1 - GENERAL INFORMATION

 

The accompanying condensed consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”) and its direct and indirect wholly-owned subsidiaries including Baltic Trading Limited (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 March 31, 2016, is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco RE Investments LLC; and the ship-owning subsidiaries as set forth below.  As of March 31, 2016, Genco Ship Management LLC is the sole owner of all of the outstanding shares of Genco Management (USA) Limited.

 

Liquidity, Going Concern, and Reclassification of Debt to Current

 

Persistent weak drybulk industry conditions and historically low charter rates have negatively impacted the Company’s results of operations, cash flows, and liquidity and may continue to do so in the future. The negative impact on the Company’s liquidity, together with a continued decline in vessel values, presents difficulties for remaining in compliance with its credit facility covenants relating to minimum cash, leverage ratios, and collateral maintenance (refer to Note 8 — Debt), which could potentially result in defaults and acceleration of the repayment of its outstanding indebtedness.  These factors, as well as recurring losses from operations and negative working capital, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern, which contemplates the realization of assets and extinguishment of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon, among other things, its ability to: (i) develop and successfully implement a plan to address these factors, which may include refinancing the Company’s existing credit agreements, or obtaining further waivers or modifications to its credit agreements from its lenders, or raising additional capital through selling assets (including vessels), reducing or delaying capital expenditures, or pursuing other options that may be available to the Company which may include pursuing strategic opportunities and equity or debt offerings or potentially seeking protection in a Chapter 11 proceeding;  (ii) return to profitability, (iii) generate sufficient cash flow from operations, (iv) remain in compliance with its credit facility covenants, as the same may be modified, and (v) obtain financing sources to meet the Company’s future obligations. The realization of the Company’s assets and the satisfaction of its liabilities are subject to uncertainty.  The accompanying condensed consolidated financial statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern, except in regards to the classification of outstanding indebtedness as described below.

 

In addition, for purposes of preparing financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the Company is required to disclose if it is in compliance with covenants under all of its eight credit facilities on a quarterly basis.  At March 31, 2016, the Company was not in compliance with the collateral maintenance covenants under the 2014 Term Loan Facilities and the $148 Million Credit Facility.  Such noncompliance does not currently constitute an event of default under any of our credit agreements and is subject to cure or waiver within the applicable grace period.  The Company has entered into short-term waivers with its lenders for grace periods following non-compliance until May 31, 2016 under the $100 Million Term Loan Facility, $253 Million Term Loan Facility, the 2015 Revolving Credit Facility and the $148 Million Credit Facility.  See Note 8 — Debt for the defined terms we use for each facility, a description of each facility and the detailed information surrounding the specific shortfall and applicable cure.  Additionally, each of the Company’s credit facilities contain cross default provisions that could be triggered by the Company’s failure to satisfy or waive its collateral maintenance covenants, if such failure is not cured or waived within the applicable grace period.  Given the foregoing noncompliance, the existence of the cross default provisions, and the absence of any current solution which would cure the noncompliance for at least the next 12 months, the Company has determined that it should classify its outstanding indebtedness as a current liability as of March 31, 2016 and December 31, 2015.

 

Merger Agreement with Baltic Trading

 

On April 7, 2015, the Company entered into a definitive merger agreement with Baltic Trading Limited (“Baltic Trading”) under which the Company acquired Baltic Trading in a stock-for-stock transaction (the “Merger”).  Under the terms of the agreement, Baltic Trading became an indirect wholly-owned subsidiary of the Company, and Baltic Trading shareholders (other than the Company and its subsidiaries) received 0.216 shares of the Company’s common stock for each share of Baltic Trading’s common stock they owned at closing, with fractional shares to be settled in cash.  Upon consummation of the transaction on July 17, 2015, the Company’s shareholders owned approximately 84.5% of the combined company, and Baltic Trading’s shareholders (other than the Company and its subsidiaries) owned approximately 15.5% of the combined company.  Shares of Baltic Trading’s Class B stock (all of which are owned by the Company) were canceled in the Merger.  The Company’s common stock began trading on the New York Stock Exchange after consummation of the transaction on July 20, 2015.  The Boards of Directors of both the Company and Baltic Trading established independent special committees to review the transaction and negotiate the terms on behalf of their respective companies.  Both independent special committees unanimously approved the transaction.  The Boards of Directors of both companies approved the Merger by a unanimous vote of directors present and voting, with Peter C. Georgiopoulos, Chairman of the Board of each company, recused for the vote. The Merger was approved on July 17, 2015 at the 2015 Annual Meeting of Shareholders (the “Annual Meeting”).

 

Prior to the completion of the Merger, the Company prepared its condensed consolidated financial statements in accordance with U.S. GAAP and consolidated the operations of Baltic Trading. The Baltic Trading common shares that the Company acquired in the Merger were previously recognized as a noncontrolling interest in the consolidated financial statements of the Company. Under U.S. GAAP, changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are considered equity transactions (i.e. transactions with owners in their capacity as owners) with any difference between the amount by which the noncontrolling interest is adjusted and the fair value of the consideration paid attributed to the equity of the parent. Accordingly, any difference between the fair value of the Company’s common shares issued in exchange for Baltic Trading common shares pursuant to the Merger was reflected as an adjustment to the equity in the Company. No gain or loss has been recognized in the Company’s Condensed Consolidated Statement of Comprehensive Loss upon completion of the transaction.

 

Acquisition of Baltic Lion and Baltic Tiger

 

Additionally, on April 7, 2015, the Company entered into an agreement under which the Company acquired all of the shares of two single-purpose vessel owning entities that were wholly owned by Baltic Trading, each of which owned one Capesize drybulk vessel, specifically the Baltic Lion and Baltic Tiger, for an aggregate purchase price of $68,500, subject to reduction for $40,563 of outstanding first-mortgage debt of such single-purpose entities that was guaranteed by the Company.  For further details, refer to the “Impairment of vessel assets” Section in Note 2 — Summary of Significant Accounting Policies.  These transactions, which closed on April 8, 2015, will be accounted for pursuant to accounting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), for transactions amongst entities under common control.  Accordingly, the difference between the cash paid to Baltic Trading and the Company’s carrying value of the Baltic Lion and Baltic Tiger as of the closing date of $590 was reflected as an adjustment to Additional paid-in capital in the Condensed Consolidated Statement of Equity when the sale was completed on April 7, 2015.  The independent special committees of both companies’ Boards of Directors reviewed and approved these transactions.

 

Other General Information

 

Below is the list of the Company’s wholly owned ship-owning subsidiaries as of March 31, 2016:

 

 

 

 

The Company provides technical services for drybulk vessels purchased by Maritime Equity Partners (“MEP”). Peter C. Georgiopoulos, Chairman of the Board of Directors of GS&T, is a director of and has a minority interest in MEP.  These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services.  The services were initially provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs and were provided for an initial term of one year.  MEP has the right to cancel provision of services on 60 days’ notice with payment of a one-year termination fee upon a change in control of the Company.  The Company may terminate provision of the services at any time on 60 days’ notice.  On September 30, 2015, under the oversight of an independent committee of our Board of Directors, Genco Management (USA) Limited and MEP entered into certain agreements under which MEP paid $2,178 of the amount of service fees in arrears (of which $261 was paid in 2016 by the new owners of five of the MEP vessels sold in January 2016 as described below) and the daily service fee was reduced from $750 to $650 per day effective on October 1, 2015. During January 2016, five of MEP’s vessels were sold to third-parties and the agency agreement was deemed terminated upon the sale of these vessels.  Based upon the September 30, 2015 agreement, termination fees were due in the amount of $296 which was assumed by the new owners of the five MEP vessels that were sold and has been paid in full during February 2016.  Refer to Note 7 — Related Party Transactions for amounts due to or from MEP as of March 31, 2016 and December 31, 2015.

 

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP which includes the accounts of GS&T and its direct and indirect wholly-owned subsidiaries, including Baltic Trading.  All intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015 (the “2015 10-K”).  The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the operating results to be expected for the year ending December 31, 2016.

 

Segment reporting

 

The Company reports financial information and evaluates its operations by charter 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 operations 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, after the effective date of the Merger on July 17, 2015, which is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. Prior to the Merger, the Company had two reportable operating segments, GS&T and Baltic Trading.

 

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 which 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 three months ended March 31, 2016 and 2015 was $19,134 and $18,967, 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 ship noted in lwt.

 

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. As of March 31, 2016 and December 31, 2015, the Company had an accrual of $307 and $498, respectively, related to these estimated customer claims.

 

Voyage expense recognition

 

In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer. 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 or market adjustments to re-value the bunker fuel on a quarterly basis.  These differences in bunkers, including lower of cost or market adjustments, resulted in a net loss of $2,297 and $2,292 during the three months ended March 31, 2016 and 2015, respectively.  Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

 

Impairment of vessel assets

 

During the three months ended March 31, 2016 and 2015, the Company recorded $1,685 and $35,396, respectively, related to the impairment of vessel assets in accordance with ASC 360 — “Property, Plant and Equipment” (“ASC 360”).  At March 31, 2016, the Company determined that the scrapping of the Genco Marine was more likely than not based on discussions with the Company’s Board of Directors.  Additionally, at March 31, 2015, the Company determined that the sale of the Baltic Lion and Baltic Tiger was more likely than not based on Baltic Trading’s expressed consideration to divest of those vessels.  Therefore, at both March 31, 2016 and March 31, 2015, the time utilized to determine the recoverability of the carrying value of the vessel asset was significantly reduced.  After determining that the sum of the estimated undiscounted future cash flows attributable to the Genco Marine did not exceed the carrying value of the vessel at March 31, 2016, the Company reduced the carrying value of the Genco Marine to its net realizable value, which was based on the expected proceeds from scrapping the vessel.  This resulted in an impairment loss of $1,685 during the three months ended March 31, 2016.  On April 5, 2016, the Board of Directors unanimously approved the consent to scrap the Genco Marine.  Similarly, after determining that the sum of the estimated undiscounted future cash flows attributable to the Baltic Lion and Baltic Tiger would not exceed the carrying value of the respective vessels at March 31, 2015, the Company reduced the carrying value of both vessels to their estimated fair value, which was determined primarily based on appraisals and third-party broker quotes. This resulted in an impairment loss of $35,396 during the three months ended March 31, 2015. On April 8, 2015, the Baltic Lion and Baltic Tiger entities were sold to GS&T.   Refer to Note 1 — General Information for details pertaining to the sale of these entities.

 

Noncontrolling interest

 

Net loss attributable to noncontrolling interest during the three months ended March 31, 2015 of $40,673 reflects the noncontrolling interest’s share of the net loss of the Company’s subsidiary, Baltic Trading, prior to the Merger on July 17, 2015, which owned and employed drybulk vessels in the spot market, in vessel pools or on spot market-related time charters.  The spot market represents immediate chartering of a vessel, usually for single voyages.  Refer to Note 1— General Information for details pertaining to the Merger.

 

Investments

 

The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”) and in Korea Line Corporation (“KLC”). Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping. KLC is a marine transportation service company which operates a fleet of carriers which includes carriers for iron ore, liquefied natural gas and tankers for oil and petroleum products. The investments in Jinhui and KLC have been designated as Available For Sale (“AFS”) and are reported at fair value, with unrealized gains and losses recorded in equity as a component of accumulated other comprehensive income (loss) (“AOCI”). The Company classifies the investments as current or noncurrent assets based on the Company’s intent to hold the investments at each reporting date.

 

Investments are reviewed quarterly to identify possible other-than-temporary impairment in accordance with ASC Subtopic 320-10, “Investments — Debt and Equity Securities” (“ASC 320-10”). When evaluating its investments, the Company reviews factors such as the length of time and extent to which fair value has been below the cost basis, the financial condition of the issuer, the underlying net asset value of the issuer’s assets and liabilities, and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in market value. Should the decline in the value of any investment be deemed to be other-than-temporary, the investment basis would be written down to fair market value, and the write-down would be recorded to earnings as a loss. Refer to Note 5 — Investments.

 

Income taxes

 

Pursuant to certain agreements, GS&T technically and commercially managed vessels for Baltic Trading until the Merger, as well as provides technical management of vessels for MEP in exchange for specified fees for these services provided.  These services are performed by Genco Management (USA) Limited (“Genco (USA)”), which has elected to be taxed as a corporation for United States federal income tax purposes.  As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services.  Genco (USA) has entered into a cost-sharing agreement with the Company and Genco Ship Management LLC, collectively Manco, pursuant to which Genco (USA) agrees to reimburse Manco for the costs incurred by Genco (USA) for the use of Manco’s personnel and services in connection with the provision of the services for both Baltic Trading and MEP’s vessels.

 

Total revenue earned by the Company for these services during the three months ended March 31, 2016 was $811 of which $0 eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $563 associated with these activities for the three months ended March 31, 2016.  This resulted in estimated tax expense of $253 for the three months ended March 31, 2016. Total revenue earned by the Company for these services during the three months ended March 31, 2015 was $2,189 of which $1,379 eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $1,198 associated with these activities for the three months ended March 31, 2015.  This resulted in estimated tax expense of $520 for the three months ended March 31, 2015.

 

Prior to the Merger, Baltic Trading was subject to income tax on its United States source income.  However, as a result of the Merger, Baltic Trading should qualify for the Section 883 exemption of the U.S. Internal Revenue Code of 1986 (as amended) in 2016 and in future taxable years as long as GS&T qualifies for the Section 883 exemption.  As such, during the three months ended March 31, 2016, there was no United States income tax recorded for Baltic Trading.  During the three months ended March 31, 2015, Baltic Trading had United States operations that resulted in United States source income of $587 and United States income tax expense of $23.

 

Recent accounting pronouncements

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” which replaces the existing guidance in ASC 840 — Leases.  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 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.  This ASU is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years.  Lessees and lessors will be 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. The requirements of this standard include a significant increase in required disclosures. The Company is currently evaluating the impact of this adoption on its consolidated financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). This ASU will require that equity investments are measured at fair value with changes in fair value recognized in net income (loss). ASU 2016-01 will be effective for annual periods beginning after December 15, 2017, and interim periods within those years. Earlier adoption is permitted. The Company is currently evaluating the impact of this adoption on its consolidated financial statements.

 

In August 2015, the FASB issued ASU No. 2015-15 (“ASU 2015-15”), which amends presentation and disclosure requirements outlined in ASU 2015-03, “Interest-Imputation of Interest (ASC Subtopic 835-30):  Simplifying the Presentation of Debt Issuance Costs,” (“ASU 2015-03”) by clarifying guidance for debt issuance costs related to line of credit arrangements by acknowledging the statement by SEC staff that it would not object to presentation of debt issuance costs related to a line of credit arrangement as an asset, and amortizing them ratably over the term of the line of credit arrangement, regardless of whether there were any borrowings outstanding under the agreement. Issued in April 2015, ASU 2015-03 required debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts.  Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as deferred charge assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement requirements for debt issuance costs. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and early adoption is permitted. The Company had adopted ASU 2015-03 during the three months ended March 31, 2016 on a retrospective basis.  Refer to Note 8 — Debt.

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption.  On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date.  The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016.  The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

 

 

3 - CASH FLOW INFORMATION

 

For the three months ended March 31, 2016, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $75 for the Purchase of vessels, including deposits and $9 for the Purchase of other fixed assets.  Lastly, during the three months ended March 31, 2016, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Prepaid expenses and other current assets consisting of $68 associated with the Sale of AFS securities.

 

Professional fees and trustee fees in the amount of $94 were recognized by the Company in Reorganization items, net for the three months ended March 31, 2016 (refer to Note 16).  During this period, $51 of professional fees and trustee fees were paid through March 31, 2016 and $91 is included in Accounts payable and accrued expenses as of March 31, 2016.

 

For the three months ended March 31, 2015, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $402 for the Purchase of vessels, including deposits and $98 for the Purchase of other fixed assets.  Additionally, for the three months ended March 31, 2015, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $247 associated with the Payment of deferred financing fees. Lastly, for the three months ended March 31, 2015, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in Accounts payable and accrued expenses consisting of $414 associated with the Cash settlement of non-accredited Note holders.  During the three months ended March 31, 2015, the Company increased the estimated amount of non-accredited holders of the Convertible Senior Notes, which was discharged on July 9, 2014 when the Company emerged from bankruptcy (the “Effective Date”), that are expected to be settled in cash versus settled with common shares.

 

Professional fees and trustee fees in the amount of $520 were recognized by the Company in Reorganization items, net for the three months ended March 31, 2015 (refer to Note 16).  During this period, $709 of professional fees and trustee fees were paid through March 31, 2015 and $124 is included in Accounts payable and accrued expenses as of March 31, 2015.

 

During the three months ended March 31, 2015, the Company made a reclassification of $9,694 from Deposits on vessels to Vessels, net of accumulated depreciation, due to the completion of the purchase of Baltic Wasp. No such reclassifications were made during the three months ended March 31, 2016.

 

During the three months ended March 31, 2016 and 2015, cash paid for interest, net of amounts capitalized, was $6,712 and $3,203, respectively.

 

During the three months ended March 31, 2016 and 2015, cash paid for estimated income taxes was $222 and $454, respectively.

 

On February 17, 2016, the Company granted 408,163 and 204,081 shares of nonvested stock under the 2015 Equity Incentive Plan to Peter C. Georgiopoulos, Chairman of the Board of Directors, and John Wobensmith, President, respectively.  The grant date fair value of such nonvested stock was $318.  Refer to Note 18 — Stock-Based Compensation.

 

 

4 - VESSEL ACQUISITIONS

 

On November 13, 2013, Baltic Trading entered into agreements to purchase up to four 64,000 dwt Ultramax newbuilding drybulk vessels from Yangfan Group Co., Ltd. for a purchase price of $28,000 per vessel, or up to $112,000 in the aggregate.  Baltic Trading agreed to purchase two such vessels, which have been renamed the Baltic Hornet and Baltic Wasp, and obtained an option to purchase up to two additional such vessels for the same purchase price, which Baltic Trading exercised on January 8, 2014. These vessels were renamed the Baltic Mantis and the Baltic Scorpion.  The first of these vessels, the Baltic Hornet, was delivered to Baltic Trading on October 29, 2014.  The Baltic Wasp was delivered to Baltic Trading on January 2, 2015.  The Baltic Scorpion and the Baltic Mantis were delivered to the Company on August 6, 2015 and October 9, 2015, respectively. As of March 31, 2016 and December 31, 2015, deposits on vessels were $0.  The Company has utilized a combination of cash on hand, cash flow from operations as well as debt, including the $148 Million Credit Facility and the 20014 Term Loan Facilities as described in Note 8 — Debt, to fully finance the acquisition of these Ultramax newbuilding drybulk vessels.  On December 30, 2014, Baltic Trading paid $19,645 for the final payment due for the Baltic Wasp which was classified as noncurrent Restricted Cash in the Condensed Consolidated Balance Sheets as of December 31, 2014 as the payment was held in an escrow account and was released to the seller when the vessel was delivered to Baltic Trading on January 2, 2015.

 

Refer to Note 1 — General Information for a listing of the delivery dates for the vessels in the Company’s fleet.

 

Capitalized interest expense associated with the newbuilding contracts entered into by Baltic Trading for the three months ended March 31, 2016 and 2015 was $0 and $124, respectively.

 

 

5 - INVESTMENTS

 

The Company holds an investment in the capital stock of Jinhui and the stock of KLC.  Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.  KLC is a marine transportation service company which operates a fleet of carriers which includes carriers for iron ore, liquefied natural gas and tankers for oil and petroleum products.  These investments are designated as AFS and are reported at fair value, with unrealized gains and losses recorded in equity as a component of AOCI.  At March 31, 2016 and December 31, 2015, the Company held 14,614,283 and 15,706,825 shares of Jinhui capital stock, respectively, which is recorded at its fair value of $12,284 and $12,273, respectively, based on the last closing price during each respective quarter on March 31, 2016 and December 30, 2015, respectively.  At March 31, 2016 and December 31, 2015, the Company held 3,355 shares of KLC stock which is recorded at its fair value of $50 and $54, respectively, based on the last closing price during each respective quarter on March 31, 2016 and December 30, 2015.

 

The Company reviews the investment in Jinhui for indicators of other-than-temporary impairment in accordance with ASC 320-10. Based on the Company’s review, it deemed the investment in Jinhui to be other-than-temporarily impaired as of September 30, 2015 and December 31, 2015 due to the duration and severity of the decline in its market value versus its cost basis and the absence of the intent and ability to recover the initial carrying value of the investment. As a result, the Company recorded an impairment charge in the Condensed Consolidated Statement of Operations of $37,877 during the year ended December 31, 2015.  The Company will continue to review its investments in Jinhui and KLC for impairment on a quarterly basis. There were no impairment charges during the three months ended March 31, 2016 or 2015. The Company’s investment in Jinhui is a Level 1 item under the fair value hierarchy, refer to Note 10 — Fair Value of Financial Instruments.

 

The unrealized gain (losses) on the Jinhui capital stock and KLC stock are a component of AOCI since these investments are designated as AFS securities.  As part of fresh-start reporting, the Company revised its cost basis for its investments in Jinhui and KLC based on their fair values on the Effective Date.  As a result of the other-than-temporary impairment of the investment in Jinhui, the cost basis for the investment in Jinhui is based on its fair value as of December 31, 2015.

 

Refer to Note 9 — Accumulated Other Comprehensive Income (Loss) for a breakdown of the components of AOCI, including the effects of any sales of Jinhui shares and other-than-temporary impairment of the investment in Jinhui.

 

 

6 — NET LOSS PER COMMON SHARE

 

The computation of basic net loss per share is based on the weighted-average number of common shares outstanding during the reporting period. The computation of diluted net loss per share assumes the vesting of nonvested stock awards (refer to Note 18 — 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.  Of the 1,352,644 nonvested shares outstanding at March 31, 2016 (refer to Note 18 — Stock-Based Compensation), all are anti-dilutive. Of the 5,704,974 of MIP Warrants and 3,936,761 of equity warrants outstanding at March 31, 2016, all are anti-dilutive. The Company’s diluted net loss per share will also reflect the assumed conversion of the equity warrants issued on the Effective Date and MIP Warrants issued by the Company (refer to Note 18 — Stock-Based Compensation) if the impact is dilutive under the treasury stock method.

 

The components of the denominator for the calculation of basic and diluted net loss per share are as follows:

 

 

 

7 - RELATED PARTY TRANSACTIONS

 

The following represent related party transactions reflected in these condensed consolidated financial statements:

 

The Company incurred travel and other office related expenditures from Gener8 Maritime, Inc. (“Gener8”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board.  During the three months ended March 31, 2016 and 2015, the Company incurred travel and other office related expenditures totaling $24 and $30, respectively, reimbursable to Gener8 or its service provider.  At March 31, 2016 and December 31, 2015, the amount due to Gener8 from the Company was $8 and $8, respectively.

 

During the three months ended March 31, 2016 and 2015, the Company incurred legal services (primarily in connection with vessel acquisitions) aggregating $0 and $8, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board.  At March 31, 2016 and December 31, 2015, the amount due to Constantine Georgiopoulos was $11 and $11, respectively.

 

The Company has entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in its fleet.  Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean.  During the three months ended March 31, 2016 and 2015, Aegean supplied lubricating oils to the Company’s vessels aggregating $443 and $343, respectively.  At March 31, 2016 and December 31, 2015, $274 and $219 remained outstanding, respectively.

 

During the three months ended March 31, 2016 and 2015, the Company invoiced MEP for technical services provided, including termination fees, and expenses paid on MEP’s behalf aggregating $812 and $818, respectively.  Peter C. Georgiopoulos, Chairman of the Board, is a director of and has a minority interest in MEP.  At March 31, 2016, $22 was due to MEP from the Company.  At December 31, 2015, $603 was due to the Company from MEP.  Total service revenue earned by the Company, including termination fees, for technical service provided to MEP for the three months ended March 31, 2016 and 2015 was $811 and $810, respectively.

 

 

8 - DEBT

 

Long-term debt consists of the following:

 

 

 

During the three months ended March 31, 2016, the Company adopted ASU 2015-03 (refer to Note 2 — Summary of Significant Accounting Policies) which requires debt issuance costs related to a recognized debt liability to be presented on the condensed consolidated balance sheets as a direct deduction from the debt liability rather than as a deferred financing cost assets.  The Company applied this guidance for all of its credit facilities with the exception of the 2015 Revolving Credit Facility and the revolving credit facility portion of the $148 Million Credit Facility, which represent revolving credit agreements which are not addressed in ASU 2015-03.  Accordingly, as of March 31, 2016, $8,883 of deferred financing costs were presented as a direct deduction within the outstanding debt balance in the Company’s Condensed Consolidated Balance Sheet. Furthermore, the Company reclassified $9,411 of deferred financing costs from Deferred Financing Costs, net to the Current Portion of Long-Term Debt as of December 31, 2015.

 

Collateral Maintenance Compliance

 

The Company is required to be in compliance with covenants under all of its eight credit facilities on a quarterly basis.  At March 31, 2016, we were not in compliance with the collateral maintenance covenants under the 2014 Term Loan Facilities and the $148 Million Credit Facility.  Such noncompliance does not currently constitute an event of default under any of our credit agreements and is subject to cure or waiver within the applicable grace period.  The Company has entered into short-term waivers with its lenders for grace periods following non-compliance until May 31, 2016 under the $100 Million Term Loan Facility, $253 Million Term Loan Facility, the 2015 Revolving Credit Facility and the $148 Million Credit Facility.  See the description of each facility below for detailed information surrounding the specific shortfall and applicable cure.  Additionally, each of the Company’s credit facilities contain cross default provisions that could be triggered by the Company’s failure to satisfy its collateral maintenance covenants if such failure is not cured or waived within the applicable grace period.  Given the foregoing noncompliance, the existence of the cross default provisions, and the absence of any current solution which would cure the noncompliance for at least the next 12 months, the Company has determined that it should classify its outstanding indebtedness as a current liability as of March 31, 2016 and December 31, 2015.

 

Amendment and Consent Agreements Related to the Merger

 

On July 14, 2015, Baltic Trading and certain of its wholly owned subsidiaries entered into agreements (the “Amendment and Consent Agreements”) to amend, provide consents under, or waive certain provisions of the $22 Million Term Loan Facility (as defined below), 2014 Term Loan Facilities (as defined below) and the $148 Million Credit Facility (as defined below) (each a “Facility” and collectively the “Facilities”).  The Amendment and Consent Agreements implemented, among other things, the following:

 

 

 

 

 

 

 

 

 

 

 

On July 17, 2015, when the Merger was completed, the Company executed a guaranty of the obligations of the borrowers under each of the Facilities.  The execution of the guarantees, together with certain other items that were previously delivered, satisfied all conditions to the effectiveness of all provisions of the Amendment and Consent Agreements.

 

$98 Million Credit Facility

 

On November 4, 2015, thirteen of the Company’s wholly-owned subsidiaries entered into a Facility Agreement, by and among such subsidiaries as borrowers (collectively, the “Borrowers”); Genco Holdings Limited, a newly formed direct subsidiary of Genco of which the Borrowers are direct subsidiaries (“Holdco”); certain funds managed or advised by Hayfin Capital Management, Breakwater Capital Ltd, or their nominee, as lenders; and Hayfin Services LLP, as agent and security agent (the “$98 Million Credit Facility”).

 

The Borrowers borrowed the maximum available amount of $98,271 under the facility on November 10, 2015.  As of March 31, 2016, there was no availability under the $98 Million Credit Facility.  As of March 31, 2016 and December 31, 2015, the total outstanding net debt balance was $96,027 and $95,903, respectively.

 

Borrowings under the facility are available for working capital purposes.  The facility has a final maturity date of September 30, 2020, and the principal borrowed under the facility will bear interest at LIBOR for an interest period of three months plus a margin of 6.125% per annum.  The facility has no fixed amortization payments for the first two years and fixed amortization payments of $2,500 per quarter thereafter.  To the extent the value of the collateral under the facility is 182% or less of the loan amount outstanding, the Borrowers are to prepay the loan from earnings received from operation of the thirteen collateral vessels after deduction of the following amounts:  costs, fees, expenses, interest, and fixed principal repayments under the facility; operating expenses relating to the thirteen vessels; and the Borrowers’ pro rata share of general and administrative expenses based on the number of vessels they own.

 

The Facility Agreement requires the Borrowers and, in certain cases, the Company and Holdco to comply with a number of covenants substantially similar to those in the other credit facilities of Genco and its subsidiaries, including financial covenants related to maximum leverage, minimum consolidated net worth, minimum liquidity, and dividends; collateral maintenance requirements; and other customary covenants.  The Company is prohibited from paying dividends under this facility until May 1, 2017. Following May 1, 2017, the amount of dividends the Company may pay is limited based on the amount of the loans outstanding under the 2015 Revolving Credit Facility (as defined below) and the $98 Million Credit Facility, as well as the ratio of the value of vessels and certain other collateral pledged under the $98 Million Credit Facility. The Facility Agreement includes usual and customary events of default and remedies for facilities of this nature.  As of March 31, 2016 and December 31, 2015, the Company had deposited $9,750 that has been reflected as restricted cash.  Restricted cash will be released only if the underlying collateral is sold or disposed of.

 

Borrowings under the facility are secured by first priority mortgage on the vessels owned by the Borrowers, namely the Genco Constantine, the Genco Augustus, the Genco London, the Genco Titus, the Genco Tiberius, the Genco Hadrian,  the Genco Knight, the Genco Beauty,  the Genco Vigour, the Genco Predator, the Genco Cavalier, the Genco Champion, and the Genco Charger, and related collateral.  Pursuant to the Facility Agreement and a separate Guarantee executed by the Company, the Company and Holdco are acting as guarantors of the obligations of the Borrowers and each other under the Facility Agreement and its related documentation.

 

As of March 31, 2016, the Company believed it was in compliance with all of the financial covenants under the $98 Million Credit Facility.  However, as of March 31, 2016, the Company believed it was probable that the Company would not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the net debt outstanding under this facility of $96,027 has been classified as current liability in the Condensed Consolidated Balance Sheet as of March 31, 2016.

 

2015 Revolving Credit Facility

 

On April 7, 2015, the Company’s wholly-owned subsidiaries, Genco Commodus Limited, Genco Maximus Limited, Genco Claudius Limited, Genco Hunter Limited and Genco Warrior Limited (collectively, the “Subsidiaries”) entered into a loan agreement by and among the Subsidiaries, as borrowers, ABN AMRO Capital USA LLC, as arranger, facility agent, security agent, and as lender, providing for a $59,500 revolving credit facility, with an uncommitted accordion feature that has since expired (the “2015 Revolving Credit Facility”).  On April 7, 2015, the Company entered into a guarantee of the obligations of the Subsidiaries under the 2015 Revolving Credit Facility, in favor of ABN AMRO Capital USA LLC.

 

Borrowings under the 2015 Revolving Credit Facility will be used for general corporate purposes including “working capital” (as defined in the 2015 Revolving Credit Facility) and to finance the purchase of drybulk vessels.  The 2015 Revolving Credit Facility has a maturity date of April 7, 2020.  Borrowings under the 2015 Revolving Credit Facility bear interest at LIBOR plus a margin based on a combination of utilization levels under the 2015 Revolving Credit Facility and a security maintenance cover ranging from 3.40% per annum to 4.25% per annum.  The commitment under the 2015 Revolving Credit Facility is subject to quarterly reductions of $1,641.  Borrowings under the 2015 Revolving Credit Facility are subject to 20 equal consecutive quarterly installment repayments commencing three months after the date of the loan agreement, or July 7, 2015.  A commitment fee of 1.5% per annum is payable on the undrawn amount of the maximum loan amount.

 

Borrowings under the 2015 Revolving Credit Facility are to be secured by liens on each of the Subsidiaries’ respective vessels; specifically, the Genco Commodus, Genco Maximus, Genco Claudius, Genco Hunter and Genco Warrior and other related assets.

 

The 2015 Revolving Credit Facility requires the Subsidiaries to comply with a number of customary covenants including financial covenants related to collateral maintenance, liquidity, leverage, debt service reserve and dividend restrictions.

 

On April 8, 2015, the Company drew down $25,000 on the 2015 Revolving Credit Facility for working capital purposes and to partially fund the purchase of the Baltic Lion and Baltic Tiger from Baltic Trading.  Additionally, on July 10, 2015 and October 14, 2015, the Company drew down $10,000 and $21,218, respectively, on the 2015 Revolving Credit Facility for working capital purposes.  As of March 31, 2016, the Company has utilized its maximum borrowing capacity.  At the March 31, 2016 and December 31, 2015, the total outstanding debt balance was $54,577 and $56,218, respectively.

 

As of March 31, 2016, the Company believed it was in compliance with all of the financial covenants under the 2015 Revolving Credit Facility.  However, as of March 31, 2016, the Company believed it was probable that the Company would not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $54,577 has been classified as current liability in the Condensed Consolidated Balance Sheets as of March 31, 2016.

 

On April 7, 2016, the Company entered into a waiver agreement with the lenders under the 2015 Revolving Credit Facility to postpone the due date of the $1,641 amortization payment due April 7, 2016 to May 31, 2016.  As a condition thereof, the amount of the debt service required under the 2015 Revolving Credit Facility will be $3,241 through May 30, 2016.

 

$100 Million Term Loan Facility

 

On August 12, 2010, the Company entered into the $100 Million Term Loan Facility. As of March 31, 2016, the Company has utilized its maximum borrowing capacity of $100,000. The Company has used the $100 Million Term Loan Facility to fund or refund the Company a portion of the purchase price of the acquisition of five vessels from companies within the Metrostar group of companies.  As of March 31, 2016, there was no availability under the $100 Million Term Loan Facility.  At March 31, 2016 and December 31, 2015, the total outstanding net debt balance was $57,058 and $58,899, respectively.

 

On the Effective Date, the Company entered into the Amended and Restated $100 Million Term Loan Facility and the Amended and Restated $253 Million Term Loan Facility.  The Amended and Restated Credit Facilities included, among other things:

 

 

 

 

 

 

The obligations under the Amended and Restated $100 Million Term Loan Facility are secured by a first priority security interest in the vessels and other collateral securing the $100 Million Term Loan Facility.  The Amended and Restated $100 Million Term Loan Facility requires quarterly repayment installments in accordance with the original terms of the $100 Million Term Loan Facility.

 

On April 30, 2015, the Company entered into agreements to amend or waive certain provisions under the $100 Million Term Loan Facility and the $253 Million Term Loan Facility (the “April 2015 Amendments”) which implemented the following, among other things:

 

 

 

 

 

Consenting lenders under the $100 Million Term Loan Facility and the $253 Million Term Loan Facility received an upfront fee of $165 and $350, respectively, related to the April 2015 Amendments.

 

In October 2015 and April 2015 the Company added two unencumbered vessels, the Genco Prosperity and Genco Sugar, respectively, as additional collateral to cover the previous shortfalls in meeting the collateral maintenance test.

 

A waiver was entered into on March 29, 2016 which required the Company to prepay the $1,923 debt amortization payment due on March 31, 2016 and which waived the collateral maintenance covenant through April 11, 2016.  On April 11, 2016, the Company entered into additional agreements with the lenders under the $100 Million Term Loan Facility which extended the waiver through May 31, 2016.

 

As of March 31, 2016, the Company believed it was in compliance with all of the financial covenants under the $100 Million Term Loan Facility with the exception of the collateral maintenance covenant, which has been waived.  However, as of March 31, 2016, the Company believed it was probable that the Company would not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the net debt outstanding under this facility of $57,058 has been classified as current liability in the Condensed Consolidated Balance Sheets as of March 31, 2016.

 

$253 Million Term Loan Facility

 

On August 20, 2010, the Company entered into the $253 Million Term Loan Facility.  As of March 31, 2016, the Company has utilized its maximum borrowing capacity of $253,000 to fund or refund to the Company a portion of the purchase price of the 13 vessels purchased from Bourbon SA during the third quarter of 2010 and first quarter of 2011.  As of March 31, 2016, there was no availability under the $253 Million Term Loan Facility.  At March 31, 2016 and December 31, 2015, the total outstanding net debt balance was $132,762 and $142,740, respectively.

 

As of March 31, 2016 and December 31, 2015, the Company has deposited $9,750 that has been reflected as Restricted cash.  Restricted cash will be released only if the underlying collateral is sold or disposed of.

 

Refer to the “$100 Million Term Loan Facility” section above for a description of the Amended and Restated $253 Million Term Loan Facility that was entered into by the Company on the Effective Date as well as a description of the April 2015 Amendments that were entered into by the Company on April 30, 2015. The obligations under the Amended and Restated $253 Million Term Loan Facility are secured by a first priority security interest in the vessels and other collateral securing the $253 Million Term Loan Facility. The Amended and Restated $253 Million Term Loan Facility requires quarterly repayment installments in accordance with the original terms of the $253 Million Term Loan Facility.

 

In order to maintain compliance with the collateral maintenance test, during July 2015, the Company added five of its unencumbered vessels, the Genco Thunder, the Genco Raptor, the Genco Challenger, the Genco Reliance and the Genco Explorer, as additional collateral under this facility.  Additionally, the Company was also in communication with the facility’s agent and prepaid $1,650 of the outstanding indebtedness on July 29, 2015, which the lenders agreed would reduce the schedules amortization payment of $5,075 that was due in October 2015.

 

A waiver was entered into on March 11, 2016 which required the Company to prepay the $5,075 debt amortization payment due on April 11, 2016 and which waived the collateral maintenance covenant through April 11, 2016.  On April 11, 2016, the Company entered into additional agreements with the lenders under the $253 Million Term Loan Facility which extended the waiver through May 31, 2016.

 

As of March 31, 2016, the Company believed it was in compliance with all of the financial covenants under the $253 Million Term Loan Facility with the exception of the collateral maintenance covenant, which has been waived.  However, as of March 31, 2016, the Company believed it was probable that the Company would not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the net debt outstanding under this facility of $132,762 has been classified as current liability in the Condensed Consolidated Balance Sheets as of March 31, 2016.

 

$44 Million Term Loan Facility

 

On December 3, 2013, Baltic Tiger Limited and Baltic Lion Limited, wholly-owned subsidiaries of Baltic Trading, entered into a secured loan agreement with DVB Bank SE for a term loan facility of up to $44,000 (the “$44 Million Term Loan Facility”). Amounts borrowed and repaid under the $44 Million Term Loan Facility may not be reborrowed.  The $44 Million Term Loan Facility has a maturity date of the sixth anniversary of the drawdown date for borrowings for the second vessel to be purchased, or December 23, 2019.  Borrowings under the $44 Million Term Loan Facility bear interest at the three-month LIBOR rate plus an applicable margin of 3.35% per annum. A commitment fee of 0.75% per annum is payable on the unused daily portion of the credit facility, which began accruing on December 3, 2013 and ended on December 23, 2013, the date which the entire $44,000 was borrowed.  Borrowings are to be repaid in 23 quarterly installments of $688 each commencing three months after the last drawdown date, or March 24, 2014, and a final payment of $28,188 due on the maturity date.

 

Borrowings under the $44 Million Term Loan Facility are to be secured by liens on the Company’s vessels to be financed or refinanced with borrowings under the facility, namely the Baltic Tiger and the Baltic Lion, and other related assets. Upon the prepayment of $18,000 plus any additional amounts necessary to maintain compliance with the collateral maintenance covenant, the Company may have the lien on the Baltic Tiger released. Under a Guarantee and Indemnity entered into concurrently with the $44 Million Term Loan Facility, the Company agreed to guarantee the obligations of its subsidiaries under the $44 Million Term Loan Facility.

 

On December 23, 2013, Baltic Tiger Limited and Baltic Lion Limited made drawdowns of $21,400 and $22,600 for the Baltic Tiger and Baltic Lion, respectively.  As of March 31, 2016, the Company has utilized its maximum borrowing capacity of $44,000 and there was no further availability.  At March 31, 2016 and December 31, 2015, the total outstanding net debt balance was $37,266 and $37,916, respectively.

 

As of March 31, 2016, the Company believes it was in compliance with all of the financial covenants under the $44 Million Term Loan Facility.  However, as of March 31, 2016, the Company believed it was probable that the Company would not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the net debt outstanding under this facility of $37,266 has been classified as a current liability in the Condensed Consolidated Balance Sheets as of March 31, 2016.

 

On April 8, 2015, the Company acquired the entities owning the Baltic Lion and Baltic Tiger and succeeded Baltic Trading as the guarantor of the outstanding debt under the Baltic Trading $44 Million Term Loan Facility.  Refer to Note 1 — General Information for further information regarding the sale of these entities to the Company.

 

2010 Credit Facility

 

On April 16, 2010, Baltic Trading entered into a $100,000 senior secured revolving credit facility with Nordea Bank Finland plc, acting through its New York branch (as amended, the “2010 Credit Facility”).  An amendment to the 2010 Credit Facility was entered into by Baltic Trading effective November 30, 2010.  Among other things, this amendment increased the commitment amount of the 2010 Credit Facility from $100,000 to $150,000.  An additional amendment to the 2010 Credit Facility was entered into by Baltic Trading effective August 29, 2013 (the “August 2013 Amendment”).  Among other things, the August 2013 Amendment implements the following modifications to the 2010 Credit Facility:

 

 

 

 

 

 

On December 31, 2014, Baltic Trading entered into the $148 Million Credit Facility, refer to “$148 Million Credit Facility” section below.  Borrowings under the $148 Million Credit Facility were used to refinance Baltic Trading’s indebtedness under the 2010 Credit Facility.  On January 7, 2015, Baltic Trading repaid the $102,250 outstanding under the 2010 Credit Facility with borrowings from the $148 Million Credit Facility.

 

$22 Million Term Loan Facility

 

On August 30, 2013, Baltic Hare Limited and Baltic Fox Limited, wholly-owned subsidiaries of Baltic Trading, entered into a secured loan agreement with DVB Bank SE for a term loan facility of up to $22,000 (the “$22 Million Term Loan Facility”).  Amounts borrowed and repaid under the $22 Million Term Loan Facility may not be reborrowed.  This facility has a maturity date of the sixth anniversary of the drawdown date for borrowings for the second vessel to be purchased, or September 4, 2019.  Borrowings under the $22 Million Term Loan Facility bear interest at the three-month LIBOR rate plus an applicable margin of 3.35% per annum. A commitment fee of 1.00% per annum is payable on the unused daily portion of the credit facility, which began accruing on August 30, 2013 and ended on September 4, 2013, the date on which the entire $22,000 was borrowed.  Borrowings are to be repaid in 23 quarterly installments of $375 each commencing three months after the last vessel delivery date, or December 4, 2013, and a final payment of $13,375 due on the maturity date.

 

Borrowings under the $22 Million Term Loan Facility are secured by liens on the Company’s vessels purchased with borrowings under the facility, namely the Baltic Fox and the Baltic Hare, and other related assets.  Under a Guarantee and Indemnity entered into concurrently with the $22 Million Term Loan Facility, the Company agreed to guarantee the obligations of its subsidiaries under the $22 Million Term Loan Facility.

 

On September 4, 2013, Baltic Hare Limited and Baltic Fox Limited made drawdowns of $10,730 and $11,270 for the Baltic Hare and the Baltic Fox, respectively.  As of March 31, 2016, the Company has utilized its maximum borrowing capacity of $22,000 and there was no further availability.  At March 31, 2016 and December 31, 2015, the total outstanding net debt balance was $17,900 and $18,249, respectively.

 

As of March 31, 2016, the Company believes it was in compliance with all of the financial covenants under the $22 Million Term Loan Facility.  However, as of March 31, 2016, the Company believed it was probable that the Company would not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the net debt outstanding under this facility of $17,900 has been classified as a current liability in the Condensed Consolidated Balance Sheets as of March 31, 2016.

 

Refer to “Amendment and Consent Agreements Related to the Merger” section above for discussion of the amendments, consents and waiver agreements entered into on July 14, 2015 by Baltic Trading related to the $22 Million Term Loan Facility.  Upon the completion of the Merger on July 17, 2015, the Company executed a guaranty of the obligations of the borrowers under the $22 Million Term Loan Facility.

 

2014 Term Loan Facilities

 

On October 8, 2014, Baltic Trading and its wholly-owned subsidiaries, Baltic Hornet Limited and Baltic Wasp Limited, each entered into a loan agreement and related documentation for a credit facility in a principal amount of up to $16,800 with ABN AMRO Capital USA LLC and its affiliates (the “2014 Term Loan Facilities”) to partially finance the newbuilding Ultramax vessel that each subsidiary acquired, namely the Baltic Hornet and Baltic Wasp, respectively.  Amounts borrowed under the 2014 Term Loan Facilities may not be reborrowed.  The 2014 Term Loan Facilities have a ten-year term, and the facility amount is to be the lowest of 60% of the delivered cost per vessel, $16,800 per vessel, and 60% of the fair market value of each vessel at delivery.  The 2014 Term Loan Facilities are insured by the China Export & Credit Insurance Corporation (Sinosure) in order to cover political and commercial risks for 95% of the outstanding principal plus interest, which was recorded in deferred financing fees.  Borrowings under the 2014 Term Loan Facilities bear interest at the three or six-month LIBOR rate plus an applicable margin of 2.50% per annum.  Borrowings are to be repaid in 20 equal consecutive semi-annual installments of 1/24 of the facility amount plus a balloon payment of 1/6 of the facility amount at final maturity.  Principal repayments commenced six months after the actual delivery date for each respective vessel.

 

Borrowings under the 2014 Term Loan Facilities are secured by liens on the vessels acquired with borrowings under these facilities, namely the Baltic Hornet and Baltic Wasp, and other related assets. The Company guarantees the obligations of the Baltic Hornet and Baltic Wasp under the 2014 Term Loan Facilities.

 

On October 24, 2014, Baltic Trading drew down $16,800 for the purchase of the Baltic Hornet, which was delivered on October 29, 2014.  Additionally, on December 30, 2014, Baltic Trading drew down $16,350 for the purchase of the Baltic Wasp, which was delivered on January 2, 2015.  As of March 31, 2016, the Company had utilized its maximum borrowing capacity and there was no further availability.  At March 31, 2016 and December 31, 2015, the total outstanding net debt balance was $28,720 and $29,354, respectively.

 

As of March 31, 2016, the Company was not in compliance with the 135% collateral maintenance test, which increased to 135% from 130% on March 31, 2016 pursuant to the Amendment and Consent Agreements as disclosed in the “Amendment and Consent Agreements Related to the Merger” section above.  The actual percentage measured by the Company was 132.5% at March 31, 2016.  Upon payment of the $700 required debt amortization payment on April 29, 2016, the Company was in compliance with the collateral maintenance test.  After the payment, the collateral maintenance percentage increased to 135.6%.  Although the Company has since met the collateral maintenance test as a result of the debt amortization payment, as of March 31, 2016, the Company believed it was probable that it would not be incompliance with certain covenants at measurement dates within the next twelve months.  As such, the net debt outstanding under this facility of $28,720 has been classified as a current liability in the Condensed Consolidated Balance Sheets as of March 31, 2016.

 

Refer to “Amendment and Consent Agreements Related to the Merger” section above for discussion of the amendments, consents and waiver agreements entered into on July 14, 2015 by Baltic Trading related to the 2014 Term Loan Facilities.  Upon the completion of the Merger on July 17, 2015, the Company executed a guaranty of the obligations of the borrowers under the 2014 Term Loan Facilities.

 

$148 Million Credit Facility

 

On December 31, 2014, Baltic Trading entered into a $148,000 senior secured credit facility with Nordea Bank Finland plc, New York Branch (“Nordea”), as Administrative and Security Agent, Nordea and Skandinaviska Enskilda Banken AB (Publ) (“SEB”), as Mandated Lead Arrangers, Nordea, as Bookrunner, and the lenders (including Nordea and SEB) party thereto (the “$148 Million Credit Facility”).  The $148 Million Credit Facility is comprised of an $115,000 revolving credit facility and $33,000 term loan facility.  Borrowings under the revolving credit facility were used to refinance Baltic Trading’s outstanding indebtedness under the 2010 Credit Facility.  Amounts borrowed under the revolving credit facility of the $148 Million Credit Facility may be re-borrowed.  Borrowings under the term loan facility of the $148 Million Credit Facility may be incurred pursuant to two single term loans in an amount of $16,500 each that were used to finance, in part, the purchase of two newbuilding Ultramax vessels that the Company had agreed to acquire, namely the Baltic Scorpion and Baltic Mantis.  Amounts borrowed under the term loan facility of the $148 Million Credit Facility may not be re-borrowed.

 

The $148 Million Credit Facility has a maturity date of December 31, 2019.  Borrowings under this facility bear interest at LIBOR plus an applicable margin of 3.00% per annum.  A commitment fee of 1.2% per annum is payable on the unused daily portion of the $148 Million Credit Facility, which began accruing on December 31, 2014.  The commitment under the revolving credit facility of the $148 Million Credit Facility is subject to equal consecutive quarterly reductions of $2,447 each beginning June 30, 2015 through September 30, 2019.  Borrowings under the term loan facility of the $148 Million Credit Facility are subject to equal consecutive quarterly installment repayments commencing three months after delivery of the relevant newbuilding Ultramax vessel, each in the amount of 1/60 of the aggregate outstanding term loan.  All remaining amounts outstanding under the $148 Million Credit Facility must be repaid in full on the maturity date, December 31, 2019.

 

Borrowings under the $148 Million Credit Facility are secured by liens on nine of Company’s existing vessels that have served as collateral under the 2010 Credit Facility, the two newbuilding Ultramax vessels noted above, and other related assets, including existing or future time charter contracts in excess of 36 months related to the foregoing vessels.

 

The $148 Million Credit Facility requires the Company to comply with a number of customary covenants substantially similar to those in the 2010 Credit Facility, including financial covenants related to liquidity, leverage, consolidated net worth and collateral maintenance.

 

As of March 31, 2016, there was no availability under the $148 Million Credit Facility.  As of March 31, 2016 and December 31, 2015, the outstanding debt under the revolving credit facility of the $148 Million Credit Facility was $105,211 and $107,658, respectively.  Additionally, as of March 31, 2016 and December 31, 2014, the outstanding net debt under the term loan facility of the $148 Million Credit Facility was $31,576 and $32,086, respectively.

 

On January 7, 2015, Baltic Trading drew down $104,500 from the revolving credit facility of the $148 Million Credit Facility.  Using these borrowings, Baltic Trading repaid the $102,250 outstanding under the 2010 Facility. Additionally, on February 27, 2015, Baltic Trading drew down $10,500 from the revolving credit facility of the $148 Million Credit Facility.

 

On August 3, 2015 and October 7, 2015, the Company drew down $16,500 on the term loan facility on each date for the purchase of the Baltic Scorpion and Baltic Mantis, respectively.  Refer to Note 4 — Vessel Acquisitions.

 

As of March 31, 2016, the Company was not in compliance with the 140% collateral maintenance test. The actual percentage measured by the Company was 107.3% at March 31, 2016.  Under the terms of the credit facility, the Company would need to remedy such shortfall within 60 days.  A waiver was entered into on April 12, 2016 which extended the cure period to May 31, 2016. Although the Company has since obtained a waiver for the cure period for the collateral maintenance shortfall, as of March 31, 2016, the Company believed it was probable that it would not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $136,787 has been classified as a current liability in the Condensed Consolidated Balance Sheets as of March 31, 2016.

 

Refer to “Amendment and Consent Agreements Related to the Merger” section above for discussion of the amendments, consents and waiver agreements entered into on July 14, 2015 by Baltic Trading related to the $148 Million Credit Facility.  Upon the completion of the Merger on July 17, 2015, the Company executed a guaranty of the obligations of the borrowers under the $148 Million Credit Facility.

 

As per the Amendment and Consent Agreements, the collateral maintenance increased to 140% from 130% upon the funding of the initial term loan draw down on the facility.  During August 2015, the Company added two of its unencumbered Handysize vessels, the Genco Pioneer and Genco Progress, as additional collateral to cover any potential shortfall of the collateral maintenance test.  Additionally, during December 2015, the Company added two of its unencumbered Panamax and Handymax vessels, the Genco Leader and Genco Wisdom, respectively, as additional collateral to cover any potential shortfall of the collateral maintenance test.

 

Interest rates

 

The following tables sets forth the effective interest rate associated with the interest expense for the Company’s debt facilities noted above, including the cost associated with unused commitment fees.  The following table also includes the range of interest rates on the debt, excluding the impact of unused commitment fees, if applicable:

 

 

 

9 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The components of AOCI included in the accompanying condensed consolidated balance sheets consist of net unrealized gains (losses) from investments in Jinhui stock and KLC stock as of March 31, 2016 and December 31, 2015.

 

Changes in AOCI by Component

For the Three-Month Period Ended March 31, 2016

 

 

Changes in AOCI by Component

For the Three-Month Period Ended March 31, 2015

 

 

 

10 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The fair values and carrying values of the Company’s financial instruments at March 31, 2016 and December 31, 2015 which are required to be disclosed at fair value, but not recorded at fair value, are noted below.

 

 

The fair value of the floating rate debt under the $100 Million Term Loan Facility and the $253 Million Term Loan Facility are based on rates obtained upon our emergence from Chapter 11 on the Effective Date and there were no changes to rates pursuant to the April 2015 Amendments.  The fair value of the floating rate debt under the $44 Million Term Loan Facility is based on rates that Baltic Trading initially obtained on the effective date of this facility, and there were no changes pursuant to the Guarantee and Indemnity entered into by the Company during April 2015.  The fair value of the floating rate debt under the 2015 Revolving Credit Facility and the $98 Million Credit Facility are based on rates the Company recently obtained upon the effective date of these facilities on April 7, 2015 and November 4, 2015, respectively.  The fair value of the $148 Million Credit Facility, $22 Million Term Loan Facility and the 2014 Term Loan Facilities is based on rates that Baltic Trading initially obtained upon the effective dates of these facilities which did not change pursuant to the Amendment and Consent Agreements effective on July 14, 2015.  Refer to Note 8 — Debt for further information.  The carrying value approximates the fair market value for these floating rate loans.  The carrying amounts of the Company’s other financial instruments at March 31, 2016 and December 31, 2015 (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 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 assumption (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:

 

 

 

 

As of March 31, 2016 and December 31, 2015, the fair values of the Company’s financial assets and liabilities are categorized as follows:

 

 

 

The Company holds an investment in the capital stock of Jinhui, which is classified as a long-term investment.  The stock of Jinhui is publicly traded on the Oslo Stock Exchange and is considered a Level 1 item.  The Company also holds an investment in the stock of KLC, which is classified as a long-term investment.  The stock of KLC is publicly traded on the Korea Stock Exchange and is considered a Level 1 item.  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 transaction amongst third parties. The Company did not have any Level 3 financial assets or liabilities as of March 31, 2016 and December 31, 2015.