Dynagas LNG Partners cuts dividend to save cash

Dynagas LNG Partners, a limited partnership formed by the Greek shipowner Dynagas, said it has approved a plan to reduce its quarterly distribution in order to generate cash flow in the long term.

The LNG tanker owner will reduce the distribution to $0.25 per common unit from $0.4225 per common unit, or from $1.69 per common unit to $1.00 per common unit on an annualized basis.

“The reduction will take effect on May 3, upon the payment of the common unit distribution with respect to the first quarter of 2018 to common unitholders of record as of the close of business on April 26,” the shipping company said in a statement on Wednesday.

Chief Executive Tony Lauritzen said in the statement that this decision was necessary to align the company’s distribution level with its capacity to generate cash flow in the long term.

“Despite the material increase in the partnership’s estimated revenue contract backlog over the last two years, we have experienced a decrease in operating cash flow and a weakened distribution coverage ratio following our shift to longer term charters for the employment of our LNG carriers, which provide us with greater cash flow visibility albeit at lower charter rates that provide attractive returns of capital,” he said.

During the last two years, the company has secured contracts for LNG carriers Ob River, Yenisei River, Lena River, Clean Energy and Arctic Aurora.

“Today our average remaining contract term is 10 years and our estimated contracted revenue backlog is approximately $1.5 billion, which highlights our ability to secure long-term contracts in periods when the LNG shipping market has been highly competitive,” Lauritzen said.

The new distribution level is expected to provide the company with about $24.5 million in annual cash savings in order to enhance Dynagas LNG’s liquidity, strengthen the balance sheet and improve the distribution coverage ratio, according to Lauritzen.

“Strengthening the partnership’s financial position will also enable us to focus on growth projects, including the acquisition of LNG carriers from our sponsor or from third parties which, if consummated, would be expected to improve our distribution coverage ratio to above 1x,” he added.