EDGAR 10-K Filing

Company CIK: 1326200
Filing Year: 2022
Filename: 1326200_10-K_2022_0001558370-22-001938.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. Our fleet currently consists of 44 drybulk carriers, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers, and twelve Supramax drybulk carriers with an aggregate carrying capacity of approximately 4,636,000 deadweight tons (“dwt”). The average age of our current fleet is approximately 10.0 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, 23 are currently on spot market voyage charters, 19 are on fixed-rate time charter contracts, two are on spot market-related time charters and we are currently time chartering-in four third party vessels.
See pages 5 - 7 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. On February 24, 2021, we disposed of the last Handysize vessel in our fleet. Our major bulk vessels are primarily used to transport iron ore and coal, while our minor bulk vessels are primarily used to transport grains, steel products and other drybulk cargoes such as cement, scrap, fertilizer, bauxite, nickel ore, salt and sugar. This approach of owning ships that transport both major and minor bulk commodities provide us with exposure to a wide range of drybulk trade flows. We employ an active commercial strategy which consists of a global team located in the U.S., Copenhagen and Singapore. Overall, we utilize a portfolio approach to revenue generation through a combination of short-term, spot market employment as well as opportunistically booking longer term coverage. Our fleet deployment strategy currently is weighted towards short-term fixtures, which provides us with optionality on our sizeable fleet. However, depending on market conditions, we may seek to enter into additional longer term time charter contracts or contracts of affreightment. 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. Furthermore, we have also transported containers on select vessels on an opportunistic basis. We will continue to explore the possibility of transporting containers on board select vessels from time to time, which could provide additional flexibility for vessel fixture options, primarily for backhaul trades.
Drawing on one of the strongest balance sheets in the drybulk industry, in April 2021 we announced a new comprehensive value strategy. This strategy is centered on three key pillars: compelling dividends, financial deleveraging and growth. During 2021, we executed this strategy by paying down $203 million of debt while expanding our core Ultramax fleet. These actions have enabled us to further reduce our cash flow breakeven rate positioning us to pay sizeable quarterly dividends across diverse market environments. To support this strategy, we entered into an agreement for a new $450 Million Credit Facility under which we have used to globally refinance our prior credit facilities, thereby increasing flexibility, improving key terms and lowering our cash flow breakeven rates. Within this facility is a significant revolving credit facility that we can utilize. The first quarterly dividend under Genco’s value strategy is to be paid based on the fourth quarter of 2021 and is payable in the first quarter of 2022.
In implementing this strategy, we will focus on the following specific priorities for 2022:
● Pay attractive dividends to shareholders
● Continue to pay down debt through voluntary prepayments from a combination of cash flow generation and cash on our balance sheet; and
● Opportunistically grow the fleet on a low levered basis
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 two technical managers to provide technical management of our fleet. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. In September 2021, we entered into a joint venture with Synergy Marine Pte. Ltd. (“Synergy”), one of our technical managers. This joint venture has been named GS Shipmanagement Pte. Ltd. (“GSSM”), and we intend to transfer to it the technical management of all vessels in our fleet. Currently, a total of 38 of our vessels are being managed by GSSM. GSSM aims to provide a unique and differentiated service to the management of our vessels. We expect this joint venture to increase visibility and control over our vessel operations, augment fleet-wide fuel efficiency to lower our carbon footprint through an advanced data platform and potentially provide vessel operating expense savings over time. Members of our New York City-based management team oversee the activities of our 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 in a safe and efficient manner. 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 44 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 from a tonnage provider model to an active commercial approach 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 rate 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 long-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 have also selectively booked one to two year period time charters to secure longer term revenue streams at attractive rates while also de-risking select asset purchases. 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 more longer term charters 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 - In September 2021, we formed the GSSM joint venture, which is owned 50% by Genco and 50% by Synergy, to provide ship management services for our existing fleet. Currently, we have transferred the ship management of 38 of our vessels to GSSM. We previously outsourced technical management of our fleet to Wallem Shipmanagement Limited (“Wallem”) and Anglo-Eastern Group (“Anglo”) and currently outsource the technical management of six of our vessels to Synergy Marine Group (“Synergy”), all third party independent technical managers. Our management team actively monitors and controls vessel operating expenses incurred by GSSM and 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 a larger fleet as well as sister ships. Sister ships are ships of the same class that are of virtually identical design and are of similar size.
● 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
Vessel
Class
Dwt
Year Built
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
Genco Freedom
Ultramax
63,671
Genco Enterprise
Ultramax
63,473
Genco Madeleine
Ultramax
63,166
Genco Mayflower
Ultramax
63,304
Genco Constellation
Ultramax
63,310
Genco Laddey
Ultramax
61,085
Genco Mary
Ultramax
61,085
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 Picardy
Supramax
55,257
Genco Predator
Supramax
55,407
Genco Pyrenees
Supramax
58,018
Genco Rhone
Supramax
58,018
Genco Warrior
Supramax
55,435
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
Group
Vessels
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
Genco Enterprise, 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
Genco Magic, Genco Vigilant and Genco Freedom
Genco Mayflower and Genco Constellation
Genco Weatherly, Genco Laddey and Genco Mary
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.
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 GSSM and our independent technical managers. The head of our technical management team has over 30 years of experience in the shipping industry.
Under our technical management agreements with GSSM and our independent other technical manager, these technical managers are 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, 2022, we employed 23 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, 2022, we employed 19 of our vessels under fixed-rate time charters and two of our vessels under spot market-related 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, 2022, we were chartering in four 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, 2022:
Year
Charter
Vessel
Built
Expiration(1)
Cash Daily Rate(2)
Capesize Vessels
Genco Augustus
March 2022
Voyage
Genco Tiberius
March 2022
Voyage
Genco London
April 2022
Voyage
Genco Titus
March 2022
Voyage
Genco Constantine
March 2022
Voyage
Genco Hadrian
March 2022
Voyage
Genco Commodus
April 2022
$47,250
Genco Maximus
September 2023
$27,500
Genco Claudius
January 2023
94% of BCI
Genco Tiger
February 2022
Voyage
Baltic Lion
March 2022
Voyage
Baltic Bear
March 2022
$32,000
Baltic Wolf
June 2023
$30,250
Genco Resolute
January 2023
121% of BCI
Genco Endeavour
March 2022
Voyage
Genco Defender
March 2022
Voyage
Genco Liberty
March 2022
$31,000
Ultramax Vessels
Baltic Hornet
April 2023
$24,000
Baltic Wasp
June 2023
$25,500
Baltic Scorpion
March 2022
Voyage
Baltic Mantis
March 2022
Voyage
Genco Weatherly
April 2022
Voyage
Genco Columbia
March 2022
$20,000
Genco Magic
April 2022
$20,000
Genco Vigilant
September 2022
$17,750
Genco Freedom
March 2023
$23,375
Genco Enterprise
March 2022
$22,000
Year
Charter
Vessel
Built
Expiration(1)
Cash Daily Rate(2)
Genco Constellation
March 2022
$22,500
Genco Madeleine
March 2022
$27,750
Genco Mayflower
March 2022
$20,000
Genco Mary
April 2022
Voyage
Genco Laddey
March 2022
$20,000
Supramax Vessels
Genco Predator
March 2022
Voyage
Genco Warrior
March 2022
Voyage
Genco Hunter
March 2022
Voyage
Genco Aquitaine
March 2022
$15,000
Genco Ardennes
February 2022
Voyage
Genco Auvergne
March 2022
$27,000
Genco Bourgogne
March 2022
Voyage
Genco Brittany
March 2022
Voyage
Genco Languedoc
March 2022
Voyage
Genco Picardy
March 2022
Voyage
Genco Pyrenees
March 2022
$31,000
Genco Rhone
April 2022
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 37 shore-based personnel, which includes personnel in our Singapore and Copenhagen offices. In addition, approximately 990 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., BHP, Bunge SA, FMG International Pte Ltd, ADMIntermare, a division of ADM International Sarl, and Vale International S.A. For the year ended December 31, 2021, 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 2,300 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 for our fleet and loss of hire insurance for our major bulk vessels 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 for our major bulk vessels, 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 60 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 certain older, less fuel-efficient vessels
● Outfitted 26 of our vessels 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 35 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 currently installed on 35 vessels in our current fleet, representing approximately 80% of our current fleet;
● 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;
● Installed 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; and
● Implemented an IMO 2023 compliance plan for select vessels within our fleet in which we will install energy saving devices and apply high performance paint systems, among other initiatives
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. In December 2021, the member states of the Convention for the Protection of the Mediterranean Sea Against Pollution (the “Barcelona Convention”) agreed to support the designation of a new ECA in the Mediterranean. The group plans to submit a formal proposal to the IMO by the end of 2022 with the goal of having the ECA implemented by 2025. 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 or subject us to increased liability” 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 (“SEEMP”), 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. MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEDI’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 were adopted at the MEPC 76 session in June 2021 and are expected to enter into force in November 2022, with the requirements for EEXI and CII certification coming into effect from January 1, 2023. MEPC 77 adopted a non-binding resolution which urges Member States and ship operators to voluntarily use distillate or other cleaner alternative fuels or methods of propulsion that are safe for ships and could contribute to the reduction of Black Carbon emissions from ships when operating in or near the Arctic.
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. Genco plans to continue to invest in its existing fleet to improve fuel efficiency and comply with these revised standards through its comprehensive IMO 2023 plan.
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.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers (“GBS Standards”).
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 segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas. The upcoming amendments, which will come into force on June 1, 2022, include (1) addition of a definition of dosage rate, (2) additions to the list of high consequence dangerous goods, (3) new provisions for medical/clinical waste, (4) addition of various ISO standards for gas cylinders, (5) a new handling code, and (6) changes to stowage and segregation provisions.
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. By IMO resolution, administrations are encouraged to ensure that cyber-risk management systems must be incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1,2021. In February 2021, the U.S. Coast Guard published guidance on addressing cyber risks in a vessel’s safety management system. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of future 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 the 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. As of December 31, 2021, we have installed such systems on 15 vessels that were not already fitted with a ballast water treatment system upon purchase (excluding eleven vessels that have been sold), and we expect the remaining ten to be installed during 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, or the “IAFS 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. In addition, the IAFS Certificate has been updated to address compliance options for anti-fouling systems to address cybutryne. Ships which are affected by this ban on cybutryne must receive an updated IAFS Certificate no later than two years after the entry into force of these amendments. Ships which are not affected (i.e. with anti-fouling systems which do not contain cybutryne) must receive
an updated IAFS Certificate at the next Anti-fouling application to the vessel. These amendments were formally adopted at MEPC 76 in June 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. In January 2021, current U.S. President Biden signed an executive order temporarily blocking new leases for oil and gas drilling in federal waters. However, attorney generals from 13 states filed suit in March 2021 to lift the executive order, and in June 2021, a federal judge in Louisiana granted a preliminary injunction against the Biden administration, stating that the power to pause offshore oil and gas leases “lies solely with Congress.” With these rapid changes, 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 WOTUS. In 2019 and 2020, the agencies repealed the prior WOTUS Rule and promulgated the Navigable Waters Protection Rule (“NWPR”) which significantly reduced the scope and oversight of EPA and the Department of the Army in traditionally non-navigable waterways. On August 30, 2021, a federal district court in Arizona vacated the NWPR and directed the agencies to replace the rule. On December 7, 2021, the EPA and the Department of the Army proposed a rule that would reinstate the pre-2015 definition, which is subject to public comment until February 7, 2022.
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. Within two years after the EPA publishes its final Vessel Incidental Discharge National Standards of Performance, 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. The 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. On July 14, 2021, the European Parliament formally proposed its plan, which would involve gradually including the maritime sector from 2023 and phasing the sector in over a three-year period. This will require shipowners to buy permits to cover these emissions. Contingent negotiations and a formal approval vote, these proposed regulations may not enter into force for another year or two.
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 intended 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, which the U.S. officially rejoined on February 19, 2021.
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. At MEPC 77, the Member States agreed to initiate the revision of the Initial IMO Strategy on Reduction of GHG emissions from ships, recognizing the need to strengthen the ambition during the revision process. A final draft Revised IMO GHG Strategy would be considered by MEPC 80 (scheduled to meet in spring 2023), with a view to adoption. Various parties, particularly those attending the 2021 United Nations Climate Change Conference at the end of last year, have called upon the maritime community to increase their ambition regarding decarbonization goals. Genco, among many other companies across the maritime value chain, became a signatory to Call to Action for Shipping Decarbonization focusing on decarbonizing shipping by 2050.
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. Additionally, in 2021, the EU proposed adding shipping to its Emissions Trading System (ETS) beginning in 2023 and phasing in over a three year period.
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 these rules. On November 2, 2021, the EPA issued a proposed rule under the CAA designed to reduce methane emissions from oil and gas sources. The proposed rule would reduce 41 million tons of methane emissions between 2023 and 2035 and cut methane emissions in the oil and gas sector by approximately 74 percent compared to emissions from this sector in 2005. EPA also anticipates issuing a supplemental proposed rule in 2022 to include additional methane reduction measures following public input and anticipates issuing a final rule by the end of 2022. If these new regulations are finalized, they could 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 2022, depending on worldwide availability of the vaccine.
During 2021, a severe outbreak of COVID-19 in India has placed crew members based in India at risk and led to a number of countries and territories imposing bans on travel from India, including Australia, Canada, France, Israel, Indonesia, Iran, Japan, Kuwait, Oman, Pakistan, Singapore, the United Arab Emirates, the United Kingdom, and the United States. As a result, we have experienced difficulties with regard to crew rotations involving Indian crew members and have incurred increased costs and deviation to conduct crew rotations and may continue to do so. The Omicron variant and its increased transmissibility has also increased crewing related challenges and could continue to do so.
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 $450 Million Credit Facility contains collateral maintenance covenants that require the aggregate appraised value of collateral vessels to be at least 140% of the principal amount of the loan outstanding under such facility. If the values of our vessels were to decline as a result of COVID-19 or otherwise, we may not satisfy this covenant. 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 seek waivers, which may not be available or may be subject to conditions.
A downturn in the global economic environment may negatively impact our business.
If the current global economic environment worsens, we may be negatively affected in a number of ways.
As a result of low freight and charter rates that in some instances may not allow us to operate our vessels profitably, our earnings and cash flows could decline. Continuation of these types of conditions for a prolonged period may leave us with insufficient cash resources for our operations or required debt repayments under our credit facility, 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 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 been volatile over the past five years. The Baltic Dry Index (“BDI”), an index published by The Baltic Exchange of shipping rates for key drybulk routes increased during 2021 after a decline in 2020 principally caused by the COVID-19 pandemic. There can be no assurance that the drybulk charter market could experience future downturns.
Shipping capacity supply and demand strongly influences freight rates. Factors that influence demand 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.
Inflation could adversely affect our business and financial results.
Inflation could adversely affect our business and financial results by increasing the costs of labor and materials needed to operate our business. During the year ended December 31, 2021, we have experienced increased costs for crew, spares, and stores, which we currently expect to continue into 2022. In an inflationary environment such as the
current economic environment, depending on the drybulk industry and other economic conditions, we may be unable to raise our charter rates enough to offset the increasing costs of our operations, which would decrease our profit margins. Inflation may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business.
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.
In recent months, tensions have been rising between the U.S. and China as a result of significantly increased Chinese military flights into Taiwan’s air defense zone, U.S. claims that China tested a hypersonic missile, and the establishment of the AUKUS pact among Australia, the U.K., and the U.S. under which the U.S. is to assist Australia in developing a nuclear submarine program. In addition, China imposed restrictions on the imports of coal and certain other products from Australia following Australia’s alignment with the U.S. on a number of issues, which China perceived as adverse to its interests. Developments around these restrictions are dynamic and uncertain. The escalation of such trade issues or tensions or development of any military conflict could result in interference with shipping routes or in market disruptions. In addition, unfavorable weather conditions brought on by climate change or otherwise could result in disruption to our operations or require infrastructure adaptations or new or different investments for our vessels. 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. 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. 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.
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 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. In addition, tensions have been rising between the U.S. and Russia over Ukraine, with the U.S. and other countries imposing economic sanctions in response to Russian actions. 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 facility, 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 that GSSM 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, labor unrest could prevent or hinder our normal operations and 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 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 reduce the return 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 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
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, 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.
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, 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 facility, which may lead to a default under our credit facility. As a result, the repayment of our indebtedness could potentially be accelerated, and we could experience a material adverse effect on our business, results of operations, cash flows, financial condition, ability to pay dividends.
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.
Restrictive covenants under our credit facility may restrict our growth and operations.
Our credit facility imposes 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, 2021, approximately 41% 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.
All LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. This means that any of our LIBOR-based borrowings that extend beyond June 30, 2023 will be converted to a replacement rate. In the U.S., the Alternative Reference Rates Committee, a committee of private sector entities convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate, or SOFR plus a recommended spread adjustment as LIBOR's replacement. LIBOR and SOFR have significant differences, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in higher interest costs than if LIBOR remained available, which could have a material adverse effect on our operating results. Our credit facility specifies that upon cessation of the LIBOR rate, borrowings will bear interest at a rate based on SOFR. 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 significantly on our GSSM joint venture and a third party manager for technical management of our fleet.
We formed the GSSM joint venture for technical management of our fleet, including fulfilling the functions of crewing, maintenance and repair services, and have also contracted the technical management of certain vessels to third party 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 technical 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 facility.
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 our credit facility, we may not declare or pay dividends if an event of default has occurred and is continuing or would occur as a result of the declaration or we would not be in pro forma compliance with our financial covenants after giving effect to the dividend. Any dividend or 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. As of December 31, 2021, we had $184.8 million of availability under our credit facility. These limitations place restrictions on financing that we could use for our growth.
We currently maintain all of our cash and cash equivalents with four 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 for our major bulk vessels, 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 2021 and 2020, we believe that we satisfied the publicly traded test and qualified for the Section 883 exemption in 2021 and 2020. 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 2022 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, tax treaties or tax regulations or the interpretation or enforcement thereof by any tax authority. For example, in 2021, the U.S. House of Representatives passed a bill that would impose a 15% minimum tax on certain corporations. It is not yet clear whether, if enacted, such proposed legislation would apply to us, and if so, to what extent. We cannot predict the outcome of any specific legislative proposals.
Furthermore, on October 8, 2021 the Organisation for Economic Cooperation and Development (OECD) announced that 136 countries and jurisdictions-of the 140 members of the OECD/G20 Inclusive Framework on base erosion and profit shifting-have agreed on a framework to subject certain multinational enterprises to a minimum 15% tax rate. While the United States has signed the agreement, the Marshall Islands is not among the signatories. The agreement would also reallocate certain taxing rights over multinational enterprises from their home countries to the markets where they have business activities and earn profits-regardless of whether the multinational enterprises have a physical presence in such markets. While international shipping income may be exempt from some or all of the provisions included in the agreement, the impact of these provisions is uncertain and may not become evident for some period of time.
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, 2022,
affiliates of FMR LLC owned approximately 15% and affiliates of Centerbridge Partners, L.P. 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 specifically incorporates 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 are not as clearly established under Marshall Islands law as they are 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. 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 5.9 million of our shares; and affiliates of Apollo Global Management have reported sales of approximately 5.0 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 director elections. Our by-laws require parties other than the board of directors to give advance written notice of nominations for director elections. These provisions may discourage, delay or prevent the removal of incumbent officers or 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.

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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 four years are as follows: $2.2 million annually for 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, which has been extended effective January 17, 2022 for a two-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. Thirty-nine of the vessels in our current fleet serve as collateral under our credit facility. 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.

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

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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, 2022, there were approximately ten holders of record of our common stock.
On April 19, 2021, our Board of Directors adopted a new quarterly dividend policy commencing in the first quarter of 2022 in respect to our financial results for the fourth quarter of 2021 based on a formula. Our quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with applicable laws and contractual obligations (including our credit facility) and our Board’s determination that each declaration and payment is at that time in the best interests of the Company and its shareholders after its review of our financial performance.
For a discussion of restrictions applicable to our payment of dividends as well as the formula for calculating the quarterly 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. (Reserved)

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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 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 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, 2020 filed with the SEC on February 24, 2021.
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. Our fleet currently consists of 44 drybulk carriers, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers, and twelve Supramax drybulk carriers with an aggregate carrying capacity of approximately 4,636,000 deadweight tons (“dwt”). The average age of our current fleet is approximately 10.0 years. We seek to deploy our vessels on time charters, spot market voyage charters, spot market-related time charters or in vessel pools trading in the spot market, to reputable charterers. 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 2022 and September 2023.
See pages 5 - 7 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. Over the course of the pandemic, governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, working from home, supply chain logistical changes, and closure of non-essential businesses. This led to a significant slowdown in overall economic activity levels globally and a decline in demand for certain of the raw materials that our vessels transport.
Drybulk shipping rates, and therefore our voyage revenues, depend to a significant degree on global economic activity levels and specifically, economic activity in China. As the world’s second largest economy, China is the largest importer of drybulk commodities globally, which drives demand for iron ore, coal and other cargoes we carry. In particular, starting in the first quarter of 2020, the COVID-19 pandemic resulted in reduced industrial activity in China on which our business is substantially dependent, with temporary closures of factories and other facilities. The pandemic resulted in a 6.8% contraction in China’s GDP during the first quarter of 2020, with the most significant impact occurring in January and February. Since March 2020, China’s economy has substantially improved, as various economic indicators such as fixed asset investment and industrial production rose as compared to the previous months of the year, which led to a return to GDP growth for the balance of 2020 and into 2021. Demand for the commodities that we carry continued to increase through 2021, which positively impacted the rate our vessels earned. 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. Over time, several economies around the world gradually eased measures taken earlier in 2020 resulting in
improved activity levels from earlier year lows and leading to a demand rebound for 2021. Although rebounding economies around the world have had a positive impact on our revenues in 2021, our vessel operating expenses continued to be affected by higher than anticipated costs related to COVID-19 disruptions. The impact of COVID-19 on both our revenues and operating expenses remains highly dependent on the trajectory of COVID-19, potential variants, as well as vaccine distribution and efficacy, which remains uncertain.
While China-led global economic activity levels have improved, the outlook for China and the rest of the world remains uncertain and is highly dependent on the path of COVID-19 and measures taken by governments around the world in response to it. Drybulk commodities that are closely tied to global GDP growth and energy demand, experienced reduced trade flows in 2020 due to lower end user demand resulting from a decline in global economic activity. As countries worldwide gradually reopened their respective economies in mid-2020, trade flows and demand for raw materials increased. Drybulk spot freight rates rebounded from the 2020 lows towards the end of the second quarter and remained firm in the second half of 2020. In 2021, spot rates for Capesize and Supramax vessels reached levels not seen since 2010. While vaccinations are rising in developed countries, developing countries vaccination rates have lagged. Global vaccination rates, vaccine effectiveness together with the onset of variants, could impact the sustainability of this recovery in addition to drybulk specific seasonality described in further detail below.
As our vessels trade commodities globally, we have taken measures to safeguard our crew and work toward preventing the spread of COVID-19. Crew members have received gloves, face masks, hand sanitizer, goggles and handheld thermometers. Genco requires its vessel crews to wear masks when in contact with other individuals who board the vessel. We continue to monitor the Centers for Disease Control and Prevention (the “CDC”) and the WHO guidelines and are also limiting access of shore personnel boarding our vessels. Specifically, no shore personnel with fever or respiratory symptoms are allowed on board, and those that are allowed on board are restricted to designated areas that are thoroughly cleaned after their use. Face masks are also provided to shore personnel prior to boarding a vessel. Precautionary materials are posted in common areas to supplement safety training while personal hygiene best practices are strongly encouraged on board.
We have implemented protocols with regard to crew rotations to keep our crew members safe and healthy which includes polymerase chain reaction (PCR) antibody testing as well as a 10-day quarantine period prior to boarding a vessel. Genco is enacting crew changes where permitted by regulations of the ports and of the country of origin of the mariners, in addition to strict protocols that safeguard our crews against COVID-19 exposure. Crew rotations have been challenging due to port and travel restrictions globally, as well as promoting the health and safety of both on and off signing crew members.
The COVID-19 pandemic and measures to contain its spread thus have negatively impacted and could continue to impact regional and global economies and trade patterns in markets in which we operate, the way we operate our business, and the businesses of our charterers and suppliers. These impacts may continue or become more severe. Although we have successfully completed many crew changes over the course of the pandemic to date, additional crew changes could remain challenging due to COVID-19 related factors. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity, including the possibility of recession or financial market instability.
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 have installed exhaust gas cleaning systems (“scrubbers”) on our 17 Capesize vessels, 16 of which were completed during 2019 and one of which was completed beginning in 2020. 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 July 2, 2021, we entered into an agreement to purchase two 2017-built, 63,000 dwt Ultramax vessels for a purchase price of $24.6 million each, which were renamed the Genco Mayflower and Genco Constellation, and one 2014-built, 63,000 dwt Ultramax vessel for a purchase price of $21.9 million, which was renamed the Genco Madeleine. The Genco Mayflower, the Genco Constellation and the Genco Madeleine were delivered on August 24, 2021, September 3, 2021 and August 23, 2021, respectively and we used cash on hand to finance the purchases.
On May 18, 2021, we entered into agreements to acquire two 2022-built 61,000 dwt newbuilding Ultramax vessels from Dalian Cosco KHI Ship Engineering Co. Ltd. for a purchase price of $29.2 million each, which were renamed the Genco Mary and the Genco Laddey. The vessels were delivered on January 6, 2022 and we used cash on hand to finance the purchases.
On April 20, 2021, we entered into an agreement to purchase a 2016-built, 64,000 dwt Ultramax vessel for a purchase price of $20.2 million, to be renamed the Genco Enterprise. The vessel was delivered on August 23, 2021 and we used cash on hand to finance the purchase.
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, the Baltic Cove and Baltic Fox, all 2010-built Handysize vessels, and the Genco Spirit, the Genco Avra and the 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 2021, we completed the sale of five Supramax vessels and six Handysize vessels, which includes five of the Handysize vessels in the exchange described above.
During 2020, we completed the sale of nine of our vessels, including one of the vessels in the exchange described above. Three vessels were classified as held for as of December 31, 2020 and the remaining five Handysize vessels were classified as held for exchange as of December 31, 2020.
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, 2021 and 2020 on a consolidated basis.
For the Year Ended
December 31,
Increase
(Decrease)
% Change
Fleet Data:
Ownership days (1)
Capesize
6,205.0
6,222.0
(17.0)
(0.3)
%
Panamax
-
64.8
(64.8)
(100.0)
%
Ultramax
3,716.8
2,204.0
1,512.8
68.6
%
Supramax
5,027.2
7,176.0
(2,148.8)
(29.9)
%
Handymax
-
-
-
-
%
Handysize
227.5
3,290.0
(3,062.5)
(93.1)
%
Total
15,176.5
18,956.8
(3,780.3)
(19.9)
%
Chartered-in days (2)
Capesize
-
-
-
-
%
Panamax
-
-
-
-
%
Ultramax
450.1
557.1
(107.0)
(19.2)
%
Supramax
979.9
567.2
412.7
72.8
%
Handymax
-
14.5
(14.5)
(100.0)
%
Handysize
42.2
77.4
(35.2)
(45.5)
%
Total
1,472.2
1,216.2
256.0
21.0
%
Available days (owned & chartered-in fleet) (3)
Capesize
6,118.6
6,158.2
(39.6)
(0.6)
%
Panamax
-
64.4
(64.4)
(100.0)
%
Ultramax
4,079.2
2,657.5
1,421.7
53.5
%
Supramax
5,944.9
7,443.1
(1,498.2)
(20.1)
%
Handymax
-
14.5
(14.5)
(100.0)
%
Handysize
269.8
3,298.2
(3,028.4)
(91.8)
%
Total
16,412.5
19,635.9
(3,223.4)
(16.4)
%
Available days (owned fleet) (4)
Capesize
6,118.6
6,158.2
(39.6)
(0.6)
%
Panamax
-
64.4
(64.4)
(100.0)
%
Ultramax
3,629.1
2,100.4
1,528.7
72.8
%
Supramax
4,965.0
6,875.9
(1,910.9)
(27.8)
%
Handymax
-
-
-
-
%
Handysize
227.6
3,220.8
(2,993.2)
(92.9)
%
Total
14,940.3
18,419.7
(3,479.4)
(18.9)
%
Operating days (5)
Capesize
6,080.1
6,093.0
(12.9)
(0.2)
%
Panamax
-
60.1
(60.1)
(100.0)
%
Ultramax
4,015.2
2,642.8
1,372.4
51.9
%
Supramax
5,835.7
7,338.1
(1,502.4)
(20.5)
%
Handymax
-
14.5
(14.5)
(100.0)
%
Handysize
233.5
3,055.9
(2,822.4)
(92.4)
%
Total
16,164.5
19,204.4
(3,039.9)
(15.8)
%
Fleet utilization (6)
Capesize
98.8
%
98.2
%
0.6
%
0.6
%
For the Year Ended
December 31,
Increase
(Decrease)
% Change
Panamax
-
%
92.7
%
(92.7)
%
(100.0)
%
Ultramax
97.6
%
99.3
%
(1.7)
%
(1.7)
%
Supramax
97.6
%
97.6
%
-
%
-
%
Handymax
-
%
100.0
%
(100.0)
%
(100.0)
%
Handysize
86.6
%
92.2
%
(5.6)
%
(6.1)
%
Fleet average
97.9
%
97.1
%
0.8
%
0.8
%
For the Year Ended
December 31,
Increase
(Decrease)
% Change
Average Daily Results:
Time Charter Equivalent (7)
Capesize
$
27,293
$
14,977
$
12,316
82.2
%
Panamax
-
4,948
(4,948)
(100.0)
%
Ultramax
22,169
10,320
11,849
114.8
%
Supramax
23,235
7,957
15,278
192.0
%
Handymax
-
-
-
-
%
Handysize
8,116
5,987
2,129
35.6
%
Fleet average
24,402
10,221
14,181
138.7
%
Major bulk vessels
27,293
14,977
12,316
82.2
%
Minor bulk vessels
22,397
7,832
14,565
186.0
%
Daily vessel operating expenses (8)
Capesize
$
5,572
$
5,106
$
9.1
%
Panamax
-
3,290
(3,290)
(100.0)
%
Ultramax
5,062
4,606
9.9
%
Supramax
5,443
4,456
22.1
%
Handymax
-
-
-
-
%
Handysize
5,856
3,994
1,862
46.6
%
Fleet average
5,409
4,612
17.3
%
(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 Year Ended
For the Year Ended
For the Year Ended
December 31,
December 31,
December 31,
Voyage revenues (in thousands)
$
547,129
$
355,560
$
240,271
$
164,813
$
306,858
$
190,747
Voyage expenses (in thousands)
146,182
156,985
73,374
72,577
72,808
84,408
Charter hire expenses (in thousands)
36,370
10,307
(100)
36,470
10,304
364,577
188,268
166,997
92,233
197,580
96,035
Total available days for owned fleet
14,940
18,420
6,119
6,158
8,822
12,262
Total TCE rate
$
24,402
$
10,221
$
27,293
$
14,977
$
22,397
$
7,832
(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, 2021 and 2020 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
$
547,129
$
355,560
$
191,569
53.9
%
Total revenues
547,129
355,560
191,569
53.9
%
Operating Expenses:
Voyage expenses
146,182
156,985
(10,803)
(6.9)
%
Vessel operating expenses
82,089
87,420
(5,331)
(6.1)
%
Charter hire expenses
36,370
10,307
26,063
252.9
%
General and administrative expenses (inclusive of nonvested stock amortization expense of $2,267 and $2,026, respectively)
24,454
21,266
3,188
15.0
%
Technical management fees
5,612
6,961
(1,349)
(19.4)
%
Depreciation and amortization
56,231
65,168
(8,937)
(13.7)
%
Impairment of vessel assets
-
208,935
(208,935)
(100.0)
%
(Gain) loss on sale of vessels
(4,924)
1,855
(6,779)
(365.4)
%
Total operating expenses
346,014
558,897
(212,883)
(38.1)
%
Operating income (loss)
201,115
(203,337)
404,452
(198.9)
%
Other expense
(19,070)
(22,236)
3,166
(14.2)
%
Net income (loss)
182,045
(225,573)
407,618
(180.7)
%
Less: Net income attributable to noncontrolling interest
-
100.0
%
Net income (loss) attributable to Genco Shipping & Trading Limited
182,007
(225,573)
407,580
(180.7)
%
Net earnings (loss) per share-basic
$
4.33
$
(5.38)
$
9.71
(180.5)
%
Net earnings (loss) per share-diluted
$
4.27
$
(5.38)
$
9.65
(179.4)
%
Weighted average common shares outstanding-basic
42,060,996
41,907,597
153,399
0.4
%
Weighted average common shares outstanding-diluted
42,588,871
41,907,597
681,274
1.6
%
For the Years Ended December 31,
Change
% Change
Balance Sheet Data:
(U.S. Dollars in thousands, at end of period)
Cash, including restricted cash
$
120,531
$
179,679
$
(59,148)
(32.9)
%
Total assets
1,203,002
1,232,809
(29,807)
(2.4)
%
Total debt (current and long-term, net of deferred financing fees)
238,229
439,575
(201,346)
(45.8)
%
Total equity
916,675
744,994
171,681
23.0
%
Other Data:
(U.S. Dollars in thousands)
Net cash provided by operating activities
$
231,119
$
36,896
$
194,223
526.4
%
Net cash (used in) provided by investing activities
(67,573)
37,439
(105,012)
(280.5)
%
Net cash used in financing activities
(222,694)
(56,905)
(165,789)
291.3
%
EBITDA (1)
$
253,441
$
(139,020)
$
392,461
(282.3)
%
(1) EBITDA represents net income (loss) attributable to Genco Shipping & Trading Limited plus net interest expense, taxes and depreciation and amortization. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common
performance measure to compare results across peers. Our management uses EBITDA as a performance measure in our consolidated internal financial statements, and it is presented for review at our board meetings. We believe that EBITDA is useful to investors as the shipping industry is capital intensive which often results in significant depreciation and cost of financing. EBITDA presents investors with a measure in addition to net income to evaluate our performance prior to these costs. EBITDA is not an item recognized by U.S. GAAP (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 income (loss) attributable to Genco Shipping & Trading Limited for each of the periods presented above:
For the Year Ended
December 31,
Net income (loss) attributable to Genco Shipping & Trading Limited
$
182,007
$
(225,573)
Net interest expense
15,203
21,385
Income tax expense
-
-
Depreciation and amortization
56,231
65,168
EBITDA (1)
$
253,441
$
(139,020)
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 2021, voyage revenues increased by $191.6 million, or 53.9%, to $547.1 million as compared to $355.6 million during 2020. The increase in voyage revenues was primarily due to higher rates achieved by both our major and minor bulk vessels, as well as our third party time chartered-in vessels, which was partially offset by the operation of fewer vessels in our fleet. In 2021, drybulk freight rates reached decade highs led by a rise in iron ore shipments from Brazil and Australia, strong global economic activity, higher port congestion, increased demand for coal due to tightness
in the energy complex and manageable net fleet growth due to the historically low orderbook. In early 2022 to date, rates have declined from the levels seen during the second half of 2021. Various seasonal factors are currently influencing freight rates including weather related cargo disruptions in Brazil reducing iron ore volumes, the timing of the Lunar New Year in China, the Beijing Olympics, as well as the frontloaded nature of the orderbook. Additionally, Indonesia imposed a temporary coal export ban during the month of January 2022 in order to rebuild domestic stockpiles.
The average Time Charter Equivalent (“TCE”) rate of our overall fleet increased by 138.7% to $24,402 a day during 2021 from $10,221 a day during 2020. The TCE for our major bulk vessels increased by 82.2% from $14,977 a day during 2020 to $27,293 a day during 2021. This increase was primarily a result of higher rates achieved by our Capesize vessels. The TCE for our minor bulk vessels increased by 186.0% from $7,832 a day during 2020 to $22,397 a day during 2021 primarily a result of higher rates achieved by our Ultramax and Supramax vessels.
For 2021 and 2020, we had ownership days of 15,176.5 days and 18,956.8 days, respectively. The decrease in ownership days is primarily due to the sale of nine vessels during 2020 and eleven vessels during 2021, partially offset by the delivery of one and six vessels during 2020 and 2021, respectively. Fleet utilization increased marginally from 97.1% during 2020 to 97.9% during 2021.
Please see pages 8 - 9 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.
Voyage expenses were $146.2 million and $157.0 million during 2021 and 2020, respectively. This decrease was primarily due to the operation of fewer vessels, partially offset by higher bunker expenses and certain costs incurred related to our spot market voyages.
VESSEL OPERATING EXPENSES-
Vessel operating expenses decreased by $5.3 million from $87.4 million during 2020 to $82.1 million during 2021. This decrease was primarily due to fewer owned vessels during 2021 as compared to 2020, partially offset by higher crew expenses as a result of COVID-19 related expenses and disruptions. Restrictions on crew rotations led to a temporary decline in crewing related expenses during the first half of 2020. However, such costs began to increase in June 2020, which also contributed to higher crew related expenses during 2021 as compared to 2020.
Daily vessel operating expenses (“DVOE”) for our fleet increased to $5,409 per vessel per day during 2021 from $4,612 per vessel per day during 2020. The increase in daily vessel operating expenses was predominantly due to higher crew expenses as a result of COVID-19 related expenses and disruptions. 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 per day for the year ended December 31, 2021 were $409 above the original weighted-average budgeted rate of $5,000 per vessel per day.
As a result of COVID-19 restrictions with regard to crew rotations, we expect higher crew related costs due to ongoing 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, these have all been increasing challenges that shipowners are facing globally. 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. 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, higher than normal travel expenses due to increased airfare costs, and crew bonuses to retain the existing crew during rotation delays.
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. We also expect higher costs during 2022 in relation to crew, spares and parts primarily due to industry-wide inflationary pressures and higher regulatory-related costs.
Based on estimates provided by our technical managers, our DVOE budget for the first quarter of 2022 is $5,825 per vessel per day on a fleet-wide basis, which includes an estimated amount for COVID-19 related expenses. The potential impacts of COVID-19 are beyond our control and are difficult to predict due to uncertainties surrounding the pandemic, and the actual amount of our DVOE could be higher or lower than budgeted as a result.
CHARTER HIRE EXPENSES-
Charter hire expenses increased by $26.1 million from $10.3 million during 2020 to $36.4 million during 2021. The increase was primarily due to higher charter in rates during 2021 as compared to 2020, in addition to an increase in chartered-in days.
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, operating lease expense, legal, auditing and other professional expenses. General and administrative expenses include nonvested stock amortization expense which represent the amortization of stock-based compensation that has been issued to our Directors and employees pursuant to the 2015 Equity Incentive Plan. Refer to Note 17 - 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 also incur general and administrative expenses for our overseas offices located in Singapore and Copenhagen.
General and administrative expenses increased by $3.2 million from $21.3 million during 2020 to $24.5 million during 2021. The increase was primarily due to higher compensation related expenses, as well as higher legal and professional fees.
TECHNICAL MANAGEMENT FEES-
We incur management fees to third party technical management companies we have engaged for the day-to-day management of our vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. In addition, technical management fees also include the direct costs, including the operating costs, incurred by GSSM for the technical management of the vessels under its management.
For the years ended December 31, 2021 and 2020, technical management fees were $5.6 million and $7.0 million, respectively. The decrease was primarily due to the operation of a smaller fleet.
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 $8.9 million from $65.2 million during 2020 to $56.2 million during 2021. This decrease was primarily due to a decrease in depreciation for certain vessels in our fleet that were impaired during 2020, as well as a decrease in the depreciation of vessels due to the operation of a smaller fleet during 2021 as compared to 2020.
IMPAIRMENT OF VESSEL ASSETS-
During 2020, we recorded $208.9 million of impairment of vessel assets. This included impairment losses for 20 of our Supramax vessels and ten of our Handysize vessels. There was no vessel impairment recorded during 2021.
Refer to Note 2 - Summary of Significant Accounting Policies in our Consolidated Financial Statements for further information.
(GAIN) LOSS ON SALE OF VESSELS-
During 2021, we recorded a $4.9 million net gain on sale of vessels related primarily to the sale of the Genco Provence, partially offset by net losses related to the sale of the Baltic Panther, the Baltic Hare, the Baltic Cougar, the Baltic Leopard and the Genco Lorraine, as well as net losses associated with the exchange of the Baltic Cove, the Baltic Fox, the Genco Spirit, the Genco Avra and the Genco Mare.
During 2020, we recorded a $1.9 million net loss on sale of vessels 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.
OTHER (EXPENSE) INCOME-
NET INTEREST EXPENSE-
Net interest expense decreased by $6.2 million to $15.2 million during 2021 as compared to $21.4 million during 2020. Net interest expense during the years ended December 31, 2021 and 2020 consisted of interest expense under our credit facilities and amortization of deferred financing costs for those facilities. The decrease is primarily due to a $7.1 million decrease in interest expense as a result of lower outstanding debt, as well as lower interest rates. This was offset by a $0.9 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.
LOSS ON DEBT EXTINGUISHMENT -
During the year ended December 31, 2021, we recorded a $4.4 million loss on debt extinguishment as a result of the refinancing of our $495 Million Credit Facility and $133 Million Credit Facility with the $450 Million Credit Facility on August 31, 2021. Refer to Note 7 - Debt in the Consolidated Financial Statements for information regarding our credit facilities.
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST -
For the year ended December 31, 2021, net income attributable to noncontrolling interest was $0.04 million which is associated with the net income attributable to the noncontrolling interest of GSSM, which was formed during September 2021.
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, fleet renewal, drydocking for our vessels, payment of dividends, debt repayments and satisfying working capital requirements as may be needed to support our business. 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 $114.6 million as of December 31, 2021 in addition to the $184.8 million availability under the revolver of the $450 Million Credit Facility as of December 31, 2021, which compares to a minimum liquidity requirement under our credit facility of approximately $21 million as of the date of this report. Given the remaining $40.8 million that was paid during January 2022 for the remainder of the purchase price of two newbuilding vessels that were delivered on January 6, 2022, anticipated capital expenditures related to drydockings and the installation of ballast water treatment systems (“BWTS”) and fuel efficiency upgrade costs of $34.3 million and $2.4 million during 2022 and 2023, respectively, as well as any quarterly dividend payments, we anticipate to continue to have significant cash expenditures. Refer to “Capital Expenditures” below for further details. 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 pay dividends per our capital allocation strategy or at all. Throughout 2021, the Company paid down $203 million of debt, in addition to an $8.8 million prepayment of debt on January 26, 2022, resulting in a reduced cash flow breakeven rate from previous levels. After this additional prepayment during January 2022, there will be no mandatory debt repayments until we must repay $237.3 million in 2026. Although we do not have any mandatory debt repayments until 2026, we intend to continue to pay down debt on a voluntary basis with a medium term goal of zero net debt.
As of December 31, 2021, the $450 Million Credit Facility contained collateral maintenance covenants that require the aggregate appraised value of collateral vessels to be at least 140% of the principal amount of the loan outstanding under such facility. If the values of our vessels were to decline as a result of COVID-19 or otherwise, we may not satisfy this collateral maintenance requirement. If we do not satisfy the collateral maintenance requirement, we will need to post additional collateral or prepay outstanding loans to bring us back into compliance, or we will need to seek waivers, which may not be available or may be subject to conditions.
In the future, we may require capital to fund acquisitions or to improve or support our ongoing operations and debt structure, particularly in light of economic conditions resulting from the ongoing COVID-19 pandemic. We may from time to time seek to raise additional capital through equity or debt offerings, selling vessels or other assets, pursuing strategic opportunities, or otherwise. We may also from time to time seek to incur additional debt financing from private or public sector sources, refinance our indebtedness or obtain waivers or modifications to our credit agreements to obtain more favorable terms, enhance flexibility in conducting our business, or otherwise. We may also seek to manage our interest rate exposure through hedging transactions. We may seek to accomplish any of these independently or in conjunction with one or more of these actions. However, if market conditions are unfavorable, we may be unable to accomplish any of the foregoing on acceptable terms or at all.
We entered into the $450 Million Credit Facility on August 3, 2021. Proceeds from the $450 Million Credit Facility were used to refinance our $495 Million Credit Facility and our $133 Million Credit Facility on August 31, 2021. Refer to Note 7 - Debt in our Consolidated Financial Statements for further details regarding the terms of the $450 Million Credit Facility, which information is incorporated herein by reference.
As of December 31, 2021, we were in compliance with all financial covenants under the $450 Million Credit facility.
Dividends
We disclosed on April 19, 2021 that, on management’s recommendation, our Board of Directors adopted a new quarterly dividend policy for dividends payable commencing in the first quarter of 2022 in respect of our financial results for the fourth quarter of 2021. Under the new quarterly dividend policy, the amount available for quarterly dividends is to be calculated based on the following formula:
Operating cash flow
Less: Debt repayments
Less: Capital expenditures for drydocking
Less: Reserve
Cash flow distributable as dividends
The amount of dividends payable under the foregoing formula for each quarter of the year will be determined on a quarterly basis.
For purposes of the foregoing calculation, operating cash flow is defined as voyage revenue less voyage expenses, charter hire expenses, vessel operating expenses, general and administrative expenses other than non-cash restricted stock expenses, technical management fees, and interest expense other than non-cash deferred financing costs. Anticipated uses for the reserve include, but are not limited to, vessel acquisitions, debt repayments, and general corporate purposes. In order to set aside funds for these purposes, the reserve will be set on a quarterly basis in the discretion of our Board and is anticipated to be based on future quarterly debt repayments and interest expense.
On February 23, 2022, our Board declared a quarterly dividend of $0.67 per share. Our quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with applicable law and contractual obligations (including our credit facility) and our Board’s determination that each declaration and payment is at that time in the best interests of the Company and its shareholders after its review of our financial performance.
In connection with our new dividend policy, we have paid down additional indebtedness under our credit facilities and utilized the $450 Million Credit Facility to refinance our two prior credit facilities as noted above.
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 36 - 37 of this report, 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 in this report, 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 and dividends required to be shown on their federal income tax returns; or
● fails to comply with applicable certification requirements
A holder that is not 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 Flows
Net cash provided by operating activities for the years ended December 31, 2021 and 2020 was $231.1 million and $36.9 million, respectively. This increase in cash provided by operating activities was primarily due to higher rates achieved by our major and minor bulk vessels, changes in working capital, as well as a decrease in drydocking related expenditures and interest expense.
Net cash used in investing activities during the year ended December 31, 2021 was $67.6 million as compared to $37.4 million net cash provided by investing activities during the year ended December 31, 2020. This fluctuation was primarily due to the purchase of four Ultramax vessels which delivered during the third quarter of 2021, as well as deposits made for the two Ultramax vessels that were delivered during January 2022. Additionally, there was a decrease in the net proceeds from the sale of vessels. These fluctuations were partially offset by a decrease in scrubber related expenditures and purchase of other fixed assets during 2021 as compared to 2020.
Net cash used in financing activities during the years ended December 31, 2021 and 2020 was $222.7 million and $56.9 million, respectively. The increase was primarily due to the refinancing of the $495 Million Credit Facility and the $133 Million Credit Facility with the $450 Million Credit Facility on August 31, 2021. During 2021, the increase in total net cash used in financing activities related to our credit facilities was $156.6 million as compared to 2020. Additionally, there was a $5.6 million increase in deferred financing costs paid in relation to the $450 Million Credit Facility during 2021. Lastly, there was a $3.6 million increase in the payment of dividends during 2021 as compared to 2020.
Credit Facilities
On August 3, 2021, we entered into the $450 Million Credit Facility, which we used to refinance the existing debt outstanding under the $495 Million Credit Facility and the $133 Million Credit Facility as of August 31, 2021.
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.
Interest Rate Swap Agreements, Forward Freight Agreements and Currency Swap Agreements
As of December 31, 2021, we had three interest rate cap agreements to manage interest costs and the risk associated with changing interest rates. Such agreements cap the borrowing rate on our variable debt to provide a hedge agains the risk of rising rates. At December 31, 2021, the total notional principal amount of the interest rate cap agreements was $200.0 million.
Refer to the table in Note 8 - Derivative instruments of our Consolidated Financial Statements which summarized the interest rate cap agreements in place as of December 31, 2021.
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 immaterial. Valuations prior to any adjustments for credit risk would be validated by comparison with counterparty valuations. Amounts would not and should not be identical due to the different modeling assumptions. Any material differences would be investigated.
As part of our business strategy, we may also 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, 2021 and 2020.
Interest Rates
The effective interest rate for the years ended December 31, 2021, 2020 and 2019 include interest rates associated with the interest expense for our various credit facilities including the following: the $450 Million Credit Facility, as well as the $133 Million Credit Facility and the $495 Million Credit Facility (until these facilities were refinanced with the $450 Million Credit Facility on August 31, 2021).
The effective interest rate for the aforementioned credit facilities, including the cost associated with unused commitment fees, if applicable, was 3.22%, 3.71% and 5.31% during 2021, 2020 and 2019, respectively. The interest rate on the debt, excluding unused commitment fees, ranged from 2.24% to 3.48%; 2.65% to 3.50% and 4.05% to 5.76% during 2021, 2020 and 2019, respectively.
Capital Expenditures
We make capital expenditures from time to time in connection with our vessel acquisitions. Our fleet currently consists of 44 drybulk vessels, including 17 Capesize drybulk carriers, 15 Ultramax drybulk carriers and twelve 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 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 and 2022. 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 requires 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.
Furthermore, under our comprehensive IMO 2023 compliance plan, we intend to install energy saving devices and apply high performance paint systems in order to reduce fuel consumption and emissions among other key initiatives, on select vessels. We plan to undertake most, if not all, of these initiatives while our vessels undergo their regularly scheduled drydocking. These estimated expenditures are included in the table below.
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 and $0.6 million for Supramax vessels. The BWTS will be installed during a vessel’s scheduled drydocking and these costs will be capitalized and depreciated over the remainder of the life of the vessel. During 2020 and 2019, we completed the installation of BWTS on nine and 17 of our vessels, respectively. There were no BWTS installations completed during 2021. Eleven of these vessels have since been sold. We anticipate that we will complete the installation of BWTS on ten vessels during 2022, one of which was in the process of completing its scheduled drydocking as of December 31, 2021. 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 was 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.
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, 2021, we have paid $42.9 million in cash installments towards our scrubber program and have drawn down $32.8 million under the scrubber tranche under our $495 Million Credit Facility. During the second quarter of 2021, we paid down the debt balance under the scrubber tranche.
We estimate our capitalized drydocking costs, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, BWTS costs, fuel efficiency upgrades and scheduled off-hire days for our fleet through 2023 to be:
Year
Estimated Drydocking
Cost
Estimated BWTS
Cost
Estimated Fuel Efficiency Upgrade Costs
Estimated Off-hire
Days
(U.S. dollars in millions)
$
17.8
$
7.3
$
9.1
$
2.4
$
-
$
-
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 2021 and 2020, we incurred a total of $4.9 million and $8.6 million of drydocking costs, respectively, excluding costs incurred during drydocking that were capitalized to vessel assets or vessel equipment.
Two vessels completed their respective drydockings during 2021. An additional three of our vessels began their drydockings during the fourth quarter of 2021 and did not complete until first quarter of 2022. In addition to these three vessels, we estimate that 12 of our vessels will be drydocked during 2022 and two of our vessels will be drydocked during 2023.
As of January 17, 2020, we have completed the installation of scrubbers on our 17 Capesize vessels.
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.
Effective January 1, 2022, we increased the estimated scrap value of the vessels from $310 per lwt to $400 per lwt prospectively based on the 15-year average scrap value of steel. The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of the vessel assets. We expect depreciation to decrease by approximately $4.5 million during 2022 as a result of the prospective change in the scrap value.
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.”
There were no impairment losses during the year ended December 31, 2021. During the years ended December 31, 2020 and 2019, we recorded losses of $208.9 million and $27.4 million, respectively, 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). 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 and 2019.
Under our credit facility, 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 facility. 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 $450 Million Credit Facility as of December 31, 2021. 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 $450 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, 2021 and 2020. Vessels have been grouped according to their collateralized status as of December 31, 2021 and does not include any vessels held for sale or held for exchange. The carrying value of our twelve and fifteen Supramax vessels that were not held for sale as of December 31, 2021 and 2020, respectively, reflect the impairment loss recorded during the year ended December 31, 2020.
As of December 31, 2021, 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 higher than their carrying values at December 31, 2021, with the exception of eleven of our Capesize vessels, as a result of an overall increase in vessel values. Comparatively, 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 during the fourth quarter of 2020.
The amount by which the carrying value at December 31, 2021 of eleven of our Capesize vessels exceeded the valuation of such vessels for covenant compliances ranged, on an individual vessel basis, from $4.3 million to $7.0 million per vessel, and $62.7 million on an aggregate fleet basis. Comparatively, 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 average amount by which the carrying value of these vessels exceeded the valuation of such vessels for covenant compliance purposes was $5.7 million and $9.0 million as of December 31, 2021 and 2020, 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
$450 Million Credit Facility
Genco Commodus
$
35,200
$
37,356
Genco Maximus
35,215
37,355
Genco Claudius
36,872
39,091
Baltic Bear
36,666
38,813
Baltic Wolf
36,948
39,050
Baltic Lion
29,971
30,811
Genco Tiger
28,658
29,020
Baltic Scorpion
23,456
24,520
Baltic Mantis
23,701
24,768
Genco Hunter
7,788
8,250
Genco Warrior
6,909
7,422
Genco Aquitaine
8,588
9,000
Genco Ardennes
8,591
9,000
Genco Auvergne
8,597
9,000
Genco Bourgogne
9,299
9,750
Genco Brittany
9,303
9,750
Genco Languedoc
9,304
9,750
Genco Picardy
7,347
7,890
Genco Provence
-
6,930
Genco Pyrenees
9,311
9,750
Genco Rhone
10,512
10,625
Genco Constantine
32,152
34,179
Genco Augustus
30,822
32,049
Genco London
29,708
31,587
Genco Titus
30,503
32,306
Genco Tiberius
30,161
32,007
Genco Hadrian
32,570
34,633
Genco Predator
7,266
7,816
Baltic Hornet
22,022
23,055
Baltic Wasp
22,275
23,308
Genco Endeavour
42,207
44,069
Genco Resolute
42,507
44,320
Genco Columbia
24,484
25,553
Genco Weatherly
19,806
20,740
Genco Liberty
45,760
47,676
Genco Defender
45,792
47,641
Genco Magic
14,381
14,683
Genco Vigilant
15,476
-
Genco Freedom
15,577
-
Genco Enterprise
20,591
-
TOTAL
$
906,296
$
903,523
Unencumbered
Genco Madeleine
23,266
-
Genco Constellation
25,574
-
Genco Mayflower
26,005
-
Genco Lorraine
-
7,751
Baltic Leopard
-
7,840
$
74,845
$
15,591
Consolidated Total
$
981,141
$
919,114
If we were to sell a vessel or hold a vessel for sale, and the carrying value of the vessel were to exceed its fair market value, 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.
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.
Although rates have improved during 2021, the drybulk charter market has been volatile over the past five years. Shipping rates for key drybulk routes increased during 2021 after a decline in 2020 which was principally as a result of the global economic slowdown caused by the COVID-19 pandemic.
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, 2021, 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. As of December 31, 2021, only certain of the Capesize vessels had indicators of impairment and the estimated future undiscounted cash flows for those Capesize vessels exceeded each of those vessels’ carrying values by a margin of approximately 35% to 77% 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, 2021. 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. It is reasonably possible that the estimate of undiscounted cash flows may change in the future due to changes in current rates which could adversely affect the average rates being utilized and could result in impairment of certain of our older vessels. It is also reasonably possible that vessels that were not subject to impairment testing during 2021 because there was no indicator of impairment could be subject to such testing in the future. Actual equivalent drybulk shipping rates are currently higher than the estimated rates. We believe current rates have been driven by strong global economic activity during 2021 due to decade highs led by a rise in iron ore shipments from Brazil and Australia, higher port congestion and an increased demand for coal due to tightness in the energy complex and manageable net fleet growth due to the historically low orderbook, as well as seasonal issues and other factors 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
(21.2)
%
(23.0)
%
Ultramax (1) (2)
N/A
(12.3)
%
Supramax (1) (3)
N/A
(14.2)
%
(1) There were no indicators of impairment for our Ultramax and Supramax vessels as of December 31, 2021, as the respective fair market values of these vessels were higher than their respective carrying values. As such, these vessels were not subject to impairment as of December 31, 2021.
(2) We excluded the Genco Magic from this sensitivity analysis for the year ended December 31, 2020 as the vessel was acquired on December 23, 2020.
(3) 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 for the year ended December 31, 2020 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, 2021 and 2020, 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
74.9
%
2.1
%
Ultramax
88.2
%
(6.1)
%
Supramax
119.9
%
(19.3)
%
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.

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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. We held three interest rate cap agreements as of December 31, 2021 to manage future interest costs and the risk associated with changing interest rates. The total notional amount of the caps at December 31, 2021 is $200.0 million and the caps have specified rates and durations. Refer to Note 8 - Derivative Instruments of our Consolidated Financial Statements, which summarizes the interest rate caps in place as of December 31, 2021.
The interest rate cap agreements cap the borrowing rate on our variable debt to provide a hedge against the risk of rising rates.
The total asset associated with the caps at December 31, 2021 is $1.2 million, which has been classified as a noncurrent asset on the balance sheet. As of December 31, 2021, the Company has accumulated other comprehensive income (“AOCI”) of $0.8 million related to the interest rate cap agreements. At December 31, 2021, $0.03 million of AOCI is expected to be reclassified into income over the next 12 months associated with interest rate derivatives.
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, 2021, 2020 and 2019, 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):
● $450 Million Credit Facility
● One-month LIBOR plus 2.45% beginning August 31, 2021 which was reduced to 2.15% effective November 4, 2021.
● $133 Million Credit Facility
● $108 Million Tranche - one-month LIBOR plus 2.50% until August 31, 2021, when this facility was refinanced with the $450 Million Credit Facility.
● $25 Million Tranche - one-month LIBOR plus 3.0% effective June 15, 2020 when the initial draw down on this facility was made until March 31, 2021 when this tranche was paid down.
● $495 Million Credit Facility
● $460 Million Tranche - one-month LIBOR plus 3.25% effective until August 31, 2021, when this facility was refinanced with the $450 Million Credit Facility. 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 until June 7, 2021 when this tranche was paid down.
A 1% increase in LIBOR would have resulted in an increase of $3.7 million in interest expense for the year ended December 31, 2021.
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 or interest rate cap agreements to manage interest costs and the risk associated with changing interest rates. As of December 31, 2021, we held three interest rate cap agreements to manage interest costs and the risk associated with changing interest rates. The total notional amount of the caps at December 31, 2021 is $200.0 million and the caps have specified rates and durations. Refer to Note 8 - Derivative Instruments of our Consolidated Financial Statements which summarizes the interest rate caps in place as of December 31, 2021.
The Company is currently utilizing cash flow hedge accounting for the interest rate cap agreements. The premium paid is recognized in income on a rational basis, and all changes in the value of the caps are deferred in AOCI and are subsequently reclassified into Interest expense in the period when the hedged interest affects earnings. If for any period of time we do not designate the caps for hedge accounting, the change in the value of the interest rate cap agreements prior to designation would be recognized as other (expense) income.
Refer to the “Interest rate risk” section above for further information regarding interest rate swap agreements.
Currency and exchange rate risk
The majority of transactions in the international shipping industry are denominated in U.S. Dollars. 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 (PCAOB ID 34)
b)
Consolidated Balance Sheets as of December 31, 2021 and 2020
c)
Consolidated Statements of Operations
d)
Consolidated Statements of Comprehensive Income (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, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2022, 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, 2021, were $981.1 million, with no impairment losses recorded during the year ended December 31, 2021.
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, 2022
We have served as the Company’s auditor since 2005.
Genco Shipping & Trading Limited
Consolidated Balance Sheets as of December 31, 2021 and 2020
(U.S. Dollars in thousands, except for share and per share data)
December 31,
December 31,
Assets
Current assets:
Cash and cash equivalents
$
114,573
$
143,872
Restricted cash
5,643
35,492
Due from charterers, net of a reserve of $1,403 and $669, respectively
20,116
12,991
Prepaid expenses and other current assets
9,935
10,856
Inventories
24,563
21,583
Vessels held for sale
-
22,408
Total current assets
174,830
247,202
Noncurrent assets:
Vessels, net of accumulated depreciation of $253,005 and $204,201, respectively
981,141
919,114
Deposits on vessels
18,543
-
Vessels held for exchange
-
38,214
Deferred drydock, net of accumulated amortization of $12,879 and $8,124 respectively
14,275
14,689
Fixed assets, net of accumulated depreciation and amortization of $3,984 and $2,266, respectively
7,237
6,393
Operating lease right-of-use assets
5,495
6,882
Restricted cash
Fair value of derivative instruments
1,166
-
Total noncurrent assets
1,028,172
985,607
Total assets
$
1,203,002
$
1,232,809
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses
$
29,956
$
22,793
Current portion of long-term debt
-
80,642
Deferred revenue
10,081
8,421
Current operating lease liabilities
1,858
1,765
Total current liabilities:
41,895
113,621
Noncurrent liabilities:
Long-term operating lease liabilities
6,203
8,061
Contract liability
-
7,200
Long-term debt, net of deferred financing costs of $7,771 and $9,653, respectively
238,229
358,933
Total noncurrent liabilities
244,432
374,194
Total liabilities
286,327
487,815
Commitments and contingencies (Note 15)
Equity:
Common stock, par value $0.01; 500,000,000 shares authorized; 41,924,597 and 41,801,753 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
1,702,166
1,713,406
Accumulated other comprehensive income
-
Accumulated deficit
(786,823)
(968,830)
Total Genco Shipping & Trading Limited shareholders’ equity
916,587
744,994
Noncontrolling interest
-
Total equity
916,675
744,994
Total liabilities and equity
$
1,203,002
$
1,232,809
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
(U.S. Dollars in Thousands, Except for Earnings Per Share and Share Data)
For the Years Ended December 31,
Revenues:
Voyage revenues
$
547,129
$
355,560
$
389,496
Total revenues
547,129
355,560
389,496
Operating expenses:
Voyage expenses
146,182
156,985
173,043
Vessel operating expenses
82,089
87,420
96,209
Charter hire expenses
36,370
10,307
16,179
General and administrative expenses (inclusive of nonvested stock amortization expense of $2,267, $2,026 and $2,057, respectively)
24,454
21,266
24,516
Technical management fees
5,612
6,961
7,567
Depreciation and amortization
56,231
65,168
72,824
Impairment of vessel assets
-
208,935
27,393
(Gain) loss on sale of vessels
(4,924)
1,855
Total operating expenses
346,014
558,897
417,899
Operating income (loss)
201,115
(203,337)
(28,403)
Other income (expense):
Other income (expense)
(851)
Interest income
1,028
4,095
Interest expense
(15,357)
(22,413)
(31,955)
Impairment of right-of-use asset
-
-
(223)
Loss on debt extinguishment
(4,408)
-
-
Other expense, net
(19,070)
(22,236)
(27,582)
Net income (loss)
182,045
(225,573)
(55,985)
Less: Net income attributable to noncontrolling interest
-
-
Net income (loss) attributable to Genco Shipping & Trading Limited
$
182,007
$
(225,573)
$
(55,985)
Net earnings (loss) per share-basic
$
4.33
$
(5.38)
$
(1.34)
Net earnings (loss) per share-diluted
$
4.27
$
(5.38)
$
(1.34)
Weighted average common shares outstanding-basic
42,060,996
41,907,597
41,762,893
Weighted average common shares outstanding-diluted
42,588,871
41,907,597
41,762,893
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2021, 2020 and 2019
(U.S. Dollars in Thousands)
For the Years Ended December 31,
Net income (loss)
$
182,045
$
(225,573)
$
(55,985)
Other comprehensive income
-
-
Comprehensive income (loss)
$
182,870
$
(225,573)
$
(55,985)
Less: Comprehensive income attributable to noncontrolling interest
-
-
Comprehensive income (loss) attributable to Genco Shipping & Trading Limited
$
182,832
$
(225,573)
$
(55,985)
See accompanying notes to consolidated financial statements.
Genco Shipping & Trading Limited
Consolidated Statements of Equity
(U.S. Dollars in Thousands)
Genco
Shipping &
Accumulated
Trading
Additional
Other
Limited
Common
Paid-in
Comprehensive
Accumulated
Shareholders’
Noncontrolling
Stock
Capital
Income
Deficit
Equity
Interest
Total Equity
Balance - January 1, 2019
$
$
1,740,163
$
-
$
(687,272)
$
1,053,307
$
-
$
1,053,307
Net loss
(55,985)
(55,985)
(55,985)
Issuance of shares due to vesting of RSUs
(1)
-
-
Cash dividends declared ($0.50 per share)
(20,951)
(20,951)
(20,951)
Nonvested stock amortization
2,057
2,057
2,057
Balance - December 31, 2019
$
$
1,721,268
$
-
$
(743,257)
$
978,428
$
-
$
978,428
Net loss
(225,573)
(225,573)
(225,573)
Issuance of shares due to vesting of RSUs
(1)
-
-
Cash dividends declared ($0.235 per share)
(9,887)
(9,887)
(9,887)
Nonvested stock amortization
2,026
2,026
2,026
Balance - December 31, 2020
$
$
1,713,406
$
-
$
(968,830)
$
744,994
$
-
$
744,994
Net income
182,007
182,007
182,045
Other comprehensive income
Issuance of shares due to vesting of RSUs and exercise of options
(1)
-
-
Cash dividends declared ($0.32 per share)
(13,506)
(13,506)
(13,506)
Nonvested stock amortization
2,267
2,267
2,267
Non-controlling interest initial investment
-
Balance - December 31, 2021
$
$
1,702,166
$
$
(786,823)
$
916,587
$
$
916,675
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 income (loss)
$
182,045
$
(225,573)
$
(55,985)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
56,231
65,168
72,824
Amortization of deferred financing costs
3,536
3,903
3,788
Amortization of fair market value of time charters acquired
(4,263)
-
-
Right-of-use asset amortization
1,387
1,359
1,246
Amortization of nonvested stock compensation expense
2,267
2,026
2,057
Impairment of right-of-use asset
-
-
Impairment of vessel assets
-
208,935
27,393
(Gain) loss on sale of vessels
(4,924)
1,855
Loss on debt extinguishment
4,408
-
-
Amortization of premium on derivative
-
-
Interest rate cap premium payment
(240)
-
-
Insurance proceeds for protection and indemnity claims
Insurance proceeds for loss of hire claims
-
-
Change in assets and liabilities:
(Increase) decrease in due from charterers
(7,125)
8,605
Increase in prepaid expenses and other current assets
(783)
(1,938)
(789)
(Increase) decrease in inventories
(2,980)
5,625
2,340
Increase (decrease) in accounts payable and accrued expenses
5,405
(17,355)
13,172
Increase in deferred revenue
1,660
1,794
Decrease in operating lease liabilities
(1,765)
(1,677)
(1,592)
Deferred drydock costs incurred
(4,925)
(8,583)
(14,641)
Net cash provided by operating activities
231,119
36,896
59,526
Cash flows from investing activities:
Purchase of vessels and ballast water treatment systems, including deposits
(115,680)
(4,485)
(13,960)
Purchase of scrubbers (capitalized in Vessels)
(199)
(10,973)
(31,750)
Purchase of other fixed assets
(1,585)
(4,580)
(4,714)
Net proceeds from sale of vessels
49,473
56,993
26,963
Insurance proceeds for hull and machinery claims
Net cash (used in) provided by investing activities
(67,573)
37,439
(22,849)
Cash flows from financing activities:
Proceeds from the $450 Million Credit Facility
350,000
-
-
Repayments on the $450 Million Credit Facility
(104,000)
-
-
Proceeds from the $133 Million Credit Facility
-
24,000
-
Repayments on the $133 Million Credit Facility
(114,940)
(9,160)
(6,320)
Proceeds from the $495 Million Credit Facility
-
11,250
21,500
Repayments on the $495 Million Credit Facility
(334,288)
(72,686)
(70,776)
Payment of common stock issuance costs
-
-
(105)
For the Years Ended December 31,
Investment by non-controlling interest
-
-
Cash dividends paid
(13,463)
(9,847)
(20,877)
Payment of deferred financing costs
(6,053)
(462)
(611)
Net cash used in financing activities
(222,694)
(56,905)
(77,189)
Net (decrease) increase in cash, cash equivalents and restricted cash
(59,148)
17,430
(40,512)
Cash, cash equivalents and restricted cash at beginning of period
179,679
162,249
202,761
Cash, cash equivalents and restricted cash at end of period
$
120,531
$
179,679
$
162,249
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, 2021, 2020 and 2019
1 - GENERAL INFORMATION
The accompanying consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”) and its direct and indirect 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, 2021, 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.”
During September 2021, the Company and Synergy Marine Pte. Ltd. (“Synergy”), a third party, formed a joint venture, GS Shipmanagement Pte. Ltd. (“GSSM”). GSSM is owned 50% by the Company and 50% by Synergy as of December 31, 2021, and was formed to provide ship management services to the Company’s vessels. As of December 31, 2021, the investments GSSM received from the Company and Synergy totaled $50 and $50, respectively, which were used for expenditures directly related to the operations of GSSM.
Management has determined that GSSM qualifies as a variable interest entity, and, when aggregating the variable interest held by the Company and Synergy, the Company is the primary beneficiary as the Company has the ability to direct the activities that most significantly impact GSSM’s economic performance. Accordingly, the Company consolidates GSSM.
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 continues to have widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Over the course of the pandemic, governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, working from home, supply chain logistical changes, and closure of non-essential businesses. This 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 2021. However, an increase in the severity or duration or a resurgence of the COVID-19 pandemic, any potential variants 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.
Other General Information
As of December 31, 2021, 2020 and 2019, the Company’s fleet consisted of 42, 47 and 55 vessels, respectively.
Below is the list of Company’s wholly owned ship-owning subsidiaries as of December 31, 2021:
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 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 Picardy Limited
Genco Picardy
55,257
8/16/10
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
Genco Vigilant Limited
Genco Vigilant
63,498
1/28/21
Genco Freedom Limited
Genco Freedom
63,671
2/2/21
Genco Enterprise Limited
Genco Enterprise
63,473
8/23/21
Genco Madeleine Limited
Genco Madeleine
63,166
8/23/21
Genco Mayflower Limited
Genco Mayflower
63,304
8/24/21
Genco Constellation Limited
Genco Constellation
63,310
9/3/21
Baltic Lion Limited
Baltic Lion
179,185
4/8/15
(1)
Baltic Tiger Limited
Genco Tiger
179,185
4/8/15
(1)
Baltic Bear Limited
Baltic Bear
177,717
5/14/10
Baltic Wolf Limited
Baltic Wolf
177,752
10/14/10
Baltic Hornet Limited
Baltic Hornet
63,574
10/29/14
Baltic Wasp Limited
Baltic Wasp
63,389
1/2/2015
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 and GSSM. 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 Accounting Standards Codification (“ASC”) 606 - Revenue from Contracts with Customers (“ASC 606”) 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 13 - 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, 2021, 2020 and 2019 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 and spot market-related time charters, 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 13 - 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 (gain) loss of ($1,889), $697 and $829 during the years ended December 31, 2021, 2020 and 2019, 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, 2021, the Company recorded $4,408 related to the loss on the extinguishment of debt in accordance with ASC 470-50 - “Debt - Modifications and Extinguishments” (“ASC 470-50”). This loss was recognized as a result of the refinancing of the $495 Million Credit Facility and the $133 Million Credit Facility with the $450 Million Credit Facility on August 31, 2021 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, 2021 and 2020, the Company had a reserve of $1,403 and $669, respectively, against the due from charterers balance and an additional accrual of $364 and $358, 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
The costs to charter-in third party vessels, which primarily include the daily charter hire rate net of commissions, are recorded as Charter hire expenses. The Company recorded $36,370, $10,307 and $16,179 of charter hire expenses during the years ended December 31, 2021, 2020 and 2019, respectively.
Technical management fees
Technical management fees represent fees paid to third party technical management companies for the day-to-day management of our vessels, including performing routine maintenance, attending to vessel operation and arranging for crews and supplies. In addition, technical management fees also include the direct costs, including operating costs, incurred by GSSM for the technical management of the vessels under its management.
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, 2021, 2020 and 2019 was $49,417, $58,008 and $66,351, 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. Effective January 1, 2022, the Company increased the estimated scrap value of the vessels from $310 per lwt to $400 per lwt prospectively based on the average of the 15-year average scrap value of steel. The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of the vessel assets. The Company expects depreciation to decrease by approximately $4.5 million during 2022 as a result of the prospective change in the scrap value.
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.
Vessels held for exchange
The remaining five vessel assets 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.
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.
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, 2021, 2020 and 2019 was $1,759, $1,562 and $989, 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, 2021, 2020 and 2019 was $5,055, $5,598 and $5,484, 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, with the exception of other capitalized costs incurred related to vessel assets and vessel equipment.
Impairment of long-lived assets
During the year ended December 31, 2021, the Company did not incur any impairment of vessel assets in accordance with ASC 360 - “Property, Plant and Equipment” (“ASC 360”). During the years ended December 31, 2020 and 2019, the Company recorded $208,935 and $27,393, respectively, related to the impairment of vessel assets in accordance with 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 during 2021.
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 the Baltic Leopard as of December 31, 2020, the vessels values for the Genco Lorraine and the 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 the 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.
Refer to Note 4 - Vessel Acquisitions and Dispositions for further detail regarding the sale of certain aforementioned vessels.
(Gain) loss on sale of vessels
During the years ended December 31, 2021, 2020 and 2019, the Company recorded net (gains) losses of ($4,924), $1,855 and $168, respectively, related to the sale of vessels. The ($4,924) net gains recognized during the year ended December 31, 2021 related primarily to the sale of the Genco Provence, partially offset by losses related to the sale of the Baltic Panther, the Baltic Hare, the Baltic Cougar, the Baltic Leopard and the Genco Lorraine, as well as net losses associated with the exchange of the Baltic Cove, Baltic Fox, Genco Spirit, Genco Avra and Genco Mare. The $1,855 net losses 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 losses 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. 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, cash equivalents and restricted cash
The Company considers highly liquid investments, such as money market funds and certificates of deposit with an original maturity of three months or less at the time of purchase to be cash equivalents. Current and non-current restricted cash includes cash that is restricted pursuant to our credit facilities. 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
$
114,573
$
143,872
Restricted cash - current
5,643
35,492
Restricted cash - noncurrent
Cash, cash equivalents and restricted cash
$
120,531
$
179,679
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., 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, 2021, 2020 and 2019. 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, 2021, 2020 and 2019, 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, 2021, 2020 and 2019, 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. 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, 2021, 2020 and 2019, 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 2021, 2020 and 2019. During the years ended December 31, 2021, 2020 and 2019, Genco Shipping A/S recorded $2, $407 and $241, 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.
Dividends declared
If the Company has an accumulated deficit, dividends declared will be recognized as a reduction of additional paid-in capital (“APIC”) in the Consolidated Statements of Equity until the APIC is reduced to zero. Once APIC is reduced to zero, dividends declared will be recognized as an increase in accumulated deficit.
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 139, 166 and 170 customers during the years ended December 31, 2021, 2020 and 2019.
For the years ended December 31, 2021, 2020 and 2019, there were no customers that individually accounted for more than 10% of voyage revenues.
As of December 31, 2021 and 2020, the Company maintains all of its cash and cash equivalents with four and five 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, 2021 and 2020 due to their short-term maturity or the variable-rate nature of the respective borrowings under the credit facilities. See Note 9 - 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”)” which 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. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848) - Scope (“ASU 2021-01”),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modification made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022. The Company is currently evaluating the impact of the adoption of ASU 2020-04 and ASU 2021-01 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 14 - 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 13 - Voyage revenues for additional information regarding the adoption of ASC 842 from a lessor perspective.
3 - CASH FLOW INFORMATION
For the year ended December 31, 2021, 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 $1,643 for the Purchase of vessels and ballast water treatment systems, including deposits, $6 for the Purchase of scrubbers, $1,160 for the Purchase of other fixed assets. For the year ended December 31, 2021, 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 $157 for Cash dividends payable and $9 associated with the Payment of deferred financing costs.
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 payable.
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.
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 years ended December 31, 2021, 2020 and 2019, cash paid for interest, net of amounts capitalized, was $11,749, $18,420 and $28,376, respectively. Refer to Note 7 - Debt.
During the years ended December 31, 2021, 2020 and 2019, there was no cash paid for income taxes.
On May 13, 2021, the Company issued 33,525 restricted stock units to certain members of the Board of Directors. The aggregate fair value of these restricted stock units was $515.
On May 4, 2021, the Company issued 18,428 restricted stock units to a member of the Board of Directors. The aggregate fair value of these restricted stock units was $300.
On February 23, 2021, the Company issued 103,599 restricted stock units and options to purchase 118,552 shares of the Company’s stock at an exercise price of $9.91 to certain individuals. The fair value of these restricted stock units and stock options were $1,027 and $513, respectively.
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.
Refer to Note 17 - Stock-Based Compensation for further information regarding the aforementioned grants.
4 - VESSEL ACQUISITIONS AND DISPOSITIONS
Vessel Acquisitions
On July 2, 2021, the Company entered into an agreement to purchase two 2017-built, 63,000 dwt Ultramax vessels for a purchase price of $24,563 each, that were renamed the Genco Mayflower and Genco Constellation, and one 2014-built, 63,000 dwt Ultramax vessel for a purchase price of $21,875, that was renamed the Genco Madeleine. The Genco Mayflower, the Genco Constellation and the Genco Madeleine were delivered on August 24, 2021, September 3, 2021 and August 23, 2021, respectively. The Company used cash on hand to finance the purchase.
These three vessels had existing below market time charters at the time of the acquisition during the third quarter of 2021; therefore the Company recorded the fair market value of time charters acquired of $4,263 which was amortized as an increase to voyage revenues during the remaining term of each respective time charter. During the year ended December 31, 2021, $4,263 was amortized into voyage revenues. There is no remaining unamortized fair market value of time charters acquired as of December 31, 2021.
On May 18, 2021, the Company entered into agreements to acquire two 2022-built 61,000 dwt newbuilding Ultramax vessels from Dalian Cosco KHI Ship Engineering Co. Ltd. for a purchase price of $29,170 each, to be renamed the Genco Mary and the Genco Laddey. The vessels were delivered to the Company on January 6, 2022. The Company used cash on hand to finance the purchase. As of December 31, 2021, deposits on vessels were $18,543. The remaining purchase price of $40,838 was paid during the first quarter of 2022 upon delivery of the vessels.
Capitalized interest expense associated with these newbuilding contracts for the year ended December 31, 2021 was $292.
On April 20, 2021, the Company entered into an agreement to purchase a 2016-built, 64,000 dwt Ultramax vessel for a purchase price of $20,200, that was renamed the Genco Enterprise. The vessel was delivered to the Company on August 23, 2021, and the Company used cash on hand to finance the purchase.
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 Dispositions
On July 16, 2021, the Company entered into an agreement to sell the Genco Provence, a 2004-built Supramax vessel, to a third party for $13,250 less a 2.5% commission payable to a third party. The sale was completed on November 2, 2021.
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 was completed on April 8, 2021.
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 was completed on July 6, 2021.
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, the Baltic Panther and the 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 the 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 the Genco Thunder on February 24, 2020 and March 5, 2020, respectively.
As of December 31, 2021, the Company recorded $5,643 of current restricted cash in the Consolidated Balance Sheets which represents the net proceeds received from the sale of the Genco Provence which serves as collateral under the $450 Million Credit Facility. As of December 31, 2020, the Company recorded $35,492 of current restricted cash in the Consolidated Balance Sheets which represents the net proceeds received from the sale of eight vessels that served as collateral under the $495 Million Credit Facility. The $495 Million Credit Facility was refinanced with the $450 Million Credit Facility on August 31, 2021. Refer to Note 7 - Debt. Pursuant to both the $450 Million Credit Facility and the $495 Million Credit Facility, the net proceeds for each vessel remain classified as restricted cash for 360 days following the respective sale dates. 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 is required to use the proceeds as a loan prepayment.
During the fourth quarter of 2019, the Company completed the sale of the Genco Challenger, the Genco Champion and the Genco Raptor on October 10, 2019, October 21, 2019 and December 10, 2019.
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.
Refer to the “Impairment of vessel assets” and the “(Gain) loss on sale of vessels” sections in Note 2 - Summary of Significant Accounting Policies for discussion of impairment expense and the (gain) loss on sale of vessels recorded during the years ended December 31, 2021, 2020 and 2019.
5 - NET EARNINGS (LOSS) PER SHARE
The computation of basic net earnings (loss) per share is based on the weighted-average number of common shares outstanding during the reporting period. The computation of diluted net earnings (loss) per share assumes the vesting of nonvested stock awards and the exercise of stock options (refer to Note 17 - 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 214,191 restricted stock units and 313,684 stock options that were dilutive during the year ended December 31, 2021. There were 298,834 and 162,096 shares of restricted stock units excluded from the computation of diluted net loss per share during the years ended December 31, 2020 and 2019, respectively, because they were anti-dilutive. There were 837,338 and 496,148 stock options excluded from the computation of diluted net loss per share during the years ended December 31, 2020 and 2019, respectively, because they were anti-dilutive. (refer to Note 17 - Stock-Based Compensation).
The Company’s diluted net earnings (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 17 - Stock-Based Compensation) if the impact is dilutive under the treasury stock method. The equity warrants had a seven-year term that commenced on the day following the Effective Date and were exercisable for one tenth of a share of the Company’s common stock. All MIP Warrants during the years ended December 31, 2020 and 2019 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 earnings (loss) per share during the years ended December 31, 2021, 2020 and 2019 because they were anti-dilutive. These equity warrants expired at 5:00 p.m. on July 9, 2021 without exercise.
The components of the denominator for the calculation of basic and diluted net earnings (loss) per share are as follows:
For the Years Ended December 31,
Common shares outstanding, basic:
Weighted-average common shares outstanding, basic
42,060,996
41,907,597
41,762,893
Common shares outstanding, diluted:
Weighted-average common shares outstanding, basic
42,060,996
41,907,597
41,762,893
Dilutive effect of warrants
-
-
-
Dilutive effect of stock options
313,684
-
-
Dilutive effect of restricted stock units
214,191
-
-
Weighted-average common shares outstanding, diluted
42,588,871
41,907,597
41,762,893
6 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2021, 2020 and 2019, the Company did not have any related party transactions.
7 - DEBT
Long-term debt consists of the following:
December 31,
December 31,
Principal amount
$
246,000
$
449,228
Less: Unamortized debt financing costs
(7,771)
(9,653)
Less: Current portion
-
(80,642)
Long-term debt, net
$
238,229
$
358,933
December 31, 2021
December 31, 2020
Unamortized
Unamortized
Debt Issuance
Debt Issuance
Principal
Cost
Principal
Cost
$450 Million Credit Facility
$
246,000
$
7,771
$
-
$
-
$495 Million Credit Facility
-
-
334,288
8,222
$133 Million Credit Facility
-
-
114,940
1,431
Total debt
$
246,000
$
7,771
$
449,228
$
9,653
As of December 31, 2021 and 2020, $7,771 and $9,653 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, 2021, 2020 and 2019 was $3,536, $3,903 and
$3,788, respectively. This amortization expense is recorded as a component of Interest expense in the Consolidated Statements of Operations.
Effective August 31, 2021, the portion of the unamortized deferred financing costs for the $495 Million Credit Facility and the $133 Million Credit Facility that was identified as a debt modification, rather than an extinguishment of debt, is being amortized over the life of the $450 Million Credit Facility in accordance with ASC 470-50.
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 were subject to customary conditions. The Company could pay dividends or repurchase stock under these facilities to the extent its total cash and cash equivalents were greater than $100,000 and 18.75% of our total indebtedness, whichever is higher; if the Company could satisfy this condition, the Company was 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. On August 31, 2021, the $495 Million Credit Facility and the $133 Million Credit Facility were refinanced with the $450 Million Credit Facility as noted below.
$450 Million Credit Facility
On August 3, 2021, the Company entered into the $450 Million Credit Facility, a five-year senior secured credit facility which is allocated between an up to $150,000 term loan facility and an up to $300,000 revolving credit facility which was used to refinance the Company’s $495 Million Credit Facility and its $133 Million Credit Facility. On August 31, 2021, proceeds of $350,000 under the $450 Million Credit Facility were used, together with cash on hand, to refinance all of the Company’s existing credit facilities (the $495 Million Credit Facility and the $133 Million Credit Facility, as described below) into one facility. $150,000 was drawn down under the term loan facility and $200,000 was drawn down under the revolving credit facility.
The key terms associated with the $450 Million Credit Facility are as follows:
● The final maturity date is August 3, 2026.
● Borrowings are subject to a limit of the ratio of the principal amount of debt outstanding to the collateral (“LTV”) of 55%.
● There is a non-committed accordion term loan facility whereby additional borrowings of up to $150,000 may be incurred if additional eligible collateral is provided; such additional borrowings are subject to a LTV ratio of 60% for collateral vessels less than five years old or 55% for collateral vessels at least five years old but not older than seven years.
● Borrowings bear interest at LIBOR plus a margin of 2.15% to 2.75% based on the Company’s quarterly total net leverage ratio (the ratio of total indebtedness to consolidated EBITDA), which may be increased or decreased by a margin of up to 0.05% based on the Company’s performance regarding emissions targets. Upon cessation of the LIBOR rate, borrowings will bear interest at a rate based on the Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York plus a spread adjustment, plus the applicable margin referred to above.
● Scheduled quarterly commitment reductions are $11,720 per quarter followed by a balloon payment of $215,600.
● Collateral includes thirty-nine of our current vessels, leaving five vessels, including the vessels delivered during January 2022, unencumbered.
● Commitment fees are 40% of the applicable margin for unutilized commitments.
● The Company can sell or dispose of collateral vessels without loan prepayment if a replacement vessel or vessels meeting certain requirements are included as collateral within 360 days.
● The Company is subject to customary financial covenants, including a collateral maintenance covenant requiring the aggregate appraised value of collateral vessels to be at least 140% of the principal amount of loans outstanding, a minimum liquidity covenant requiring our unrestricted cash and cash equivalents to be the greater of $500 per vessel or 5% of total indebtedness, a minimum working capital covenant requiring consolidated current assets (excluding restricted cash) minus current liabilities (excluding the current portion of debt) to be not less than zero, and a debt to capitalization covenant requiring the ratio of total net indebtedness to total capitalization to be not more than 70%.
● The Company may declare and pay dividends and other distributions so long as, at the time of declaration, (1) no event of default has occurred and is continuing or would occur as a result of the declaration and (2) the Company is in pro forma compliance with its financial covenants after giving effect to the dividend. Other restrictions in the dividend covenants of the Company’s prior credit facilities were eliminated.
As of December 31, 2021, there was $184,810 of availability under the $450 Million Credit Facility. Total debt repayments of $104,000 were made during the year ended December 31, 2021 under the $450 Million Credit Facility. As of December 31, 2021, the total outstanding net debt balance was $238,229.
As of December 31, 2021, the Company was in compliance with all of the financial covenants under the $450 Million Credit Facility.
The following table sets forth the scheduled repayment of the outstanding principal debt of $246,000 as of December 31, 2021 under the $450 Million Credit Facility:
Year Ending December 31,
Total
$
2,710
243,290
Total debt
$
246,000
$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 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. 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 represented 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 provided for the following key terms in relation to the $108,000 tranche:
● The final maturity date was August 14, 2023.
● Borrowings bore 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 reflected 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 were $1,580 per quarter commencing on December 31, 2018, with a final balloon payment on the maturity date.
● Mandatory prepayments were to be applied to remaining amortization payments pro rata, while voluntary prepayments were to be applied to remaining amortization payments in order of maturity.
The $133 Million Credit Facility provided for the following key terms in relation to the $25,000 Revolver tranche:
● The final maturity date of the Revolver was August 14, 2023.
● Borrowings under the Revolver could be incurred pursuant to multiple drawings on or prior to July 1, 2023 in minimum amounts of $1,000.
● Borrowings under the Revolver bore interest at LIBOR plus 3.00%.
● The Revolver was 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 were 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 provided for the following key terms:
● Pursuant to the November 5, 2019 amendment, the Company could pay dividends or repurchase stock to the extent the Company’s total cash and cash equivalents were greater than $100,000 and 18.75% of its total indebtedness, whichever was higher; if the Company could not satisfy this condition, the Company was 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 was 200% or less for such quarter.
● Acquisitions and additional indebtedness were allowed subject to compliance with financial covenants (including a collateral maintenance test) and other customary conditions.
● Key financial covenants were 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.
Total debt repayments of $114,940, $9,160 and $6,320 were made during the years ended December 31, 2021, 2020 and 2019, respectively, under the $133 Million Credit Facility.
On August 31, 2021, the $133 Million Credit Facility was refinanced with the $450 Million Credit Facility; refer to the “$450 Million Credit Facility” section above. As of December 31, 2021 and 2020, the total outstanding net debt balance was $0 and $113,509, respectively.
$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 prior 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 were 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 provided 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.
During the year ended December 31, 2021, the Company utilized $18,182 of the proceeds from the sale of the Genco Charger, the Genco Thunder, the Baltic Wind and the Baltic Breeze which was classified as restricted cash as of December 31, 2020 as a loan prepayment under the $495 Million Credit Facility. During the year ended December 31, 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. During the year ended December 31, 2019, the Company utilized $6,880 of the proceeds from the sale of the Genco Challenger and the Genco Champion which were sold during the fourth quarter of 2019 as a loan prepayment under the $495 Million Credit Facility. Additionally, during the year ended December 31, 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 could 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 provided for the following key terms in relation to the $460,000 tranche:
● The final maturity date was May 31, 2023.
● Borrowings bore 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 $12,400 which commenced on June 30, 2021, with a final payment of $189,605 due on the maturity date.
● Scheduled amortization payments could 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 would be repaid to nil when the average age of the vessels serving as collateral from time to time reaches 17 years. Mandatory prepayments were applied to remaining amortization payments pro rata, while voluntary prepayments were applied to remaining amortization payments in order of maturity.
● Acquisitions and additional indebtedness were allowed subject to compliance with financial covenants, a collateral maintenance test, and other customary conditions.
The $495 Million Credit Facility provided for the following key terms in relation to the $35,000 tranche:
● The final maturity date was May 31, 2023.
● Borrowings under the tranche could be incurred pursuant to multiple drawings on or prior to March 30, 2020 in minimum amounts of $5,000 and could be used to finance up to 90% of the scrubber costs noted above.
● Borrowings under the tranche bore 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 was 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. On June 7, 2021, the Company repaid the remaining outstanding balance under the $35,000 tranche of $20,013.
The $495 Million Credit Facility provided for the following key terms:
● Pursuant to the November 5, 2019 amendment, the Company could pay dividends or repurchase stock to the extent the Company’s total cash and cash equivalents were greater than $100,000 and 18.75% of the Company’s total indebtedness, whichever was higher; if the Company could not satisfy this condition, the Company was subject to a limitation of 50% of consolidated net income for the quarter preceding such dividend payment if the collateral maintenance test ratio was 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 could be sold or disposed of without prepayment of the loan if a replacement vessel or vessels meeting certain requirements were 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 had to be in compliance with the collateral maintenance test;
● the replacement vessels had to become collateral for the loan; and either
● the replacement vessels had to have an equal or greater appraised value than the collateral vessels for which they were substituted, or
● the 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) had to be equal or exceed the aggregate appraised value of the collateral vessels to the outstanding loan before the collateral disposition.
● Key financial covenants included:
● 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 included the current vessels in the Company’s fleet other than the seven oldest vessels in the fleet which that had been identified for sale, collateral vessel earnings and insurance, and time charters in excess of 24 months in respect of the collateral vessels.
Total debt repayments of $334,288, $72,686 and $70,776 were made during the years ended December 31, 2021, 2020 and 2019, respectively, under the $495 Million Credit Facility.
On August 31, 2021, the $495 Million Credit Facility was refinanced with the $450 Million Credit Facility; refer to the “$450 Million Credit Facility” section above. As of December 31, 2021 and 2020, the total outstanding net debt balance was $0 and $326,066, respectively.
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
3.22
%
3.71
%
5.31
%
Range of Interest Rates (excluding unused commitment fees)
2.24 % to 3.48
%
2.65 % to 3.50
%
4.05 % to 5.76
%
Letter of credit
In conjunction with the Company entering into a long-term office space lease (See Note 14 - 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, 2021 and 2020 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, 2021 and 2020, 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, 2021 and 2020.
-
8 - DERIVATIVE INSTRUMENTS
The Company is exposed to interest rate risk on its floating rate debt. As of December 31, 2021, the Company had three interest rate cap agreements outstanding to manage interest costs and the risk associated with variable interest rates. The three interest rate cap agreements have been designated and qualify as cash flow hedges. The premium paid is recognized in income on a rational basis, and all changes in the value of the caps are deferred in Accumulated other comprehensive income (“AOCI”) and are subsequently reclassified into Interest expense in the period when the hedged interest affects earnings.
The following table summarizes the interest rate cap agreements in place as of December 31, 2021.
Interest Rate Cap Detail
Notional Amount Outstanding
December 31,
Trade date
Cap Rate
Start Date
End Date
March 25, 2021
0.75
%
April 29, 2021
March 28, 2024
$
50,000
July 29, 2020
0.75
%
July 31, 2020
December 29, 2023
100,000
March 6, 2020
1.50
%
March 10, 2020
March 10, 2023
50,000
$
200,000
The Company records the fair value of the interest rate caps as Fair value of derivatives in the non-current asset section on its Consolidated Balance Sheets. The Company has elected to use the income approach to value the interest rate derivatives using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) reflecting current market expectations about those future amounts. Level 2 inputs for derivative valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates, implied volatility, basis swap adjustments, and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for most fair value measurements.
The Company recorded a $825 gain for the year ended December 31, 2021 in AOCI. The estimated income that is currently recorded in AOCI as of December 31, 2021 that is expected to be reclassified into earnings within the next twelve months is $32.
The Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Operations
For the Year Ended December 31,
Interest Expense
Interest Expense
Interest Expense
Total amounts of income and expense line items presented in the statement of operations in which the effects of fair value or cash flow hedges are recorded
$
15,357
$
22,413
$
31,955
The effects of fair value and cash flow hedging
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20:
Interest contracts:
Amount of gain or (loss) reclassified from AOCI to income
$
-
$
-
$
-
Premium excluded and recognized on an amortized basis
-
-
Amount of gain or (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring
-
-
-
The following table shows the interest rate cap assets as of December 31, 2021:
December 31,
Derivatives designated as hedging instruments
Balance Sheet Location
Interest rate caps
Fair value of derivative instruments - noncurrent
$
1,166
The components of AOCI included in the accompanying Consolidated Balance Sheet consists of net unrealized gains on cash flow hedges as of December 31, 2021.
AOCI - January 1, 2021
$
-
Amount recognized in OCI on derivative, intrinsic
Amount recognized in OCI on derivative, excluded
Amount reclassified from OCI into income
-
AOCI - December 31, 2021
$
9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values and carrying values of the Company’s financial instruments as of December 31, 2021 and 2020 which are required to be disclosed at fair value, but not recorded at fair value, are noted below.
December 31, 2021
December 31, 2020
Carrying
Carrying
Value
Fair Value
Value
Fair Value
Cash and cash equivalents
$
114,573
$
114,573
$
143,872
$
143,872
Restricted cash
5,958
5,958
35,807
35,807
Principal amount of floating rate debt
246,000
246,000
449,228
449,228
The carrying value of the borrowings under the $450 Million Credit Facility as of December 31, 2021 and the $495 Million Credit Facility and the $133 Million Credit Facility as of December 31, 2020, which excludes the impact of deferred financing costs, 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, 2021 and 2020 (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. Interest rate cap agreements are considered to be a Level 2 item. Refer to Note 8 - Derivative Instruments for further information. 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. There was no vessel impairment recorded during the year ended December 31, 2021. During the years ended December 31, 2020 and 2019, the vessels assets for 30 and five of the Company’s vessels, respectively, were written down as part of the impairment recorded during those periods. The vessels held for sale and vessels held for exchange as of December 31, 2020 were written down as part of the impairment recorded during the
year ended December 31, 2020. Refer to “Impairment of long-lived assets” section in Note 2 - Summary of Significant Accounting Policies.
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. Nonrecurring fair value measurements may include impairment tests of the Company’s operating lease right-of use asset if there are indicators of impairment. During the years ended December 31, 2021 and 2020, there were no indicators of 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 14 - Leases.
The Company did not have any Level 3 financial assets or liabilities as of December 31, 2021 and 2020.
10 - 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
1,983
1,669
Prepaid items
3,109
2,998
Insurance receivable
2,349
1,917
Advance to agents
1,466
Other
1,370
2,305
Total prepaid expenses and other current assets
$
9,935
$
10,856
11 - FIXED ASSETS
Fixed assets consist of the following:
December 31,
December 31,
Fixed assets, at cost:
Vessel equipment
$
8,353
$
6,188
Furniture and fixtures
Leasehold improvements
1,386
1,369
Computer equipment
Total costs
11,221
8,659
Less: accumulated depreciation and amortization
(3,984)
(2,266)
Total fixed assets, net
$
7,237
$
6,393
12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31,
December 31,
Accounts payable
$
9,399
$
11,864
Accrued general and administrative expenses
4,719
3,258
Accrued vessel operating expenses
15,838
7,671
Total accounts payable and accrued expenses
$
29,956
$
22,793
13 - VOYAGE REVENUES
Total voyage revenues include 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, 2021, 2020 and 2019, the Company earned $547,129, $355,560 and $389,496 of voyage revenue, respectively.
Revenue for spot market voyage charters is 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 10 - 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
$
160,242
$
78,402
$
108,096
Spot market voyage revenue
386,887
277,158
281,400
Total voyage revenues
$
547,129
$
355,560
$
389,496
14 - 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, which has been extended effective January 17, 2022 for a two-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, $1,223 and $72 of sublease income recorded during the years ended December 31, 2021, 2020 and 2019, respectively.
There was $1,852, $1,912 and $1,884 of operating lease costs recorded during the years ended December 31, 2021, 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, 2021 is as follows:
December 31,
Operating Lease:
Operating lease right-of-use asset
$
5,495
Current operating lease liabilities
$
1,858
Long-term operating lease liabilities
6,203
Total operating lease liabilities
$
8,061
Weighted average remaining lease term (years)
3.75
Weighted average discount rate
5.15
%
Maturities of operating lease liabilities as of December 31, 2021 are as follows:
December 31,
$
2,230
2,378
2,453
1,839
Total lease payments
8,900
Less imputed interest
(839)
Present value of lease liabilities
$
8,061
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 leases
$
2,230
$
2,230
The Company charters in third-party vessels and the Company is the lessee in these agreements under ASC 842. 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, 2021, 2020 and 2019, 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, 2021, 2020 and 2019 for these charter-in agreements.
15 - 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 and $0.6 million for Supramax vessels. These costs are 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 $18,992 and $17,009 in Vessel assets in the Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively, related to BWTS additions. Excluding any installation fees, the Company expects to pay $3,787 during the year ending December 31, 2022 for BWTS.
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 $42,927 and $42,728 in Vessel assets in the Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively, related to scrubber additions.
16 - 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 $1.33 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, 2021, 2020 and 2019, the Company’s matching contributions to this plan were $440, $473 and $399, respectively.
17 - 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. The warrants 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. 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.
On March 19, 2021, the Board of Directors approved an amendment and restatement of the 2015 Equity Incentive Plan (the “Amended 2015 Plan”). This amendment and restatement increased the number of shares available for awards under the plan from 2,750,000 to 4,750,000, subject to shareholder approval. The Company’s shareholders approved the increase in the number of shares at the Company’s 2021 Annual Meeting of Shareholders on May 13, 2021.
As of December 31, 2021, the Company has awarded restricted stock units, restricted stock and stock options under the Amended 2015 Plan.
Stock Options
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).
On February 23, 2021, the Company issued options to purchase 118,552 of the Company’s shares of common stock to certain individuals with an exercise price of $9.91 per share. One third of the options become exercisable on each of the first three anniversaries of February 23, 2021, 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 $4.33 per share, or $513 in the aggregate. The assumptions used in the Cox-Ross-Rubinstein option pricing formula are as follows: volatility of 60.91% (representing the Company’s historical volatility), a risk-free interest rate of 0.41%, a dividend yield of 0.98%, 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, 2021, 2020 and 2019, 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 $367 as of December 31, 2021 is expected to be $278, $81 and $8 during the years ended December 31, 2022, 2023 and 2024, respectively. The following table summarizes the stock option activity for the years ended December 31, 2021, 2020 and 2019:
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
Value
Options
Price
Value
Outstanding as of January 1
837,338
$
8.86
$
4.02
496,148
$
10.11
$
5.41
255,608
$
12.36
6.96
Granted
118,552
9.91
4.33
344,568
7.06
2.01
240,540
8.33
3.76
Exercised
(39,603)
8.37
3.46
-
-
-
-
-
-
Forfeited
-
-
-
(3,378)
8.07
3.76
-
-
-
Outstanding as of December 31
916,287
$
9.02
$
4.08
837,338
$
8.86
$
4.02
496,148
$
10.11
$
5.41
Exercisable as of December 31
488,969
$
9.88
$
5.04
293,792
$
10.78
$
6.01
173,869
11.41
$
6.68
The following table summarizes certain information about the options outstanding as of December 31, 2021:
Options Outstanding and Unvested,
Options Outstanding and Exercisable,
December 31, 2021
December 31, 2021
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
$
9.02
427,318
$
8.04
4.25
488,969
$
9.88
2.59
As of December 31, 2021 and 2020, a total of 916,287 and 837,338 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, 2021 and 2020, 478,848 and 373,588 shares of the Company’s common stock were outstanding in respect of the RSUs, respectively. 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, 2021, 2020 and 2019:
For the Years Ended December 31,
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
298,834
$
7.49
162,096
$
9.26
149,170
$
12.42
Granted
159,492
11.93
221,903
6.80
140,914
8.50
Vested
(151,439)
7.79
(83,675)
9.07
(127,988)
12.10
Forfeited
-
-
(1,490)
8.39
-
-
Outstanding as of December 31
306,887
$
9.65
298,834
$
7.49
162,096
$
9.26
The total fair value of the RSUs that vested during the years ended December 31, 2021, 2020 and 2019 was $1,838, $550 and $1,235, 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, 2021:
Unvested RSUs
Vested RSUs
December 31, 2021
December 31, 2021
Weighted
Weighted
Average
Weighted
Average
Remaining
Average
Number of
Grant Date
Contractual
Number of
Grant Date
RSUs
Price
Life
RSUs
Price
306,887
$
9.65
1.36
657,337
$
10.32
The Company is amortizing these grants over the applicable vesting periods, net of anticipated forfeitures. As of December 31, 2021, unrecognized compensation cost of $1,059 related to RSUs will be recognized over a weighted-average period of 1.36 years.
For the years ended December 31, 2021, 2020 and 2019, 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
$
1,632
$
1,239
$
1,207
18 - 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.
19 - SUBSEQUENT EVENTS
On February 23, 2022, the Company announced a regular quarterly dividend of $0.67 per share to be paid on or about March 17, 2022, to shareholders of record as of March 10, 2022. The aggregate amount of the dividend is expected to be approximately $28.4 million, which the Company anticipates will be funded from cash on hand at the time the payment is to be made.
On February 23, 2022, the Company’s Board of Directors awarded grants of 201,934 RSUs to certain individuals under the 2015 Plan. The awards generally vest ratably in one-third increments on the first three anniversaries of February 23, 2022.
On January 26, 2022, the Company made a debt prepayment of $8,750 on the $450 Million Credit Facility.
On January 6, 2022 the Company took delivery of the Genco Mary and the Genco Laddey, both 2022-built newbuilding Ultramax vessels. Refer also to Note 4 - Vessel Acquisitions and Dispositions.

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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, 2021.
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, 2021. 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, 2021.
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 pages 69 - 70 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 2021 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, 2021, 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, 2021, 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, 2021, of the Company and our report dated February 24, 2022, 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, 2022
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 2022 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2021 (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 2022 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 2022 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 2022 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 2022 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 2022 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
Articles of Amendment to Second Amended and Restated Articles of Incorporation of Genco Shipping & Trading Limited, dated May 13, 2021.(10)
3.8
Certificate of Designations of Rights, Preferences and Privileges of Series A Preferred Stock of Genco Shipping & Trading Limited, dated as of November 14, 2016.(11)
3.9
Amended and Restated By-Laws of Genco Shipping & Trading Limited, dated as of July 9, 2014.(4)
3.10
Amendment to Amended and Restated By-Laws, dated June 4, 2018.(12)
3.11
Second Amendment to Amended and Restated By-Laws, dated July 15, 2020(13)
3.12
Third Amendment to Amended and Restated By-Laws, dated January 11, 2021(14)
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.(15)
10.1
Letter Agreement dated September 21, 2007 between Genco Shipping & Trading Limited and John C. Wobensmith.(16)
10.2
Letter Agreement dated June 23, 2014 between Genco Shipping & Trading Limited and John C. Wobensmith.(16)
10.3
Warrant Agreement, dated as of July 9, 2014, between Genco Shipping & Trading Limited and Computershare Inc., as Warrant Agent.(4)
Exhibit
Document
10.4
Letter Agreement dated April 30, 2015 between Genco Shipping & Trading Limited and John C. Wobensmith.(16)
10.5
Genco Shipping & Trading Limited Amended and Restated 2015 Equity Incentive Plan.(10)
10.6
Form of Director Restricted Stock Unit Agreement dated as of July 13, 2015.(17)
10.7
Form of Director Restricted Stock Unit Agreement dated as of July 29, 2015.(17)
10.8
Restricted Stock Grant Agreement dated as of February 17, 2016 between Genco Shipping & Trading Limited and John C. Wobensmith.(18)
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.(19)
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.(19)
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.(19)
10.12
Purchase Agreement, dated as of October 27, 2016, by and between Genco Shipping & Trading Limited and the parties listed as Investors therein.(19)
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”)(20)
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.(20)
10.15
Registration Rights Agreement, dated November 15, 2016, by and among Genco Shipping & Trading Limited and the parties identified as holders therein.(20)
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.(20)
10.17
Letter Agreement dated March 23, 2017 between Genco Shipping & Trading Limited and John C. Wobensmith.(20)
10.18
Letter Agreement dated August 7, 2019 between Genco Shipping & Trading Limited and John C. Wobensmith.(21)
10.19
Restricted Stock Unit Agreement dated March 23, 2017 between Genco Shipping & Trading Limited and John C. Wobensmith.(20)
10.20
Option Grant to John C. Wobensmith dated March 23, 2017.(20)
Exhibit
Document
10.21
Restricted Stock Unit Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Arthur L. Regan.(22)
10.22
Restricted Stock Unit Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and John C. Wobensmith.(22)
10.23
Restricted Stock Unit Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Apostolos Zafolias.(22
10.24
Option Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Arthur L. Regan.(22)
10.25
Option Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and John C. Wobensmith.(22)
10.26
Option Agreement dated February 27, 2018 between Genco Shipping & Trading Limited and Apostolos Zafolias.(22)
10.27
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Arthur L. Regan.(23)
10.28
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and John C. Wobensmith.(23)
10.29
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Apostolos Zafolias.(23)
10.30
Restricted Stock Unit Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Joseph Adamo.(23)
10.31
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Arthur L. Regan.(23)
10.34
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and John C. Wobensmith.(23)
10.35
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Apostolos Zafolias.(23)
10.36
Option Agreement dated March 4, 2019 between Genco Shipping & Trading Limited and Joseph Adamo.(23)
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”).(12)
10.38
Form of Director Restricted Stock Unit Agreement dated as of May 15, 2019.(15)
10.39
Amendment to Restricted Stock Unit Agreements Pursuant to the Genco Shipping & Trading Limited 2015 Equity Incentive Plan.(15)
Exhibit
Document
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. (24)
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.(25)
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.(26)
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.(26)
10.44
Genco Annual Incentive Plan adopted March 4, 2019.(25)
10.45
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Arthur L. Regan.(27)
10.46
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and John C. Wobensmith.(27)
10.47
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Apostolos Zafolias.(27)
10.48
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Joseph Adamo.(27)
10.49
Restricted Stock Unit Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Robert Hughes.(27)
10.50
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Arthur L. Regan.(27)
10.51
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and John C. Wobensmith.(27)
10.52
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Apostolos Zafolias.(27)
10.53
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Joseph Adamo.(27)
10.54
Option Agreement dated February 25, 2020 between Genco Shipping & Trading Limited and Robert Hughes.(27)
Exhibit
Document
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.(28)
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.(28)
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.(28)
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.(29)
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.(30)
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.(30)
10.61
Form of Director Restricted Stock Unit Agreement dated as of July 15, 2020 (28)
10.62
Restricted Stock Unit Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and John C. Wobensmith.(*)
10.63
Restricted Stock Unit Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and Apostolos Zafolias.(*)
10.64
Restricted Stock Unit Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and Joseph Adamo.(*)
10.65
Restricted Stock Unit Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and Robert Hughes.(*)
10.66
Option Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and John C. Wobensmith.(*)
10.67
Option Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and Apostolos Zafolias.(*)
10.68
Option Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and Joseph Adamo.(*)
Exhibit
Document
10.69
Option Agreement dated February 23, 2021 between Genco Shipping & Trading Limited and Robert Hughes.(*)
10.70
Letter Agreement by and among Genco Shipping & Trading Limited, Centerbridge Partners L.P., and the Investors named therein, dated March 22, 2021.(31)
10.71
Amendment to Award Agreements dated June 14, 2021.(32)
10.72
Restricted Stock Unit Agreement dated May 4, 2021 between Genco Shipping & Trading Limited and Arthur L. Regan.(32)
10.73
Restricted Stock Unit Agreement dated May 13, 2021 between Genco Shipping & Trading Limited and James G. Dolphin.(32)
10.74
Form of Director Restricted Stock Unit Agreement dated May 13, 2021.(32)
10.75
US$450 Million Credit Agreement dated as of August 3, 2021, by and among Genco Shipping & Trading Limited as Borrower, the other Guarantors party thereto, the Lenders party thereto, Nordea Bank Abp, New York Branch, as Administrative Agent, Collateral Agent, Security Trustee and Sustainability Coordinator, Nordea Bank Abp, New York Branch, Skandinaviska Enskilda Banken AB (publ), and DNB Markets, Inc., as Mandated Lead Arrangers and Bookrunners, and ING Bank N.V., London Branch and CIT Bank, N.A., as Co-Arrangers.(32)
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, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2021 and 2020 (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (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 May 13, 2021.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) 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.
(21) 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.
(22) 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.
(23) 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.
(24) 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.
(25) 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.
(26) 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.
(27) 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.
(28) 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.
(29) 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.
(30) Incorporated by refrence to Genco Shipping & Trading Limited’s Report on Form 10-K, filed with the Securities and Exchange Commission on February 24, 2021.
(31) Incorporated by reference to Genco Shipping & Trading Limited’s Report on Form 8-K, filed with the Securities and Exchange Commission on March 22, 2021.
(32) Incorporated by reference to Genco Shipping & Trading Limited’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the Securities and Exchange Commission on August 4, 2021.
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, 2022.
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, 2022.