DYNAGAS LNG PARTNERS LP
Consolidated Condensed Balance Sheets
As of June 30, 2020 (unaudited) and December 31, 2019
(Expressed in thousands of U.S. Dollars — except for unit data)
|
|
Note
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
$
|
13,261
|
|
|
$
|
16,206
|
|
Trade receivables
|
|
|
|
|
|
720
|
|
|
|
143
|
|
Prepayments and other assets
|
|
|
|
|
|
1,586
|
|
|
|
1,105
|
|
Inventories
|
|
|
|
|
|
785
|
|
|
|
718
|
|
Due from related party
|
|
|
3
|
|
|
|
1,552
|
|
|
|
—
|
|
Total current assets
|
|
|
|
|
|
|
17,904
|
|
|
|
18,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIXED ASSETS, NET:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels, net
|
|
|
4
|
|
|
|
900,885
|
|
|
|
916,697
|
|
Total fixed assets, net
|
|
|
|
|
|
|
900,885
|
|
|
|
916,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER NON CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Due from related party
|
|
|
3
|
|
|
|
1,350
|
|
|
|
1,350
|
|
Accrued charter revenue
|
|
|
|
|
|
|
654
|
|
|
|
745
|
|
Deferred charges
|
|
|
|
|
|
|
2,296
|
|
|
|
2,223
|
|
Total assets
|
|
|
|
|
|
$
|
973,089
|
|
|
$
|
989,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt, net of unamortized deferred financing fees of $2,402 and $2,518, respectively
|
|
|
5
|
|
|
$
|
45,598
|
|
|
$
|
45,482
|
|
Trade payables
|
|
|
|
|
|
|
4,562
|
|
|
|
5,496
|
|
Due to related party
|
|
|
3
|
|
|
|
24
|
|
|
|
2,202
|
|
Accrued liabilities
|
|
|
|
|
|
|
1,333
|
|
|
|
1,641
|
|
Derivative financial instrument, current portion
|
|
|
11
|
|
|
|
907
|
|
|
|
—
|
|
Unearned revenue
|
|
|
|
|
|
|
8,874
|
|
|
|
9,814
|
|
Total current liabilities
|
|
|
|
|
|
|
61,298
|
|
|
|
64,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
3,186
|
|
|
|
3,173
|
|
Derivative financial instrument, non-current portion
|
|
|
11
|
|
|
|
2,442
|
|
|
|
—
|
|
Long-term debt, net of current portion and unamortized deferred financing fees of $6,157 and $7,328, respectively
|
|
|
5
|
|
|
|
584,843
|
|
|
|
607,672
|
|
Total non-current liabilities
|
|
|
|
|
|
|
590,471
|
|
|
|
610,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
PARTNERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unitholders (35,490,000 units issued and outstanding as at June 30, 2020 and December 31, 2019)
|
|
|
8
|
|
|
|
194,626
|
|
|
|
187,021
|
|
Series A Preferred unitholders (3,000,000 Series A Preferred Units issued and outstanding as at June 30, 2020 and December 31, 2019)
|
|
|
8
|
|
|
|
73,216
|
|
|
|
73,216
|
|
Series B Preferred unitholders: (2,200,000 Series B Preferred Units issued and outstanding as at June 30, 2020 and December 31, 2019)
|
|
|
8
|
|
|
|
53,498
|
|
|
|
53,498
|
|
General Partner (35,526 units issued and outstanding as at June 30, 2020 and December 31, 2019)
|
|
|
8
|
|
|
|
(20
|
)
|
|
|
(28
|
)
|
Total partners’ equity
|
|
|
|
|
|
|
321,320
|
|
|
|
313,707
|
|
Total liabilities and partners’ equity
|
|
|
|
|
|
$
|
973,089
|
|
|
$
|
989,187
|
|
The accompanying notes are an integral part of these consolidated financial statements.
DYNAGAS LNG PARTNERS LP
Unaudited Interim Condensed Consolidated Statements of Income
For the six month periods ended June 30, 2020 and 2019
(Expressed in thousands of U.S. Dollars—except for unit and per unit data)
|
|
|
|
|
Six months ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2020
|
|
|
2019
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
|
|
$
|
68,384
|
|
|
$
|
62,220
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses (including related party)
|
|
|
3
|
|
|
|
(1,610
|
)
|
|
|
(1,131
|
)
|
Vessel operating expenses
|
|
|
|
|
|
|
(14,470
|
)
|
|
|
(13,817
|
)
|
General and administrative expenses (including related party)
|
|
|
3
|
|
|
|
(1,265
|
)
|
|
|
(1,086
|
)
|
Management fees-related party
|
|
|
3
|
|
|
|
(3,358
|
)
|
|
|
(3,242
|
)
|
Depreciation
|
|
|
4
|
|
|
|
(15,812
|
)
|
|
|
(15,042
|
)
|
Operating income
|
|
|
|
|
|
$
|
31,869
|
|
|
$
|
27,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
|
5, 10
|
|
|
|
(15,309
|
)
|
|
|
(26,188
|
)
|
Interest income
|
|
|
|
|
|
|
209
|
|
|
|
1,141
|
|
Loss on derivative financial instrument
|
|
|
11
|
|
|
|
(3,352
|
)
|
|
|
—
|
|
Other, net
|
|
|
|
|
|
|
(23
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
(18,475
|
)
|
|
|
(25,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership’s Net Income
|
|
|
|
|
|
$
|
13,394
|
|
|
$
|
2,824
|
|
Common unitholders’ interest in Net Income
|
|
|
|
|
|
$
|
7,605
|
|
|
$
|
(2,954
|
)
|
Series A Preferred unitholders’ interest in Net Income
|
|
|
|
|
|
$
|
3,375
|
|
|
$
|
3,375
|
|
Series B Preferred unitholders’ interest in Net Income
|
|
|
|
|
|
$
|
2,406
|
|
|
$
|
2,406
|
|
General Partner’s interest in Net Income
|
|
|
|
|
|
$
|
8
|
|
|
$
|
(3
|
)
|
Earnings/(Loss) per unit, basic and diluted:
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Common unit (basic and diluted)
|
|
|
|
|
|
$
|
0.21
|
|
|
$
|
(0.08
|
)
|
Weighted average number of units outstanding, basic and diluted:
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Common units
|
|
|
|
|
|
|
35,490,000
|
|
|
|
35,490,000
|
|
The accompanying notes are an integral part of these consolidated financial statements.
DYNAGAS LNG PARTNERS LP
Unaudited Interim Consolidated Statements of Partners’ Equity
For the six month periods ended June 30, 2020 and 2019
(Expressed in thousands of U.S. Dollars—except for unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital
|
|
|
|
Series A Preferred
|
|
|
Series B Preferred
|
|
|
Common
|
|
|
General Partner
|
|
|
Series A Preferred
|
|
|
Series B Preferred
|
|
|
Common
|
|
|
General Partner
|
|
|
Total
|
|
BALANCE, December 31, 2018
|
|
|
3,000,000
|
|
|
|
2,200,000
|
|
|
|
35,490,000
|
|
|
|
35,526
|
|
|
$
|
73,216
|
|
|
$
|
53,885
|
|
|
$
|
199,400
|
|
|
$
|
(16
|
)
|
|
$
|
326,485
|
|
—Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,375
|
|
|
|
2,406
|
|
|
|
(2,954
|
)
|
|
|
(3
|
)
|
|
|
2,824
|
|
—Distributions declared and paid (common and preferred units) (Note 8)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,375
|
)
|
|
|
(2,794
|
)
|
|
|
(4,437
|
)
|
|
|
(4
|
)
|
|
|
(10,610
|
)
|
BALANCE, June 30, 2019
|
|
|
3,000,000
|
|
|
|
2,200,000
|
|
|
|
35,490,000
|
|
|
|
35,526
|
|
|
$
|
73,216
|
|
|
$
|
53,497
|
|
|
$
|
192,009
|
|
|
$
|
(23
|
)
|
|
$
|
318,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital
|
|
|
|
Series A Preferred
|
|
|
Series B Preferred
|
|
|
Common
|
|
|
General Partner
|
|
|
Series A Preferred
|
|
|
Series B Preferred
|
|
|
Common
|
|
|
General Partner
|
|
|
Total
|
|
BALANCE, December 31, 2019
|
|
|
3,000,000
|
|
|
|
2,200,000
|
|
|
|
35,490,000
|
|
|
|
35,526
|
|
|
$
|
73,216
|
|
|
$
|
53,498
|
|
|
$
|
187,021
|
|
|
$
|
(28
|
)
|
|
$
|
313,707
|
|
—Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,375
|
|
|
|
2,406
|
|
|
|
7,605
|
|
|
|
8
|
|
|
|
13,394
|
|
—Distributions declared and paid (common and preferred units) (Note 8)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,375
|
)
|
|
|
(2,406
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,781
|
)
|
BALANCE, June 30, 2020
|
|
|
3,000,000
|
|
|
|
2,200,000
|
|
|
|
35,490,000
|
|
|
|
35,526
|
|
|
$
|
73,216
|
|
|
$
|
53,498
|
|
|
$
|
194,626
|
|
|
$
|
(20
|
)
|
|
$
|
321,320
|
|
The accompanying notes are an integral part of these consolidated financial statements.
DYNAGAS LNG PARTNERS LP
Unaudited Interim Consolidated Statements of Cash Flows
For the six month periods ended June 30, 2020 and 2019
(Expressed in thousands of U.S. Dollars)
|
|
Note
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
Cash flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
$
|
13,394
|
|
|
$
|
2,824
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4
|
|
|
|
15,812
|
|
|
|
15,042
|
|
Amortization and write-off of deferred financing fees
|
|
|
10
|
|
|
|
1,287
|
|
|
|
1,611
|
|
Deferred revenue amortization
|
|
|
|
|
|
|
104
|
|
|
|
(394
|
)
|
Amortization of deferred charges
|
|
|
|
|
|
|
108
|
|
|
|
72
|
|
Loss on derivative financial instrument
|
|
|
11
|
|
|
|
3,352
|
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
|
|
|
|
(577
|
)
|
|
|
48
|
|
Prepayments and other assets
|
|
|
|
|
|
|
(481
|
)
|
|
|
(663
|
)
|
Inventories
|
|
|
|
|
|
|
(67
|
)
|
|
|
(801
|
)
|
Due from/to related parties
|
|
|
|
|
|
|
(3,730
|
)
|
|
|
475
|
|
Trade accounts payable
|
|
|
|
|
|
|
(934
|
)
|
|
|
385
|
|
Deferred charges
|
|
|
|
|
|
|
(181
|
)
|
|
|
(1,038
|
)
|
Accrued liabilities
|
|
|
|
|
|
|
(311
|
)
|
|
|
45
|
|
Unearned revenue
|
|
|
|
|
|
|
(940
|
)
|
|
|
(1,462
|
)
|
Net cash provided by Operating Activities
|
|
|
|
|
|
$
|
26,836
|
|
|
$
|
16,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other additions to vessels’ equipment
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Net cash used in Investing Activities
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of securities registration and other filing costs
|
|
|
|
|
|
|
—
|
|
|
|
(139
|
)
|
Distributions declared and paid
|
|
|
|
|
|
|
(5,781
|
)
|
|
|
(10,610
|
)
|
Repayment of long-term debt
|
|
|
5
|
|
|
|
(24,000
|
)
|
|
|
(2,400
|
)
|
Net cash used in Financing Activities
|
|
|
|
|
|
$
|
(29,781
|
)
|
|
$
|
(13,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) / increase in cash and cash equivalents and restricted cash
|
|
|
|
|
|
|
(2,945
|
)
|
|
|
2,995
|
|
Cash and cash equivalents and restricted cash at beginning of the period
|
|
|
|
|
|
|
66,206
|
|
|
|
109,917
|
|
Cash and cash equivalents and restricted cash at end of the period
|
|
|
|
|
|
$
|
63,261
|
|
|
$
|
112,912
|
|
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
13,261
|
|
|
|
112,912
|
|
Restricted cash
|
|
|
|
|
|
|
50,000
|
|
|
|
—
|
|
Cash and cash equivalents and restricted cash
|
|
|
|
|
|
$
|
63,261
|
|
|
$
|
112,912
|
|
The accompanying notes are an integral part of these consolidated financial statement
s.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
1. Partnership Formation and General Information:
Dynagas LNG Partners LP (“Dynagas Partners” or the “Partnership”) was incorporated as a limited partnership on May 30, 2013, under the laws of the
Republic of the Marshall Islands. On November 18, 2013, the Partnership successfully completed its initial public offering (the “IPO”), pursuant to which, the Partnership offered and sold 8,250,000 common units to the public at $18.00 per common
unit, and in connection with the closing of the IPO, the Partnership’s Sponsor, Dynagas Holding Ltd., a company beneficially wholly owned by Mr. George Prokopiou, the Partnership’s Chairman and major unitholder and certain of his close family
members, offered and sold 4,250,000 common units to the public at $18.00 per common unit. In connection with the IPO, the Partnership entered into certain agreements including: (i) an omnibus agreement with the Sponsor, as amended and as
currently in effect, (the “Omnibus Agreement”), which provides the Partnership the right to purchase all or a portion of the ownership interests in certain identified liquefied natural gas (“LNG”) carrier vessels at a purchase price to be
determined pursuant to the terms and conditions contained therein (Note 3(c)) and, (ii) a $30 million
interest free revolving credit facility with its Sponsor (the “$30 million Sponsor Facility”) (Note 3(b)), which
was extended on November 14, 2018 until November 2023, to be used for general Partnership purposes.
The Partnership is engaged in the seaborne transportation industry through the ownership and operation of high specification LNG vessels and is the sole
owner (directly or indirectly) of all outstanding shares or units of the following subsidiaries as of June 30, 2020:
Vessel Owning Subsidiaries:
Company Name
|
Country of incorporation/ formation
|
Vessel Name
|
Delivery Date from shipyard
|
Delivery date to Partnership
|
Cbm Capacity
|
|
|
|
|
|
|
Pegasus Shipholding S.A. (“Pegasus”)
|
Marshall Islands
|
Clean Energy
|
March 2007
|
October 2013
|
149,700
|
Lance Shipping S.A.
(“Lance”)
|
Marshall Islands
|
Ob River
|
July 2007
|
October 2013
|
149,700
|
Seacrown Maritime Ltd.
(“Seacrown”)
|
Marshall Islands
|
Amur River
|
January 2008
|
October 2013
|
149,700
|
Fareastern Shipping Limited
(“Fareastern”)
|
Malta
|
Arctic Aurora
|
July 2013
|
June 2014
|
155,000
|
Navajo Marine Limited
(“Navajo”)
|
Marshall Islands
|
Yenisei River
|
July 2013
|
September 2014
|
155,000
|
Solana Holding Ltd.
(“Solana”)
|
Marshall Islands
|
Lena River
|
October 2013
|
December 2015
|
155,000
|
Non-Vessel Owning Subsidiaries:
Company Name
|
Country of incorporation /formation
|
Purpose of incorporation
|
|
|
|
Dynagas Equity Holding Limited (“Dynagas Equity”)
|
Marshall Islands
|
Holding company that owns all of the outstanding share capital of Arctic LNG Carriers Ltd. (“Arctic LNG”).
|
Dynagas Operating GP LLC
(“Dynagas Operating GP”)
|
Marshall Islands
|
Limited Liability Company in which the Partnership holds a 100% membership interest and which has 100% of the Non-Economic General Partner Interest in Dynagas Operating LP.
|
Dynagas Operating LP
(“Dynagas Operating”)
|
Marshall Islands
|
Limited partnership in which the Partnership holds a 100% limited partnership interest and which owns 100% of the issued and outstanding share capital of Dynagas Equity.
|
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
1. Basis of Presentation and General Information (continued):
Dynagas Finance Inc.
|
Marshall Islands
|
Wholly owned subsidiary of the Partnership whose activities were limited to the co-issuance of the 250 Million Senior Unsecured Notes due 2019 (“2019 Notes) discussed under Note 5 and
engaging in other activities incidental thereto.
|
Arctic LNG
|
Marshall Islands
|
Wholly owned subsidiary of the Partnership which is directly wholly owned by Dynagas Equity and which owns all of the issued and outstanding share capital of Pegasus, Lance, Seacrown,
Fareastern, Navajo, Solana and Dynagas Finance LLC.
|
Dynagas Finance LLC
|
Delaware
|
Wholly owned subsidiary of Arctic LNG and co-borrower of the Partnership's $480 Million Senior Secured Term Loan Facility (“Term Loan B”) discussed under Note 5.
|
Since the Partnership’s inception, the technical, administrative and commercial management of the Partnership’s fleet is performed by Dynagas Ltd.
(“Dynagas” or the “Manager”), a related company, wholly owned by the Partnership’s Chairman (Note 3(a)).
As of June 30, 2020, the Partnership’s Sponsor owned 44.0% of the outstanding equity interests in the Partnership (excluding the Series A Preferred Units
and the Series B Preferred Units, both of which, generally, have no voting rights), including the 0.1% general partner interest retained by it, as the General Partner, through Dynagas GP LLC, which is owned and controlled by the Sponsor.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting
Principles in the United States of America ("U.S. GAAP") and applicable rules and regulations of the U.S Securities and Exchange Commission (“SEC”) for interim financial reporting. The unaudited interim condensed consolidated financial statements
include the accounts of Dynagas Partners and its wholly-owned subsidiaries, referred to above. All intercompany balances and transactions have been eliminated upon consolidation.
These unaudited interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Partnership’s audited
consolidated financial statements for the year ended December 31, 2019 and notes thereto included in its Annual Report on Form 20-F, filed with the SEC on April 16, 2020. In the opinion of the Partnership’s management, all adjustments, which
include only normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows have been included in the financial statements for the periods presented. Interim results are not necessarily
indicative of the results that may be expected for the year ending December 31, 2020.
The outbreak of COVID-19, which originated in China in December 2019 and subsequently spread to most developed nations of the world, has resulted in the
implementation of numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the
global financial markets. The reduction of economic activity has significantly reduced the global demand for oil, refined petroleum products and LNG. The Partnership expects that the impact of the COVID-19 virus and the uncertainty in the supply
of oil will continue to cause volatility in the commodity markets. Although to date there has not been any significant effect on the Partnership’s operating activities due to COVID-19, the extent to which COVID-19 will impact the Partnership’s
results of operation and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including among others, new information which may emerge concerning the severity of the virus and the actions to
contain or treat its impact. An estimate of the impact cannot therefore be made at this time.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
1. Basis of Presentation and General Information (continued):
During the six month periods ended June 30, 2020 and 2019, charterers that individually accounted for more than 10% of the Partnership’s revenues were as
follows:
Charterer
|
|
2020
|
|
|
2019
|
|
A
|
|
|
45
|
%
|
|
|
50
|
%
|
B
|
|
|
40
|
%
|
|
|
22
|
%
|
C
|
|
|
15
|
%
|
|
|
16
|
%
|
D
|
|
|
—
|
|
|
|
12
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
2. Significant Accounting Policies and Recent Accounting Pronouncements:
A summary of the Partnership’s significant accounting policies can be found in the Partnership’s consolidated financial statements included in the Annual
Report on Form 20-F for the year ended December 31, 2019, filed with the Securities and Exchange Commission on April 16, 2020. There have been no material changes to these policies in the six month period ended June 30, 2020, except for as
discussed below:
Derivative Financial Instruments: The Partnership entered into an interest
rate swap contract to manage its exposure to fluctuations of interest rate risks associated with its loan facility. The interest rate swap did not meet the applicable criteria for hedge accounting under ASC 815, including the criteria specific to
a cash flow hedge. Therefore, interest paid or received under the respective undesignated swap agreement is recognized in the earnings in Loss from derivative financial instrument. The undesignated interest rate swap is recognized in the interim
condensed consolidated financial statements at its fair value, and the gain or loss from changes in the fair value are reported in earnings in the period in which those fair value changes occur in Loss from derivative financial instrument.
New Accounting Pronouncements – Adopted
i)
|
On January 1, 2020, the Partnership adopted ASU No. 2016-13—Financial
Instruments—Credit Losses (Topic 326)—Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for
sale debt securities, using the modified retrospective method. This new guidance is amended by: ASU 2018-19, “Codification Improvements to Topic 326, Financial
Instruments—Credit Losses”, which clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842, Leases;
ASU 2019-04, “Codification Improvements to Topic
326, Financial Instruments—Credit Losses, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments”, the amendments of which clarify the
modification of accounting for available for sale debt securities excluding applicable accrued interest, which must be individually assessed for credit losses when fair value is less than the amortized cost basis; ASU 2019-05, “Codification Improvements
to Topic 326, Financial Instruments—Credit Losses, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments”, the amendments of which provide
entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial
Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. The adoption of this new
accounting guidance did not have a material impact on the Partnership’s consolidated financial statements and related disclosures.
|
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
2. Significant Accounting Policies and Recent Accounting Pronouncements (continued):
ii)
|
On January 1, 2020, the Partnership adopted ASU 2018-13, “Fair Value Measurement
(Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which improves the effectiveness of fair value measurement disclosures. In particular, the
amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8:
Notes to Financial Statements, including the consideration of costs and benefits. The amendments in the Update apply to all entities that are required under existing GAAP to make disclosures about recurring and non-recurring fair value
measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement
uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their
effective date. The adoption of this new accounting guidance did not have a material impact on the Partnership’s consolidated financial statements and related disclosures.
|
On January 1, 2020, the Partnership adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU No. 2017-12), which amends and simplifies existing
guidance in order to allow companies to more accurately present the economic effects of risk management activities in the consolidated financial statements and ASU 2018-16, “Derivatives and Hedging (Topic 815)—Inclusion of the Secured Overnight
Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”, which permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815
in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the SIFMA Municipal Swap Rate, as further amended through ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments”. The adoption of this new accounting guidance had no effect on the Partnership’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
i)
|
In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)" which is intended to provide temporary
optional expedients and exceptions to U.S. GAAP guidance on contracts, hedge accounting and other transactions affected by the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to
alternative reference rates. This ASU is effective for all entities beginning on March 12, 2020 through December 31, 2022. The Partnership's Management is currently evaluating the impact that this guidance may have on its consolidated
financial statements and related disclosures.
|
3. Transactions with related parties:
During the six-month periods ended June 30, 2020 and 2019, the Partnership incurred the following expenses in connection with related party transactions,
which are included in the accompanying unaudited interim condensed consolidated statements of income:
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
3. Transactions with related parties (continued):
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Included in voyage expenses
|
|
|
|
|
|
|
Charter hire commissions (a)
|
|
$
|
855
|
|
|
$
|
772
|
|
|
|
|
|
|
|
|
|
|
Included in general and administrative expenses – related party
|
|
|
|
|
|
|
|
|
Executive services fee (d)
|
|
$
|
298
|
|
|
$
|
304
|
|
Administrative services fee (e)
|
|
$
|
60
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
Management fees-related party
|
|
|
|
|
|
|
|
|
Management fees (a)
|
|
$
|
3,358
|
|
|
$
|
3,242
|
|
As of June 30, 2020 and December 31, 2019, balances with related parties consisted of the following:
|
|
Period/Year ended
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Assets:
|
|
|
|
|
|
|
Working capital advances provided to the Manager (a), current
|
|
$
|
1,552
|
|
|
$
|
—
|
|
Security deposits to Manager (a), non-current
|
|
$
|
1,350
|
|
|
$
|
1,350
|
|
|
|
|
|
|
|
|
|
|
Liabilities included in Due to related party:
|
|
|
|
|
|
|
|
|
Working capital advances due to the Manager (a)
|
|
$
|
—
|
|
|
$
|
1,198
|
|
Executive service charges due to Manager (d)
|
|
$
|
178
|
|
|
$
|
148
|
|
Administrative service charges due to Manager (e)
|
|
$
|
—
|
|
|
$
|
30
|
|
Management fees due to Manager (a)
|
|
$
|
—
|
|
|
$
|
701
|
|
Other Partnership expenses due (from) /to Manager
|
|
$
|
(154
|
)
|
|
$
|
125
|
|
Total liabilities due to related party, current
|
|
$
|
24
|
|
|
$
|
2,202
|
|
a) Dynagas Ltd.
The Partnership’s vessels have entered into vessel management agreements with Dynagas Ltd., the Partnership’s Manager (the “Management Agreements”).
Pursuant to the terms of these Management Agreements, the Manager provides each vessel-owning entity of the Partnership with management services, including, but not limited to, commercial, technical, crew, accounting and vessel administrative
services in exchange for an initial fixed daily management fee of $2.5 per vessel, for a period beginning upon vessel’s delivery until the termination of the Management Agreement. The Management Agreements initially terminate on December 31, 2020
and are thereafter, automatically extended in additional eight-year increments if notice of termination is not previously provided by the Partnership’s vessel-owning subsidiaries. Beginning on the first calendar year after the commencement of
each vessel’s Management Agreement and each calendar year thereafter, these fees are adjusted upwards by 3% until expiration of each Management Agreement, subject to further annual increases to reflect material unforeseen costs of providing the
management services. The amount of such increase is to be agreed between the Partnership and the Manager, which amount will be reviewed and approved by the Partnership’s Conflicts Committee. Under the terms of the Management Agreements, the
Manager charges the Partnership for any additional capital expenditures, financial costs, operating expenses and general and administrative expenses that are not covered by the management fees.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
3. Transactions with related parties (continued):
During the six-month period ended June 30, 2020 and 2019, each vessel was charged a daily management fee of $3.1 and $3.0, respectively. During the
six-month period ended June 30, 2020 and 2019, management fees under the vessel Management Agreements amounted to $3,358 and $3,242 respectively, and are separately reflected in the accompanying unaudited interim condensed consolidated statements
of income.
The Management Agreements also provide for:
(i)
|
a commission of 1.25% over charter-hire agreements arranged by the Manager; and
|
(ii)
|
a lump sum new-building supervision fee of $700 for the services rendered by the Manager in respect of the construction of the vessel, if applicable, plus out of pocket expenses.
|
During the six-month period ended June 30, 2020 and 2019, charter hire commissions under the Management Agreements amounted to $855 and $772 respectively,
and are included in Voyage expenses-related party in the accompanying unaudited interim condensed consolidated statements of income.
The Management Agreements will terminate automatically after a change of control of the owners and/or of the owners’ ultimate parent, in which case an
amount equal to the estimated remaining fees, but in any case not less than
for a period of 36
months and not more than 60 months, will become payable to the Manager. As of June 30, 2020, based on the
maximum period prescribed in the Management Agreements up to the initial termination period and the basic daily fee in effect during the six-month period ended June 30, 2020, such termination fee would be approximately $20.2 million.
The Management Agreements also provide for an advance equal to three months daily management fee. In the case of termination of the Management Agreements,
prior to their eight year term, by any reason other than Manager’s default, the advance is not refundable. Such advances as of June 30, 2020 and December 31, 2019, amounted to $1,350, and are separately reflected in Non-Current Assets as Due from
related party in the accompanying consolidated condensed balance sheets.
In addition, the Manager makes payments for operating expenses with funds provided by the Partnership. As of June 30, 2020, a balance of $1,552 was due
from the Manager and as of December 31, 2019, a balance of $1,198 was due to the Manager in relation to these operating expenses.
(b) Loan from related party
On November 18, 2013, upon the completion of its IPO, the Partnership entered into the $30 million Sponsor Facility with an original term of five years
from the closing date, to be used for general Partnership purposes, including working capital. The $30 million Sponsor Facility was extended on November 14, 2018 for an additional term of five years on terms and conditions identical to the
initial credit facility (the “$30 million Extended Sponsor Facility”). The $30 million Extended Sponsor Facility may be drawn and be prepaid in whole or in part at any time during the life of the facility which is until November 2023. No amounts
have been drawn under the respective facility as of June 30, 2020 and December 31, 2019.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
3. Transactions with related parties (continued):
(c) Optional Vessel acquisitions from Sponsor/ Omnibus Agreement
At the IPO date, the Partnership and its Sponsor entered into the Omnibus Agreement, as amended and as currently in effect. The amended Omnibus Agreement
sets out (i) the terms and the extent the Partnership and the Sponsor may compete with each other, (ii) the procedures to be followed for the exercise of the Partnership’s option to acquire the Initial Optional Vessels (as defined in the Omnibus
Agreement), including the Partnership’s right to acquire the Sponsor’s ownership interest (which is currently 49.0%) in each of five joint venture entities, each of which owns a 172,000 cubic meter ARC 7 LNG carrier (or the “Additional Optional
Vessels” and together with the Initial Optional Vessels, the “Optional Vessels”), which were all delivered between December 2017 and February 2019, (iii) certain rights of first offer to the Sponsor for the acquisition of LNG carriers from the
Partnership, and (iv) the Sponsor’s provisions of certain indemnities in favor of the Partnership.
The purchase option periods with regards to the Initial Optional Vessels that were not exercised, expired in December 2018.
The Partnership's option periods with regard to the Sponsor's interests in the first two of the five joint venture entities described above also expired
unexercised. The Partnership retains the legal right to exercise the option to acquire from its Sponsor its 49% ownership interest in the last three vessels described above, at the period specified and as per the terms prescribed in the Omnibus
Agreement.
(d) Executive Services Agreement
On March 21, 2014, the Partnership entered into an executive services agreement (the “Executive Services Agreement”) with its Manager with retroactive
effect from the IPO closing date, pursuant to which the Manager provides the Partnership the certain services of its executive officers, who report directly to the Board of Directors. Under the Executive Services Agreement, the Manager is
entitled to an executive services fee of €538 per annum (or $604 on the basis of a Euro/US Dollar exchange rate of €1.0000/$1.1235 as of June 30, 2020), payable in equal monthly installments. The Executive Services Agreement had an initial term
of five years and, on November 18, 2018, was automatically renewed for successive five year terms, unless terminated earlier. During the six-month periods ended June 30, 2020 and 2019, executive service fees amounted to $298 and $304,
respectively, and are included in general and administrative expenses in the accompanying unaudited interim condensed consolidated statements of income.
(e) Administrative Services Agreement
On December 30, 2014 and with effect from the IPO closing date, the Partnership entered into an administrative services agreement (the “Administrative
Services Agreement”) with its Manager, according to which the Partnership is provided with certain financial, accounting, reporting, secretarial and information technology services, for a monthly fee of $10, plus expenses, payable in quarterly
installments. The Administrative Services Agreement can be terminated upon 120 days’ notice granted either by the Partnership’s Board of Directors or by Dynagas. During the six month periods ended June 30, 2020 and 2019, administrative service
fees amounted to $60 and are included in general and administrative expenses – related party in the accompanying unaudited interim condensed consolidated statements of income.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
4. Vessels, net:
The amounts in the accompanying consolidated condensed balance sheets are analyzed as follows:
|
Vessel
Cost
|
|
Accumulated
Depreciation
|
|
Net Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019
|
|
$
|
1,167,909
|
|
|
$
|
(251,212
|
)
|
|
$
|
916,697
|
|
Period depreciation
|
|
|
—
|
|
|
|
(15,812
|
)
|
|
|
(15,812
|
)
|
Balance June 30, 2020
|
|
$
|
1,167,909
|
|
|
$
|
(267,024
|
)
|
|
$
|
900,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020, all vessels comprising the Partnership’s fleet were first priority mortgaged as collateral to secure the $675 Million Credit Facility,
further discussed in Note 5.
5. Long-Term Debt:
The amounts shown in the accompanying consolidated condensed balance sheets are analyzed as follows:
|
|
|
|
Period / Year Ended
|
|
|
|
Borrowers-Issuers
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
$675 Million Credit Facility
|
|
Fareastern Shipping Limited, PegasusShipholding S.A., Lance Shipping S.A.,Seacrown Maritime Ltd., Navajo Marine Limited,Solana Holding Ltd.
|
|
|
639,000
|
|
|
|
663,000
|
|
Total debt
|
|
|
|
$
|
639,000
|
|
|
$
|
663,000
|
|
Less deferred financing fees
|
|
|
|
|
(8,559
|
)
|
|
|
(9,846
|
)
|
Total debt, net of deferred finance costs
|
|
|
|
$
|
630,441
|
|
|
$
|
653,154
|
|
Less current portion, net of deferred financing fees
|
|
|
|
$
|
(45,598
|
)
|
|
$
|
(45,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion and deferred financing fees
|
|
|
|
$
|
584,843
|
|
|
$
|
607,672
|
|
$675 Million Senior Secured Term Loan Facility ($675 Million Credit Facility)
On September 18, 2019, Fareastern Shipping Limited, Pegasus Shipholding S.A., Lance Shipping S.A., Seacrown Maritime Ltd., Navajo Marine Limited and
Solana Holding Ltd., wholly owned by the Partnership, as co-borrowers, entered into a syndicated $675.0 million senior secured term loan, the $675 Million Credit Facility, with leading international banks. On September 25, 2019, the amount of
$675.0 million was drawn under the $675 Million Credit Facility and the Partnership repaid in full the indebtedness outstanding under the Term Loan B of $470.4 million; and on October 30, 2019, the remaining amount of $204.6 million plus cash on
hand was used to repay the 2019 Notes.
The $675 Million Credit Facility bears interest at U.S. LIBOR plus 3.00% margin and is secured by, among other things, first priority mortgages on the six
LNG vessels in the Partnership's fleet. The $675 Million Credit Facility is repayable over five years in 20 consecutive quarterly payments plus a balloon payment in the fifth year.
The $675 Million Credit Facility contains financial covenants that require the Partnership to:
|
•
|
meet a specified minimum ratio of Cash and Cash Equivalents to Total Liabilities;
|
|
•
|
meet a specified maximum ratio of Total Liabilities to the Market Value Adjusted Total Assets; and
|
|
•
|
maintain a minimum liquidity of $50.0 million in a restricted Cash Collateral Account.
|
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
5. Long-Term Debt (continued):
The $675 Million Credit Facility restricts the Partnership from declaring or making any distributions to its common unit-holders while borrowings are
outstanding. Scheduled distributions to the preferred unit-holders under the existing Series A Preferred Units and Series B Preferred Units are not restricted provided there is no event of default while the $675 Million Credit Facility remains
outstanding.
As of June 30, 2020, the Partnership was in compliance with all financial covenants prescribed in its $675 Million Credit Facility.
The annual principal payments for the Partnership’s outstanding $675 Million Credit Facility as at June 30, 2020, required to be made after the balance
sheet date were as follows:
|
|
Amount
|
|
2020
|
|
$
|
24,000
|
|
2021
|
|
|
48,000
|
|
2022
|
|
|
48,000
|
|
2023
|
|
|
48,000
|
|
2024
|
|
|
471,000
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
639,000
|
|
|
|
|
|
|
The weighted average interest rate on the Partnership’s long-term debt for the six months ended June 30, 2020 and 2019 was 4.2% and 6.7%, respectively.
Total interest incurred on long-term debt for the six-month period ended June 30, 2020 and 2019, amounted to $13,939 and $24,396, respectively, and is
included in Interest and finance costs (Note 10) in the accompanying unaudited interim condensed consolidated statements of income.
6. Fair Value Measurements:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents, trade accounts receivable, amounts due from/to related parties and trade
accounts payable: The carrying values reported in the accompanying consolidated condensed balance sheets for those financial instruments (except for the fair value of non-current portion of amounts due from related party) are considered
Level 1 items as they represent liquid assets and liabilities with short-term maturities and are reasonable estimates of their fair values. The carrying value of these
instruments is separately reflected in the accompanying consolidated condensed balance sheets. The fair value of non-current portion of the amounts due from related parties, determined through Level 3 inputs of the fair value hierarchy by
discounting future cash flows using the Partnership’s estimated cost of capital, is $1,321 as of June 30, 2020, compared to its carrying value of $1,350 as of the same date.
◾
|
Long-term debt: The $675 Million Credit Facility discussed in Note 5, has an approximate recorded value due to the variable interest rate payable
and is thus considered a Level 2 item in accordance with the fair value hierarchy.
|
◾
|
Derivative financial instrument: The carrying values reported in the accompanying consolidated condensed balance sheets for the swap transaction
are determined through Level 2 of the fair value hierarchy and are derived principally from interest rates, yield curves and other items that allow value to be
determined.
|
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
6. Fair Value Measurements (continued):
A fair value hierarchy that prioritizes the inputs used to measure fair value has been established by Generally Accepted Accounting Principles. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to
maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
◾
|
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
◾
|
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and
|
|
◾
|
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the determination of the fair value of the assets or liabilities.
|
7. Commitments and Contingencies:
(a) Long-term leases:
The Partnership employs its vessels under time charter contracts. Certain of its time charters provide for variable lease payments, escalating lease
payments, charterers’ options to extend the lease terms, termination clauses and charterers’ options to purchase the underlying assets. The Partnership, in order to calculate future minimum contracted lease payments, has assessed all the relevant
factors that create an economic incentive for the lessee to be reasonably certain to exercise lease renewal, termination or purchase options.
Two of the Partnership’s time charters contain escalating lease payments and two of its time charters contain both fixed lease and variable lease
payments. The variable lease payments relate to services and executory costs (the “Opex Lease Element”). The Opex Lease Element is determined on a cost pass through basis on the vessel’s actual operating expenses for each applicable year. Under
time charters, the vessels are employed for a specific period of time in accordance with the terms of each agreement. Normally, the charterer has the option to redeliver the vessel to the owner in a period that varies a few days more or less from
the contractual termination date. For certain of its time charters, the Partnership has provided to its charterers, the option to extend the lease term for additional periods under the same or different terms. The options are exercised close to
the original termination dates. Specifically, under one of the Partnership’s time charters, the charterer has options to extend a three year contract, by two consecutive twelve month periods, at escalating rates and, under two of its time
charters, the charterer has the option to extend the original lease term by three consecutive periods of five years, the first declared at the original termination date and each of the two remaining at or close to the termination of each option
period. Certain time charters are subject to the satisfaction of important conditions, which, if not satisfied, or waived by the charterer, may result in their cancellation or amendment of the charter term and in such case the Partnership may not
receive the contracted revenues thereunder. The Partnership assessed the respective termination clauses and concluded that the lease term is not affected. In addition, under certain time charters and, upon certain circumstances triggering a
sanctions event, as defined therein, the charterers have the option to purchase the vessels unless the Partnership can remediate such event.
As of June 30, 2020, the Partnership reported lease income (which excludes the non- cash adjustments) of $68.5 million. The Partnership’s maturity
analysis of future minimum contracted lease payments (excluding variable lease payments) under its non-cancelable long-term time charter contracts, as of June 30, 2020, gross of brokerage commissions, without taking into consideration any assumed
off-hire days (including those arising out of periodical class survey requirements), is as analyzed below:
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
7. Commitments and Contingencies (continued):
Year ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
63,330
|
|
2021
|
|
|
114,794
|
|
2022
|
|
|
103,824
|
|
2023
|
|
|
103,824
|
|
2024
|
|
|
103,935
|
|
2025 and thereafter
|
|
|
550,540
|
|
Total
|
|
$
|
1,040,247
|
|
(b) Legal proceedings:
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary
course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Partnership’s vessels. Currently, management is not aware of any
such claims not covered by insurance or contingent liabilities which should be disclosed (other than that referred below) or for which a provision should be established in the accompanying consolidated financial statements. The Partnership
accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is then able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent
liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. The Partnership is covered in the event of any liabilities associated with the individual vessels’
actions up to the maximum limits as provided for by the Protection and Indemnity (P&I) Clubs, members of the International Group of P&I Clubs.
On May 16, 2019, a purported stockholder of the Partnership filed a putative class action lawsuit against the Partnership and certain
related entities and individual officers and directors of the Partnership in the United States District Court for the Southern District of New York (Case No.19- cv-04512). The complaint purports to be brought on behalf of shareholders who
purchased the common stock of the Partnership between February 16, 2018 and March 21, 2019. The Complaint generally alleges that the defendants violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder by making allegedly false and/or misleading statements regarding, among other matters, new charter agreements that the Partnership entered into with various energy companies and the Partnership’s expectations about its ability to
sustain its quarterly distribution. The complaint seeks unspecified damages, attorneys’ fees, and other costs. On August 19, 2019, the Court appointed a group of shareholders as Lead Plaintiffs in the action, who filed an amended complaint on
September 26, 2019. The amended complaint makes allegations similar to those in the original complaint, extends the class period (December 21, 2017 through March 21, 2019), adds as defendants three additional directors of the Partnership and the
underwriters of the Partnership’s Series B Preferred Units Offering, and asserts new claims under Section 20A of the Securities Exchange Act of 1934 on behalf of plaintiffs who acquired Partnership securities or sold put options contemporaneously
with the Series B Preferred Units Offering, and under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 based on allegedly false and/or misleading statements in the offering documents for the Series B Preferred Units Offering. The
Partnership, related entity defendants, and underwriter defendants filed a motion to dismiss the amended complaint on December 5, 2019, which is now fully briefed, but has not yet been decided by the Court.
The Partnership and its management believe that the allegations in the lawsuit are without merit and intend to vigorously defend their
position.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
7. Commitments and Contingencies (continued):
(c) Technical and Commercial Management Agreement:
As further disclosed in Note 3, the Partnership has contracted
with Dynagas Ltd. for the provision of commercial,
administrative and technical management of its vessels pursuant to certain Management Agreements. For the commercial services provided under the Management Agreements, the Partnership pays a commission of 1.25% over the charter-hire revenues
arranged by the Manager, which will survive the termination of the agreement until the termination of each charter party in force at such time. The estimated commission payable to the Manager over the minimum contractual charter revenues,
discussed under (a) above, is $13,003. For vessel administrative and technical management fees, the Partnership paid during the six-month period ended June 30, 2020, a daily management fee of $3.1 per vessel (Note 3(a)). Management fees for the
period from July 1, 2020 to the date of the expiration of the agreements on December 31, 2020 are estimated to be $3,394.
8. Partners’ Equity:
Series A Preferred Units:
On July 20, 2015, the Partnership concluded an underwritten public offering of 3,000,000 9% Series A Preferred Units, representing limited partner
interests in the Partnership, at a liquidation preference of $25.00 per unit. The Partnership received $72.3 million of proceeds from this offering, net of the $2.4 million underwriting discount of and incurred offering expenses of $0.3 million.
Series B Preferred Units:
On October 23, 2018, the Partnership concluded the underwritten public offering of 2,200,000 Series B Preferred Units, representing limited partner
interests in the Partnership, at a
liquidation preference of $25.00 per unit. The Partnership received net proceeds of $53.0 million from this offering, after deducting underwriters’ discounts and commissions and
offering expenses, which amounted to $2.0 million.
Concurrently with the conclusion of the Series B Preferred Units Public Offering, the Partnership entered into the Limited Partnership Agreement in order
to, among others, conform its provisions to the terms and provisions related to the issuance of the Series B Preferred Units and to remove references to subordinated units and subordinated period that are no longer in effect.
As of June 30, 2020, the Partnership had 35,490,000 common units, 15,595,000 of which are owned by the Sponsor, 3,000,000 Series A Preferred Units,
2,200,000 Series B Preferred Units and 35,526 general partner units issued and outstanding.
Common and General Partner unit distribution provisions:
The Partnership pays distributions in the following manner:
• first, 100% to the holders of common units and to the General Partner in accordance with their relative percentage interests, until the distributed amount in respect of each common unit
equals the minimum quarterly distribution; and
• second, 100% to the holders of common units and to the General Partner in accordance with their relative percentage interests, until each unit has received
an aggregate distribution of a specified dollar amount.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
8. Partners’ Equity (continued):
The percentage allocations of available cash from operating surplus among the common unitholders, the General Partner and the holders of the incentive
distribution rights up to the various target distribution levels are illustrated below. The percentage interests shown for the common unitholders, the General Partner and the holders of the incentive distribution rights for the minimum quarterly
distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests shown for our General Partner include its 0.1% General Partner interest only and assumes that our
General Partner has contributed any capital necessary to maintain its 0.1% General Partner interest. Under the Limited Partnership Agreement, the holder of the incentive distribution rights in the Partnership, which is currently the General
Partner, has the right to receive an increasing percentage of cash distributions after the first target distribution level.
|
|
Total Quarterly
Distribution Target
Amount
|
|
|
Unitholders
|
|
|
General
Partner
|
|
|
Holders
of IDRs
|
|
Minimum Quarterly Distribution
|
|
|
$ 0.365
|
|
|
|
99.9
|
%
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
First Target Distribution
|
|
up to $0.420
|
|
|
|
99.9
|
%
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
Second Target Distribution
|
|
above $0.420 up to $0.456
|
|
|
|
85.0
|
%
|
|
|
0.1
|
%
|
|
|
14.9
|
%
|
Third Target Distribution
|
|
Above $0.456 up to $0.548
|
|
|
|
75.0
|
%
|
|
|
0.1
|
%
|
|
|
24.9
|
%
|
Thereafter
|
|
above $0.548
|
|
|
|
50.0
|
%
|
|
|
0.1
|
%
|
|
|
49.9
|
%
|
On January 25, 2019, the Partnership announced a reduction in cash distribution to $0.0625 per unit to all common unitholders from $0.25 per common unit
in prior quarters, which was paid on February 14, 2019, to all common unitholders of record as of February 7, 2019.
On September 26, 2019 the Partnership announced that pursuant to the closing of the $675 Million Credit Facility (Note 5), the Partnership is prohibited
from paying distribution to its common unit-holders while borrowings are outstanding under the $675 Million Credit Facility.
As the quarterly distributions with respect to fiscal year 2019 were below $0.365 per common unit, the actual cash distributions and the allocation of net
income for the purposes of the earnings per common unit calculation were based on the limited partners’ and General Partner’s ownership percentage applying to the minimum quarterly distribution level, as per the above presented distribution
waterfall.
Preferred Units distribution and redemption provisions:
Distributions on the Series A Preferred Units are cumulative from the date of original issue and are payable quarterly on February 12, May 12, August 12
and November 12, of each year, when, as and if declared by the Partnership’s Board of Directors out of amounts legally available for such purpose. Distributions are payable at a distribution rate of 9.00% per annum of the stated liquidation
preference.
Any time on or after August 12, 2020, the Series A Preferred Units may be redeemed, in whole or in part, at the Partnership’s option, out of amounts
legally available for such purpose, at a redemption price of $25.00 per unit plus an amount equal to all accumulated and unpaid distributions thereon to the date of redemption, whether or not declared.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
8. Partners’ Equity (continued):
Distributions on the Series B Preferred Units are cumulative from the date of original issue and are payable quarterly on February 22, May 22, August 22
and November 22, of each year, when, as and if declared by the Partnership’s Board of Directors out of amounts legally available for such purpose. Furthermore, distributions on the Series B Preferred Units are payable (i) from and including the
original issue date to, but excluding, November 22, 2023 at a fixed rate equal to 8.75% per annum of the stated liquidation preference per unit and (ii) from and including November 22, 2023 at a floating rate equal to three-month LIBOR plus a
spread of 5.593% per annum of the stated liquidation preference per unit.
At any time on or after November 22, 2023, the Series B Preferred Units may be redeemed, in whole or in part, at the Partnership’s option, out of amounts
available for such purpose, at a redemption price of $25.00 per unit plus an amount equal to all accumulated and unpaid distributions thereon to the date of redemption, whether or not declared.
The Series A Preferred Units and the Series B Preferred Units represent perpetual equity interests in the Partnership, unlike the Partnership’s
indebtedness, do not give rise to a claim for payment of a principal amount at a particular date. The Series A Preferred Units rank pari passu with the Series B Preferred Units. Both the Series A Preferred Units and the Senior B Preferred Units
rank senior to the Partnership’s common units and to each other class or series of limited partner interests or other equity established after the original issue date of the Series A Preferred Units and the Series B Preferred Units that is not
expressly made senior to or on a parity with the Series A Preferred Units and the Series B Preferred Units as to payment of distributions. The Series A Preferred Units and the Series B Preferred Units
rank junior to
all of the Partnership’s
existing and future indebtedness.
The interests of the holders of Series A Preferred Units or Series B Preferred Units could be diluted by the issuance of
additional preferred units, including additional Series A Preferred units or Series B Preferred Units, and by other transactions.
Series A Preferred unit distributions:
On January 20, 2020, the Partnership’s Board of Directors declared a cash distribution of $0.5625 per unit on its Series A Preferred Units for the period
from November 12, 2019 to February 11, 2020. The cash distribution was paid on February 12, 2020, to all Series A preferred unitholders of record as of February 5, 2020.
On April 21, 2020, the Partnership’s Board of Directors declared a cash distribution of $0.5625 per unit on its Series A Preferred Units for the period
from February 12, 2020 to May 11, 2020. The cash distribution was paid on May 12, 2020, to all Series A preferred unitholders of record as of May 5, 2020.
Series B Preferred unit distributions:
On January 30, 2020, the Partnership’s Board of Directors declared a cash distribution of $0.546875 per unit on its Series B Preferred Units for the
period from November 22, 2019 to February 21, 2020. The cash distribution was paid on February 24, 2020, to all Series B preferred unitholders of record as of February 17, 2020.
On April 27, 2020, the Partnership’s Board of Directors declared a cash distribution of $0.546875 per unit on its Series B Preferred Units for the period
from February 22, 2020 to May 21, 2020. The cash distribution was paid on May 22, 2020, to all Series B preferred unitholders of record as of May 15, 2020.
General Partner Distributions:
During the six-month period ended June 30, 2020 and 2019, the Partnership paid to its General Partner and holder of the incentive distribution rights in
the Partnership an amount of $nil and $4, respectively.
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
9. Earnings/ (Loss) per Unit:
The Partnership calculates earnings/ (loss) per unit by allocating distributed and undistributed net income/ (losses) for each period to common and
general partner units, after adjusting for the effect of preferred distributions, only to the extent that they are earned. Any undistributed earnings for the period are allocated to the various unitholders based on the distribution waterfall for
cash available for distribution specified in the Limited Partnership Agreement, as generally described in Note 8 above. Where distributions relating to the period are in excess of earnings, the deficit is also allocated according to the cash
distribution model. The sum of the distributed amounts and the allocation of the undistributed earnings or deficit to each class of unitholders is divided by the weighted average number of units outstanding during the period. Diluted earnings per
unit, if applicable, reflects the potential dilution that could occur if potentially dilutive instruments were exercised, resulting in the issuance of additional units that would then share in the Partnership’s net earnings. The Partnership had
no dilutive instruments in the six-month periods ended June 30, 2020 and 2019.
The calculations of the basic and diluted earnings per common unit are presented below:
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Partnership’s Net income
|
|
$
|
13,394
|
|
|
$
|
2,824
|
|
Less:
|
|
|
|
|
|
|
|
|
Net Income attributable to Series A preferred unitholders
|
|
|
3,375
|
|
|
|
3,375
|
|
Net Income attributable to Series B preferred unitholders
|
|
|
2,406
|
|
|
|
2,406
|
|
General Partner’s interest in Net Income
|
|
|
8
|
|
|
|
(3
|
)
|
Net income/(loss) attributable to common unitholders
|
|
$
|
7,605
|
|
|
$
|
(2,954
|
)
|
Weighted average number of common units outstanding, basic and diluted
|
|
|
35,490,000
|
|
|
|
35,490,000
|
|
Earnings /(Loss) per common unit, basic and diluted
|
|
$
|
0.21
|
|
|
$
|
(0.08
|
)
|
10. Interest and Finance Costs:
The amounts in the accompanying interim condensed consolidated statements of income are analyzed as follows:
|
Six months ended
June 30,
|
|
|
2020
|
|
|
2019
|
|
Interest expense (Note 5)
|
|
$
|
13,939
|
|
|
$
|
24,396
|
|
Amortization and write-off of deferred financing fees
|
|
|
1,287
|
|
|
|
1,611
|
|
Other
|
|
|
83
|
|
|
|
181
|
|
Total
|
|
$
|
15,309
|
|
|
$
|
26,188
|
|
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Condensed Consolidated Financial Statements June 30, 2020
(Expressed in thousands of U.S. Dollars—except for unit and per unit data, unless otherwise stated)
11. Derivative financial instrument:
On May 7, 2020, the Partnership entered into a floating to fixed interest rate swap transaction with a leading international bank, for the purpose of
managing its exposure to LIBOR variability that the Partnership has under the $675 Million Credit Facility. The swap transaction, which is effective from June 29, 2020, provides for a fixed 3-month LIBOR rate of 0.41% based on notional values
that reflect the amortization schedule of 100% of the Partnership’s debt outstanding under its $675 Million Credit Facility, until the $675 Million Credit Facility matures in September 2024. The swap agreement did not meet hedge accounting
criteria and, therefore, changes in its fair value are reflected in earnings.
As of June 30, 2020, the outstanding notional amount of Partnership’s interest rate swap was $639.0 million. The fair value of this interest rate swap outstanding at June 30, 2020 amounted to a liability of $3,349 and is included in Derivative financial instrument in accompanying consolidated condensed balance sheet. The
Partnership had no derivative financial instruments as of December 31, 2019.
As of June 30, 2020, the Partnership recognized a loss on derivative financial instrument of $3.4 million, which is included in Loss on derivative
financial instrument in the accompanying unaudited interim condensed consolidated statements of income.
12. Subsequent Events:
(a)
|
Quarterly Series A Preferred unit cash distribution: On July 21, 2020, the Partnership’s Board of Directors declared a cash distribution of $0.5625
per unit on its Series A Preferred Units for the period from May 12, 2020 to August 11, 2020. The cash distribution was paid on August 12, 2020, to all Series A preferred unitholders of record as of August 5, 2020.
|
(b)
|
Quarterly Series B Preferred unit cash distribution: On July 27, 2020, the Partnership’s Board of Directors declared a cash distribution of
$0.546875 per unit on its Series B Preferred Units for the period from May 22, 2020 to August 21, 2020. The cash distribution was paid on August 24, 2020, to all Series B preferred unitholders of record as of August 17, 2020.
|
(c)
|
“At the market” equity program: On July 2, 2020, the Partnership entered into an ATM Sales Agreement for the offer and sale of common units
representing limited partnership interests, having an aggregate offering price of up to $30.0 million. The Partnership issued and sold under this ATM sales program 122,580 common units resulting in net proceeds of $0.4 million. On
August 19, 2020, the Partnership terminated the above mentioned ATM Sales Agreement and entered into an amended and restated ATM Sales Agreement, for the offer and sale of common units representing limited partnership interests, having
an aggregate offering price of up to $30.0 million.
|