock.
Because we generate all of our revenues in U.S. dollars but incur a portion of our expenses in other currencies, exchange rate fluctuations could hurt our business.
We generate all of our revenues in U.S. dollars, but we may incur drydocking costs, voyage expenses (such as port costs), special survey fees and other expenses in other currencies. If our expenditures on such costs and fees were significant, and the U.S. dollar were weak against such currencies, our business, results of operations, cash flows, financial condition and ability to pay dividends could be adversely affected.
Legislative action relating to taxation could materially and adversely affect us.
Our tax position could be adversely impacted by changes in tax laws, treaties or regulations or the interpretation or enforcement thereof by any tax authority. We cannot predict the outcome of any specific legislative proposals.
RISK FACTORS RELATED TO OUR COMMON STOCK
Certain shareholders own large portions of our common stock, which may limit your ability to influence our actions.
Certain shareholders currently hold significant percentages of our common stock. As of February 24, 2021, affiliates of Centerbridge Partners, L.P. owned approximately 22% and affiliates of Apollo Global Management owned approximately 11% of our common stock. Such holders can influence the outcome of any shareholder vote, including the election of directors, the adoption or amendment of provisions in our articles of incorporation or by-laws and possible mergers, corporate control contests and other significant corporate transactions. This concentration of ownership may delay, defer, or prevent a change in control, merger, takeover, or other business combination involving us. This concentration of ownership could also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could in turn adversely affect the market price of our common stock.
Because we are a foreign corporation, you may not have the same rights or protections that a shareholder in a U.S. corporation may have.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and may make it more difficult for our shareholders to protect their interests. Our corporate affairs are governed by our amended and restated articles of incorporation and by-laws and the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the U.S., and the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions. However, the rights and fiduciary responsibilities of directors and shareholder rights under Marshall Islands law are not as clearly established as the rights and fiduciary responsibilities of directors in certain U.S. jurisdictions, and there have been few judicial cases in the Marshall Islands interpreting the BCA. As a result, it may be difficult for our shareholders to protect their interests.
Future sales of our common stock could cause the market price of our common stock to decline.
The market price of our common stock could decline due to sales of a large number of shares in the market or the perception that these sales could occur. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds.
We entered into a registration rights agreement that provides parties who received 10% or more of our common stock in our reorganization with demand and piggyback registration rights. This agreement was amended and restated in connection with our $125 million equity raise and currently covers shares issued to Centerbridge and Apollo. We entered into an additional registration rights agreement that required us to file a resale registration statement that became effective on January 18, 2017 with respect to the resale of 27,061,856 shares of our common stock.
Since December 2020, affiliates of Strategic Value Partners LLC, formerly one of our largest shareholders, have reported sales of approximately 6.7 million of our shares; affiliates of Centerbridge Partners, L.P. have reported sales of approximately 1.3 million of our shares; and affiliates of Apollo Global Management have reported sales of approximately 1.0 million of our shares. Our shareholders may continue to sell significant volumes of our shares.
We may need to raise additional capital in the future, which may not be available on favorable terms or at all or which may dilute our common stock or adversely affect its market price.
We may require additional capital to expand our business and increase revenues, add liquidity in response to negative economic conditions, meet unexpected liquidity needs, and reduce our outstanding debt. To the extent our existing capital and borrowing capabilities are insufficient, we will need to raise additional funds through debt or equity financings, including offerings of our common stock, securities convertible into our common stock, or rights to acquire our common stock or curtail our growth and reduce our assets or restructure arrangements with existing security holders. Any equity or debt financing, or additional borrowings, if available at all, may be on terms that are not favorable to us. Equity financings could result in dilution to our stockholders, and the securities issued in future financings may have rights, preferences, and privileges that are senior to those of our common stock. To the extent that an existing shareholder does not purchase shares of voting stock, that shareholder’s interest in our company will be diluted, representing a smaller percentage of the vote in our Board of Directors’ elections and other shareholder decisions. If our need for capital arises because of significant losses, the occurrence of these losses may make it more difficult for us to raise the necessary capital. If we cannot raise funds on acceptable terms if and when needed, we may not be able to take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements.
Volatility in the market price and trading volume of our common stock could adversely impact its trading price.
The market price of our common stock, could fluctuate significantly for many reasons, such as reports by industry analysts, investor perceptions or negative announcements by our competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability. A decrease in the market price of our common stock would adversely impact the value of your shares of common stock.
Provisions of our articles of incorporation and by-laws may have anti-takeover effects which could adversely affect the market price of our common stock.
Several provisions of our articles of incorporation and by-laws are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize shareholder value in connection with any unsolicited offer to acquire our company. However, these provisions could also discourage, delay or prevent (1) the merger or acquisition of our company through a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Election and Removal of Directors.
Our articles of incorporation prohibit cumulative voting in the election of directors. Our by-laws require parties other than the board of directors to give advance written notice of nominations for the election of directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders.
Our articles of incorporation and our by-laws provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by our shareholders’ unanimous written consent. Our articles of incorporation and our by-laws provide that, subject to certain exceptions, our Chairman, President, or Secretary at the direction of the Board of Directors or our Secretary at the request of one or more shareholders that hold in the aggregate at least a majority of our outstanding shares entitled to vote may call special meetings of shareholders. The business transacted at the special meeting is limited to the purposes stated in the notice.
Advance Notice Requirements for Shareholder Proposals and Director Nominations.
Our by-laws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, the notice must be received at our principal executive offices not less than 120 days nor more than 150 days before the anniversary date of the immediately preceding annual meeting of shareholders. Our by-laws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede a shareholder’s ability to bring matters before or nominate directors at an annual meeting of shareholders.
It may not be possible for our investors to enforce U.S. judgments against us.
We and most of our subsidiaries are organized in the Marshall Islands. Substantially all of our assets and those of our subsidiaries are located outside the U.S. As a result, it may be difficult or impossible for U.S. shareholders to serve process within the U.S. upon us or to enforce judgment upon us for civil liabilities in U.S. courts. You should not assume that courts in the countries in which we are incorporated or where our assets are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us based upon these laws.
Security breaches and other disruptions to our information technology infrastructure could interfere with our operations and expose us to liability.
We rely on information technology systems, some of which are managed by third parties, to process, transmit, and store information and manage or support a variety of business processes and activities. We also collect and store certain data, including proprietary business information and customer and employee data. Despite our cybersecurity measures, our information technology networks and infrastructure may be vulnerable to damage, disruptions, or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, natural disasters, or other catastrophic events, which could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation, which could materially adversely affect our business.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
We do not own any real property. Effective April 4, 2011, we entered into a seven-year sub-sublease agreement for our main office in New York, New York. The term of the sub-sublease commenced June 1, 2011, with a free base rental period until October 31, 2011. Following the expiration of the free base rental period, the monthly base rental payments were $0.1 million per month until May 31, 2015 and thereafter were $0.1 million per month until the end of the seven-year term. We also entered into a direct lease with the over-landlord of such office space that commenced immediately upon the expiration of such sub-sublease agreement, for a term covering the period from May 1, 2018 to September 30, 2025; the direct lease provided for a free base rental period from May 1, 2018 to September 30, 2018. Following the expiration of the free base rental period, the monthly base rental payments are $0.2 million per month from October 1, 2018 to April 30, 2023 and $0.2 million per month from May 1, 2023 to September 30, 2025.
Future minimum rental payments on the above lease for the next five years are as follows: $2.2 million annually for 2021 through 2022, $2.4 million for 2023, $2.5 million for 2024 and $1.8 million for 2025
On June 14, 2019, we entered into a sublease agreement for a portion of this leased space for our main office in New York, New York that commenced on July 26, 2019 and will end on September 29, 2025. There was a free base rental period for the first four and a half months commencing on July 26, 2019. Following the expiration of the free base rental period, the monthly base sublease income is $0.1 million per month until September 29, 2025.
In addition, during October 2017 we entered into a lease for office space in Singapore that expired in January 2019. A lease was signed for a new office space in Singapore effective January 17, 2019 for a three-year term.
Lastly, during July 2018, we entered into a lease for office space in Copenhagen which commenced on July 1, 2018 and ended on April 30, 2019. A lease was signed for a new office space in Copenhagen effective May 1, 2019 for a minimum period ending May 1, 2023.
For a description of our vessels, see “Our Fleet” in Item 1, “Business” in this report. All of the vessels in our current fleet serve as collateral under our credit facilities. Please see “Liquidity and Capital Resources” and “Critical Accounting Policies - Vessels and Depreciation” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” for a further description. The foregoing descriptions are incorporated into this Item 2 by reference.
We consider each of our significant properties to be suitable for its intended use.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any legal proceedings that we believe are likely to have, or have had a significant effect on our business, financial position, results of operations or cash flows, nor are we aware of any proceedings that are pending or threatened which we believe are likely to have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION, HOLDERS AND DIVIDENDS
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “GNK.”
As of February 24, 2021, there were approximately 15 holders of record of our common stock.
Our Board of Directors adopted a quarterly dividend policy following the third quarter of 2019 to pay a dividend of $0.175 per share, and the first quarterly dividend under this policy was announced on November 6, 2019, together with a special dividend of $0.325 per share. In light of market weakness and heightened economic uncertainty as a result of the COVID-19 pandemic, in May 2020, our Board of Directors determined following its quarterly review that it would be prudent to reduce our regular quarterly dividend for each quarter of 2020 to $0.02 per share beginning in the first quarter of 2020 in order to support our balance sheet and liquidity position and better position us for an eventual economic recovery. Our Board expects to reassess the payment of dividends as appropriate from time to time. Our declaration and payment of dividends is subject to a number of conditions and restrictions as described below. Our quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with law and contractual obligations and our Board of Directors’ determination that each declaration and payment is in the best interest of the Company and our shareholders.
For a discussion of restrictions applicable to our payment of dividends, please see “Liquidity and Capital Resources-Dividends” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” below.
PART II

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
For the Years Ended December 31,
Income Statement Data:
(U.S. dollars in thousands except for share and per share amounts)
Revenues:
Voyage revenues
$
355,560
$
389,496
$
367,522
$
209,698
$
133,246
Service revenues
-
-
-
-
2,340
Total revenues
$
355,560
$
389,496
$
367,522
$
209,698
$
135,586
Operating Expenses:
Voyage expenses
156,985
173,043
114,855
25,321
13,227
Vessel operating expenses
87,420
96,209
97,427
98,086
113,636
Charter hire expenses
10,307
16,179
1,534
-
-
General and administrative expenses (inclusive of nonvested stock amortization expense of $2,026, $2,057, $2,231, $4,053 and $20,680, respectively)
21,266
24,516
23,141
22,190
45,174
Technical management fees
6,961
7,567
8,000
7,659
8,932
Depreciation and amortization
65,168
72,824
68,976
71,776
76,330
Other operating income
-
-
-
-
(960)
Impairment of vessel assets
208,935
27,393
56,586
21,993
69,278
Loss (gain) on sale of vessels
1,855
(3,513)
(7,712)
(3,555)
Total operating expenses
558,897
417,899
367,006
239,313
322,062
Operating (loss) income
(203,337)
(28,403)
(29,615)
(186,476)
Other expense
(22,236)
(27,582)
(33,456)
(29,110)
(30,300)
Loss before reorganization items, net
(225,573)
(55,985)
(32,940)
(58,725)
(216,776)
Reorganization items, net
-
-
-
-
(272)
Net loss before income taxes
(225,573)
(55,985)
(32,940)
(58,725)
(217,048)
Income tax expense
-
-
-
-
(709)
Net loss
$
(225,573)
$
(55,985)
$
(32,940)
$
(58,725)
$
(217,757)
Net loss per share - basic (1)
$
(5.38)
$
(1.34)
$
(0.86)
$
(1.71)
$
(30.03)
Net loss per share - diluted (1)
$
(5.38)
$
(1.34)
$
(0.86)
$
(1.71)
$
(30.03)
Weighted average common shares outstanding - Basic (1)
41,907,597
41,762,893
38,382,599
34,242,631
7,251,231
Weighted average common shares outstanding - Diluted (1)
41,907,597
41,762,893
38,382,599
34,242,631
7,251,231
For the Years Ended December 31,
Balance Sheet Data:
(U.S. dollars in thousands, at end of period)
Cash, including restricted cash
$
179,679
$
162,249
$
202,761
$
204,946
$
169,068
Total assets
1,232,809
1,528,892
1,627,470
1,520,959
1,568,960
Total debt (current and long-term, net of deferred financing costs)
439,575
482,730
535,148
515,392
513,020
Total equity
744,994
978,428
1,053,307
975,027
1,029,699
Other Data:
(U.S. dollars in thousands)
Net cash provided by (used in) operating activities
$
36,896
$
59,526
$
65,907
$
24,071
$
(52,307)
Net cash provided by (used in) investing activities (3)
37,439
(22,849)
(195,375)
17,405
25,051
Net cash (used in) provided by financing activities
(56,905)
(77,189)
127,283
(5,598)
55,435
EBITDA (2)
$
(139,020)
$
44,699
$
65,326
$
41,997
(112,469)
(1) On July 7, 2016, we completed a one-for-ten reverse stock split with no change in par value per share. The authorized shares of the common stock were not adjusted. All common share and per share amounts of the Company prior to July 7, 2016 have retroactively adjusted to reflect the reverse stock split.
(2) EBITDA represents net (loss) income plus net interest expense, taxes and depreciation and amortization. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common performance measure to compare results across peers. Our management uses EBITDA as a performance measure in our consolidated internal financial statements, and it is presented for review at our board meetings. We believe that EBITDA is useful to investors as the shipping industry is capital intensive which often results in significant depreciation and cost of financing. EBITDA presents investors with a measure in addition to net income to evaluate our performance prior to these costs. EBITDA is not an item recognized by U.S. GAAP (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 U.S. GAAP. EBITDA is not a measure of liquidity or cash flows as shown in our Consolidated Statements of Cash Flows. The definition of EBITDA used here may not be comparable to that used by other companies. The following table demonstrates our calculation of EBITDA and provides a reconciliation of EBITDA to net loss for each of the periods presented above:
For the Years Ended December 31,
Net loss
$
(225,573)
$
(55,985)
$
(32,940)
$
(58,725)
$
(217,757)
Net interest expense
21,385
27,860
29,290
28,946
28,249
Income tax expense
-
-
-
-
Depreciation and amortization
65,168
72,824
68,976
71,776
76,330
EBITDA (2)
$
(139,020)
$
44,699
$
65,326
$
41,997
$
(112,469)
(3) In the first quarter of 2017, the Company adopted ASU 2016-18, which requires the Company to show the changes in the total cash, cash equivalents and restricted cash in the statement of cash flows. Changes in restricted cash were previously recorded as an investing cash inflow or outflow. The adoption of ASU 2016-18 resulted in a change in net cash provided by (used in) investing activities of $15.9 million during the year ended December 31, 2016.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in Item 8 - Financial Statements and Supplementary Data.
The MD&A generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 27, 2020.
We are a Marshall Islands company that transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes through the ownership and operation of drybulk carrier vessels. After the sale of two of our Supramax vessels, our fleet will consist of 39 drybulk carriers, including 17 Capesize drybulk carriers, nine Ultramax drybulk carriers, and thirteen Supramax drybulk carriers with an aggregate carrying capacity of approximately 4,315,000 deadweight tons (“dwt”). The average age of our current fleet is approximately 10.1 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. The majority of the vessels in our current fleet are presently engaged under time charter and spot market voyage charters that expire (assuming the option periods in the time charters are not exercised) between February 2021 and June 2021.
See pages 3 - 4 for a table of our current fleet.
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. 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 has 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, 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 GDP growth of 3.2%, 4.9% and 6.5% during the second, third and fourth quarters of 2020, respectively. However, 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, have seen meaningful contractions in economic output in the year to date. 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 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, such as coal and various minor bulk cargoes, 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, particularly during the second half of 2020. Drybulk spot freight rates increased off of the year to date lows towards the end of the second quarter and remained firm in the second half of 2020. During the fourth quarter of 2020 and early 2021, there has been a resurgence of the virus in some European countries and the U.S. that may impact the sustainability of this recovery in addition to drybulk specific seasonality described in further detail below.
As our vessels continue to 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 in recent months due to port and travel restrictions globally, as well as promoting the health and safety of both on and off signing crew members.
Onshore, our offices located in New York and Singapore are temporarily closed with our personnel working remotely. Our office in Copenhagen reopened in June 2020 following approximately three months during which our team worked remotely. Regarding our headquarters in New York, we are planning to implement a phased-in approach towards reopening the office; however a return date has not yet been determined. We currently have placed a ban on all non-essential travel.
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 a number of 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 new 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.
In order to comply with regulations mandating a reduction in sulfur emissions from 3.5% to 0.5% as of the beginning of 2020, we entered into agreements to install exhaust gas cleaning systems (“scrubbers”) on our 17 Capesize vessels, sixteen of which installations were completed by December 31, 2019, and the last of which the installation was completed by January 17, 2020. Additionally, we have transitioned to consuming IMO compliant fuels as of January 1, 2020 on our vessels that are not equipped with scrubbers and when our scrubbers may not be used. We will continue to evaluate all options to comply with IMO regulations. Our fuel costs and fuel inventories may increase as a result of these sulfur emission regulations. Low sulfur fuel is more expensive than standard marine fuel containing 3.5% sulfur content and may become more expensive or difficult to obtain as a result of increased demand. If the cost differential between low sulfur fuel and high sulfur fuel is significantly higher than anticipated, or if low sulfur fuel is not available at ports on certain trading routes, it may not be feasible or competitive to operate vessels on certain trading routes without installing scrubbers or without incurring deviation time to obtain compliant fuel. Conversely, if the cost differential between low sulfur fuel and high sulfur fuel is significantly lower than anticipated, or if regulations are passed negatively impacting the use of open-loop scrubbers, we may not realize the economic benefits or recover the cost of the scrubbers we have installed. In addition, a number of countries have imposed restrictions on the discharge of wash water from open loop scrubbers within their port limits. While there are no restrictions on using open loop scrubbers outside of port limits, any changes in these regulations or more stringent standards globally could impact the use of open loop scrubbers going forward.
Vessel Sales and Acquisitions
On December 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 on December 23, 2020, January 28, 2021 and February 20, 2021, respectively. We delivered the Genco Ocean, Baltic Cove and Baltic Fox, all 2010-built Handysize vessels, and the Genco Spirit, Genco Avra and Genco Mare, all 2011-built Handysize vessels, on December 29, 2020, January 30, 2021, February 2, 2021, February 15, 2021, February 21, 2021 and February 24, 2021, respectively.
During 2020, we completed the sale of nine of our vessels, including the Genco Ocean as noted above, and have entered into agreements to sell ten additional vessels, including the remaining five Handysize vessels noted above. Of the additional five vessels we have entered into agreements to sell, excluding the five Handysize vessels noted above, we have completed the sale of three vessels during January and February 2021. Three vessels were classified as held for sale as of December 31, 2020 and the five Handysize vessels were classified as held for exchange as of December 31, 2020. During 2019, we completed the sale of four vessels, one of which was classified as held for sale as of December 31, 2018. We will continue to seek opportunities to renew our fleet going forward.
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 years ended December 31, 2020 and 2019 on a consolidated basis.
For the Years Ended
December 31,
Increase
(Decrease)
% Change
Fleet Data:
Ownership days (1)
Capesize
6,222.0
6,205.0
17.0
0.3
%
Panamax
64.8
736.6
(671.8)
(91.2)
%
Ultramax
2,204.0
2,190.0
14.0
0.6
%
Supramax
7,176.0
7,300.0
(124.0)
(1.7)
%
Handymax
-
-
-
-
%
Handysize
3,290.0
4,590.9
(1,300.9)
(28.3)
%
Total
18,956.8
21,022.5
(2,065.7)
(9.8)
%
Chartered-in days (2)
Capesize
-
227.3
(227.3)
(100.0)
%
Panamax
-
-
-
-
%
Ultramax
557.1
128.5
428.6
333.5
%
Supramax
567.2
658.7
(91.5)
(13.9)
%
Handymax
14.5
17.4
(2.9)
(16.7)
%
Handysize
77.4
293.9
(216.5)
(73.7)
%
Total
1,216.2
1,325.8
(109.6)
(8.3)
%
Available days (owned & chartered-in fleet) (3)
Capesize
6,158.2
5,573.9
584.3
10.5
%
Panamax
64.4
732.0
(667.6)
(91.2)
%
Ultramax
2,657.5
2,299.3
358.2
15.6
%
Supramax
7,443.1
7,547.4
(104.3)
(1.4)
%
Handymax
14.5
17.4
(2.9)
(16.7)
%
Handysize
3,298.2
4,824.9
(1,526.7)
(31.6)
%
Total
19,635.9
20,994.9
(1,359.0)
(6.5)
%
Available days (owned fleet) (4)
Capesize
6,158.2
5,346.6
811.6
15.2
%
Panamax
64.4
732.0
(667.6)
(91.2)
%
Ultramax
2,100.4
2,170.8
(70.4)
(3.2)
%
Supramax
6,875.9
6,888.7
(12.8)
(0.2)
%
Handymax
-
-
-
-
%
Handysize
3,220.8
4,531.0
(1,310.2)
(28.9)
%
Total
18,419.7
19,669.1
(1,249.4)
(6.4)
%
Operating days (5)
Capesize
6,093.0
5,525.4
567.6
10.3
%
Panamax
60.1
697.0
(636.9)
(91.4)
%
Ultramax
2,642.8
2,240.1
402.7
18.0
%
Supramax
7,338.1
7,413.2
(75.1)
(1.0)
%
Handymax
14.5
17.4
(2.9)
(16.7)
%
Handysize
3,055.9
4,695.8
(1,639.9)
(34.9)
%
Total
19,204.4
20,588.9
(1,384.5)
(6.7)
%
For the Years Ended
December 31,
Increase
(Decrease)
% Change
Fleet utilization (6)
Capesize
98.2
%
98.4
%
(0.2)
%
(0.2)
%
Panamax
92.7
%
94.6
%
(1.9)
%
(2.0)
%
Ultramax
99.3
%
97.4
%
1.9
%
2.0
%
Supramax
97.6
%
97.3
%
0.3
%
0.3
%
Handymax
100.0
%
100.0
%
-
%
-
%
Handysize
92.2
%
97.3
%
(5.1)
%
(5.2)
%
Fleet average
97.1
%
97.5
%
(0.4)
%
(0.4)
%
For the Years Ended
December 31,
Increase
(Decrease)
% Change
Average Daily Results:
Time Charter Equivalent (7)
Capesize
$
14,977
$
13,181
$
1,796
13.6
%
Panamax
4,948
10,397
(5,449)
(52.4)
%
Ultramax
10,320
10,994
(674)
(6.1)
%
Supramax
7,957
8,939
(982)
(11.0)
%
Handymax
-
-
-
-
%
Handysize
5,987
8,157
(2,170)
(26.6)
%
Fleet average
10,221
10,182
0.4
%
Major bulk vessels
14,977
13,181
1,797
13.6
%
Minor bulk vessels
7,832
9,063
(1,231)
(13.6)
%
Daily vessel operating expenses (8)
Capesize
$
5,106
$
5,076
$
0.6
%
Panamax
3,290
4,621
(1,331)
(28.8)
%
Ultramax
4,606
4,665
(59)
(1.3)
%
Supramax
4,456
4,474
(18)
(0.4)
%
Handymax
-
-
-
-
%
Handysize
3,994
4,016
(22)
(0.5)
%
Fleet average
4,612
4,576
0.8
%
(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 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 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) Time Charter Equivalent (“TCE”). 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 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 Years Ended
For the Years Ended
For the Years Ended
December 31,
December 31,
December 31,
Voyage revenues (in thousands)
$
355,560
$
389,496
$
164,813
$
151,408
$
190,747
$
238,088
Voyage expenses (in thousands)
156,985
173,043
72,577
75,339
84,408
97,704
Charter hire expenses (in thousands)
10,307
16,179
5,598
10,304
10,581
188,268
200,274
92,233
70,471
96,035
129,803
Total available days for owned fleet
18,420
19,669
6,158
5,347
12,262
14,323
Total TCE rate
$
10,221
$
10,182
$
14,977
$
13,181
$
7,832
$
9,063
(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.
Operating Data
The following tables represent the operating data and certain balance sheet and other data as of and for the years ended December 31, 2020 and 2019 on a consolidated basis.
For the Years Ended December 31,
Change
% Change
Income Statement Data:
(U.S. Dollars in thousands, except for per share amounts)
Revenue:
Voyage revenues
$
355,560
$
389,496
$
(33,936)
(8.7)
%
Total revenues
355,560
389,496
(33,936)
(8.7)
%
Operating Expenses:
Voyage expenses
156,985
173,043
(16,058)
(9.3)
%
Vessel operating expenses
87,420
96,209
(8,789)
(9.1)
%
Charter hire expenses
10,307
16,179
(5,872)
(36.3)
%
General and administrative expenses (inclusive of nonvested stock amortization expense of $2,026 and $2,057, respectively)
21,266
24,516
(3,250)
(13.3)
%
Technical management fees
6,961
7,567
(606)
(8.0)
%
Depreciation and amortization
65,168
72,824
(7,656)
(10.5)
%
Impairment of vessel assets
208,935
27,393
181,542
662.7
%
Loss on sale of vessels
1,855
1,687
1,004.2
%
Total operating expenses
558,897
417,899
140,998
33.7
%
Operating loss
(203,337)
(28,403)
(174,934)
615.9
%
Other expense
(22,236)
(27,582)
5,346
(19.4)
%
Net loss
(225,573)
(55,985)
(169,588)
302.9
%
Net loss per share - basic
$
(5.38)
$
(1.34)
$
(4.04)
301.5
%
Net loss per share - diluted
$
(5.38)
$
(1.34)
$
(4.04)
301.5
%
Weighted average common shares outstanding - basic
41,907,597
41,762,893
144,704
0.3
%
Weighted average common shares outstanding - diluted
41,907,597
41,762,893
144,704
0.3
%
For the Years Ended December 31,
Change
% Change
Balance Sheet Data:
(U.S. Dollars in thousands, at end of period)
Cash, including restricted cash
$
179,679
$
162,249
$
17,430
10.7
%
Total assets
1,232,809
1,528,892
(296,083)
(19.4)
%
Total debt (current and long-term, net of deferred financing fees)
439,575
482,730
(43,155)
(8.9)
%
Total equity
744,994
978,428
(233,434)
(23.9)
%
Other Data:
(U.S. Dollars in thousands)
Net cash provided by operating activities
$
36,896
$
59,526
$
(22,630)
(38.0)
%
Net cash provided by (used in) investing activities
37,439
(22,849)
60,288
(263.9)
%
Net cash used in financing activities
(56,905)
(77,189)
20,284
(26.3)
%
EBITDA (1)
$
(139,020)
$
44,699
$
(183,719)
(411.0)
%
(1) EBITDA represents net loss plus net interest expense, taxes and depreciation and amortization. Refer to page 40 included in Item 6 where the use of EBITDA is discussed and for a table demonstrating our calculation of EBITDA that provides a reconciliation of EBITDA to net (loss) income attributable to Genco Shipping & Trading for each of the periods presented above.
Results of Operations
VOYAGE REVENUES-
Our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels operate, the type of fixture our vessels are chartered on (spot market voyage charters or fixed rate time charters), and the amount of daily charterhire or freight rates that our vessels earn, that, in turn, are affected by a number of factors, including:
● the duration of our charters;
● our decisions relating to vessel acquisitions and disposals;
● the amount of time that we spend positioning our vessels;
● the amount of time that our vessels spend in drydock undergoing repairs;
● maintenance and upgrade work;
● the age, condition and specifications of our vessels;
● levels of supply and demand in the drybulk shipping industry; and
● other factors affecting spot market charter rates for drybulk carriers.
During 2020, voyage revenues decreased by $33.9 million, or 8.7%, to $355.6 million as compared to $389.5 million during 2019. The decrease in voyage revenues was primarily due to the operation of fewer vessels in our fleet. During the first half of 2020, drybulk seasonal factors such as the timing of newbuilding deliveries, the Lunar New Year holiday celebration in China and weather-related cargo disruptions impacted the drybulk freight rate environment. These factors were further accentuated by the onset of COVID-19 and subsequent reactions to prevent its spread taken by various countries essential to drybulk trade flows. In mid-2020, a gradual reopening of economies contributed to increased trade flows and a firm freight rate environment during the second half of 2020 as compared to the first half of the year. During the second half of 2020, the economic recovery in China resulted in record volumes of seaborne iron ore imports to fuel all-time high steel production and replenish low inventory levels. This demand was aided by improved Brazilian iron ore exports, which has been constrained earlier in the year due to poor weather conditions and operational challenges from the Brumadinho dam collapse in January 2019.
The average Time Charter Equivalent (“TCE”) rate of our overall fleet increased marginally by 0.4% to $10,221 a day during 2020 from $10,182 a day during 2019. The TCE for our major bulk vessels increased by 13.6% from $13,181 a day during 2019 to $14,977 a day during 2020. This increase was primarily a result of additional drydocking days during 2019 as a result of the installation of scrubbers on our Capesize vessels. The TCE for our minor bulk vessels decreased by 13.6% from $9,063 a day during 2019 to $7,832 a day during 2020 primarily a result of lower rates achieved by our Panamax and Handysize vessels, as well as offhire days associated with COVID-19 delays during 2020 and delays in the completion of the sale of the Baltic Breeze and Genco Bay during the third quarter of 2020.
The overall uncertainty surrounding the impact of COVID-19 on our business, together with reduced economic activity and in turn trade flows, could continue to negatively impact the revenue generated by our vessels. While we believe that the gradual reopening of economies affected by COVID-19 has begun to lead 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 and the timing of wide-scale vaccine distribution. Furthermore, deviation time associated with positioning our 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 2020 in which our vessels were unable to earn revenue and may continue to do so.
For 2020 and 2019, we had ownership days of 18,956.8 days and 21,022.5 days, respectively. The decrease in ownership days is primarily due to the sale of four vessels during 2019 and nine vessels during 2020 partially offset by the delivery of one vessel during 2020. Fleet utilization decreased marginally from 97.5% during 2019 to 97.1% during 2020.
Please see pages 6 - 7 for a table that sets forth information about the current employment of the vessels in our fleet.
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 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 third and fourth quarter of 2020. 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.
As a result of installing scrubbers on all of our 17 Capesize vessels, which accounted for approximately 50% of our fleet’s fuel consumption in 2020, we realized significant fuel cost savings during 2020. The amount of savings we realize, and the amount of time in which we would recover our investment in scrubbers, depends on the spread between high sulfur and low sulfur fuel. The spread between these two fuel types is currently approximately $130 per metric ton, and was as high as $361 per metric ton and as low as $47 per metric ton during 2020.
Voyage expenses were $157.0 million and $173.0 million during 2020 and 2019, respectively. This decrease was primarily due to the operation of fewer vessels during 2020, as well as a decrease in bunker consumption.
VESSEL OPERATING EXPENSES-
Vessel operating expenses decreased by $8.8 million from $96.2 million during 2019 to $87.4 million during 2020. This decrease was primarily due to fewer owned vessels during 2020 as compared to 2019.
Average daily vessel operating expenses for our fleet increased marginally by $36 per day from $4,576 per day during 2019 as compared to $4,612 in 2020. The increase in daily vessel operating expenses was predominantly due to higher crew related expenses, partially offset by lower drydocking 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 year ended December 31, 2020 were $22 above the weighted-average budgeted rate of $4,590 per vessel per day.
Restrictions on crew rotations led to a temporary decline in crewing related expenses of approximately $1 million during the first half of 2020. However, such costs began to increase in June 2020, reaching their highest level during the third quarter of 2020. Although we have completed a significant number of crew rotations, we still expect higher costs related to crew rotations surrounding COVID-19 restrictions. 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, since June 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 some additional costs related to crew bonuses to retain the existing crew members on board since June 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.
Based on our management’s estimates and budgets provided by our technical manager for our fleet, we expect our vessels to have average daily vessel operating expenses during 2021 of:
Average Daily
Vessel Type
Budgeted Amount
Capesize
$
5,390
Ultramax
4,825
Supramax
4,620
Based on these average daily budgeted amounts by vessel type, we expect our fleet to have average daily vessel operating expenses of $5,000 during 2021, reflecting our exit from the smaller, Handysize vessels and the greater weighting of our fleet towards Capesize vessels as well as an anticipated increase in COVID-19 related expenses, as well as higher crew costs and stores. The potential impacts of COVID-19 are beyond our control and are difficult to predict due to uncertainties surrounding the pandemic.
CHARTER HIRE EXPENSES-
Charter hire expenses decreased by $5.9 million from $16.2 million during 2019 to $10.3 million during 2020. The decrease was primarily due to fewer chartered-in days, as well as the chartering in of smaller class vessels during 2020 as compared to 2019.
GENERAL AND ADMINISTRATIVE EXPENSES-
We incur general and administrative expenses which relate to our onshore non-vessel-related activities. Our general and administrative expenses include our payroll expenses, including those relating to our executive officers, rent, 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 16 - Stock-Based Compensation in our 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 incurred additional general and administrative expenses during 2019 as a result of our global expansion to Singapore and Copenhagen and have incurred additional expenses related to these overseas offices during 2020.
General and administrative expenses decreased by $3.3 million from $24.5 million during 2019 to $21.3 million during 2020. The decrease was primarily due to lower office rent and administrative expenses, as well as lower travel expenses and legal and professional fees.
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 supplies.
For the years ended December 31, 2020 and 2019, technical management fees were $7.0 million and $7.6 million, respectively. The decrease was a result of fewer owned vessels during 2020 as compared to 2019.
DEPRECIATION AND AMORTIZATION-
We depreciate the cost of our vessels on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 25 years and we estimate the residual value by taking the estimated scrap value of $310 per lightweight ton multiplied by the weight of the ship in lightweight tons.
Depreciation and amortization expenses decreased by $7.7 million from $72.8 million during 2019 to $65.2 million during 2020. This decrease was primarily due to a decrease in depreciation for the twelve vessels that were sold during the fourth quarter of 2019 and 2020, 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 related to scrubber additions for our Capesize vessels.
IMPAIRMENT OF VESSEL ASSETS-
During 2020 and 2019, we recorded $208.9 million and $27.4 million of impairment of vessel assets, respectively. During 2020, we recorded impairment losses for 20 of our Supramax vessels and ten of our Handysize vessels. During 2019, we recorded impairment losses for three of our Handysize vessels and two of our Panamax vessels.
Refer to Note 2 - Summary of Significant Accounting Policies in our Consolidated Financial Statements for further information.
LOSS ON SALE OF VESSELS-
During 2020, we recorded a $1.9 million net loss on sale of vessels related primarily to the sale of the Genco Charger, Genco Thunder, Baltic Wind, Baltic Breeze, Genco Bay, Baltic Jaguar, Genco Loire, Genco Normandy and Genco Ocean. During 2019, we recorded a $0.2 million net loss on sale of vessels related primarily to the sale of the Genco Challenger, Genco Champion and Genco Raptor, which was largely offset by a net gain related to the sale of the Genco Vigour.
OTHER (EXPENSE) INCOME-
NET INTEREST EXPENSE-
Net interest expense decreased by $6.5 million to $21.4 million during 2020 as compared to $27.9 million during 2019. Net interest expense during the years ended December 31, 2020 and 2019 consisted of interest expense under our credit facilities and amortization of deferred financing costs for those facilities. The decrease is primarily due to a $9.5 million decrease in interest expense as a result of lower interest rates, as well as lower outstanding debt. This was offset by a $3.1 million decrease in interest income due to a decrease in interest earned on our time deposits and cash accounts. Refer to Note 7 - Debt in the Consolidated Financial Statements for information regarding our credit facilities.
IMPAIRMENT OF RIGHT-OF-USE ASSET -
During 2019, we recognized $0.2 million of impairment charges on our operating lease right-of-use asset in accordance with ASC 360. Refer to Note 13 - Leases in our Consolidated Financial Statements for further information.
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 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 $143.9 million as of December 31, 2020, which compares to a minimum liquidity requirement under our credit facilities of approximately $34 million as of the date of this report. Given quarterly amortization payments of $20.2 million which began on December 31, 2020 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.
Our credit facilities contain 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. Outstanding borrowings under our revolving credit facility, which total $21.2 million as of December 31, 2020, make it more difficult to satisfy the collateral maintenance requirement under our $133 Million Credit Facility. 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.
We entered into the $495 Million Credit Facility on May 31, 2018, which was initially used to refinance our prior credit facilities: the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities on June 5, 2018 and originally allowed borrowings of up to $460 million. On February 28, 2019, we entered into an amendment to the $495 Million 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. On June 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. On December 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 on August 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. On June 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. Refer to Note 7 - Debt in our Consolidated Financial Statements.
As of December 31, 2020, we were in compliance with all financial covenants under the $495 Million Credit facility and the $133 Million Credit Facility.
Dividends
Our Board of Directors adopted a quarterly dividend policy following the third quarter of 2019 to pay a dividend of $0.175 per share. In light of market weakness and heightened economic uncertainty as a result of the COVID-19 pandemic, in May 2020, our Board of Directors determined following its quarterly review that it would be prudent to reduce our regular quarterly dividend beginning in the first quarter of 2020 to $0.02 per share in order to support our balance sheet and liquidity position and better position us for an eventual economic recovery. Furthermore, our Board of Directors determined to maintain this dividend level for the fourth quarter of 2020, as we announced a quarterly dividend of $0.02 per share on February 24, 2021. Our Board expects to reassess the payment of dividends as appropriate from time to time. Our declaration and payment of dividends is subject to a number of conditions and restrictions as described below.
On November 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 of December 31, 2020, we had unrestricted cash and cash equivalents of $143.9 million. We have commitments for amortization payments expected to be $20.2 million which began on December 31, 2020 under our credit facilities. 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, 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.
U.S. Federal Income Tax Treatment of Dividends
U.S. Holders
For purposes of this discussion, the term "U.S. Holder" means a beneficial owner of our common stock that is, for U.S. federal income tax purposes, (i) an individual U.S. citizen or resident, (ii) a corporation that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia, or any other U.S. entity taxable as a corporation, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if either (x) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.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 a U.S. person. If a partnership, or an entity treated for U.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 a U.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 above, any distributions made by us to a U.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 under U.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 the U.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 a U.S. Holder who is an individual, trust or estate, or a "non-corporate U.S. Holder," will generally be treated as "qualified dividend income" that is taxable to such non-corporate U.S. Holder at preferential tax rates, provided that (1) our common shares are readily tradable on an established securities market in the 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-corporate U.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-corporate U.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. A non-corporate U.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-corporate U.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 the U.S. However, if (a) we are 50% or more owned, by vote or value, by U.S. Holders and (b) at least 10% of our earnings and profits are attributable to sources within the U.S., then for foreign tax credit purposes, a portion of our dividends would be treated as derived from sources within the U.S. With respect to any dividend paid for any taxable year, the U.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 the U.S. for such taxable year divided by the total amount of our earnings and profits for such taxable year. The rules related to U.S. foreign tax credits are complex and U.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-corporate U.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.
Tax Consequences if We Are a Passive Foreign Investment Company
As discussed in “U.S. tax authorities could treat us as a ‘passive foreign investment company,’ which could have adverse U.S. federal income tax consequences to U.S. shareholders” in Item 1.A Risk Factors above, a foreign corporation generally will be treated as a PFIC for U.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 the IRS or a court of law will accept our position, and there is a risk that the IRS 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 a U.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 a U.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 a U.S. Holder in respect of the common shares during the preceding three taxable years, or if shorter, during the U.S. Holder’s holding period prior to the taxable year of the distribution. The distributions that are excess distributions would be allocated ratably over the U.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 the U.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, a U.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. The U.S. federal income tax consequences to a U.S. Holder if we were to be classified as a PFIC are complex. A U.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 to U.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 in the 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 the U.S.). Effectively connected income (or, if an income tax treaty applies, income attributable to a permanent establishment maintained in the U.S.) generally will be subject to regular U.S. federal income tax in the same manner discussed above relating to taxation of U.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 than the United States on dividends received from us on our common shares.
Dividends paid on our common shares to a non-corporate U.S. Holder may be subject to U.S. federal backup withholding tax if the non-corporate U.S. Holder:
● fails to provide us with an accurate taxpayer identification number;
● is notified by the IRS that they have become subject to backup withholding because they previously failed to report all interest or dividends required to be shown on their federal income tax returns; or
● fails to comply with applicable certification requirements.
A holder that is not a U.S. Holder or a partnership may be subject to U.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 the IRS.
You are encouraged to consult your own tax advisor concerning the overall tax consequences arising in your own particular situation under U.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 years ended December 31, 2020 and 2019 was $36.9 million and $59.5 million, respectively. This decrease in cash provided by operating activities was primarily due to changes in working capital, offset by a decrease in drydocking related expenditures.
Net cash provided by investing activities during the year ended December 31, 2020 was $37.4 million as compared to $22.8 million net cash used in investing activities during the year ended December 31, 2019. This fluctuation was primarily due to an increase in net proceeds from the sale of vessels in 2020 as compared to 2019, as well as a decrease in scrubber and ballast water treatment system related expenditures.
Net cash used in financing activities during the years ended December 31, 2020 and 2019 was $56.9 million and $77.2 million, respectively. The decrease was primarily due to the $24.0 million drawdown on the $133 Million Credit Facility during 2020 and an $11.0 million decrease in the payment of dividends during 2020 as compared to 2019. These decreases were partially offset by a $10.3 million decrease in drawdowns under the $495 Million Credit Facility, as well as a $2.8 million and a $1.9 million increase in repayments under the $133 Million Credit Facility and $495 Million Credit Facility, respectively, during 2020 as compared to 2019.
Credit Facilities
We entered into the $133 Million Credit Facility on August 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. On June 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 on May 31, 2018, which was initially used to refinance our prior credit facilities. On February 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. On June 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. On December 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.
Refer to Note 7 - Debt in our Consolidated Financial Statements for information regarding our current credit facilities, including the underlying financial and non-financial covenants.
Interest Rate Swap Agreements, Forward Freight Agreements and Currency Swap Agreements
As of December 31, 2020 and 2019, we did not have any interest rate swap agreements. 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 creditworthiness of both the counterparty and ourselves, which in the past, have resulted in an immaterial adjustment. 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 of December 31, 2020 and 2019.
Interest Rates
The effective interest rate for the years ended December 31, 2020, 2019 and 2018 include interest rates associated with the interest expense for our various credit facilities including the following: the $133 Million Credit Facility; the $495 Million Credit Facility; the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities (until these facilities were refinanced with the $495 Million Credit Facility on June 5, 2018).
The effective interest rate for the aforementioned credit facilities, including the cost associated with unused commitment fees, if applicable, was 3.71%, 5.31% and 5.71% during 2020, 2019 and 2018, respectively. The interest rate on the debt, excluding unused commitment fees, ranged from 2.65% to 3.50%; 4.05% to 5.76% and 3.83% to 8.43% during 2020, 2019 and 2018, respectively.
Contractual Obligations
The following table sets forth our contractual obligations and their scheduled maturity dates as of December 31, 2020. The table incorporates the employment agreement entered into in September 2007 with our Chief Executive Officer and President, John C. Wobensmith, as amended. The interest and borrowing fees and scheduled credit agreement payments below reflect the $495 Million Credit Facility and the $133 Million Credit Facility, as well as other fees associated with the facilities. The following table also incorporates the future lease payments associated with our office leases. Refer to Note 13 - Leases in our Consolidated Financial Statements for further information regarding the terms of our lease agreements. Lastly, the table incorporates the remaining contractual purchase obligations for the purchase of ballast water treatment systems for 11 of our vessels, refer to “Capital Expenditures” below for further
information. All of our time charter-in agreements with third parties are less than twelve months and have not been included below.
Less Than
One to
Three to
One
Three
Five
More than
Total
Year (1)
Years
Years
Five Years
(U.S. dollars in thousands)
Credit Agreements
$
449,228
$
80,642
$
368,586
$
-
$
-
Interest and borrowing fees
28,617
13,521
15,096
-
-
Ballast water treatment system obligations
5,336
3,780
1,556
-
-
Executive employment agreement
-
-
-
Office leases
11,130
2,230
4,608
4,292
-
Totals
$
494,778
$
100,640
$
389,846
$
4,292
$
-
Interest expense has been estimated using 0.13% based on one-month LIBOR plus the applicable margin of 3.25% for the $460 million tranche of the $495 Million Credit Facility; 2.50% for the $35 million tranche of the $495 Million Credit Facility; 2.50% for the $108 million tranche of the $133 Million Credit Facility; and 3.00% for the $25 million tranche of the $133 Million Credit Facility.
Capital Expenditures
We make capital expenditures from time to time in connection with our vessel acquisitions. After the sale of two Supramax vessels, our fleet will consist of 39 drybulk vessels, including 17 Capesize drybulk carriers, nine Ultramax drybulk carriers and thirteen Supramax drybulk carriers.
As previously announced, we have initiated 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. The upgrades have been successfully installed on 22 of our vessels in the aggregate during previous drydockings.
Under U.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 after January 1, 2016 if these vessels are to discharge ballast water inside 12 nautical miles of the coast of the U.S. U.S. authorities did not approve ballast water treatment systems until December 2016. Therefore, the U.S. Coast Guard (“USCG”) has granted us extensions for our vessels with 2016 drydocking deadlines until January 1, 2018; however, an alternative management system (“AMS”) may be installed in lieu. For example, in February 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’ 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, $0.6 million for Supramax
and $0.5 million for Handysize 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 2020 and 2019, we completed the installation of BWTS on nine and 17 of our vessels, respectively. Eight of these vessels have since been sold. We anticipate that we will complete the installation of BWTS on five 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. For vessels on which we did not install scrubbers, we incurred additional costs during 2019 in order to transition these vessels from high sulfur fuel to compliant low sulfur fuel.
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. Through December 31, 2020, we have paid $42.7 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.
We estimate our drydocking costs, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, BWTS costs and scheduled off-hire days for our fleet through 2022 to be:
Year
Estimated Drydocking
Cost (1)
Estimated BWTS
Cost (2)
Estimated Off-hire
Days (3)
(U.S. dollars in millions)
$
7.7
$
4.0
$
7.5
$
4.0
The costs reflected are estimates based on drydocking our vessels in China. Actual costs will vary based on various factors, including where the drydockings are actually performed. We expect to fund these costs with cash 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 expenses 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 2020 and 2019, we incurred a total of $8.6 million and $14.6 million of drydocking costs, respectively, excluding costs incurred during drydocking that were capitalized to vessel assets or vessel equipment.
Fourteen vessels completed their respective drydockings during 2020, which included one vessel that began its drydocking during the fourth quarter of 2019. We estimate that eight of our vessels will be drydocked during 2021 and seven of our vessels will be drydocked during 2022.
As of January 17, 2020, we have completed the installation of scrubbers on our 17 Capesize vessels.
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 is 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
The discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies, because they generally involve a comparatively higher degree of judgment in their application. For an additional description of our significant accounting policies, see Note 2 to our Consolidated Financial Statements included in this 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. Under U.S. GAAP, we would not record a loss if the fair market value of a vessel (excluding its charter) is below our carrying value unless and until we determine to sell that vessel or the vessel is impaired as discussed below under the heading “Impairment of long-lived assets.”
During the years ended December 31, 2020, 2019 and 2018, we recorded losses of $208.9 million, $27.4 million and $56.6 million related to the impairment of our vessel assets. During the year ended December 31, 2020, we recorded impairment for 20 of our Supramax vessels (the Genco Loire, the Genco Lorraine, the Genco Normandy, the Genco Picardy, the Genco Predator, the Genco Provence, the Genco Warrior, the Baltic Cougar, the Baltic Jaguar, the Baltic Leopard, the Baltic Panther, 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 ten of our Handysize vessels (the Genco Avra, the Genco Bay, the Genco Mare, the Genco Ocean, the Genco Spirit, the Baltic Breeze, the Baltic Cove, the Baltic Fox, the Baltic Hare and the Baltic Wind). During the year ended
December 31, 2019, we recorded impairment for two of our Panamax vessels (the Genco Raptor and Genco Thunder) and three of our Handysize vessels (the Genco Challenger, the Genco Champion and the Genco Charger). During the year ended December 31, 2018, we recorded impairment for one of our Panamax vessels (the Genco Surprise), one of our Handymax vessels (the Genco Muse), and eight of our Supramax vessels (the Genco Cavalier, the Genco Loire, the Genco Lorraine, the Genco Normandy, the Baltic Cougar, the Baltic Jaguar, the Baltic Leopard and the Baltic Panther). Refer to Note 2 - Summary of Significant Accounting Policies in our Consolidated Financial Statements for further information regarding the impairment recorded during the years ended December 31, 2020, 2019 and 2018.
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 bank credit facilities. Such a valuation is not necessarily the same as the amount any vessel may bring upon sale, which may be more or less, and should not be relied upon as such. We were in compliance with the collateral maintenance covenant under our $495 Million Credit Facility and $133 Million Credit Facility as of December 31, 2020. Refer to Note 7 - Debt in our Consolidated Financial Statements for additional information. 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 as of December 31, 2020 and 2019. Vessels have been grouped according to their collateralized status as of December 31, 2020 and does not include any vessels held for sale or held for exchange. The carrying value of 15 Supramax vessels as noted above reflect the impairment loss recorded during 2020 for these vessels (the Genco Lorraine, the Genco Picardy, the Genco Predator, the Genco Provence, the Genco Warrior, the Baltic Leopard, 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). The carrying value of the Genco Charger as of December 31, 2019 reflects the impairment loss recorded during 2019 for this vessel.
As of December 31, 2020, 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 as of December 31, 2020, with the exception of nine of the Supramax vessels that were impaired as of December 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 on December 23, 2020. As of December 31, 2019, 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 as of December 31, 2019, with the exception of the Genco Charger, which was impaired during the year ended December 31, 2019.
The amount by which the carrying value as of December 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 basis, from $0 million to $18.3 million per vessel, and $260.8 million on an aggregate fleet basis. The amount by which the carrying value as of December 31, 2019 of all of the vessels in our fleet, with the exception of the Genco Charger, exceeded the valuation of such vessels for covenant compliance purposes ranged, on an individual basis, from $1.6 million to $18.1 million per vessel, and $418.1 million on an aggregate fleet basis. The average amount by which the carrying value of these vessels exceeded the valuation of such vessels for covenant compliance purposes was $9.0 million and $7.9 million as of December 31, 2020 and 2019, respectively. 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
December 31,
December 31,
Vessels
Year Built
Acquired
$495 Million Credit Facility
Genco Commodus
$
37,356
$
39,472
Genco Maximus
37,355
39,498
Genco Claudius
39,091
41,314
Baltic Bear
38,813
40,967
Baltic Wolf
39,050
41,163
Baltic Lion
30,811
32,199
Genco Tiger
29,020
30,115
Baltic Scorpion
24,520
25,583
Baltic Mantis
24,768
25,835
Genco Hunter
8,250
17,121
Genco Warrior
7,422
15,053
Genco Aquitaine
9,000
17,046
Genco Ardennes
9,000
17,080
Genco Auvergne
9,000
17,094
Genco Bourgogne
9,750
17,802
Genco Brittany
9,750
17,829
Genco Languedoc
9,750
17,609
Genco Loire
-
10,777
Genco Lorraine
7,751
10,748
Genco Normandy
-
8,717
Baltic Leopard
7,840
10,773
Baltic Jaguar
-
10,782
Baltic Panther
-
10,784
Baltic Cougar
-
10,791
Genco Picardy
7,890
14,669
Genco Provence
6,930
14,164
Genco Pyrenees
9,750
17,528
Genco Rhone
10,625
18,610
Genco Bay
-
16,411
Genco Ocean
-
16,562
Genco Avra
-
17,505
Genco Mare
-
17,546
Genco Spirit
-
17,614
Baltic Wind
-
15,996
Baltic Cove
-
16,490
Baltic Breeze
-
16,603
Baltic Fox
-
15,995
Baltic Hare
-
15,395
Genco Constantine
34,179
36,450
Genco Augustus
32,049
34,330
Genco London
31,587
33,600
Genco Titus
32,306
33,590
Genco Tiberius
32,007
34,276
Genco Hadrian
34,633
36,638
Genco Predator
7,816
14,846
Genco Charger
-
5,099
Baltic Hornet
23,055
24,086
Baltic Wasp
23,308
24,340
Carrying Value (U.S.
dollars in
thousands) as of
Year
December 31,
December 31,
Vessels
Year Built
Acquired
Genco Magic
14,683
-
TOTAL
$
689,115
$
1,034,495
$133 Million Credit Facility
Genco Endeavour
44,069
45,947
Genco Resolute
44,320
46,093
Genco Columbia
25,553
26,627
Genco Weatherly
20,740
21,676
Genco Liberty
47,676
49,506
Genco Defender
47,641
49,517
$
229,999
$
239,366
Consolidated Total
$
919,114
$
1,273,861
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, net of commission, 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 Consolidated Financial Statements for information regarding the sale of vessel assets and the classification of vessel assets held for sale and exchange as of December 31, 2020 and 2019.
Deferred drydocking costs
Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. We defer the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Deferred drydocking costs include actual costs incurred at the drydock yard; cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee the drydocking. We believe that these criteria are consistent with U.S. GAAP guidelines and industry practice and that our policy of deferral reflects the economics and market values of the vessels. Costs that are not related to drydocking, including routine maintenance and repairs, are expensed as incurred. If the vessel is drydocked earlier than originally anticipated, any remaining deferred drydock costs that have not been amortized are expensed at the end of the next drydock.
Impairment of long-lived assets
We follow the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) subtopic 360-10, “Property, Plant and Equipment” (“ASC 360-10”) which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. If indicators of impairment are present, we perform an analysis of the anticipated undiscounted future net cash flows to be derived from the related long-lived assets.
Weaker supply and demand fundamentals experienced in recent years have negatively impacted the drybulk industry. General market volatility has endured as a result of uncertainty about the growth rate of the world economy and the Chinese economy in particular, on which the drybulk industry depends to a significant degree. Additional unforeseen events such as the COVID-19 pandemic and the dam breach that occurred in Brazil at a mine operated by Vale during 2019 have also negatively impacted the market. As a result of these factors and the increased supply of drybulk vessels, freight rates and charter rates have remained volatile in recent years.
When indicators of impairment are present and our estimate of future undiscounted cash flows for any vessel is lower than the vessel’s carrying value, the carrying value is written down, by recording a charge to operations, to the vessel’s fair market value if the fair market value is lower than the vessel’s carrying value.
We determined that as of December 31, 2020, the future income streams expected to be earned by such vessels over their remaining operating lives and upon disposal on an undiscounted basis would be sufficient to recover their carrying values. After the impairment of nine of our Supramax vessels as of December 31, 2020 resulting in $67.2 million of impairment during 2020, our estimated future undiscounted cash flows exceeded each of our vessels’ carrying values by a margin of approximately 22% - 115% of the carrying value. Our vessels remain fully utilized and have a relatively long average remaining useful life of approximately 15 years in which to recover sufficient cash flows on an undiscounted basis to recover their carrying values as of December 31, 2020. Management will continue to monitor developments in charter rates in the markets in which it participates with respect to the expectation of future rates over an extended period of time that are utilized in the analyses.
In developing estimates of future undiscounted cash flows, we make assumptions and estimates about the vessels’ future performance, with the significant assumptions being related to charter rates, fleet utilization, vessels’ operating expenses, vessels’ capital expenditures and drydocking requirements, vessels’ residual value and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends. Specifically, we utilize the rates currently in effect for the duration of their current time charters or spot market voyage charters, without assuming additional profit sharing. For periods of time where our vessels are not fixed on time charters or spot market voyage charters, we utilize an estimated daily time charter equivalent for our vessels’ unfixed days based on the most recent ten year historical one-year time charter average. 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. Further, 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. Older vessels are inherently more susceptible to impairment from weakness in the charter rate environment as their shorter remaining useful lives provide for less of an opportunity for them to benefit from potentially stronger rates in the future. It is reasonably possible that the estimate of undiscounted cash flows may change in the near term due to changes in current rates which adversely affect the average rates being utilized and could result in impairment of certain of our older vessels. Actual equivalent drybulk shipping rates are currently lower than the estimated rates. We believe current rates have been driven by seasonal issues, as well as a number of factors that have affected demand growth and overall sentiment in the drybulk market as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Voyage Revenues.”
Of the inputs that the Company uses for its impairment analysis, future charter rates are the most significant and most volatile. Based on the sensitivity analysis performed by the Company, the Company would record impairment on its vessels for time charter declines from their most recent ten-year historical one-year time charter averages as follows (this table excludes any vessels held for sale or vessels held for exchange as of December 31, 2020):
Percentage Decline from Ten-Year
Historical One-Year Time Charter
Average at Which Point Impairment
Would be Recorded
As of
As of
December 31,
December 31,
Vessel Class
Capesize
(23.0)
%
(9.1)
%
Ultramax (1)
(12.3)
%
(18.8)
%
Supramax (2)
(14.2)
%
(3.8)
%
Handysize
-
%
(6.2)
%
(1) We excluded the Genco Magic from this sensitivity analysis as the vessel was recently acquired on December 23, 2020.
(2) We excluded 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 from this sensitivity analysis as these vessels were impaired during the fourth quarter of 2020.
For our impairment analysis, we utilize the ten-year historical one-year time charter average, as well as considering the current rate environment, to project future charter rates, which we believe appropriately takes into account the volatility and highs and lows of the shipping cycle.
Our time charter equivalent (TCE) rates for our fiscal years ended December 31, 2020 and 2019, respectively, were above or (below) the ten-year historical one-year time charter average as of such dates as follows:
TCE Rates as Compared with Ten-
Year Historical One-Year Time
Charter Average
(as percentage above/(below))
As of
As of
December 31,
December 31,
Vessel Class
Capesize
2.1
%
(19.8)
%
Panamax
-
%
(9.2)
%
Ultramax
(6.1)
%
(9.7)
%
Supramax
(19.3)
%
(18.2)
%
Handysize
-
%
(6.4)
%
The projected net operating cash flows are determined by considering the future voyage revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days over the estimated remaining life of the vessel, assumed to be 25 years from the delivery of the vessel from the shipyard, reduced by brokerage and address commissions, expected outflows for vessels’ maintenance and vessel operating expenses (including planned drydocking and special survey expenditures) and required capital expenditures adjusted annually for inflation, assuming fleet utilization of 98%. The salvage value used in the impairment test is estimated to be $310 per light weight ton, consistent with our vessels’ depreciation policy discussed above.
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether they will improve by any significant degree. Charter rates may remain at depressed levels for a prolonged period of time, which could adversely affect our revenue and profitability, and future assessments of vessel impairment.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on our earnings and cash flow in relation to our borrowings. As of December 31, 2020 and 2019, we did not have any interest rate swap agreements to manage interest costs and the risks associated with changing interest rates.
We are subject to market risks relating to changes in LIBOR rates because we have significant amounts of floating rate debt outstanding. During the years ended December 31, 2020, 2019 and 2018, we were subject to the following interest rates on the outstanding debt under our credit facilities (refer to Note 7 - Debt in our Consolidated Financial Statements for effective dates and termination dates for our credit facilities outlined below):
● $133 Million Credit Facility -
● $108 Million Tranche - one-month LIBOR plus 2.50% effective August 17, 2018 when the initial draw down on this facility was made.
● $25 Million Tranche - one-month LIBOR plus 3.0% effective June 15, 2020 when the initial draw down on this facility was made.
● $495 Million Credit Facility -
● $460 Million Tranche - one-month LIBOR plus 3.25% effective June 5, 2018, when the initial $460 million draw down on this tranche of this facility was made. The applicable margin was reduced to 3.00% from March 5, 2019 to August 9, 2019 pursuant to the terms of the facility.
● $35 Million Tranche - one-month LIBOR plus 2.50% effective August 28, 2019 when the initial draw down on this tranche of this facility was made.
● $400 Million Credit Facility - three-month LIBOR plus 3.75% until June 5, 2018, when this credit facility was refinanced with the $495 Million Credit Facility
● $98 Million Credit Facility - three-month LIBOR plus 6.125% until June 5, 2018, when this credit facility was refinanced with the $495 Million Credit Facility
● 2014 Term Loan Facilities - three-month or six-month LIBOR plus 2.50% until June 5, 2018, when this credit facility was refinanced with the $495 Million Credit Facility
A 1% increase in LIBOR would result in an increase of $5.0 million in interest expense for the year ended December 31, 2020.
From time to time, the Company may consider derivative financial instruments such as swaps and caps or other means to protect itself against interest rate fluctuations.
Derivative financial instruments
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. As of December 31, 2020 and 2019, we did not have any derivative financial instruments.
Refer to the “Interest rate risk” section above for further information regarding interest rate swap agreements.
Currency and exchange rate risk
The international shipping industry’s functional currency is the U.S. Dollar. Virtually all of our revenues and most of our operating costs are in U.S. Dollars. We incur certain operating expenses in currencies other than the U.S. Dollar, and the foreign exchange risk associated with these operating expenses is immaterial.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Genco Shipping & Trading Limited
Consolidated Financial Statements
Index to Consolidated Financial Statements
Page
a)
Report of Independent Registered Public Accounting Firm
b)
Consolidated Balance Sheets as of December 31, 2020 and 2019
c)
Consolidated Statements of Operations
d)
Consolidated Statements of Comprehensive Loss
e)
Consolidated Statements of Equity
f)
Consolidated Statements of Cash Flows
g)
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Genco Shipping & Trading Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Genco Shipping & Trading Limited and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Vessel Assets - Future Charter Rates - Refer to Note 2 of the consolidated financial statements
Critical Audit Matter Description
The Company’s evaluation of vessel assets for impairment involves an initial assessment of each vessel asset to determine whether events or changes in circumstances exist that may indicate that the carrying amount of the vessel asset may no longer be recoverable.
If indicators of impairment exist for a vessel asset, the Company determines the recoverable amount by estimating the undiscounted future cash flows associated with the vessel. If the Company’s estimate of undiscounted future cash flows for any vessel asset for which indicators of impairment exist is lower than the vessel asset’s carrying value, and the vessel’s carrying value is greater than its fair market value, the carrying value is written down, by recording a charge to operations, to the vessel asset’s fair market value. The Company makes significant assumptions and judgments to determine the undiscounted future cash flows expected to be generated over the remaining useful life of the asset, including estimates and assumptions related to the future charter rates, fleet utilization, vessel operating expenses, vessel capital expenditures and drydocking requirements, vessel residual value and the estimated remaining useful life of each vessel. Projected future charter rates are the most significant and volatile assumption that the Company uses for its impairment analysis. Total vessel assets as of December 31, 2020, were $919.1 million, net of impairment losses recorded during 2020 of $208.9 million.
We identified future charter rates used in the undiscounted future cash flows analysis as a critical audit matter because of the complex judgments made by management to estimate future charter rates and the significant impact they have on undiscounted cash flows expected to be generated over the remaining useful life of the vessel. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimate of future charter rates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the future charter rates utilized in the undiscounted future cash flows included the following, among others:
● We tested the effectiveness of controls over management’s review of the impairment analysis, including the future charter rates used within the undiscounted future cash flows analysis.
● We evaluated the reasonableness of the Company’s estimate of future charter rates through the performance of the following procedures:
o Evaluated the Company’s methodology for estimating the future charter rates which reflect the rates currently in effect for the duration of their current charters, without assuming additional profit sharing. For periods of time where the vessels are not fixed on time charters or spot market voyage charters, the Company estimates the future daily time charter equivalent for the vessels’ unfixed days based on the most recent ten-year historical one-year time charter average for the vessel class, as well as also considering the current rate environment, to project future charter rates.
o Compared the future charter rates utilized in the undiscounted future cash flow analysis to 1) the Company’s historical rates, 2) historical rate information by vessel class published by third parties and 3) other external market sources, including analysts’ reports and freight forward agreement curves.
o Obtained from the Company’s management the assumptions used in the future charter rates and considered the consistency of the assumptions used with evidence obtained in other areas of the audit. This included 1) internal communications by management to the board of directors and 2) external communications by management to analysts and investors.
/s/ Deloitte & Touche LLP
New York, New York
February 24, 2021
We have served as the Company's auditor since 2005.
Genco Shipping & Trading Limited
Consolidated Balance Sheets as of December 31, 2020 and 2019
(U.S. Dollars in thousands, except for share and per share data)
December 31,
December 31,
Assets
Current assets:
Cash and cash equivalents
$
143,872
$
155,889
Restricted cash
35,492
6,045
Due from charterers, net of a reserve of $669 and $1,064, respectively
12,991
13,701
Prepaid expenses and other current assets
10,856
10,049
Inventories
21,583
27,208
Vessels held for sale
22,408
10,303
Total current assets
247,202
223,195
Noncurrent assets:
Vessels, net of accumulated depreciation of $204,201 and $288,373, respectively
919,114
1,273,861
Vessels held for exchange
38,214
-
Deferred drydock, net of accumulated amortization of $8,124 and $11,862 respectively
14,689
17,304
Fixed assets, net of accumulated depreciation and amortization of $2,266 and $2,154, respectively
6,393
5,976
Operating lease right-of-use assets
6,882
8,241
Restricted cash
Total noncurrent assets
985,607
1,305,697
Total assets
$
1,232,809
$
1,528,892
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses
$
22,793
$
49,604
Current portion of long-term debt
80,642
69,747
Deferred revenue
8,421
6,627
Current operating lease liabilities
1,765
1,677
Total current liabilities:
113,621
127,655
Noncurrent liabilities:
Long-term operating lease liabilities
8,061
9,826
Contract liability
7,200
-
Long-term debt, net of deferred financing costs of $9,653 and $13,094, respectively
358,933
412,983
Total noncurrent liabilities
374,194
422,809
Total liabilities
487,815
550,464
Commitments and contingencies (Note 14)
Equity:
Common stock, par value $0.01; 500,000,000 shares authorized; 41,801,753 and 41,754,413 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively
Additional paid-in capital
1,713,406
1,721,268
Accumulated deficit
(968,830)
(743,257)
Total equity
744,994
978,428
Total liabilities and equity
$
1,232,809
$
1,528,892
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
(U.S. Dollars in Thousands, Except for Earnings Per Share and Share Data)
For the Years Ended December 31,
Revenues:
Voyage revenues
$
355,560
$
389,496
$
367,522
Total revenues
355,560
389,496
367,522
Operating expenses:
Voyage expenses
156,985
173,043
114,855
Vessel operating expenses
87,420
96,209
97,427
Charter hire expenses
10,307
16,179
1,534
General and administrative expenses (inclusive of nonvested stock amortization expense of $2,026, $2,057 and $2,231, respectively)
21,266
24,516
23,141
Technical management fees
6,961
7,567
8,000
Depreciation and amortization
65,168
72,824
68,976
Impairment of vessel assets
208,935
27,393
56,586
Loss (gain) on sale of vessels
1,855
(3,513)
Total operating expenses
558,897
417,899
367,006
Operating loss
(203,337)
(28,403)
Other (expense) income:
Other (expense) income
(851)
Interest income
1,028
4,095
3,801
Interest expense
(22,413)
(31,955)
(33,091)
Impairment of right-of-use asset
-
(223)
-
Loss on debt extinguishment
-
-
(4,533)
Other expense
(22,236)
(27,582)
(33,456)
Net loss
$
(225,573)
$
(55,985)
$
(32,940)
Net loss per share-basic
$
(5.38)
$
(1.34)
$
(0.86)
Net loss per share-diluted
$
(5.38)
$
(1.34)
$
(0.86)
Weighted average common shares outstanding-basic
41,907,597
41,762,893
38,382,599
Weighted average common shares outstanding-diluted
41,907,597
41,762,893
38,382,599
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
Consolidated Statements of Comprehensive Loss
For the Years Ended December 31, 2020, 2019 and 2018
(U.S. Dollars in Thousands)
For the Years Ended December 31,
Net loss
$
(225,573)
$
(55,985)
$
(32,940)
Other comprehensive income
-
-
-
Comprehensive loss
$
(225,573)
$
(55,985)
$
(32,940)
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
Consolidated Statements of Equity
(U.S. Dollars in Thousands)
Additional
Common
Paid-in
Accumulated
Stock
Capital
Deficit
Total Equity
Balance - January 1, 2018
$
$
1,628,355
$
(654,332)
$
974,368
Net loss
(32,940)
(32,940)
Issuance of 7,015,000 shares of common stock
109,578
109,648
Issuance of 97,466 shares of vested RSUs
(1)
-
Nonvested stock amortization
2,231
2,231
Balance - December 31, 2018
$
$
1,740,163
$
(687,272)
$
1,053,307
Net loss
(55,985)
(55,985)
Issuance of 109,943 shares of vested RSUs
(1)
-
Cash dividends declared ($0.50 per share)
(20,951)
(20,951)
Nonvested stock amortization
2,057
2,057
Balance - December 31, 2019
$
$
1,721,268
$
(743,257)
$
978,428
Net loss
(225,573)
(225,573)
Issuance of 47,341 shares of vested RSUs, net of forfeitures of 1,490 shares
(1)
-
Cash dividends declared ($0.235 per share)
(9,887)
(9,887)
Nonvested stock amortization
2,026
2,026
Balance - December 31, 2020
$
$
1,713,406
$
(968,830)
$
744,994
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
Consolidated Statements of Cash Flows
(U.S. Dollars in Thousands)
For the Years Ended December 31,
Cash flows from operating activities:
Net loss
$
(225,573)
$
(55,985)
$
(32,940)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
65,168
72,824
68,976
Amortization of deferred financing costs
3,903
3,788
3,035
Payment of PIK interest
-
-
(5,341)
Right-of-use asset amortization
1,359
1,246
-
Amortization of nonvested stock compensation expense
2,026
2,057
2,231
Impairment of right-of-use asset
-
-
Impairment of vessel assets
208,935
27,393
56,586
Loss (gain) on sale of vessels
1,855
(3,513)
Loss on debt extinguishment
-
-
4,533
Insurance proceeds for protection and indemnity claims
Insurance proceeds for loss of hire claims
-
Change in assets and liabilities:
Decrease (increase) in due from charterers
8,605
(10,099)
Increase in prepaid expenses and other current assets
(1,938)
(789)
(6,626)
Decrease (increase) in inventories
5,625
2,340
(14,215)
Decrease in other noncurrent assets
-
-
(Decrease) increase in accounts payable and accrued expenses
(17,355)
13,172
2,571
Increase in deferred revenue
1,794
1,190
Decrease in operating lease liabilities
(1,677)
(1,592)
-
Increase in deferred rent
-
-
Deferred drydock costs incurred
(8,583)
(14,641)
(2,236)
Net cash provided by operating activities
36,896
59,526
65,907
Cash flows from investing activities:
Purchase of vessels and ballast water treatment systems, including deposits
(4,485)
(13,960)
(241,872)
Purchase of scrubbers (capitalized in Vessels)
(10,973)
(31,750)
-
Purchase of other fixed assets
(4,580)
(4,714)
(1,462)
Net proceeds from sale of vessels
56,993
26,963
44,330
Insurance proceeds for hull and machinery claims
3,629
Net cash provided by (used in) investing activities
37,439
(22,849)
(195,375)
Cash flows from financing activities:
Proceeds from the $133 Million Credit Facility
24,000
-
108,000
Repayments on the $133 Million Credit Facility
(9,160)
(6,320)
(1,580)
Proceeds from the $495 Million Credit Facility
11,250
21,500
460,000
Repayments on the $495 Million Credit Facility
(72,686)
(70,776)
(15,000)
Repayments on the $400 Million Credit Facility
-
-
(399,600)
Repayments on the $98 Million Credit Facility
-
-
(93,939)
Repayments on the 2014 Term Loan Facilities
-
-
(25,544)
For the Years Ended December 31,
Payment of debt extinguishment costs
-
-
(2,962)
Proceeds from issuance of common stock
-
-
110,249
Payment of common stock issuance costs
-
(105)
(496)
Cash dividends paid
(9,847)
(20,877)
-
Payment of deferred financing costs
(462)
(611)
(11,845)
Net cash (used in) provided by financing activities
(56,905)
(77,189)
127,283
Net increase (decrease) in cash, cash equivalents and restricted cash
17,430
(40,512)
(2,185)
Cash, cash equivalents and restricted cash at beginning of period
162,249
202,761
204,946
Cash, cash equivalents and restricted cash at end of period
$
179,679
$
162,249
$
202,761
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
(U.S. Dollars in Thousands, Except per Share Data)
Notes to Consolidated Financial Statements for the Years Ended December 31, 2020, 2019 and 2018
1 - GENERAL INFORMATION
The accompanying consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”) and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T is incorporated under the laws of the Marshall Islands and as of December 31, 2020, is the direct or indirect owner of all of the outstanding shares or limited liability company interests of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco RE Investments LLC; Genco Shipping Pte. Ltd.; Genco Shipping A/S; Baltic Trading Limited (“Baltic Trading”); and the ship-owning subsidiaries as set forth below under “Other General Information.”
In March 2020, the World Health Organization 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. 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 has 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.
At present, it is not possible to ascertain any future impact of COVID-19 on the Company’s operational and financial performance, which may take some time to materialize and may not be fully reflected in the results for 2020. However, an increase in the severity or duration or a resurgence of the COVID-19 pandemic and the timing of wide-scale vaccine distribution could have a material adverse effect on the Company’s business, results of operations, cash flows, financial condition, the carrying value of the Company’s assets, the fair values of the Company’s vessels, and the Company’s ability to pay dividends.
On June 19, 2018, the Company closed an equity offering of 7,015,000 shares of common stock at an offering price of $16.50 per share. The Company received net proceeds of $109,648 after deducting underwriters’ discounts and commissions and other expenses.
Other General Information
As of December 31, 2020, 2019 and 2018, the Company’s fleet consisted of 47, 55 and 59 vessels, respectively.
Below is the list of Company’s wholly owned ship-owning subsidiaries as of December 31, 2020:
Wholly Owned Subsidiaries
Vessel Acquired
Dwt
Delivery Date
Year Built
Genco Augustus Limited
Genco Augustus
180,151
8/17/07
Genco Tiberius Limited
Genco Tiberius
175,874
8/28/07
Genco London Limited
Genco London
177,833
9/28/07
Genco Titus Limited
Genco Titus
177,729
11/15/07
Genco Warrior Limited
Genco Warrior
55,435
12/17/07
Genco Predator Limited
Genco Predator
55,407
12/20/07
Genco Hunter Limited
Genco Hunter
58,729
12/20/07
Genco Constantine Limited
Genco Constantine
180,183
2/21/08
Genco Hadrian Limited
Genco Hadrian
169,025
12/29/08
Genco Commodus Limited
Genco Commodus
169,098
7/22/09
Genco Maximus Limited
Genco Maximus
169,025
9/18/09
Genco Claudius Limited
Genco Claudius
169,001
12/30/09
Genco Avra Limited
Genco Avra
34,391
5/12/11
Genco Mare Limited
Genco Mare
34,428
7/20/11
Genco Spirit Limited
Genco Spirit
34,432
11/10/11
Genco Aquitaine Limited
Genco Aquitaine
57,981
8/18/10
Genco Ardennes Limited
Genco Ardennes
58,018
8/31/10
Genco Auvergne Limited
Genco Auvergne
58,020
8/16/10
Genco Bourgogne Limited
Genco Bourgogne
58,018
8/24/10
Genco Brittany Limited
Genco Brittany
58,018
9/23/10
Genco Languedoc Limited
Genco Languedoc
58,018
9/29/10
Genco Lorraine Limited
Genco Lorraine
53,417
7/29/10
Genco Picardy Limited
Genco Picardy
55,257
8/16/10
Genco Provence Limited
Genco Provence
55,317
8/23/10
Genco Pyrenees Limited
Genco Pyrenees
58,018
8/10/10
Genco Rhone Limited
Genco Rhone
58,018
3/29/11
Genco Weatherly Limited
Genco Weatherly
61,556
7/26/18
Genco Columbia Limited
Genco Columbia
60,294
9/10/18
Genco Endeavour Limited
Genco Endeavour
181,060
8/15/18
Genco Resolute Limited
Genco Resolute
181,060
8/14/18
Genco Defender Limited
Genco Defender
180,021
9/6/18
Genco Liberty Limited
Genco Liberty
180,032
9/11/18
Genco Magic Limited
Genco Magic
63,446
12/23/20
Baltic Lion Limited
Baltic Lion
179,185
4/8/15
(1)
Baltic Tiger Limited
Genco Tiger
179,185
4/8/15
(1)
Baltic Leopard Limited
Baltic Leopard
53,446
4/8/10
Baltic Panther Limited
Baltic Panther
53,350
4/29/10
Baltic Cougar Limited
Baltic Cougar
53,432
5/28/10
Baltic Bear Limited
Baltic Bear
177,717
5/14/10
Baltic Wolf Limited
Baltic Wolf
177,752
10/14/10
Baltic Cove Limited
Baltic Cove
34,403
8/23/10
Baltic Fox Limited
Baltic Fox
31,883
9/6/13
Baltic Hare Limited
Baltic Hare
31,887
9/5/13
Baltic Hornet Limited
Baltic Hornet
63,574
10/29/14
Baltic Wasp Limited
Baltic Wasp
63,389
1/2/15
Baltic Scorpion Limited
Baltic Scorpion
63,462
8/6/15
Baltic Mantis Limited
Baltic Mantis
63,470
10/9/15
(1) The delivery date for these vessels represents the date that the vessel was purchased from Baltic Trading.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which includes the accounts of GS&T and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Business geographics
The Company’s vessels regularly move between countries in international waters, over hundreds of trade routes and, as a result, the disclosure of geographic information is impracticable.
Vessel acquisitions
When the Company enters into an acquisition transaction, it determines whether the acquisition transaction was the purchase of an asset or a business based on the facts and circumstances of the transaction. As is customary in the shipping industry, the purchase of a vessel is normally treated as a purchase of an asset as the historical operating data for the vessel is not reviewed nor is it material to the Company’s decision to make such acquisition.
When a vessel is acquired with an existing time charter, the Company allocates the purchase price to the vessel and the time charter based on, among other things, vessel market valuations and the present value (using an interest rate which reflects the risks associated with the acquired charters) of the difference between (i) the contractual amounts to be paid pursuant to the charter terms and (ii) management’s estimate of the fair market charter rate, measured over a period equal to the remaining term of the charter. The capitalized above-market (assets) and below-market (liabilities) charters are amortized as a reduction or increase, respectively, to voyage revenues over the remaining term of the charter.
Segment reporting
The Company reports financial information and evaluates its operations by voyage revenues and not by the length of ship employment for its customers, i.e., spot or time charters. Each of the Company’s vessels serve the same type of customer, have similar operation and maintenance requirements, operate in the same regulatory environment, and are subject to similar economic characteristics. Based on this, the Company has determined that it operates in one reportable segment, the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.
Revenue recognition
Since the Company’s inception, revenues have been generated from time charter agreements, spot market voyage charters, pool agreements and spot market-related time charters. Voyage revenues also include the sale of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.
Time charters
A time charter involves placing a vessel at the charterer’s disposal for a set period of time during which the charterer may use the vessel in return for the payment by the charterer of a specified daily hire rate, including any ballast bonus payments received pursuant to the time charter agreement. Spot market-related time charters are the same as other time charter agreements, except the time charter rates are variable and are based on a percentage of the average daily rates as published by the Baltic Dry Index (“BDI”).
The Company records time charter revenues, including spot market-related time charters, over the term of the charter as service is provided. Revenues are recognized on a straight-line basis as the average revenue over the term of the respective time charter agreement for which the performance obligations are satisfied beginning when the vessel is delivered to the charterer until it is redelivered back to the Company. The Company records spot market-related time charter revenues over the term of the charter as service is provided based on the rate determined based on the BDI for each respective billing period. As such, the revenue earned by the Company’s vessels that are on spot market-related time charters is subject to fluctuations of the spot market. Time charter contracts, including spot market-related time charters, are considered operating leases and therefore do not fall under the scope of ASC 606 (as defined under “Recent accounting pronouncements” below) because (i) the vessel is an identifiable asset; (ii) the Company does not have substantive substitution rights; and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives economic benefit from such use.
The Company has identified that time charter agreements, including fixed rate time charters and spot market-related time charters, contain a lease in accordance with ASC 842 (as defined under “Recent accounting pronouncements” below). Refer to Note 12 - Voyage Revenues for further discussion.
Spot market voyage charters
In a spot market voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single voyage, which may contain multiple load ports and discharge ports. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or "dead" freight. The contract generally has a "demurrage" or "despatch" clause. As per this clause, the charterer reimburses the Company for any potential delays exceeding the allowed laytime as per the charter party clause at the ports visited which is recorded as demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime known as despatch resulting in a reduction in revenue. The voyage contracts generally have variable consideration in the form of demurrage or despatch. The amount of revenue earned as demurrage or despatch paid by the Company for the years ended December 31, 2020, 2019 and 2018 is not material.
Revenue for spot market voyage charters is recognized ratably over the total transit time of each voyage, which commences at the time the vessel arrives at the loading port and ends at the time the discharge of cargo is completed at the discharge port.
Voyage expense recognition
In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer. These expenses are borne by the Company during spot market voyage charters. As such, there are significantly higher voyage expenses for spot market voyage charters as compared to time charters, spot market-related time charters and pool agreements. Refer to Note 12 - Voyage Revenues for further discussion of the accounting for fuel expenses for spot market voyage charters. There are certain other non-specified voyage expenses, such as commissions, which are typically borne by the Company. At the inception of a time charter, the Company records the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses. Additionally, the Company records 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. These differences in bunkers, including any lower of cost and net realizable value adjustments, resulted in a net (loss) gain of ($697), ($829) and $3,000 during the years ended December 31, 2020, 2019 and 2018, respectively. Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.
Loss on debt extinguishment
During the year ended December 31, 2018, the Company recorded $4,533 related to the loss on the extinguishment of debt in accordance with Accounting Standards Codification (“ASC”) 470-50 - “Debt - Modifications and Extinguishments” (“ASC 470-50”). This loss was recognized as a result of the refinancing of the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities with the $495 Million Credit Facility on June 5, 2018 as described in Note 7 - Debt.
Due from charterers, net
Due from charterers, net includes accounts receivable from charters, including receivables for spot market voyages, net of the provision for doubtful accounts. At each balance sheet date, the Company records the provision based on a review of all outstanding charter receivables. Included in the standard time charter contracts with the Company’s customers are certain performance parameters which, if not met, can result in customer claims. As of December 31, 2020 and 2019, the Company had a reserve of $669 and $1,064, respectively, against the due from charterers balance and an additional accrual of $358 and $577, respectively, in deferred revenue, each of which is
primarily associated with estimated customer claims against the Company including vessel performance issues under time charter agreements.
Revenue is based on contracted charterparties. However, there is always the possibility of dispute over terms and payment of hires and freights. In particular, disagreements may arise concerning the responsibility of lost time and revenue. Accordingly, the Company periodically assesses the recoverability of amounts outstanding and estimates a provision if there is a possibility of non-recoverability. The Company believes its provisions to be reasonable based on information available.
Inventories
Inventories consist of consumable bunkers and lubricants that are stated at the lower of cost and net realizable value. Cost is determined by the first in, first out method.
Vessel operating expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, and other miscellaneous expenses. Vessel operating expenses are recognized when incurred.
Charter hire expenses
During the second quarter of 2018, the Company began chartering-in third party vessels. The costs to charter-in these vessels, which primarily include the daily charter hire rate net of commissions or net freight revenue, are recorded as Charter hire expenses. The Company recorded $10,307, $16,179 and $1,534 of charter hire expenses during the years ended December 31, 2020, 2019 and 2018, respectively.
Vessels, net
Vessels, net is stated at cost less accumulated depreciation. Included in vessel costs are acquisition costs directly attributable to the acquisition of a vessel and expenditures made to prepare the vessel for its initial voyage. The Company also capitalizes interest costs for a vessel under construction as a cost that is directly attributable to the acquisition of a vessel. Vessels are depreciated on a straight-line basis over their estimated useful lives, determined to be 25 years from the date of initial delivery from the shipyard. Depreciation expense for vessels for the years ended December 31, 2020, 2019 and 2018 was $58,008, $66,351 and $64,012, respectively.
Depreciation expense is calculated based on cost less the estimated residual scrap value. The costs of significant replacements, renewals and betterments are capitalized and depreciated over the shorter of the vessel’s remaining estimated useful life or the estimated life of the renewal or betterment. Undepreciated cost of any asset component being replaced that was acquired after the initial vessel purchase is written off as a component of vessel operating expense. Expenditures for routine maintenance and repairs are expensed as incurred. Scrap value is estimated by the Company by taking the estimated scrap value of $310 per lightweight ton (“lwt”) times the weight of the vessel noted in lwt.
Vessels held for sale
The Company’s Board of Directors has approved a strategy of divesting specifically identified older, less fuel-efficient vessels as part of a fleet renewal program to streamline and modernize the Company’s fleet.
On November 3, 2020, November 27, 2020 and November 30, 2020, the Company entered into agreements to sell the Baltic Panther, the Baltic Hare and the Baltic Cougar, respectively. The relevant vessel assets have been classified as held for sale in the Consolidated Balance Sheet as of December 31, 2020. The Baltic Panther, the Baltic Hare and the Baltic Cougar were sold on January 4, 2021, January 15, 2021 and February 24, 2021, respectively. Refer to Note 4 - Vessel Acquisitions and Dispositions for details of the agreements.
On September 25, 2019, the Company entered into an agreement to sell the Genco Thunder, and the relevant vessel assets have been classified as held for sale in the Consolidated Balance Sheet as of December 31, 2019. The vessel was sold on March 5, 2020. Refer to Note 4 - Vessel Acquisitions and Dispositions for details of the agreement.
Vessels held for exchange
The vessel assets for the remaining five vessels to be exchanged as part of an agreement entered into by the Company on December 17, 2020 have been classified as vessels held for exchange in the Consolidated Balance Sheet as of December 31, 2020 in the amount of $38,214, after recognition of impairment. This includes the vessel assets for the Baltic Cove, the Baltic Fox, the Genco Avra, the Genco Mare and the Genco Spirit. These vessels were exchanged during the first quarter of 2021. Refer to Note 4 - Vessel Acquisitions and Dispositions for details of the agreement and Note 19 - Subsequent Events.
Contract liability
The Company has recorded a contract liability of $7,200 as of December 31, 2020 which is related to the timing of the exchange of vessels pursuant to the agreement entered into by the Company on December 17, 2020 to exchange six of the Company’s Handysize vessels for three Ultramax vessels owned by the counterparty. As of December 31, 2020, the Company completed the exchange of one of its Handysize vessels, the Genco Ocean, for one Ultramax vessel, the Genco Magic. The $7,200 contract liability represents the excess of fair value of the vessels received as of December 31, 2020 over the fair value of the vessel contributed to the counterparty. The exchange of the remainder of the vessels under the agreement were completed during the first quarter of 2021. Refer to Note 4 - Vessel Acquisitions and Dispositions for details of the agreement and Note 19 - Subsequent Events.
Fixed assets, net
Fixed assets, net is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are based on a straight line basis over the estimated useful life of the specific asset placed in service. The following table is used in determining the typical estimated useful lives:
Description
Useful lives
Leasehold improvements
Lesser of the estimated useful life of the asset or life of the lease
Furniture, fixtures & other equipment
5 years
Vessel equipment
2-15 years
Computer equipment
3 years
Depreciation and amortization expense for fixed assets for the years ended December 31, 2020, 2019 and 2018 was $1,562, $989 and $335, respectively.
Deferred drydocking costs
The Company’s vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. The Company defers the costs associated with the drydockings as they occur and amortizes these costs on a straight-line basis over the period between drydockings. Costs deferred as part of a vessel’s drydocking include actual costs incurred at the drydocking yard; cost of travel, lodging and subsistence of personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee the drydocking. If the vessel is drydocked earlier than originally anticipated, any remaining deferred drydock costs that have not been amortized are expensed at the end of the next drydock.
Amortization expense for drydocking for the years ended December 31, 2020, 2019 and 2018 was $5,598, $5,484 and $4,629, respectively, and is included in Depreciation and amortization expense in the Consolidated Statements of Operations. All other costs incurred during drydocking are expensed as incurred.
Impairment of long-lived assets
During the years ended December 31, 2020, 2019 and 2018, the Company recorded $208,935, $27,393 and $56,586, respectively, related to the impairment of vessel assets in accordance with ASC 360 - “Property, Plant and Equipment” (“ASC 360”). ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. If indicators of impairment are present, the Company performs an analysis of the anticipated undiscounted future net cash flows to be derived from the related long-lived assets.
When the Company performs its analysis of the anticipated undiscounted future net cash flows, the Company utilizes various assumptions based on historical trends. Specifically, the Company utilizes the rates currently in effect for the duration of their current time charters or spot market voyage charters, without assuming additional profit sharing. For periods of time during which the Company’s vessels are not fixed on time charters or spot market voyage charters, the Company utilizes an estimated daily time charter equivalent for the vessels’ unfixed days based on the most recent ten year historical one-year time charter average. In addition, the Company considers the current market rate environment and, if necessary, will adjust its estimates of future undiscounted cash flows to reflect the current rate environment. The projected undiscounted future net cash flows are determined by considering the future voyage revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days over the estimated remaining life of the vessel, assumed to be 25 years from the delivery of the vessel from the shipyard, reduced by brokerage and address commissions, expected outflows for vessels’ maintenance and vessel operating expenses (including planned drydocking and special survey expenditures) and required capital expenditures adjusted annually for inflation, assuming fleet utilization of 98%. The salvage value used in the impairment test is estimated to be $310 per light weight ton, consistent with the Company’s depreciation policy.
On January 22, 2021, the Company entered into an agreement to sell the Genco Lorraine, a 2009-built Supramax vessel, to a third party for $7,950 less a 2.5% commission payable to a third party. Additionally, on January 25, 2021, the Company entered into an agreement to sell the Baltic Leopard, a 2009-built Supramax vessel, to a third party for $8,000 less a 2.0% commission payable to a third party. As the undiscounted cash flows, including the net sales price, did not exceed the net book value of the Genco Lorraine and Baltic Leopard as of December 31, 2020, the vessels values for the Genco Lorraine and Baltic Leopard were adjusted to their net sales prices of $7,751 and $7,840 as of December 31, 2020, respectively. This resulted in an impairment loss of $404 and $399 for the Genco Lorraine and Baltic Leopard, respectively, during the year ended December 31, 2020.
As of December 31, 2020, the Company determined that the expected estimated future undiscounted cash flows for nine of its Supramax vessels, 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, did not exceed the net book value of these vessels. The Company adjusted the carrying value of these vessels to their respective fair market values as of December 31, 2020 which resulted in an impairment loss of $67,200 during the year ended December 31, 2020.
On December 17, 2020, the Company entered into an agreement to acquire three Ultramax vessels in exchange for six of our Handysize vessels. The six Handysize vessels include the Genco Ocean, the Baltic Cove and the Baltic Fox, all 2010-built Handysize vessels, and the Genco Avra, the Genco Mare and the Genco Spirit, all 2011-built Handysize vessels. The values for these six Handysize vessels were adjusted to their total fair market value of $46,000 as of the date of the agreement less a 1.0% commission payable to a third party which resulted in an impairment loss of $4,647 during the year ended December 31, 2020.
On November 30, 2020, the Company entered into an agreement to sell the Genco Cougar, a 2009-built Supramax vessel, to a third party for $7,600 less a 3.0% commission payable to a third party. Therefore, the vessel value
for the Baltic Cougar was adjusted to its net sales price of $7,372 as of December 31, 2020. This resulted in an impairment loss of $790 during the year ended December 31, 2020.
On November 27, 2020, the Company entered into an agreement to sell the Baltic Hare, a 2009-built Handysize vessel, to a third party for $7,750 less a 2.0% commission payable to a third party. Therefore, the vessel value for the Baltic Hare was adjusted to its net sales price of $7,595 as of December 31, 2020. This resulted in an impairment loss of $769 during the year ended December 31, 2020.
On November 3, 2020, the Company entered into an agreement to sell the Baltic Panther, a 2009-built Supramax vessel, to a third party for $7,510 less a 3.0% commission payable to a third party. As the anticipated undiscounted cash flows, including the net sales price, did not exceed the net book value of the vessel as of September 30, 2020, the vessel value for the Baltic Panther was adjusted to its net sales price of $7,285 as of September 30, 2020. This resulted in an impairment loss of $3,713 during the year ended December 31, 2020.
On October 16, 2020, the Company entered into an agreement to sell the Genco Loire, a 2009-built Supramax vessel, to a third party for $7,650 less a 2.0% commission payable to a third party. As the anticipated undiscounted cash flows, including the net sales price, did not exceed the net book value of the vessel as of September 30, 2020, the vessel value for the Genco Loire was adjusted to its net sales price of $7,497 as of September 30, 2020. This resulted in an impairment loss of $3,408 during the year ended December 31, 2020.
On September 30, 2020, the Company determined that the expected estimated future undiscounted cash flows for three of its Supramax vessels, the Genco Lorraine, the Baltic Cougar and the Baltic Leopard, did not exceed the net book value of these vessels as of September 30, 2020. The Company adjusted the carrying value of these vessels to their respective fair market values as of September 30, 2020. This resulted in an impairment loss of $7,963 during the year ended December 31, 2020.
On September 25, 2020, the Company entered into an agreement to sell the Baltic Jaguar, a 2009-built Supramax vessel, to a third party for $7,300 less a 3.0% commission payable to a third party. Therefore, the vessel value for the Baltic Jaguar was adjusted to its net sales price of $7,081 as of September 30, 2020. This resulted in an impairment loss of $4,140 during the year ended December 31, 2020.
On September 17, 2020, the Company entered in an agreement to sell the Genco Normandy, a 2007-built Supramax vessel, to a third party for $5,850 less a 2.0% commission payable to a third party. Therefore, the vessel value for the Genco Normandy was adjusted to its net sales price of $5,733 as of September 30, 2020. This resulted in an impairment loss of $2,679 during the year ended December 31, 2020.
At March 31, 2020, the Company determined that the expected estimated future undiscounted cash flows for four of its Supramax vessels, the Genco Picardy, the Genco Predator, the Genco Provence and the Genco Warrior, did not exceed the net book value of these vessels as of March 31, 2020. The Company adjusted the carrying value of these vessels to their respective fair market values as of March 31, 2020. This resulted in an impairment loss of $27,055 during the year ended December 31, 2020.
On February 24, 2020, the Board of Directors determined to dispose of the Company’s following ten Handysize vessels: the Baltic Hare, the Baltic Fox, the Baltic Wind, the Baltic Cove, the Baltic Breeze, the Genco Ocean, the Genco Bay, the Genco Avra, the Genco Mare and the Genco Spirit, at times and on terms to be determined in the future. Given this decision, and that the revised estimated future undiscounted cash flows for each of these older vessels did not exceed the net book value for each vessel given the estimated probabilities of whether the vessels will be sold, the Company adjusted the values of these older vessels to their respective fair market values during the three months ended March 31, 2020. Subsequent to February 24, 2020, the Company has entered into agreements to sell three of these vessels during the three months ended March 31, 2020, namely the Baltic Wind, the Baltic Breeze and the Genco Bay, which were adjusted to their net sales price. This resulted in an impairment loss of $85,768 during the year ended December 31, 2020.
On February 3, 2020, the Company entered into an agreement to sell the Genco Charger, a 2005-built Handysize vessel, to a third party for $5,150 less a 1.0% commission payable to a third party. As the anticipated undiscounted cash flows, including the net sales price, did not exceed the net book value of the vessel as of December 31, 2019, the vessel value for the Genco Charger was adjusted to its net sales price of $5,099 as of December 31, 2019. This resulted in an impairment loss of $1,314 during the year ended December 31, 2019.
On November 4, 2019, the Company entered into an agreement to sell the Genco Raptor, a 2007-built Panamax vessel, to a third party for $10,200 less a 2.0% commission payable to a third party. As the anticipated undiscounted cash flows, including the net sales price, did not exceed the net book value of the vessel as of September 30, 2019, the vessel value for the Genco Raptor was adjusted to its net sales price of $9,996 as of September 30, 2019. This resulted in an impairment loss of $5,812 during the year ended December 31, 2019.
On September 25, 2019, the Company entered into an agreement to sell the Genco Thunder, a 2007-built Panamax vessel, for $10,400 less a 2.0% broker commission payable to a third party. Therefore, the vessel value for the Genco Thunder was adjusted to its net sales price of $10,192 as of September 30, 2019. This resulted in an impairment loss of $5,749 during the year ended December 31, 2019.
On September 20, 2019, the Company entered into an agreement to sell the Genco Champion, a 2006-built Handysize vessel, for $6,600 less a 3.0% broker commission payable to a third party. Therefore, the vessel value for the Genco Champion was adjusted to its net sales price of $6,402 as of September 30, 2019. This resulted in an impairment loss of $621 during the year ended December 31, 2019.
On August 2, 2019, the Company entered into an agreement to sell the Genco Challenger, a 2003-built Handysize vessel, for $5,250 less a 2.0% broker commission payable to a third party. As the anticipated undiscounted cash flows, including the net sales price, did not exceed the net book value of the vessel as of June 30, 2019, the vessel value for the Genco Challenger was adjusted to its net sales price of $5,145 as of June 30, 2019. This resulted in an impairment loss of $4,401 during the year ended December 31, 2019.
At June 30, 2019, the Company determined that the expected estimated future undiscounted cash flows for the Genco Champion, a 2006-built Handysize vessel, and the Genco Charger, a 2005-built Handysize vessel, did not exceed the net book value of these vessels as of June 30, 2019. As such, the Company adjusted the value of these vessels to their respective fair market values as of June 30, 2019. This resulted in an impairment loss of $9,496 during the year ended December 31, 2019.
On July 24, 2018, the Company entered into an agreement to sell the Genco Surprise, a 1998-built Panamax vessel, for $5,300 less a 3.0% broker commission payable to a third party. As the anticipated undiscounted cash flows, including the net sales price, did not exceed the net book value of the vessel as of June 30, 2018, the vessel value for the Genco Surprise was adjusted to its net sales price of $5,141 as of June 30, 2018. This resulted in an impairment loss of $184 during the year ended December 31, 2018.
On February 27, 2018, the Board of Directors determined to dispose of the Company’s following nine vessels: the Genco Cavalier, the Genco Loire, the Genco Lorraine, the Genco Muse, the Genco Normandy, the Baltic Cougar, the Baltic Jaguar, the Baltic Leopard and the Baltic Panther, at times and on terms to be determined in the future. Given this decision, and that the estimated future undiscounted cash flows for each of these older vessels did not exceed the net book value for each vessel, we adjusted the values of these older vessels to their respective fair market values during the year ended December 31, 2018. This resulted in an impairment loss of $56,402 during the year ended December 31, 2018.
Refer to Note 4 - Vessel Acquisitions and Dispositions for further detail regarding the sale of the aforementioned vessels.
Loss (gain) on sale of vessels
During the years ended December 31, 2020, 2019 and 2018, the Company recorded net (losses) gains of ($1,855), ($168) and $3,513, respectively, related to the sale of vessels. The ($1,855) net loss recognized during the year ended December 31, 2020 related primarily to the sale of the Genco Charger, the Genco Thunder, the Baltic Wind, the Baltic Breeze, the Genco Bay, the Baltic Jaguar, the Genco Loire, the Genco Normandy and the Genco Ocean. The ($168) net loss recognized during the year ended December 31, 2019 related primarily to the sale of the Genco Challenger, the Genco Champion and the Genco Raptor which was largely offset by a net gain related to the sale of the Genco Vigour. The $3,513 net gain recognized during the year ended December 31, 2018 related primarily to the sale of the Genco Progress, the Genco Cavalier, the Genco Explorer, the Genco Muse, the Genco Beauty and the Genco Knight. Refer to Note 4 - Vessel Acquisitions and Dispositions for further detail regarding the sale of these vessels.
Deferred financing costs
Deferred financing costs, which are presented as a direct deduction within the outstanding debt balance in the Company’s Consolidated Balance Sheets, consist of fees, commissions and legal expenses associated with securing loan facilities and other debt offerings and amending existing loan facilities. These costs are amortized over the life of the related debt and are included in Interest expense in the Consolidated Statements of Operations.
Cash and cash equivalents
The Company considers highly liquid investments, such as money market funds and certificates of deposit with an original maturity of three months or less to be cash equivalents.
Restricted Cash
Current and non-current restricted cash includes cash that is restricted pursuant to our credit facilities, refer to Note 7 - Debt. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows:
December 31,
December 31,
Cash and cash equivalents
$
143,872
$
155,889
Restricted cash - current
35,492
6,045
Restricted cash - noncurrent
Cash, cash equivalents and restricted cash
$
179,679
$
162,249
United States Gross Transportation Tax
Pursuant to Section 883 of the U.S. Internal Revenue Code of 1986 (as amended) (the “Code”), qualified income derived from the international operations of ships is excluded from gross income and exempt from U.S. federal income tax if a company engaged in the international operation of ships meets certain requirements (the “Section 883 exemption”). Among other things, in order to qualify, the Company must be incorporated in a country that grants an equivalent exemption to U.S. corporations and must satisfy certain qualified ownership requirements.
The Company is incorporated in the Marshall Islands. Pursuant to the income tax laws of the Marshall Islands, the Company is not subject to Marshall Islands income tax. The Marshall Islands has been officially recognized by the Internal Revenue Service as a qualified foreign country that currently grants the requisite equivalent exemption from tax. The Company is not taxable in any other jurisdiction, with the exception of Genco Management (USA) Limited, Genco Shipping Pte. Ltd. and Genco Shipping A/S, as noted in the “Income taxes” section below.
The Company will qualify for the Section 883 exemption if, among other things, (i) the Company’s stock is treated as primarily and regularly traded on an established securities market in the United States (the “publicly traded test”) or (ii) the Company satisfies the qualified shareholder test or (iii) the Company satisfies the controlled foreign corporation test (the “CFC test”). Under applicable Treasury Regulations, the publicly traded test cannot be satisfied in any taxable year in which persons who actually or constructively own 5% or more of the Company’s stock (which the Company sometimes refers to as “5% shareholders”), together own 50% or more of the Company’s stock (by vote and value) for more than half the days in such year (which the Company sometimes refers to as the “five percent override rule”), unless an exception applies. A foreign corporation satisfies the qualified shareholder test if more than 50 percent of the value of its outstanding shares is owned (or treated as owned by applying certain attribution rules) for at least half of the number of days in the foreign corporation's taxable year by one or more “qualified shareholders.” A qualified shareholder includes a foreign corporation that, among other things, satisfies the publicly traded test. A foreign corporation satisfies the CFC test if it is a “controlled foreign corporation” and one or more qualified U.S. persons own more than 50 percent of the total value of all the outstanding stock.
Based on the publicly traded requirement of the Section 883 regulations, the Company believes that it qualified for exemption from income tax on income derived from the international operations of vessels during the years ended December 31, 2020, 2019 and 2018. In order to meet the publicly traded requirement, the Company’s stock must be treated as being primarily and regularly traded for more than half the days of any such year. Under the Section 883 regulations, the Company’s qualification for the publicly traded requirement may be jeopardized if 5% shareholders own, in the aggregate, 50% or more of the Company’s common stock for more than half the days of the year. Management believes that during the years ended December 31, 2020, 2019 and 2018, the combined ownership of its 5% shareholders did not equal 50% or more of its common stock for more than half the days of each of those years.
If the Company does not qualify for the Section 883 exemption, the Company’s U.S. source shipping income, i.e., 50% of its gross shipping income attributable to transportation beginning or ending in the U.S. (but not both beginning and ending in the U.S.) is subject to a 4% tax without allowance for deductions (the “U.S. gross transportation tax”).
During the years ended December 31, 2020, 2019 and 2018, the Company qualified for Section 883 exemption and, therefore, did not record any U.S. gross transportation tax.
Income taxes
To the extent the Company’s U.S. source shipping income, or other U.S. source income, is considered to be effectively connected income, as described below, any such income, net of applicable deductions, would be subject to the U.S. federal corporate income tax, imposed at a 21% rate effective 2018. In addition, the Company may be subject to a 30% "branch profits" tax on such income, and on certain interest paid or deemed paid attributable to the conduct of such trade or business. Shipping income is generally sourced 100% to the United States if attributable to transportation exclusively between United States ports (the Company is prohibited from conducting such voyages), 50% to the United States if attributable to transportation that begins or ends, but does not both begin and end, in the United States (as described in “United States Gross Transportation Tax” above) and otherwise 0% to the United States.
The Company’s U.S. source shipping income would be considered effectively connected income only if:
● the Company has, or is considered to have, a fixed place of business in the U.S. involved in the earning of U.S. source shipping income; and
● substantially all of the Company’s U.S. source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the U.S.
The Company does not intend to have, or permit circumstances that would result in having, any vessel sailing to or from the U.S. on a regularly scheduled basis. Based on the current shipping operations of the Company and the Company’s expected future shipping operations and other activities, the Company believes that none of its U.S. source shipping income will constitute effectively connected income. However, the Company may from time to time generate non-shipping income that may be treated as effectively connected income.
The Company established Genco Shipping Pte. Ltd. (“GSPL”), which is based in Singapore, on September 8, 2017. GSPL applied for and was awarded the Maritime Sector Incentive - Approved International Shipping Enterprise (“MSI-AIS”) status under Section 13F of the Singapore Income Tax Act (“SITA”) by the Maritime and Port Authority of Singapore. The award is for an initial period of 10 years, commencing on August 15, 2018, and is subject to a review of performance at the end of the initial five year period. The MSI-ASI status provides for a tax exemption on income derived by GSPL from qualifying shipping operations under Section 13F of the SITA. Income from non-qualifying activities is taxable at the prevailing Singapore Corporate income tax rate (currently 17%). During the years ended December 31, 2020, 2019 and 2018, there was no income tax recorded by GSPL.
During 2018, the Company established Genco Shipping A/S, which is a Danish-incorporated corporation which is based in Copenhagen and considered to be a resident for tax purposes in Denmark. Genco Shipping A/S was subject to corporate taxes in Denmark a rate of 22% during 2018, 2019 and 2020. During the years ended December 31, 2020, 2019 and 2018, Genco Shipping A/S recorded $407, $241 and $79, respectively, of income tax in Other income (expense) in the Consolidated Statements of Operations.
Deferred revenue
Deferred revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as income when earned. Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues. Refer to “Revenue recognition” above for description of the Company’s revenue recognition policy.
Nonvested stock awards
The Company follows ASC Subtopic 718-10, “Compensation - Stock Compensation” (“ASC 718-10”), for nonvested stock issued under its equity incentive plans. Stock-based compensation costs from nonvested stock have been classified as a component of additional paid-in capital in the Consolidated Statements of Equity.
Accounting estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include vessel valuations, the valuation of amounts due from charterers, performance claims, residual value of vessels, useful life of vessels and the fair value of derivative instruments, if any. Actual results could differ from those estimates.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers and cash and cash equivalents. With respect to amounts due from charterers, the Company attempts to limit its credit risk by performing ongoing credit evaluations and, when deemed necessary, requires letters of credit, guarantees or collateral. The Company earned all of its voyage revenues from 166, 170 and 182 customers during the years ended December 31, 2020, 2019 and 2018.
For the years ended December 31, 2020, 2019 and 2018, there were no customers that individually accounted for more than 10% of voyage revenues.
As of December 31, 2020 and 2019, the Company maintains all of its cash and cash equivalents with five and four financial institutions, respectively. None of the Company’s cash and cash equivalents balance is covered by insurance in the event of default by these financial institutions.
Fair value of financial instruments
The estimated fair values of the Company’s financial instruments, such as amounts due to / due from charterers, accounts payable and long-term debt, approximate their individual carrying amounts as of December 31, 2020 and 2019 due to their short-term maturity or the variable-rate nature of the respective borrowings under the credit facilities. See Note 8 - Fair Value of Financial Instruments for additional disclosure on the fair value of long-term debt.
Recent accounting pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).” ASU 2020-04 provides temporary optional expedients and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU is effective for adoption at any time between March 12, 2020 and December 31, 2022. The Company is currently evaluating the impact of this adoption on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”),” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within that year. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company has evaluated the impact of the adoption of ASU 2018-03 and has determined that there is no effect on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses" ("ASU 2016-13"). ASU 2016-13 amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 was effective on January 1, 2020, with early adoption permitted. The Company adopted ASU 2016-13 during the first quarter of 2020 and it did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”), which replaced the existing guidance in ASC 840 - Leases (“ASC 840”). This ASU requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability for leases with lease terms of more than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset and for operating leases, the lessee would recognize a straight-line total lease expense. Accounting by lessors will remain largely unchanged from current U.S. GAAP. The requirements of this standard include an increase in required disclosures. This ASU was effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. Lessees and lessors were required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which provided clarifications and improvements to ASC 842, including allowing entities to elect an additional transition method with which to adopt ASC 842. The approved transition method enables entities to apply the transition requirements at the effective date of ASC 842 (rather than at the beginning of the earliest comparative period presented as currently required) with the effect of the initial application of ASC 842 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. As a result, an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840, including the disclosure requirements of ASC 840. The Company adopted ASC 842 on January 1, 2019 using this transition method.
The new guidance provides a number of optional practical expedients in the transition. The Company had elected the package of practical expedients, which among other things, allows the carryforward of the historical lease classification. Further, upon implementation of the new guidance, the Company has elected the practical expedients to combine lease and non-lease components and to not recognize right-of-use assets and lease liabilities for short-term leases. Upon adoption of ASC 842 on January 1, 2019, the Company recorded a right-of-use asset of $9,710 and an operating lease liability of $13,095 in the Consolidated Balance Sheets. Refer to Note 13 - Leases for further information regarding our operating lease agreement and the effect of the adoption of ASC 842 from a lessor perspective.
Pursuant to ASC 842, the Company has identified revenue from its time charter agreements as lease revenue. Refer to Note 12 - Voyage revenues for additional information regarding the adoption of ASC 842 from a lessor perspective.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09” or “ASC 606”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption (the “modified retrospective transition method”). The Company adopted ASC 606 during the first quarter of 2018 using the modified retrospective transition method applied to all contracts and determined that the only impact was to spot market voyage charter contracts that were not completed as of January 1, 2018. Upon adoption, the Company recognized the cumulative effect of adopting this guidance as an adjustment to its opening balance of accumulated deficit as of January 1, 2018. Prior periods were not retrospectively adjusted. The adoption of ASC 606 did not have a financial impact on the recognition of revenue generated from time charter agreements, spot market-related time charters and pool agreements. Refer to Note 12 - Voyage Revenues for further discussion of the financial impact on the Company’s consolidated financial statements.
3 - CASH FLOW INFORMATION
For the year ended December 31, 2020, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $857 for the Purchase of vessels and ballast water treatment systems, including deposits, $5 for the Purchase of scrubbers, $142 for the Purchase of other fixed assets and $99 for the Net proceeds from sale of vessels. For the year ended December 31, 2020, the Company had non-cash financing activities not included in the Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expense consisting of $114 for Cash dividends paid.
For the year ended December 31, 2019, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $548 for the Purchase of vessels and ballast water treatment systems, including deposits, $9,520 for the Purchase of scrubbers, $413 for the Purchase of other fixed assets and $118 for the Net proceeds from sale of vessels. For the year ended December 31, 2019, the Company had non-cash financing activities not included in the Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $74 for Cash dividends paid.
For the year ended December 31, 2018, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $2,228 for the Purchase of vessels and ballast water treatment systems, including deposits, $428 for the Purchase of Scrubbers, $262 for the Net proceeds from sale of vessels and $360 for the Purchase of other fixed assets. For the year ended December 31, 2018, the Company had non-cash financing activities not included in the Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $105 for the Payment of common stock issuance costs and $1 for Payment of deferred financing costs.
During the year ended December 31, 2020, the Company made a reclassification of $22,408 from Vessels, net of accumulated depreciation to Vessels held for sale as the Company entered into agreements to sell the Baltic Panther, the Baltic Hare and the Baltic Cougar prior to December 31, 2020. Additionally, during the year ended December 31, 2020, the Company made a reclassification of $38,214 from Vessels, net of accumulated depreciation to Vessels held for exchange as the Company entered into an agreement to exchange the Baltic Cove, the Baltic Fox, the Genco Avra, the Genco Mare and the Genco Spirit prior to December 31, 2020. Refer to Note 4 - Vessel Acquisitions and Dispositions.
During the year ended December 31, 2019, the Company made a reclassification of $10,303 from Vessels, net of accumulated depreciation and Fixed assets, net of accumulated depreciation to Vessels held for sale due to the approval by the Board of Directors to sell the Genco Thunder prior to December 31, 2019. Refer to Note 4 - Vessel Acquisitions and Dispositions.
During the year ended December 31, 2018, the Company made a reclassification of $5,702 from Vessels, net of accumulated depreciation to Vessels held for sale due to the approval by the Board of Directors to sell the Genco Vigour prior to December 31, 2018. Refer to Note 4 - Vessel Acquisitions and Dispositions.
During the years ended December 31, 2020, 2019 and 2018, cash paid for interest, excluding the PIK interest paid as a result of the refinancing of the $400 Million Credit Facility, was $18,420, $28,376 and $30,167, respectively. Refer to Note 7 - Debt.
During the years ended December 31, 2020, 2019 and 2018, there was no cash paid for income taxes.
On July 15, 2020, the Company issued 42,642 restricted stock units to certain members of the Board of Directors. The aggregate fair value of these restricted stock units was $255.
On February 25, 2020, the Company issued 173,749 restricted stock units and options to purchase 344,568 shares of the Company’s stock at an exercise price of $7.06 to certain individuals. The fair value of these restricted stock units and stock options were $1,227 and $693, respectively.
On May 15, 2019, the Company issued 29,580 restricted stock units to certain members of the Board of Directors. These restricted stock units vested on July 15, 2020. The aggregate fair value of these restricted stock units was $255.
On March 4, 2019, the Company issued 106,079 restricted stock units and options to purchase 240,540 shares of the Company’s stock at an exercise price of $8.065, as adjusted for the special dividend declared on November 5, 2019, to certain individuals. The fair value of these restricted stock units and stock options were $890 and $904, respectively.
On May 15, 2018, the Company issued 14,268 restricted stock units to certain members of the Board of Directors. These restricted stock units vested on May 15, 2019. The aggregate fair value of these restricted stock units was $255.
On February 27, 2018, the Company issued 37,436 restricted stock units and options to purchase 122,608 shares of the Company’s stock at an exercise price of $13.365, as adjusted for the special dividend declared on November 5, 2019, to certain individuals. The fair value of these restricted stock units and stock options were $512 and $926, respectively.
Refer to Note 16 - Stock-Based Compensation for further information regarding the aforementioned grants.
4 - VESSEL ACQUISITIONS AND DISPOSITIONS
Vessel Exchange
On December 17, 2020, the Company entered into an agreement to acquire three Ultramax vessels in exchange for six Handysize vessels for a fair value of $46,000 less a 1.0% commission payable to a third party. 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 on December 23, 2020, January 28, 2021 and February 20, 2021, respectively. The Genco Ocean, the Baltic Cove and the Baltic Fox, all 2010-built Handysize vessels, were delivered to the buyers on December 29, 2020, January 30, 2021 and February 2, 2021, respectively. The Genco Spirit, the Genco Avra and the Genco Mare, all 2011-built Handysize vessels, were delivered to the buyers on February 15, 2021, February 21, 2021 and February 24, 2021, respectively. As of December 31, 2020, the vessel assets for the Baltic Cove, the Baltic Fox, the Genco Avra, the Genco Mare and the Genco Spirit have been classified as held for exchange in the Consolidated Balance Sheet.
Vessel Acquisitions
On June 6, 2018, the Company entered into an agreement for the en bloc purchase of four drybulk vessels, including two Capesize drybulk vessels and two Ultramax drybulk vessels for approximately $141,000. Each vessel was built with a fuel-saving “eco” engine. The Genco Resolute, a 2015-built Capesize vessel, was delivered on August 14, 2018 and the Genco Endeavour, a 2015-built Capesize vessel, was delivered on August 15, 2018. The Genco Weatherly, a 2014-built Ultramax vessel, was delivered on July 26, 2018 and the Genco Columbia, a 2016-built Ultramax vessel, was delivered on September 10, 2018. The Company utilized a combination of cash on hand and proceeds from the $133 Million Credit Facility to finance the purchase.
On July 12, 2018, the Company entered into agreements to purchase two 2016-built Capesize drybulk vessels for an aggregate purchase price of $98,000. The Genco Defender was delivered on September 6, 2018, and the Genco Liberty was delivered on September 11, 2018. The Company utilized a combination of cash on hand and proceeds from the $133 Million Credit Facility to finance the purchase.
Vessel Dispositions
During November 2020, the Company entered into agreements to sell the Baltic Cougar, the Baltic Hare and the Baltic Panther. These vessels have been classified as held for sale in the Consolidated Balance Sheet as of December 31, 2020. The sale of the Baltic Hare, Baltic Panther and Baltic Cougar were completed on January 15, 2021, January 4, 2021 and February 24, 2021, respectively.
During the fourth quarter of 2020, the Company completed the sale of the Genco Bay, the Baltic Jaguar, the Genco Loire and the Genco Normandy on October 1, 2020, October 16, 2020, November 18, 2020 and December 8, 2020, respectively. During the third quarter of 2020, the Company completed the sale of the Baltic Wind and Baltic Breeze on July 7, 2020 and July 31, 2020, respectively. During the first quarter of 2020, the Company completed the sale of the Genco Charger and Genco Thunder on February 24, 2020 and March 5, 2020, respectively.
On September 25, 2019, the Company entered into an agreement to sell the Genco Thunder. The vessel assets have been classified as held for sale in the Consolidated Balance Sheets as of December 31, 2019.
As of December 31, 2020, the Genco Normandy, Genco Loire, Baltic Jaguar, Genco Bay, Baltic Breeze, Baltic Wind, Genco Thunder and Genco Charger served as collateral under the $495 Million Credit Facility; therefore $35,492 of the net proceeds received from the sale of these vessels will remain classified as restricted cash for 360 days following the respective sale dates, which has been reflected as restricted cash in the Consolidated Balance Sheet as of December 31, 2020. Refer to Note 7 - Debt for amendment to the $495 Million Credit Facility.
During the fourth quarter of 2019, the Company completed the sale of the Genco Challenger, the Genco Champion and Genco Raptor on October 10, 2019, October 21, 2019 and December 10, 2019. The Genco Champion and Genco Challenger served as collateral under the $495 Million Credit Facility; therefore, $6,880 of the net proceeds
from the sale of these two vessels was required to be used as a loan prepayment since a replacement vessel was not going to be added as collateral within 180 days following the sales dates. Additionally, the Genco Raptor served as collateral under the $495 Million Credit Facility. As of December 31, 2019, a total amount of $6,045 was reflected as restricted cash in the Consolidated Balance Sheet for the Genco Raptor. The Company made a $6,045 loan prepayment for the Genco Raptor on December 7, 2020 pursuant to the terms of the $495 Million Credit Facility. These amounts can be used towards the financing of a replacement vessel or vessels meeting certain requirements and added as collateral under the facility. If such a replacement vessel is not added as collateral within such 360 day period, the Company will be required to use the proceeds as a loan prepayment. Refer to Note 7 - Debt for further information.
On November 23, 2018, the Company entered into an agreement to sell the Genco Vigour, a 1999-built Panamax vessel, to a third party for $6,550 less a 2.0% broker commission payable to a third party. The sale was completed on January 28, 2019.
On November 21, 2018, the Company entered into an agreement to sell the Genco Knight, a 1999-built Panamax vessel, to a third party for $6,200 less a 3.0% broker commission payable to a third party. The sale was completed on December 26, 2018.
On November 15, 2018, the Company entered into an agreement to sell the Genco Beauty, a 1999-built Panamax vessel, to a third party for $6,560 less a 3.0% broker commission payable to a third party. The sale was completed on December 17, 2018.
On October 31, 2018, the Company entered into an agreement to sell the Genco Muse, a 2001-built Handymax vessel, to a third party for $6,660 less a 2.0% broker commission payable to a third party. The sale was completed on December 5, 2018.
On August 30, 2018, the Company entered into an agreement to sell the Genco Cavalier, a 2007-built Supramax vessel, to a third party for $10,000 less a 2.5% broker commission payable to a third party. The sale was completed on October 16, 2018. This vessel served as collateral under the $495 Million Credit Facility; therefore, $4,947 of the net proceeds received from the sale was required to be used as a loan prepayment under the $495 Million Credit Facility which was made on April 15, 2019. Refer to Note 7 - Debt for further information.
On July 24, 2018, the Company entered into an agreement to sell the Genco Surprise, a 1998-built Panamax vessel, for $5,300 less a 3.0% broker commission payable to a third party. The sale was completed on August 7, 2018.
On June 27, 2018, the Company reached agreements to sell the Genco Explorer and the Genco Progress, both 1999-built Handysize vessels, to a third party for $5,600 each less a 3.0% broker commission payable to a third party. The sale of the Genco Progress was completed on September 13, 2018 and the sale of the Genco Explorer was completed on November 13, 2018.
With the exception of the Genco Cavalier, the aforementioned six vessels that were sold during the year ended December 31, 2018 and the Genco Vigour did not serve as collateral under any of the Company’s credit facilities; therefore the Company was not required to pay down any indebtedness with the proceeds from the sales.
Refer to the “Impairment of vessel assets” and the “Loss (gain) on sale of vessels” sections in Note 2 - Summary of Significant Accounting Policies for discussion of impairment expense and the loss (gain) on sale of vessels recorded during the years ended December 31, 2020, 2019 and 2018 for the aforementioned vessels.
5 - NET LOSS PER SHARE
The computation of basic net loss per share is based on the weighted-average number of common shares outstanding during the reporting period. The computation of diluted net loss per share assumes the vesting of nonvested stock awards and the exercise of stock options (refer to Note 16 - Stock-Based Compensation), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive. There were 298,834, 162,096 and 149,170 shares of
restricted stock and restricted stock units excluded from the computation of diluted net loss per share during the years ended December 31, 2020, 2019 and 2018, respectively, because they were anti-dilutive. There were 837,338, 496,148 and 255,608 stock options excluded from the computation of diluted net loss per share during the years ended December 31, 2020, 2019 and 2018, respectively, because they were anti-dilutive. (refer to Note 16 - Stock-Based Compensation)
The Company’s diluted net loss per share will also reflect the assumed conversion of the equity warrants issued when the Company emerged from bankruptcy on July 9, 2014 (the “Effective Date”) and MIP Warrants issued by the Company (refer to Note 16 - Stock-Based Compensation) if the impact is dilutive under the treasury stock method. The equity warrants have a 7-year term which commenced on the day following the Effective Date and are exercisable for one tenth of a share of the Company’s common stock. All MIP Warrants during the years ended December 31, 2020, 2019 and 2018 were excluded from the computation of diluted net loss per share because they were anti-dilutive. The MIP Warrants expired on August 7, 2020. There were 3,936,761 equity warrants excluded from the computation of diluted net loss per share during the years ended December 31, 2020, 2019 and 2018 because they were anti-dilutive.
The components of the denominator for the calculation of basic and diluted net loss per share are as follows:
For the Years Ended December 31,
Common shares outstanding, basic:
Weighted-average common shares outstanding, basic
41,907,597
41,762,893
38,382,599
Common shares outstanding, diluted:
Weighted-average common shares outstanding, basic
41,907,597
41,762,893
38,382,599
Dilutive effect of warrants
-
-
-
Dilutive effect of stock options
-
-
-
Dilutive effect of restricted stock awards
-
-
-
Weighted-average common shares outstanding, diluted
41,907,597
41,762,893
38,382,599
6 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2020, 2019 and 2018, the Company did not identify any related party transactions.
7 - DEBT
Long-term debt consists of the following:
December 31,
December 31,
Principal amount
$
449,228
$
495,824
Less: Unamortized debt financing costs
(9,653)
(13,094)
Less: Current portion
(80,642)
(69,747)
Long-term debt, net
$
358,933
$
412,983
December 31, 2020
December 31, 2019
Unamortized
Unamortized
Debt Issuance
Debt Issuance
Principal
Cost
Principal
Cost
$495 Million Credit Facility
$
334,288
$
8,222
$
395,724
$
11,642
$133 Million Credit Facility
114,940
1,431
100,100
1,452
Total debt
$
449,228
$
9,653
$
495,824
$
13,094
As of December 31, 2020 and 2019, $9,653 and $13,094 of deferred financing costs, respectively, were presented as a direct deduction within the outstanding debt balance in the Company’s Consolidated Balance Sheets. Amortization expense for deferred financing costs for the years ended December 31, 2020, 2019 and 2018 was $3,903, $3,788 and $3,035, respectively. This amortization expense is recorded as a component of Interest expense in the Consolidated Statements of Operations.
Effective June 5, 2018, the portion of the unamortized deferred financing costs for the $400 Million Credit Facility and 2014 Term Loan Facilities that was identified as a debt modification, rather than an extinguishment of debt, is being amortized over the life of the $495 Million Credit Facility in accordance with ASC 470-50. During the year ended December 31, 2018, the Company paid $2,962 of debt extinguishment costs in relation to the refinancing of the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities with the $495 Million Credit Facility.
On November 5, 2019, the Company entered into amendments with its lenders to the dividend covenants of the credit agreements for the $495 Million Credit Facility and the $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. The Company may pay dividends or repurchase stock under these facilities to the extent its total cash and cash equivalents are greater than $100,000 and 18.75% of our total indebtedness, whichever is higher; if the Company cannot satisfy this condition, the Company is 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 $35,000 of the scrubber tranche under the $495 Million Credit Facility is assumed to be drawn.
$133 Million Credit Facility
On August 14, 2018, the Company entered into a five-year senior secured credit facility (the “$108 Million Credit Facility”) with Crédit Agricole Corporate & Investment Bank (“CACIB”), as Structurer and Bookrunner, CACIB and Skandinaviska Enskilda Banken AB (Publ) as Mandate Lead Arrangers, CACIB as Administrative Agent and as Security Agent, and the other lenders party thereto from time to time. The Company has used proceeds from the $108 Million Credit Facility to finance a portion of the purchase price for the six vessels, including four Capesize Vessels and two Ultramax vessels, which were delivered to the Company during the three months ended September 30, 2018 (refer to Note 4 - Vessel Acquisitions and Dispositions). These six vessels also serve as collateral under the $108 Million
Credit Facility. The Company drew down a total of $108,000 during the third quarter of 2018, which represents 45% of the appraised value of the six vessels.
On June 11, 2020, the Company entered into an amendment and restatement agreement to the $108 Million Credit Facility which provided for a revolving credit facility of up to $25,000 (the “Revolver”) for general corporate and working capital purposes (as so amended, the $133 Million Credit Facility”). On June 15, 2020, the Company drew down $24,000 under the Revolver.
The $133 Million Credit Facility provides for the following key terms in relation to the $108,000 tranche:
● The final maturity date is August 14, 2023.
● Borrowings bear interest at London Interbank Offered Rate (“LIBOR”) plus 2.50% through September 30, 2019 and LIBOR plus a range of 2.25% to 2.75% thereafter, dependent upon the Company’s ratio of total net indebtedness to the last twelve months EBITDA.
● Scheduled amortization payments reflect a repayment profile whereby the facility shall have been repaid to nil when the average vessel aged of the collateral vessels reaches 20 years. Based on this, the required repayments are $1,580 per quarter commencing on December 31, 2018, with a final balloon payment on the maturity date.
● Mandatory prepayments are to be applied to remaining amortization payments pro rata, while voluntary prepayments are to be applied to remaining amortization payments in order of maturity.
The $133 Million Credit Facility provides for the following key terms in relation to the $25,000 Revolver tranche:
● The final maturity date of the Revolver is August 14, 2023.
● Borrowings under the Revolver may be incurred pursuant to multiple drawings on or prior to July 1, 2023 in minimum amounts of $1,000
● Borrowings under the Revolver will bear interest at LIBOR plus 3.00%
● The Revolver is subject to consecutive quarterly commitment reductions commencing on the last day of the fiscal quarter ending September 30, 2020 in an amount equal to approximately $1.9 million each quarter.
● Borrowings under the Revolver are subject to a limit of 60% for the ratio of outstanding total term and revolver loans to the aggregate appraised value of collateral vessels under the $133 Million Credit Facility.
The $133 Million Credit Facility provides for the following key terms:
● Pursuant to the November 5, 2019 amendment, the Company may pay dividends or repurchase stock to the extent the Company’s total cash and cash equivalents are greater than $100,000 and 18.75% of its total indebtedness, whichever is higher; if the Company cannot satisfy this condition, the Company is 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.
● Acquisitions and additional indebtedness are allowed subject to compliance with financial covenants (including a collateral maintenance test) and other customary conditions.
● Key financial covenants are substantially similar to those under the Company’s $495 Million Credit Facility and include:
● minimum liquidity, with unrestricted cash and cash equivalents to equal or exceed the greater of $30,000 and 7.5% of total indebtedness;
● minimum working capital, with consolidated current assets (excluding restricted cash) minus consolidated current liabilities (excluding the current portion of long-term indebtedness) to be not less than zero;
● debt to capitalization, with the ratio of total indebtedness to total capitalization to be not more than 70%; and
● collateral maintenance, with the aggregate appraised value of collateral vessels to be at least 135% of the principal amount of the loan outstanding under the $133 Million Credit Facility.
As of December 31, 2020, there was no availability under the $133 Million Credit Facility. Total debt repayments of $9,160, $6,320 and $1,580 were made during the years ended December 31, 2020, 2019 and 2018, respectively, under the $133 Million Credit Facility. As of December 31, 2020 and 2019, the total outstanding net debt balance was $113,509 and $98,648, respectively.
As of December 31, 2020, the Company was in compliance with all of the financial covenants under the $133 Million Credit Facility.
The following table sets forth the scheduled repayment of the outstanding principal debt of $114,940 as of December 31, 2020 under the $133 Million Credit Facility:
Year Ending December 31,
Total
$
14,000
14,000
86,940
Total debt
$
114,940
$495 Million Credit Facility
On May 31, 2018, the Company entered into a five-year senior secured credit facility for an aggregate amount of up to $460,000 with Nordea Bank AB (publ), New York Branch (“Nordea”), as Administrative Agent and Security Agency, the various lenders party thereto, and Nordea, Skandinaviska Enskilda Banken AB (publ), ABN AMRO Capital USA LLC, DVB Bank SE, Crédit Agricole Corporate & Investment Bank, and Danish Ship Finance A/S as Bookrunners and Mandated Lead Arrangers. Deutsche Bank AG Filiale Deutschlandgeschäft, and CTBC Bank Co. Ltd. are Co-Arrangers under this facility. On June 5, 2018, proceeds of $460,000 under this facility were used, together with cash on hand, to refinance all of the Company’s existing credit facilities (the $400 Million Credit Facility, $98 Million Credit Facility and 2014 Term Loan Facilities) into one facility, and pay down the debt on seven of the Company’s oldest vessels, which have been identified for sale.
On February 28, 2019, the Company entered into an Amendment and Restatement Agreement (the “Amendment”) for this credit facility (the “$495 Million Credit Facility”) with Nordea Bank AB (publ), New York Branch (“Nordea”), as Administrative Agent and Security Agent, the various lenders party thereto, and Nordea, Skandinaviska Enskilda Banken AB (publ), ABN AMRO Capital USA LLC, DVB Bank SE, Crédit Agricole Corporate & Investment Bank, and Danish Ship Finance A/S as Bookrunners and Mandated Lead Arrangers. The Amendment provides for an additional tranche up to $35,000 to finance a portion of the acquisitions, installations, and related costs for scrubbers for 17 of the Company’s Capesize vessels. On August 28, 2019, September 23, 2019 and March 12, 2020, the Company made total drawdowns of $9,300, $12,200 and $11,250, respectively, under the $35 Million tranche of the $495 Million Credit Facility.
On December 7, 2020, the Company utilized $6,045 of the proceeds from the sale of the Genco Raptor which was classified as restricted cash as of December 31, 2019 as a loan prepayment under the $495 Million Credit Facility. On November 15, 2019, the Company utilized $6,880 of the proceeds from the sale of the Genco Challenger and Genco Champion which were sold during the fourth quarter of 2019 as a loan prepayment under the $495 Million Credit Facility. Additionally, on April 15, 2019, the Company utilized $4,947 of the proceeds from the sale of the Genco Cavalier that was classified as restricted cash as of December 31, 2018 as a loan prepayment under the $495 Million Credit Facility. Under the terms of the $495 Million Credit Facility, the amount received from the proceeds of the sale of a collateralized vessel can be used towards the financing of a replacement vessel or vessels meeting certain requirements and added as collateral under the facility. However, since a replacement vessel was not added as collateral within the period stipulated in the $495 Million Credit Facility which was revised as noted below, the Company was required to utilize the proceeds as a loan prepayment.
On December 17, 2020, the Company entered into an amendment to the $495 Million Credit Facility that allowed the Company to enter into a vessel transaction in which the Company agreed to acquire three Ultramax vessels in exchange for six of the Company’s Handysize vessels. Refer to Note 4 - Vessel Acquisitions and Dispositions.
The $495 Million Credit Facility provides for the following key terms in relation to the $460,000 tranche:
● The final maturity date is May 31, 2023.
● Borrowings bear interest at LIBOR plus 3.25% through December 31, 2018 and LIBOR plus a range of 3.00% and 3.50% thereafter, dependent upon the Company’s ratio of total net indebtedness to the last twelve months EBITDA. Original scheduled amortization payments were $15,000 per quarter commencing on December 31, 2018, with a final payment of $190,000 due on the maturity date. As a result of the loan prepayments for the vessel sales as noted above, scheduled amortization payments were recalculated in accordance with the terms of the facility. Scheduled amortization payments were revised to $14,321 which commenced on December 30, 2019, with a final payment of $182,440 due on the maturity date.
● Scheduled amortization payments may be recalculated upon the Company’s request based on changes in collateral vessels, prepayments of the loan made as a result of a collateral vessel disposition as part of the Company’s fleet renewal program, or voluntary prepayments, subject in each case to a minimum repayment profile under which the loan will be repaid to nil when the average age of the vessels serving as collateral from time to time reaches 17 years. Mandatory prepayments are applied to remaining amortization payments pro rata, while voluntary prepayments are applied to remaining amortization payments in order of maturity.
● Acquisitions and additional indebtedness are allowed subject to compliance with financial covenants, a collateral maintenance test, and other customary conditions.
The $495 Million Credit Facility provides for the following key terms in relation to the $35,000 tranche:
● The final maturity date is May 31, 2023.
● Borrowings under the tranche may be incurred pursuant to multiple drawings on or prior to March 30, 2020 in minimum amounts of $5,000 and may be used to finance up to 90% of the scrubber costs noted above.
● Borrowings under the tranche will bear interest at LIBOR plus 2.50% through September 30, 2019 and LIBOR plus a range of 2.25% to 2.75% thereafter, dependent upon the Company’s ratio of total net indebtedness to the last twelve months’ EBITDA.
● The tranche is subject to equal consecutive quarterly repayments commencing on the last day of the fiscal quarter ending March 31, 2020 in an amount reflecting a repayment profile whereby the loans shall have
been repaid after four years calculated from March 31, 2020. Assuming that the full $35,000 is borrowed, each quarterly repayment amount was originally scheduled to be equal to $2,500. However, as a result of the loan prepayments for the vessel sales as noted above, the availability under the $35,000 tranche was reduced to $34,025. The Company drew down $32,750 and, as a result of the loan prepayments for the vessel sales as noted above, scheduled quarterly amortization repayments were revised to $2,339 which commenced on March 31, 2020, with a final payment of $1,904 due on the maturity date.
The $495 Million Credit Facility provides for the following key terms:
● Pursuant to the November 5, 2019 amendment, the Company may pay dividends or repurchase stock to the extent the Company’s total cash and cash equivalents are greater than $100,000 and 18.75% of the Company’s total indebtedness, whichever is higher; if the Company cannot satisfy this condition, the Company is subject to a limitation of 50% of consolidated net income for the quarter preceding such dividend payment if the collateral maintenance test ratio is 200% or less for such quarter, with the full commitment of up to $35,000 of the scrubber tranche assumed to be drawn.
● 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 within 120 days of such sale or disposition. On February 13, 2019 and June 5, 2020, the Company entered into amendments with its lenders to extend this period to 180 days and 360 days, respectively. In addition:
● the Company must be in compliance with the collateral maintenance test;
● the replacement vessels must become collateral for the loan; and either
● the replacement vessels must have an equal or greater appraised value that the collateral vessels for which they are substituted, or
● ratio of the aggregate appraised value of the collateral vessels (including replacement vessels) to the outstanding loan amount after the collateral disposition (accounting for any prepayments of the loan by the time the replacement vessels become collateral vessels) must equal or exceed the aggregate appraised value of the collateral vessels to the outstanding loan before the collateral disposition.
● Key financial covenants include:
● minimum liquidity, with unrestricted cash and cash equivalents to equal or exceed the greater of $30,000 and 7.5% of total indebtedness (no restricted cash is required);
● minimum working capital, with consolidated current assets (excluding restricted cash) minus consolidated current liabilities (excluding the current portion of long-term indebtedness) to be not less than zero;
● debt to capitalization, with the ratio of total indebtedness to total capitalization to be not more than 70%; and
● collateral maintenance, with the aggregate appraised value of collateral vessels to be at least 135% of the principal amount of the loan outstanding under the $495 Million Credit Facility.
● Collateral includes the current vessels in the Company’s fleet other than the seven oldest vessels in the fleet which have been identified for sale, collateral vessel earnings and insurance, and time charters in excess of 24 months in respect of the collateral vessels.
As of December 31, 2020, there was no availability under the $495 Million Credit Facility. Total debt repayments of $72,686, $70,776 and $15,000 were made during the years ended December 31, 2020, 2019 and 2018, respectively, under the $495 Million Credit Facility. As of December 31, 2020 and December 31, 2019, the total outstanding net debt balance was $326,066 and $384,082, respectively.
As of December 31, 2020, the Company was in compliance with all of the financial covenants under the $495 Million Credit Facility.
The following table sets forth the scheduled repayment of the outstanding principal debt of $334,288 as of December 31, 2020 under the $495 Million Credit Facility:
Year Ending December 31,
Total
$
66,642
66,642
201,004
Total debt
$
334,288
Prior Credit Facilities
On June 5, 2018, the $495 Million Credit Facility was used to refinance the Company’s prior credit facilities, the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities. Total debt repayments of $404,941 (which includes $5,341 of PIK interest), $93,939 and $25,544 were made during the year ended December 31, 2018 under the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities, respectively. As of December 31, 2020 and 2019, there was no outstanding debt under these prior credit facilities.
Interest rates
The following tables set forth the effective interest rate associated with the interest expense for the Company’s debt facilities noted above, including the costs associated with unused commitment fees, if applicable. The following tables also include the range of interest rates on the debt, excluding the impact of unused commitment fees, if applicable:
For the Years Ended December 31,
Effective Interest Rate
3.71
%
5.31
%
5.71
%
Range of Interest Rates (excluding unused commitment fees)
2.65 % to 3.50
%
4.05 % to 5.76
%
3.83 % to 8.43
%
Letter of credit
In conjunction with the Company entering into a long-term office space lease (See Note 13 - Leases), the Company was required to provide a letter of credit to the landlord in lieu of a security deposit. As of September 21, 2005, the Company obtained an annually renewable unsecured letter of credit with DnB NOR Bank at a fee of 1% per annum. During September 2015, the Company replaced the unsecured letter of credit with DnB NOR Bank with an unsecured letter of credit with Nordea Bank Finland Plc, New York and Cayman Island Branches (“Nordea”) in the same amount at a fee of 1.375% per annum. The letter of credit outstanding was $300 as of December 31, 2020 and 2019 at a fee of 1.375% per annum. The letter of credit is cancelable on each renewal date provided the landlord is given 30 days minimum notice. As of December 31, 2020 and 2019, the letter of credit outstanding has been securitized by $315 that
was paid by the Company to Nordea during the year ended December 31, 2015. These amounts have been recorded as restricted cash included in total noncurrent assets in the Consolidated Balance Sheets as of December 31, 2020 and 2019.
-
8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values and carrying values of the Company’s financial instruments as of December 31, 2020 and 2019 which are required to be disclosed at fair value, but not recorded at fair value, are noted below.
December 31, 2020
December 31, 2019
Carrying
Carrying
Value
Fair Value
Value
Fair Value
Cash and cash equivalents
$
143,872
$
143,872
$
155,889
$
155,889
Restricted cash
35,807
35,807
6,360
6,360
Principal amount of floating rate debt
449,228
449,228
495,824
495,824
The carrying value of the borrowings under the $495 Million Credit Facility and the $133 Million Credit Facility as of December 31, 2020 and 2019 approximate their fair value due to the variable interest nature thereof as each of these credit facilities represent floating rate loans. Refer to Note 7 - Debt for further information regarding the Company’s credit facilities. The carrying amounts of the Company’s other financial instruments as of December 31, 2020 and 2019 (principally Due from charterers and Accounts payable and accrued expenses) approximate fair values because of the relatively short maturity of these instruments.
ASC Subtopic 820-10, “Fair Value Measurements & Disclosures” (“ASC 820-10”), applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the consolidated financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 requires significant management judgment. The three levels are defined as follows:
● Level 1-Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.
● Level 2-Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
● Level 3-Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short-term maturities. Floating rate debt is considered to be a Level 2 item as the Company considers the estimate of rates it could obtain for similar debt or based upon transactions amongst third parties. Nonrecurring fair value measurements include vessel impairment assessments completed during the interim period and at year-end as determined based on third party quotes, which are based off of various data points, including comparable sales of similar vessels, which are Level 2 inputs. During the years ended December 31, 2020, 2019 and 2018, the vessels assets for 30, five and ten of the Company’s vessels, respectively, were written down as part of the impairment recorded during the years ended December 31, 2020, 2019 and 2018, respectively. The vessels held for sale and vessels held for exchange as of December 31, 2020 and 2019 were written down as part of the impairment recorded during the years ended December
31, 2020 and 2019, respectively. Refer to “Impairment of long-lived assets,” “Vessels held for sale” and “Vessels held for exchange” sections in Note 2 - Summary of Significant Accounting Policies.
Nonrecurring fair value measurements also include impairment tests conducted by the Company during the years ended December 31, 2020 and 2019 of its operating lease right-of use asset. The fair value determination for the operating lease right-of-use asset was based on third party quotes, which is considered a Level 2 input. During the year ended December 31, 2020, there was no impairment of the operating lease right-of-use assets. During the year ended December 31, 2019, the operating lease right-of-use asset was written down as part of the impairment of right-of-use asset recorded during the year ended December 31, 2019. Refer to Note 13 - Leases.
The Company did not have any Level 3 financial assets or liabilities as of December 31, 2020 and 2019.
9 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
December 31,
December 31,
Vessel stores
$
$
Capitalized contract costs
1,669
1,952
Prepaid items
2,998
2,870
Insurance receivable
1,917
2,039
Advance to agents
1,466
1,162
Other
2,305
1,388
Total prepaid expenses and other current assets
$
10,856
$
10,049
10 - FIXED ASSETS
Fixed assets consist of the following:
December 31,
December 31,
Fixed assets, at cost:
Vessel equipment
$
6,188
$
7,288
Furniture and fixtures
Leasehold improvements
1,369
Computer equipment
Total costs
8,659
8,130
Less: accumulated depreciation and amortization
(2,266)
(2,154)
Total fixed assets, net
$
6,393
$
5,976
11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31,
December 31,
Accounts payable
$
11,864
$
26,040
Accrued general and administrative expenses
3,258
4,105
Accrued vessel operating expenses
7,671
19,459
Total accounts payable and accrued expenses
$
22,793
$
49,604
12 - VOYAGE REVENUES
Total voyage revenues includes revenue earned on fixed rate time charters, spot market voyage charters and spot market-related time charters, as well as the sale of bunkers consumed during short-term time charters. For the years ended December 31, 2020, 2019 and 2018, the Company earned $355,560, $389,496 and $367,522 of voyage revenue, respectively.
On January 1, 2018, the Company adopted the revenue recognition guidance under ASC 606 (refer to Note 2 - Summary of Significant Accounting Policies) using the modified retrospective method applied to contracts that were not completed as of January 1, 2018.
As a result of the adoption of the new revenue recognition guidance on January 1, 2018, the Company recorded a net increase to the opening accumulated deficit of $659 for the cumulative impact of adopting the new guidance. The impact related primarily to the change in accounting for spot market voyage charters. Prior to the adoption of the new guidance, revenue for spot market voyage charters was recognized ratably over the total transit time of the voyage, which previously commenced the latter of when the vessel departed from its last discharge port and when an agreement was entered into with the charterer, and ended at the time the discharge of cargo was completed at the discharge port. As a result of the adoption of the new guidance, revenue for spot market voyage charters is now being recognized ratably over the total transit time of the voyage which now begins when the vessel arrives at the loading port and ends at the time the discharge of cargo is completed at the discharge port in accordance with ASC 606. Spot market voyage charter agreements do not provide the charterers with substantive decision-making rights to direct how and for what purpose the vessel is used, therefore revenue from spot market voyage charters is not within the scope of ASC 842. Additionally, the Company has identified that the contract fulfillment costs of spot market voyage charters consist primarily of the fuel consumption that is incurred by the Company from the latter of the end of the previous vessel employment and the contract date until the arrival at the loading port, in addition to any port expenses incurred prior to arrival at the load port, as well as any charter hire expenses for third party vessels that are chartered-in. The fuel consumption and any port expenses incurred prior to arrival at the load port during this period is capitalized and recorded in Prepaid expenses and other current assets in the Consolidated Balance Sheets and is amortized ratably over the total transit time of the voyage from arrival at the loading port until the vessel departs from the discharge port and expensed as part of Voyage Expenses. Similarly, for any third party vessels that are chartered-in, the charter hire expenses during this period are capitalized and recorded in Prepaid expenses and other current assets in the Consolidated Balance Sheets and are amortized and expensed as part of Charter hire expenses. Refer also to Note 9 - Prepaid Expenses and Other Current Assets.
During time charter agreements, including fixed rate time charters and spot market-related time charters, the charterers have substantive decision-making rights to direct how and for what purpose the vessel is used. As such, the Company has identified that time charter agreements contain a lease in accordance with ASC 842. During time charter agreements, the Company is responsible for operating and maintaining the vessels. These costs are recorded as vessel operating expenses in the Consolidated Statements of Operations. The Company has elected the practical expedient that allows the Company to combine lease and non-lease components under ASC 842 as the Company believes (1) the timing and pattern of recognizing revenues for operating the vessel is the same as the timing and pattern of recognizing vessel leasing revenue; and (2) the lease component, if accounted for separately, would be classified as an operating lease.
Total voyage revenue recognized in the Consolidated Statements of Operations includes the following:
For the Years Ended
December 31,
Lease revenue
$
78,402
$
108,096
$
168,392
Spot market voyage revenue
277,158
281,400
199,130
Total voyage revenues
$
355,560
$
389,496
$
367,522
13 - LEASES
Effective April 4, 2011, the Company entered into a seven-year sub-sublease agreement for its main office in New York, New York. The term of the sub-sublease commenced June 1, 2011 and ended on May 1, 2018. The Company entered into a direct lease with the over-landlord of such office space that commenced immediately upon the expiration of such sub-sublease agreement, for a term covering the period from May 1, 2018 to September 30, 2025. For accounting purposes, the sub-sublease agreement and direct lease agreement with the landlord constitute one lease agreement.
In addition, during October 2017, the Company entered into a lease for office space in Singapore that expired in January 2019. A lease was signed for a new office space in Singapore effective January 17, 2019 for a three-year term.
Lastly, during July 2018, the Company entered into a lease for office space in Copenhagen, which commenced on July 1, 2018 and ended on April 30, 2019. A lease was signed for a new office space in Copenhagen effective May 1, 2019 for a minimum period ending May 1, 2023.
The Company adopted ASC 842 using the transition method on January 1, 2019 (refer to Note 2 - Summary of Significant Accounting Policies) and has identified the aforementioned leases as operating leases. Variable rent expense, such as utilities and escalation expenses, are excluded from the determination of the operating lease liability and the Company has deemed these insignificant. The Company used its incremental borrowing rate as the discount rate under ASC 842 since the rate implicit in the lease cannot be readily determined.
On June 14, 2019, the Company entered into a sublease agreement for a portion of the leased space for its main office in New York, New York that commenced on July 26, 2019 and will end on September 29, 2025. There was a free base rental period for the first four and a half months commencing on July 26, 2019. Following the expiration of the free base rental period, the monthly base sublease income will be $102 per month until September 29, 2025. The sublease income for the portion of the leased space is less than the lease payments due for the space, which has been identified as an indicator of impairment under ASC 360. As such, the right-of-use asset for the subleased portion of the space was written down to its fair value during the second quarter of 2019 which resulted in $223 of impairment charges which has been recorded in Impairment of right-of-asset in the Consolidated Statement of Operations during the year ended December 31, 2019. Sublease income is recorded net with the total operating lease costs in General and administrative expenses in the Consolidated Statements of Operations. There was $1,223 and $72 of sublease income recorded during the years ended December 31, 2020 and 2019, respectively. There was no sublease income recorded for this sublease agreement during the year ended December 31, 2018.
There was $1,912 and $1,884 of operating lease costs recorded during the years ended December 31, 2020 and 2019, respectively, which was recorded in General and administrative expenses in the Consolidated Statements of Operations.
Supplemental Consolidated Balance Sheet information related to the Company’s operating leases as of December 31, 2020 is as follows:
December 31,
Operating Lease:
Operating lease right-of-use asset
$
6,882
Current operating lease liabilities
$
1,765
Long-term operating lease liabilities
8,061
Total operating lease liabilities
$
9,826
Weighted average remaining lease term (years)
4.75
Weighted average discount rate
5.15
%
Maturities of operating lease liabilities as of December 31, 2020 are as follows:
December 31,
$
2,230
2,230
2,378
2,453
1,839
Total lease payments
11,130
Less imputed interest
(1,304)
Present value of lease liabilities
$
9,826
Consolidated Cash Flow information related to leases are as follows:
For the Year Ended
December 31,
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease
$
2,230
$
2,230
Under the previous leasing guidance under ASC 840, rent expense pertaining to this lease for the year ended December 31, 2018 was $1,808.
During the second quarter of 2018, the Company began chartering-in third-party vessels. Under ASC 842, the Company is the lessee in these agreements. The Company has elected the practical expedient under ASC 842 to not recognize right-of-use assets and lease liabilities for short-term leases. During the years ended December 31, 2020, 2019 and 2018, all charter-in agreements for third-party vessels were less than twelve months and considered short-term leases. Refer to Note 2 - Summary of Significant Accounting Policies for the charter hire expenses recorded during the years ended December 31, 2020, 2019 and 2018 for these charter-in agreements.
14 - COMMITMENTS AND CONTINGENCIES
During the second half of 2018, the Company entered into agreements for the purchase of ballast water treatments systems (“BWTS”) for 36 of its 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 during the vessels’ scheduled drydockings. 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, $0.6 million for Supramax vessels and $0.5 million for Handysize vessels. These costs will be capitalized and depreciated over the remainder of the life of the vessel. Prior to any adjustments for vessel impairment and vessel sales, the Company recorded cumulatively $17,009 and $12,783 in Vessel assets in the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively, related to BWTS additions.
On December 21, 2018, the Company entered into agreements to install scrubbers on its 17 Capesize vessels. The Company completed scrubber installation on 16 of its Capesize vessels during the year ended December 31, 2019 and the remaining Capesize vessel on January 17, 2020. The cost of each scrubber varied according to the specifications of the Company’s vessels and technical aspects of the installation, among other variables. These costs are being capitalized and depreciated over the remainder of the life of the vessel. The Company recorded cumulatively $42,728 and $41,270 in Vessel assets in the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively, related to scrubber additions. The Company has entered into an amendment to the $495 Million Credit Facility to provide financing to cover a portion of these expenses, refer to Note 7 - Debt for further information.
15 - SAVINGS PLAN
In August 2005, the Company established a 401(k) plan that is available to U.S. based full-time employees who meet the plan’s eligibility requirements. This 401(k) plan is a defined contribution plan, which permits employees to make contributions up to maximum percentage and dollar limits allowable by IRS Code Sections 401(k), 402(g), 404 and 415 with the Company matching $1.17 for each dollar contributed up to the first six percent of each employee’s salary. The matching contribution vests immediately. For the years ended December 31, 2020, 2019 and 2018, the Company’s matching contributions to this plan were $473, $399 and $380, respectively.
16 - STOCK-BASED COMPENSATION
2014 Management Incentive Plan
In 2014, the Company adopted the Genco Shipping & Trading Limited 2014 Management Incentive Plan (the “MIP”). An aggregate of 966,806 shares of Common Stock were available for award under the MIP. Awards under the MIP took the form of restricted stock grants and three tiers of MIP Warrants with staggered strike prices based on increasing equity values. On August 7, 2014, pursuant to the MIP, certain individuals were granted MIP Warrants whereby each warrant could be converted on a cashless basis for the amount in excess of the respective strike price. The MIP Warrants were issued in three tranches for 238,066, 246,701, and 370,979 and had exercise prices, as adjusted for dividends declared during the fourth quarter of 2019 and the first quarter of 2020, of $240.89221 (the “$240.89 Warrants”), $267.11051 (the “$267.11 Warrants”) and $317.87359 (the “$317.87 Warrants”) per whole share, respectively. The fair value of each warrant upon emergence from bankruptcy was $7.22 for the $240.89 Warrants, $6.63 for the $267.11 Warrants and $5.63 for the $317.87 Warrants. The aggregate fair value of these awards upon issuance was $54,436.
All warrants were fully vested and the related expense was fully amortized as of January 1, 2018 and expired on August 7, 2020.
2015 Equity Incentive Plan
On June 26, 2015, the Company’s Board of Directors approved the 2015 Equity Incentive Plan for awards with respect to an aggregate of 400,000 shares of common stock (the “2015 Plan”). Under the 2015 Plan, the Company’s Board of Directors, the compensation committee, or another designated committee of the Board of Directors may grant a variety of stock-based incentive awards to the Company’s officers, directors, employees, and consultants. Awards may consist of stock options, stock appreciation rights, dividend equivalent rights, restricted (nonvested) stock, restricted stock units, and unrestricted stock.
On March 23, 2017, the Board of Directors approved an amendment and restatement of the 2015 Plan (the “Amended 2015 Plan”). This amendment and restatement increased the number of shares available for awards under the plan from 400,000 to 2,750,000, subject to shareholder approval; set the annual limit for awards to non-employee directors and other individuals as 500,000 and 1,000,000 shares, respectively; and modified the change in control definition. The Company’s shareholders approved the increase in the number of shares at the Company’s 2017 Annual Meeting of Shareholders on May 17, 2017. As of December 31, 2020, the Company has awarded restricted stock units, restricted stock and stock options under the Amended 2015 Plan.
Stock Options
On March 23, 2017, the Company issued options to purchase 133,000 of the Company’s shares of common stock to John C. Wobensmith, Chief Executive Officer and President, with an exercise price of $10.805 per share, as adjusted for the special dividend declared on November 5, 2019. One third of the options become exercisable on each of the first three anniversaries of October 15, 2016, with accelerated vesting upon a change in control of the Company, and all unexercised options expire on the sixth anniversary of the grant date. The fair value of each option was estimated on the date of the grant using the Black-Scholes-Merton pricing formula, resulting in a value of $6.41 per share, or $853 in the aggregate. The assumptions used in the Black-Scholes-Merton option pricing formula are as follows: volatility of 79.80% (representing a blend of the Company’s historical volatility and a peer-based volatility estimate due to limited trading history since emergence from bankruptcy), a risk-free interest rate of 1.68%, a dividend yield of 0%, and expected life of 3.78 years (determined using the simplified method as outlined in Staff Accounting Bulletin 14 - Share-Based Payment (“SAB Topic 14”) due to lack of historical exercise data).
On February 27, 2018, the Company issued options to purchase 122,608 of the Company’s shares of common stock to certain individuals with an exercise price of $13.365 per share, as adjusted for the special dividend declared on November 5, 2019. One third of the options become exercisable on each of the first three anniversaries of February 27, 2018, with accelerated vesting that may occur following a change in control of the Company, and all unexercised options expire on the sixth anniversary of the grant date. The fair value of each option was estimated on the date of the grant using the Black-Scholes-Merton pricing formula, resulting in a value of $7.55 per share, or $926 in the aggregate. The assumptions used in the Black-Scholes-Merton option pricing formula are as follows: volatility of 71.94% (representing a blend of the Company’s historical volatility and a peer-based volatility estimate due to limited trading history post recapitalization of the Company in November 2016), a risk-free interest rate of 2.53%, a dividend yield of 0%, and expected life of 4.00 years (determined using the simplified method as outlined in SAB Topic 14 due to lack of historical exercise data).
On March 4, 2019, the Company issued options to purchase 240,540 of the Company’s shares of common stock to certain individuals with an exercise price of $8.065 per share, as adjusted for the special dividend declared on November 5, 2019. One third of the options become exercisable on each of the first three anniversaries of March 4, 2019, with accelerated vesting that may occur following a change in control of the Company, and all unexercised options expire on the sixth anniversary of the grant date. The fair value of each option was estimated on the date of the grant using the Black-Scholes-Merton pricing formula, resulting in a value of $3.76 per share, or $904 in the aggregate. The assumptions used in the Black-Scholes-Merton option pricing formula are as follows: volatility of 55.23% (representing the Company’s historical volatility), a risk-free interest rate of 2.49%, a dividend yield of 0%, and expected life of 4.00 years (determined using the simplified method as outlined in SAB Topic 14 due to lack of historical exercise data).
On February 25, 2020, the Company issued options to purchase 344,568 of the Company’s shares of common stock to certain individuals with an exercise price of $7.06 per share. One third of the options become exercisable on each of the first three anniversaries of February 25, 2020, with accelerated vesting that may occur following a change in control of the Company, and all unexercised options expire on the sixth anniversary of the grant date. The fair value of each option was estimated on the date of the grant using the Cox-Ross-Rubinstein pricing formula, resulting in a value of $2.01 per share, or $693 in the aggregate. The assumptions used in the Cox-Ross-Rubinstein option pricing formula are as follows: volatility of 53.91% (representing the Company’s historical volatility), a risk-free interest rate of 1.41%, a dividend yield of 7.13%, and expected life of 4 years (determined using the simplified method as outlined in SAB Topic 14 due to lack of historical exercise data).
For the years ended December 31, 2020, 2019 and 2018, the Company recognized amortization expense of the fair value of these options, which is included in General and administrative expenses, as follows:
For the Years Ended December 31,
General and administrative expenses
$
$
$
Amortization of the unamortized stock-based compensation balance of $490 as of December 31, 2020 is expected to be $367, $111 and $12 during the years ended December 31, 2021, 2022 and 2023, respectively. The following table summarizes the unvested option activity for the years ended December 31, 2020, 2019 and 2018:
For the Years Ended December 31,
Weighted
Weighted
Weighted
Weighted
Weighted
Weighted
Number
Average
Average
Number
Average
Average
Number
Average
Average
of
Exercise
Fair
of
Exercise
Fair
of
Exercise
Fair
Options
Price
Value
Options
Price
Price
Options
Price
Price
Outstanding as of January 1 - Unvested
322,279
$
9.41
4.72
166,942
$
13.01
7.25
88,667
$
11.13
6.41
Granted
344,568
7.06
2.01
240,540
8.33
3.76
122,608
13.69
7.55
Exercisable
(119,923)
9.87
5.05
(85,203)
12.36
6.96
(44,333)
11.13
6.41
Exercised
-
-
-
-
-
-
-
-
-
Forfeited
(3,378)
8.07
3.76
-
-
-
-
-
-
Outstanding as of December 31 - Unvested
543,546
$
7.83
$
2.94
322,279
$
9.41
$
4.72
166,942
$
13.01
$
7.25
The following table summarizes certain information about the options outstanding as of December 31, 2020:
Options Outstanding and Unvested,
Options Outstanding and Exercisable,
December 31, 2020
December 31, 2020
Weighted
Weighted
Weighted
Average
Weighted
Average
Weighted
Average
Exercise Price of
Average
Remaining
Average
Remaining
Outstanding
Number of
Exercise
Contractual
Number of
Exercise
Contractual
Options
Options
Price
Life
Options
Price
Life
$
8.86
543,546
$
7.83
4.72
293,792
$
10.78
3.01
As of December 31, 2020 and 2019, a total of 837,338 and 496,148 stock options were outstanding, respectively.
Restricted Stock Units
The Company has issued restricted stock units (“RSUs”) to certain members of the Board of Directors and certain executives and employees of the Company, which represent the right to receive a share of common stock, or in the sole discretion of the Company’s Compensation Committee, the value of a share of common stock on the date that the RSU vests. As of December 31, 2020 and 2019, 373,588 and 326,247 shares, respectively, of the Company’s common stock were outstanding in respect of the RSUs. Such shares will only be issued in respect of vested RSUs issued to directors when the director’s service with the Company as a director terminates. Such shares of common stock will only be issued to executives and employees when their RSUs vest under the terms of their grant agreements and the Amended 2015 Plan described above.
The RSUs that have been issued to certain members of the Board of Directors generally vest on the date of the annual shareholders meeting of the Company following the date of the grant. In lieu of cash dividends issued for vested and nonvested shares held by certain members of the Board of Directors, the Company will grant additional vested and nonvested RSUs, respectively, which are calculated by dividing the amount of the dividend by the closing price per share of the Company’s common stock on the dividend payment date and will have the same terms as other RSUs issued to
members of the Board of Directors. The RSUs that have been issued to other individuals vest ratably on each of the three anniversaries of the determined vesting date. The table below summarizes the Company’s unvested RSUs for the years ended December 31, 2020, 2019 and 2018:
Weighted
Weighted
Weighted
Number of
Average Grant
Number of
Average Grant
Number of
Average Grant
RSUs
Date Price
RSUs
Date Price
RSUs
Date Price
Outstanding as of January 1
162,096
$
9.26
149,170
$
12.42
220,129
$
11.01
Granted
221,903
6.80
140,914
8.50
51,704
14.84
Vested
(83,675)
9.07
(127,988)
12.10
(122,663)
10.92
Forfeited
(1,490)
8.39
-
-
-
-
Outstanding as of December 31
298,834
$
7.49
162,096
$
9.26
149,170
$
12.42
The total fair value of the RSUs that vested during the years ended December 31, 2020, 2019 and 2018 was $550, $1,235 and $1,694, respectively. The total fair value is calculated as the number of shares vested during the period multiplied by the fair value on the vesting date.
The following table summarizes certain information of the RSUs unvested and vested as of December 31, 2020:
Unvested RSUs
Vested RSUs
December 31, 2020
December 31, 2020
Weighted
Weighted
Average
Weighted
Average
Remaining
Average
Number of
Grant Date
Contractual
Number of
Grant Date
RSUs
Price
Life
RSUs
Price
298,834
$
7.49
1.59
505,898
$
11.07
The Company is amortizing these grants over the applicable vesting periods, net of anticipated forfeitures. As of December 31, 2020, unrecognized compensation cost of $849 related to RSUs will be recognized over a weighted-average period of 1.59 years.
For the years ended December 31, 2020, 2019 and 2018, the Company recognized nonvested stock amortization expense for the RSUs, which is included in General and administrative expenses as follows:
For the Years Ended December 31,
General and administrative expenses
$
1,239
$
1,207
$
1,489
Restricted Stock
Under the 2015 Plan, grants of restricted common stock issued to executives ordinarily vest ratably on each of the three anniversaries of the determined vesting date. As of December 31, 2020, all restricted stock awards under the 2015 Plan were vested. The table below summarizes the Company’s nonvested stock awards for the year ended December 31, 2018 that were issued under the 2015 Plan:
For the Year Ended December 31,
Weighted
Number of
Average Grant
Shares
Date Price
Outstanding as of January 1
6,802
$
5.20
Granted
-
-
Vested
(6,802)
5.20
Forfeited
-
-
Outstanding as of December 31
-
$
-
The total fair value of shares that vested under the 2015 Plan during the year ended December 31, 2018 was $60. The total fair value is calculated as the number of shares vested during the period multiplied by the fair value on the vesting date.
For the years ended December 31, 2020, 2019 and 2018, the Company recognized nonvested stock amortization expense for the 2015 Plan restricted shares, which is included in General and administrative expenses, as follows:
For the Years Ended December 31,
General and administrative expenses
$
-
$
-
$
17 - LEGAL PROCEEDINGS
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material effect on the Company, its financial condition, results of operations or cash flows.
18 - UNAUDITED QUARTERLY RESULTS OF OPERATIONS
In the opinion of the Company’s management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation have been included on a quarterly basis.
Quarter Ended (2)
(In thousands, except share and per share amounts)
March 31,
June 30,
September 30,
December 31,
(3)
(3)
(3)
Voyage Revenues
$
98,336
$
74,206
$
87,524
$
95,495
Operating loss
(113,415)
(13,104)
(15,666)
(61,151)
Net loss
(120,350)
(18,204)
(21,098)
(65,921)
Net loss per share - basic (1)
$
(2.87)
$
(0.43)
$
(0.50)
$
(1.57)
Net loss per share - diluted (1)
$
(2.87)
$
(0.43)
$
(0.50)
$
(1.57)
Dividends declared per share
$
0.175
$
0.02
$
0.02
$
0.02
Weighted average common shares outstanding - basic
41,866,357
41,900,901
41,928,682
41,933,926
Weighted average common shares outstanding - diluted
41,866,357
41,900,901
41,928,682
41,933,926
Quarter Ended (2)
(In thousands, except share and per share amounts)
March 31,
June 30,
September 30,
December 31,
Voyage Revenues
$
93,464
$
83,550
$
103,776
$
108,705
Operating (loss) income
(882)
(27,309)
(7,772)
7,560
Net (loss) income
(7,801)
(34,476)
(14,591)
Net (loss) earnings per share - basic (1)
$
(0.19)
$
(0.83)
$
(0.35)
$
0.02
Net (loss) earnings per share - diluted (1)
$
(0.19)
$
(0.83)
$
(0.35)
$
0.02
Dividends declared per share
$
-
$
-
$
-
$
0.50
Weighted average common shares outstanding - basic
41,726,106
41,742,301
41,749,200
41,832,942
Weighted average common shares outstanding - diluted
41,726,106
41,742,301
41,749,200
41,989,553
(1) Amounts may not total to annual loss because each quarter and year are calculated separately based on basic and diluted weighted-average common shares outstanding during that period.
(2) Amounts may not total to annual amounts for the years ended December 31, 2020 and 2019 as reported in the Consolidated Statements of Operations due to rounding.
(3) During the quarters ended March 31, 2020, September 30, 2020 and December 31, 2020, the Company recorded $112,814, $21,896 and $74,225 of Impairment of vessel assets, respectively.
19 - SUBSEQUENT EVENTS
On February 24, 2021, the Company announced a regular quarterly dividend of $0.02 per share to be paid on or about March 17, 2021, to shareholders of record as of March 10, 2021. The aggregate amount of the dividend is expected to be approximately $0.8 million, which the Company anticipates will be funded from cash on hand at the time the payment is to be made.
On February 23, 2021, the Company’s Board of Directors awarded grants of 103,599 RSUs and options to purchase 118,552 shares of the Company’s stock at an exercise price of $9.91 to certain individuals under the 2015 Plan. The awards generally vest ratably in one-third increments on the first three anniversaries of February 23, 2021.
On January 28, 2021 and February 20, 2021, the Company took delivery of the Genco Vigilant and the Genco Freedom, respectively, both 2015-built Ultramax vessels. On January 30, 2021 and February 2, 2021, the Company completed the exchange of the Baltic Cove and Baltic Fox, respectively, both 2010-built Handysize vessels. Additionally, on February 15, 2021, February 21, 2021 and February 24, 2021, the Company completed the exchange of the Genco Spirit, the Genco Avra and the Genco Mare, respectively, all 2011-built Handysize vessels. These vessels were exchanged pursuant to an agreement entered into by the Company on December 17, 2020 whereby the Company is to acquire three Ultramax vessels in exchange for six Handysize vessels. Refer also to Note 4 - Vessel Acquisitions and Dispositions.
On January 25, 2021, the Company entered into an agreement to sell the Baltic Leopard, a 2009-built Supramax vessel, to a third party for $8,000 less a 2.0% commission payable to a third party. The sale of the vessel is expected to be completed during the second quarter of 2021. Refer to Note 2 - Summary of Significant Accounting Policies regarding the impairment recorded for this vessel during the year ended December 31, 2020.
On January 22, 2021, the Company entered into an agreement to sell the Genco Lorraine, a 2009-built Supramax vessel, to a third party for $7,950 less a 2.5% commission payable to a third party. The sale of the vessel is expected to be completed during the second quarter of 2021. Refer to Note 2 - Summary of Significant Accounting Policies regarding the impairment recorded for this vessel during the year ended December 31, 2020.
On January 4, 2021, the Company completed the sale of the Baltic Panther, a 2009-built Supramax vessel, to a third party for $7,510 less a 3.0% commission payable to a third party. Additionally, on January 15, 2021, the Company completed the sale of the Baltic Hare, a 2009-built Handysize vessel, to a third party for $7,750 less a 2.0% commission payable to a third party. Lastly, on February 24, 2021, the Company completed the sale of the Baltic Cougar, a 2009-built Supramax vessel, to a third party for $7,600 less a 3.0% commission payable to a third party. The vessel assets for the Baltic Panther, Baltic Hare and Baltic Cougar have been classified as held for sale in the Consolidated Balance as of December 31, 2020 at their estimated net realizable value. Refer also to Note 4 - Vessel Acquisitions and Dispositions. The Company expects to record additional losses on the sale of these vessels of approximately $500 to $700 during the first quarter of 2021, primarily related to the impact of bunkers and lube oil on board and other incidental costs.
These vessels served as collateral under the $495 Million Credit Facility, therefore, $4,515, $4,806 and $4,515 of the net proceeds received from the sale of the Baltic Panther, the Baltic Hare and the Baltic Cougar, respectively, will remain classified as restricted cash for 360 days following the sale date. That amount can be used towards the financing of replacement vessels or vessels meeting certain requirements and added as collateral under the facility. If such a replacement vessel is not added as collateral within such 360 day period, the Company will be required to use the proceeds as a loan prepayment. Additionally, on February 18, 2021, the Company made a $3,471 loan prepayment for the Genco Charger in accordance with these terms under the $495 Million Credit Facility.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and President and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive Officer and President and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020.
INTERNAL CONTROL OVER FINANCIAL REPORTING
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:
● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment and those criteria, our management believes that we maintained effective internal control over financial reporting as of December 31, 2020.
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report is included on page 68 - 69 of this report.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal controls over financial reporting (as such term defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Genco Shipping & Trading Limited
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Genco Shipping & Trading Limited and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 24, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 24, 2021
PART III

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ITEM 9B. OTHER INFORMATION

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our directors and executive officers is incorporated by reference to the text under the headings “Election of Directors” and “Management” set forth in our Proxy Statement for our 2021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2020 (the “2021 Proxy Statement”) Information relating to our Code of Conduct and Ethics and to compliance with Section 16(a) of the 1934 Act is incorporated by reference to the text set forth in the 2021 Proxy Statement under the heading “Corporate Governance”.
We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of the Code of Ethics for Chief Executive and Senior Financial Officers by posting such information on our website, www.gencoshipping.com.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of our executive officers is incorporated by reference to the text set forth in the 2021 Proxy Statement under the heading “Executive Compensation.”

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding the beneficial ownership of shares of our common stock by certain persons is incorporated by reference to the text set forth in the 2021 Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management.”

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain of our transactions and director independence is incorporated by reference to the text set forth in the 2021 Proxy Statement under the heading “Certain Relationships and Related Transactions” and “Director Independence.”

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding our accountant fees and services is incorporated by reference to the text set forth in the 2021 Proxy Statement under the heading “Ratification of Appointment of Independent Auditors.”
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
1.
The financial statements listed in the “Index to Consolidated Financial Statements”
2.
Exhibits:
The Exhibit Index attached to this report is incorporated into this Item 15 by reference.
EXHIBIT INDEX
Exhibit
Document
2.1
Confirmation Order, dated July 2, 2014.(1)
2.2
First Amended Prepackaged Plan of Reorganization of the Debtors Pursuant to Chapter 11 of the Bankruptcy Code.(1)
3.1
Second Amended and Restated Articles of Incorporation of Genco Shipping & Trading Limited.(4)
3.2
Articles of Amendment to Genco Shipping & Trading Limited Second Amended and Restated Articles of Incorporation, dated July 17, 2015.(5)
3.3
Articles of Amendment to Genco Shipping & Trading Limited Second Amended and Restated Articles of Incorporation, dated April 15, 2016.(6)
3.4
Articles of Amendment to Second Amended and Restated Articles of Incorporation of Genco Shipping & Trading Limited, dated July 7, 2016.(7)
3.5
Articles of Amendment to Second Amended and Restated Articles of Incorporation of Genco Shipping & Trading Limited, dated January 4, 2017.(8)
3.6
Articles of Amendment to Second Amended and Restated Articles of Incorporation of Genco Shipping & Trading Limited dated July 15, 2020.(9)
3.7
Certificate of Designations of Rights, Preferences and Privileges of Series A Preferred Stock of Genco Shipping & Trading Limited, dated as of November 14, 2016.(10)
3.8
Amended and Restated By-Laws of Genco Shipping & Trading Limited, dated as of July 9, 2014.(4)
3.9
Amendment to Amended and Restated By-Laws, dated June 4, 2018.(11)
4.1
Form of Specimen Stock Certificate of Genco Shipping & Trading Limited.(4)
4.2
Form of Specimen Warrant Certificate of Genco Shipping & Trading Limited.(4)
4.3
Description of Genco Shipping & Trading Limited’s Common Stock.(13)
10.1
Letter Agreement dated September 21, 2007 between Genco Shipping & Trading Limited and John C. Wobensmith.(14)
10.2
Letter Agreement dated June 23, 2014 between Genco Shipping & Trading Limited and John C. Wobensmith.(14)
10.3
Warrant Agreement, dated as of July 9, 2014, between Genco Shipping & Trading Limited and Computershare Inc., as Warrant Agent.(4)
10.4
Letter Agreement dated April 30, 2015 between Genco Shipping & Trading Limited and John C. Wobensmith.(14)
10.5
Genco Shipping & Trading Limited Amended and Restated 2015 Equity Incentive Plan.(18)
10.6
Form of Director Restricted Stock Unit Agreement dated as of July 13, 2015.(15)
Exhibit
Document
10.7
Form of Director Restricted Stock Unit Agreement dated as of July 29, 2015.(15)
10.8
Restricted Stock Grant Agreement dated as of February 17, 2016 between Genco Shipping & Trading Limited and John C. Wobensmith.(16)
10.9
Purchase Agreement, dated as of October 4, 2016, by and among Genco Shipping & Trading Limited and funds or related entities managed by Centerbridge Partners, L.P. or its affiliates.(17)
10.10
Purchase Agreement, dated as of October 4, 2016, by and among Genco Shipping & Trading Limited and funds or related entities managed by Strategic Value Partners, LLC or its affiliates.(17)
10.11
Purchase Agreement, dated as of October 4, 2016, by and among Genco Shipping & Trading Limited and funds managed by affiliates of Apollo Global Management, LLC.(17)
10.12
Purchase Agreement, dated as of October 27, 2016, by and between Genco Shipping & Trading Limited and the parties listed as Investors therein.(17)
10.13
Senior Secured Term Loan Facility, dated November 10, 2016, by and among Genco Shipping & Trading Limited, Nordea Bank Finland plc, New York Branch, as administrative agent, Skandinaviska Enskilda Banken AB (publ), DVB Bank SE, ABN AMRO Capital USA LLC, Crédit Agricole Corporate and Investment Bank, Deutsche Bank AG Filiale Deutschlandgeschäft, Crédit Industriel et Commercial, BNP Paribas, and Nordea Bank Finland plc, New York Branch, as bookrunners and lead arrangers, in an aggregate principal amount of up to $400,000,000 (the “New $400 Million Facility”)(18)
10.14
Amending and Restating Agreement, dated November 15, 2016, by and among Genco Shipping & Trading Limited, the borrowers and financial institutions listed therein, Genco Holdings Limited, and Hayfin Services LLP, as agent and security agent.(18)
10.15
Registration Rights Agreement, dated November 15, 2016, by and among Genco Shipping & Trading Limited and the parties identified as holders therein.(18)
10.16
Amended and Restated Registration Rights Agreement, dated November 15, 2016, by and among Genco Shipping & Trading Limited and the parties identified as holders therein.(18)
10.17
Letter Agreement dated March 23, 2017 between Genco Shipping & Trading Limited and John C. Wobensmith.(18)
10.18
Letter Agreement dated August 7, 2019 between Genco Shipping & Trading Limited and John C. Wobensmith.(19)
10.19
Restricted Stock Unit Agreement dated March 23, 2017 between Genco Shipping & Trading Limited and John C. Wobensmith.(18)
10.20
Option Grant to John C. Wobensmith dated March 23, 2017.(18)
10.21
Restricted Stock Unit Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Arthur L. Regan.(20)
10.22
Restricted Stock Unit Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and John C. Wobensmith.(20)
10.23
Restricted Stock Unit Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Apostolos Zafolias.(20)
Exhibit
Document
10.24
Option Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Arthur L. Regan.(20)
10.25
Option Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and John C. Wobensmith.(20)
10.26
Option Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Apostolos Zafolias.(20)
10.27
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Arthur L. Regan.(21)
10.28
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and John C. Wobensmith.(21)
10.29
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Apostolos Zafolias.(21)
10.30
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Joseph Adamo.(21)
10.31
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Arthur L. Regan.(21)
10.34
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and John C. Wobensmith.(21)
10.35
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Apostolos Zafolias.(21)
10.36
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Joseph Adamo.(21)
10.37
Up to US$460,000,000 Senior Secured Credit Agreement dated May 31, 2018, by and among Genco Shipping & Trading Limited as Borrower, the lenders party thereto from time to time, Nordea Bank AB (publ), New York Branch, Skandinaviska Enskilda Banken AB (publ), ABN AMRO Capital USA LLC, DVB Bank SE, Crédit Agricole Corporate & Investment Bank, and Danish Ship Finance A/S, as Bookrunners and as Mandated Lead Arrangers, and Nordea Bank AB (publ), New York Branch as Administrative Agent (the “$460 Million Credit Agreement”).(11)
10.38
Form of Director Restricted Stock Unit Agreement dated as of May 15, 2019.(13)
10.39
Amendment to Restricted Stock Unit Agreements Pursuant to the Genco Shipping & Trading Limited 2015 Equity Incentive Plan.(13)
10.40
Up to US$108,000,000 Senior Secured Credit Agreement dated August 14, 2018, by and among Genco Shipping & Trading Limited as Borrower, the lenders party thereto from time to time, Crédit Agricole Corporate & Investment Bank, as Structurer and Bookrunner, Crédit Agricole Corporate & Investment Bank and Skandinaviska Enskilda Banken AB (Publ) as Mandated Lead Arrangers and Crédit Agricole Corporate & Investment Bank, as Administrative Agent and as Security Agent. (22)
Exhibit
Document
10.41
Amendment and Restatement Agreement dated as of February 28, 2019 by and among Genco Shipping & Trading Limited as Borrower, the Subsidiary Guarantors party thereto, the Delayed Draw Term Loan Lenders party thereto, the other Lenders party thereto, and Nordea Bank ABP, New York Branch, as Mandated Lead Arranger, Bookrunner, Administrative Agent, and Security Agent, pertaining to the $460 Million Credit Agreement.(23)
10.42
Second Amendment to Amended and Restated Credit Agreement, dated as of November 5, 2019, by and among Genco Shipping & Trading Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, and Nordea Bank ABP, New York Branch, as Administrative Agent and Security Agent.(24)
10.43
Second Amendment to Amended and Restated Credit Agreement, dated as of November 5, 2019, by and among Genco Shipping & Trading Limited, the Subsidiary Guarantors party thereto, the Lenders party thereto, and Crédit Agricole Corporate And Investment Bank, as Administrative Agent and Security Agent.(24)
10.44
Genco Annual Incentive Plan adopted March 4, 2019.(23)
10.45
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Arthur L. Regan.(25)
10.46
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and John C. Wobensmith.(25)
10.47
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Apostolos Zafolias.(25)
10.48
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Joseph Adamo.(25)
10.49
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Robert Hughes.(25)
10.50
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Arthur L. Regan.(25)
10.51
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and John C. Wobensmith.(25)
10.52
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Apostolos Zafolias.(25)
10.53
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Joseph Adamo.(25)
10.54
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Robert Hughes.(25)
10.55
Letter Amendment dated as of April 29, 2020 by and among Genco Shipping & Trading Limited as Borrower, Nordea Bank ABP, New York Branch, as Administrative Agent, and Security Agent, and the Lenders party thereto, pertaining to the $495 Million Credit Facility.(26)
Exhibit
Document
10.56
Letter Amendment dated as of April 29, 2020 by and among Genco Shipping & Trading Limited as Borrower, Credit Agricole Corporate and Investment Bank, as Administrative Agent and Security Agent, and the Lenders party thereto, pertaining to the $133 Million Credit Facility.(26)
10.57
Fourth Amendment to Amended and Restated Credit Agreement dated as of June 5, 2020 by and among Genco Shipping & Trading Limited as Borrower, the Subsidiary Guarantors party thereto, the Lenders party thereto, and Nordea Bank ABP, New York Branch, as Administrative Agent and Security Agent, pertaining to the $495 Million Credit Facility.(26)
10.58
Amendment and Restatement Agreement dated as of June 11, 2020 by and among Genco Shipping & Trading Limited as Borrower, the Subsidiary Guarantors party thereto, the Revolving Lenders and other lenders party thereto, and Crédit Agricole Corporate & Investment Bank, as Administrative Agent and as Security Agent, pertaining to the $133 Million Credit Facility.(27)
10.59
Fifth Amendment to Amended and Restated Credit Agreement dated as of December 17, 2020 by and among Genco Shipping & Trading Limited as Borrower, the Subsidiary Guarantors party thereto, the Lenders party thereto, and Nordea Bank ABP, New York Branch, as Administrative Agent and Security Agent, pertaining to the $495 Million Credit Facility.(*)
10.60
Letter Amendment to Amended and Restated Credit Agreement dated as of January 18, 2021 by and among Genco Shipping & Trading Limited as Borrower, the Subsidiary Guarantors party thereto, the Lenders party thereto, and Nordea Bank ABP, New York Branch, as Administrative Agent and Security Agent, pertaining to the $495 Million Credit Facility.(*)
10.61
Form of Director Restricted Stock Unit Agreement dated as of July 15, 2020 (26)
21.1
Subsidiaries of Genco Shipping & Trading Limited.(*)
23.1
Consent of Independent Registered Public Accounting Firm.(*)
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.(*)
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.(*)
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.(*)
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.(*)
The following materials from Genco Shipping & Trading Limited’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2020 and 2019, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.(*)
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
(*) Filed herewith.
(1) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2014.
(2) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on April 8, 2015.
(3) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2015.
(4) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 15, 2014.
(5) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 17, 2015.
(6) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on April 15, 2016.
(7) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2016.
(8) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on January 4, 2017.
(9) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on July 15, 2020.
(10) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on November 15, 2016.
(11) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on June 5, 2018.
(12) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on January 11, 2021.
(13) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-K, filed with the Securities and Exchange Commission on February 27, 2020.
(14) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on May 4, 2015.
(15) Incorporated by reference to Genco Shipping & Trading Limited’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, filed with the Securities and Exchange Commission on November 13, 2015.
(16) Incorporated by reference to Genco Shipping & Trading Limited’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, filed with the Securities and Exchange Commission on May 10, 2016.
(17) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-Q, filed with the Securities and Exchange Commission on November 4, 2016.
(18) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-K, filed with the Securities and Exchange Commission on March 28, 2017.
(19) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-Q, filed with the Securities and Exchange Commission on August 9, 2019.
(20) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2018.
(21) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2019.
(22) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K filed with the Securities and Exchange Commission on August 15, 2018.
(23) Incorporated by reference to Genco Shipping & Trading Limited’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 5, 2019.
(24) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-Q, filed with the Securities and Exchange Commission on November 7, 2019.
(25) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-Q, filed with the Securities and Exchange Commission on May 6, 2020.
(26) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 10-Q, filed with the Securities and Exchange Commission on August 5, 2020.
(27) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on June 12, 2020.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 24, 2021.
GENCO SHIPPING & TRADING LIMITED
By:
/s/ John C. Wobensmith
Name:
John C. Wobensmith
Title:
Chief Executive Officer and President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacity and on February 24, 2021.