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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 000-51442

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GENCO SHIPPING & TRADING LIMITED

(Exact name of registrant as specified in its charter)

Republic of the Marshall Islands		98-043-9758
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

299 Park Avenue, 12th Floor, New York, New York 10171

(Address of principal executive offices) (Zip Code)

(646) 443-8550

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 8, 2013: Common stock, $0.01 per share — 44,449,407 shares.

 

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Genco Shipping & Trading Limited

			Page
Website Information			ii
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	a)	Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	1
	b)	Condensed Consolidated Statements of Operations for the Three and Nine Months endedSeptember 30, 2013 and 2012	2
	c)	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months ended September 30, 2013 and 2012	3
	d)	Condensed Consolidated Statements of Equity for the Nine Months ended September 30, 2013 and 2012	4
	e)	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012	6
	f)	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		50
Item 4.	Controls and Procedures		52
PART II —OTHER INFORMATION
Item 1.	Legal Proceedings		52
Item 1A.	Risk Factors		52
Item 6.	Exhibits		53

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Website Information

We intend to use our website, www.GencoShipping.com, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in our website’s Investor section. Accordingly, investors should monitor the Investor portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. To subscribe to our e-mail alert service, please submit your e-mail address at the Investor Relations Home page of the Investor section of our website.  The information contained in, or that may be accessed through, our website is not incorporated by reference into or a part of this document or any other report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Genco Shipping & Trading Limited

Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

(U.S. Dollars in thousands, except for share and per share data)

(Unaudited)

		September 30, 2013				December 31, 2012
Assets
Current assets:
Cash and cash equivalents		$	109,492			$	72,600
Restricted cash			9,850				—
Due from charterers, net of a reserve of $361 and $488, respectively			14,780				11,714
Prepaid expenses and other current assets			18,390				18,146
Total current assets			152,512				102,460
Noncurrent assets:
Vessels, net of accumulated depreciation of $696,621 and $597,214, respectively			2,604,147				2,662,403
Deferred drydock, net of accumulated amortization of $11,119 and $8,086, respectively			9,707				12,037
Other assets, net of accumulated amortization of $20,025 and $13,162, respectively			23,517				29,561
Fixed assets, net of accumulated depreciation and amortization of $3,998 and $3,311, respectively			5,198				5,258
Other noncurrent assets			514				514
Restricted cash			300				10,150
Investments			41,829				20,988
Total noncurrent assets			2,685,212				2,740,911
Total assets		$	2,837,724			$	2,843,371
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses		$	24,495			$	23,667
Current portion of long-term debt			1,313,689				—
Current interest payable			13,199				—
Convertible senior note payable			114,571				—
Deferred revenue			1,422				1,324
Current portion of lease obligations			284				682
Fair value of derivative instruments			9,292				7
Total current liabilities			1,476,952				25,680
Noncurrent liabilities:
Long-term lease obligations			3,015				2,465
Time charters acquired			135				418
Fair value of derivative instruments			—				16,045
Convertible senior note payable			—				110,918
Long-term interest payable			—				13,199
Long-term debt			122,750				1,413,439
Total noncurrent liabilities			125,900				1,556,484
Total liabilities			1,602,852				1,582,164
Commitments and contingencies
Equity:
Genco Shipping & Trading Limited shareholders’ equity:
Common stock, par value $0.01; 100,000,000 shares authorized; issued and outstanding 44,449,407 and 44,270,273 shares at September 30, 2013 and December 31, 2012, respectively			445				443
Additional paid-in capital			849,021				863,303
Accumulated other comprehensive income (loss)			15,763				(11,841	)
Retained earnings			85,821				214,391
Total Genco Shipping & Trading Limited shareholders’ equity			951,050				1,066,296
Noncontrolling interest			283,822				194,911
Total equity			1,234,872				1,261,207
Total liabilities and equity		$	2,837,724			$	2,843,371

See accompanying notes to condensed consolidated financial statements.

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012

(U.S. Dollars in Thousands, Except for Earnings Per Share and Share Data)

(Unaudited)

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Revenues:
Voyage revenues		$	58,605			$	53,603			$	143,222			$	174,740
Service revenues			828				828				2,457				2,466
Total revenues			59,433				54,431				145,679				177,206
Operating expenses:
Voyage expenses			2,212				2,693				6,352				5,099
Vessel operating expenses			27,515				28,272				81,400				85,622
General, administrative, and management fees			7,871				8,622				24,543				25,680
Depreciation and amortization			35,222				35,038				104,322				103,954
Total operating expenses			72,820				74,625				216,617				220,355
Operating loss			(13,387	)			(20,194	)			(70,938	)			(43,149	)
Other (expense) income:
Other expense			(45	)			(43	)			(58	)			(40	)
Interest income			14				49				49				352
Interest expense			(23,079	)			(21,546	)			(65,922	)			(65,160	)
Other expense			(23,110	)			(21,540	)			(65,931	)			(64,848	)
Loss before income taxes			(36,497	)			(41,734	)			(136,869	)			(107,997	)
Income tax expense			(479	)			(303	)			(997	)			(918	)
Net loss			(36,976	)			(42,037	)			(137,866	)			(108,915	)
Less: Net loss attributable to noncontrolling interest			(1,942	)			(3,588	)			(9,300	)			(9,626	)
Net loss attributable to Genco Shipping & Trading Limited		$	(35,034	)		$	(38,449	)		$	(128,566	)		$	(99,289	)
Net loss per share-basic		$	(0.81	)		$	(0.90	)		$	(2.98	)		$	(2.40	)
Net loss per share-diluted		$	(0.81	)		$	(0.90	)		$	(2.98	)		$	(2.40	)
Weighted average common shares outstanding-basic			43,231,510				42,885,810				43,196,895				41,290,719
Weighted average common shares outstanding-diluted			43,231,510				42,885,810				43,196,895				41,290,719
Dividends declared per share		$	—			$	—			$	—			$	—

See accompanying notes to condensed consolidated financial statements.

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Genco Shipping & Trading Limited

Condensed Consolidated Statements of Comprehensive Loss

For the Three and Nine Months Ended September 30, 2013 and 2012

(U.S. Dollars in Thousands)

(Unaudited)

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Net loss		$	(36,976	)		$	(42,037	)		$	(137,866	)		$	(108,915	)
Change in unrealized gain on investments			14,514				(3,561	)			20,841				(643	)
Unrealized gain on cash flow hedges, net			2,076				1,525				6,763				6,394
Other comprehensive income (loss)			16,590				(2,036	)			27,604				5,751
Comprehensive loss			(20,386	)			(44,073	)			(110,262	)			(103,164	)
Less: Comprehensive loss attributable to noncontrolling interest			(1,942	)			(3,588	)			(9,300	)			(9,626	)
Comprehensive loss attributable to Genco Shipping & Trading Limited		$	(18,444	)		$	(40,485	)		$	(100,962	)		$	(93,538	)

See accompanying notes to condensed consolidated financial statements.

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Genco Shipping & Trading Limited

Condensed Consolidated Statements of Equity

For the Nine Months Ended September 30, 2013 and 2012

(U.S. Dollars in Thousands)

(Unaudited)

		Common Stock				Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Genco Shipping & Trading Limited Shareholders’ Equity				Noncontrolling Interest				Total Equity
Balance — January 1, 2013		$	443			$	863,303			$	(11,841	)		$	214,391			$	1,066,296			$	194,911			$	1,261,207
Net loss															(128,566	)			(128,566	)			(9,300	)			(137,866	)
Change in unrealized gain on investments											20,841								20,841				—				20,841
Unrealized gain on cash flow hedges, net											6,763								6,763				—				6,763
Issuance of 200,634 shares of nonvested stock, less forfeitures of 21,500 shares			2				(2	)											—				—				—
Nonvested stock amortization							2,314												2,314				1,156				3,470
Issuance of common stock of Baltic Trading Limited							(16,568	)											(16,568	)			97,609				81,041
Cash dividends paid by Baltic Trading Limited															(4	)			(4	)			(580	)			(584	)
Vesting of restricted shares issued by Baltic Trading Limited							(26	)											(26	)			26				—
Balance — September 30, 2013		$	445			$	849,021			$	15,763			$	85,821			$	951,050			$	283,822			$	1,234,872

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		Common Stock				Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Genco Shipping & Trading Limited Shareholders’ Equity				Noncontrolling Interest				Total Equity
Balance — January 1, 2012		$	363			$	809,443			$	(17,549	)		$	359,349			$	1,151,606			$	210,012			$	1,361,618
Net loss															(99,289	)			(99,289	)			(9,626	)			(108,915	)
Change in unrealized gain on investments											(643	)							(643	)			—				(643	)
Unrealized gain on cash flow hedges, net											6,394								6,394				—				6,394
Issuance of 7,500,000 shares of common stock			75				49,799												49,874				—				49,874
Issuance of 15,000 shares of nonvested stock, less forfeitures of 1,500 shares			—				—												—				—				—
Nonvested stock amortization							3,214												3,214				1,377				4,591
Cash dividends paid by Baltic Trading Limited															(29	)			(29	)			(3,881	)			(3,910	)
Vesting of restricted shares issued by Baltic Trading Limited							32												32				(32	)			—
Balance — September 30, 2012		$	438			$	862,488			$	(11,798	)		$	260,031			$	1,111,159			$	197,850			$	1,309,009

See accompanying notes to condensed consolidated financial statements.

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Genco Shipping & Trading Limited

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012

(U.S. Dollars in Thousands)

(Unaudited)

		For the Nine Months Ended September 30,
		2013				2012
Cash flows from operating activities:
Net loss		$	(137,866	)		$	(108,915	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			104,322				103,954
Amortization of deferred financing costs			6,862				3,555
Amortization of time charters acquired			(283	)			(558	)
Amortization of discount on Convertible Senior Notes			3,653				3,345
Unrealized loss (gain) on derivative instruments			3				(76	)
Amortization of nonvested stock compensation expense			3,470				4,591
Change in assets and liabilities:
(Increase) decrease in due from charterers			(3,066	)			5,072
(Increase) decrease in prepaid expenses and other current assets			(244	)			689
Increase (decrease) in accounts payable and accrued expenses			146				(3,751	)
Increase (decrease) in deferred revenue			98				(2,351	)
Increase in lease obligations			152				875
Deferred drydock costs incurred			(1,873	)			(10,442	)
Net cash used in operating activities			(24,626	)			(4,012	)
Cash flows from investing activities:
Purchase of vessels			(41,097	)			(894	)
Purchase of other fixed assets			(427	)			(1,948	)
Changes in deposits of restricted cash			—				(400	)
Net cash used in investing activities			(41,524	)			(3,242	)
Cash flows from financing activities:
Proceeds from the 2010 Baltic Trading Credit Facility			1,000				—
Proceeds from the 2013 Baltic Trading Credit Facility			22,000				—
Repayments on the 2007 Credit Facility			—				(118,588	)
Repayments on the $100 Million Term Loan Facility			—				(15,385	)
Repayments on the $253 Million Term Loan Facility			—				(40,600	)
Proceeds from issuance of common stock			—				50,721
Payment of common stock issuance costs			—				(847	)
Proceeds from issuance of common stock by subsidiary			81,700				—
Payment of common stock issuance costs by subsidiary			(379	)			—
Payment of dividend by subsidiary			(584	)			(3,910	)
Payment of deferred financing costs			(695	)			(4,327	)
Net cash provided by (used in) financing activities			103,042				(132,936	)
Net increase (decrease) in cash and cash equivalents			36,892				(140,190	)
Cash and cash equivalents at beginning of period			72,600				227,968
Cash and cash equivalents at end of period		$	109,492			$	87,778

See accompanying notes to condensed consolidated financial statements.

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Genco Shipping & Trading Limited

(U.S. Dollars in Thousands, Except Per Share and Share Data)

The accompanying condensed consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”), its wholly-owned subsidiaries, and its subsidiary, 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 September 30, 2013, is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco Management (USA) Limited; Genco RE Investments LLC; and the ship-owning subsidiaries set forth below.

Below is the list of GS&T’s wholly owned ship-owning subsidiaries as of September 30, 2013:

Wholly Owned Subsidiaries		Vessels Acquired		Dwt		Delivery Date		Year Built
Genco Reliance Limited		Genco Reliance		29,952		12/6/04		1999
Genco Vigour Limited		Genco Vigour		73,941		12/15/04		1999
Genco Explorer Limited		Genco Explorer		29,952		12/17/04		1999
Genco Carrier Limited		Genco Carrier		47,180		12/28/04		1998
Genco Sugar Limited		Genco Sugar		29,952		12/30/04		1998
Genco Pioneer Limited		Genco Pioneer		29,952		1/4/05		1999
Genco Progress Limited		Genco Progress		29,952		1/12/05		1999
Genco Wisdom Limited		Genco Wisdom		47,180		1/13/05		1997
Genco Success Limited		Genco Success		47,186		1/31/05		1997
Genco Beauty Limited		Genco Beauty		73,941		2/7/05		1999
Genco Knight Limited		Genco Knight		73,941		2/16/05		1999
Genco Leader Limited		Genco Leader		73,941		2/16/05		1999
Genco Marine Limited		Genco Marine		45,222		3/29/05		1996
Genco Prosperity Limited		Genco Prosperity		47,180		4/4/05		1997
Genco Muse Limited		Genco Muse		48,913		10/14/05		2001
Genco Acheron Limited		Genco Acheron		72,495		11/7/06		1999
Genco Surprise Limited		Genco Surprise		72,495		11/17/06		1998
Genco Augustus Limited		Genco Augustus		180,151		8/17/07		2007
Genco Tiberius Limited		Genco Tiberius		175,874		8/28/07		2007
Genco London Limited		Genco London		177,833		9/28/07		2007
Genco Titus Limited		Genco Titus		177,729		11/15/07		2007
Genco Challenger Limited		Genco Challenger		28,428		12/14/07		2003
Genco Charger Limited		Genco Charger		28,398		12/14/07		2005
Genco Warrior Limited		Genco Warrior		55,435		12/17/07		2005
Genco Predator Limited		Genco Predator		55,407		12/20/07		2005
Genco Hunter Limited		Genco Hunter		58,729		12/20/07		2007
Genco Champion Limited		Genco Champion		28,445		1/2/08		2006
Genco Constantine Limited		Genco Constantine		180,183		2/21/08		2008
Genco Raptor LLC		Genco Raptor		76,499		6/23/08		2007
Genco Cavalier LLC		Genco Cavalier		53,617		7/17/08		2007
Genco Thunder LLC		Genco Thunder		76,588		9/25/08		2007
Genco Hadrian Limited		Genco Hadrian		169,694		12/29/08		2008
Genco Commodus Limited		Genco Commodus		169,025		7/22/09		2009
Genco Maximus Limited		Genco Maximus		169,025		9/18/09		2009
Genco Claudius Limited		Genco Claudius		169,025		12/30/09		2010
Genco Bay Limited		Genco Bay		34,296		8/24/10		2010
Genco Ocean Limited		Genco Ocean		34,409		7/26/10		2010
Genco Avra Limited		Genco Avra		34,391		5/12/11		2011
Genco Mare Limited		Genco Mare		34,428		7/20/11		2011
Genco Spirit Limited		Genco Spirit		34,432		11/10/11		2011
Genco Aquitaine Limited		Genco Aquitaine		57,981		8/18/10		2009

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Wholly Owned Subsidiaries		Vessels Acquired		Dwt		Delivery Date		Year Built
Genco Ardennes Limited		Genco Ardennes		57,981		8/31/10		2009
Genco Auvergne Limited		Genco Auvergne		57,981		8/16/10		2009
Genco Bourgogne Limited		Genco Bourgogne		57,981		8/24/10		2010
Genco Brittany Limited		Genco Brittany		57,981		9/23/10		2010
Genco Languedoc Limited		Genco Languedoc		57,981		9/29/10		2010
Genco Loire Limited		Genco Loire		53,416		8/4/10		2009
Genco Lorraine Limited		Genco Lorraine		53,416		7/29/10		2009
Genco Normandy Limited		Genco Normandy		53,596		8/10/10		2007
Genco Picardy Limited		Genco Picardy		55,257		8/16/10		2005
Genco Provence Limited		Genco Provence		55,317		8/23/10		2004
Genco Pyrenees Limited		Genco Pyrenees		57,981		8/10/10		2010
Genco Rhone Limited		Genco Rhone		58,018		3/29/11		2011

 

On May 28, 2013, Baltic Trading closed an equity offering of 6,419,217 shares of Baltic Trading common stock at an offering price of $3.60 per share.  Baltic Trading received net proceeds of $21,560 after deducting underwriters’ fees and expenses.

On September 25, 2013, Baltic Trading closed an equity offering of 13,800,000 shares of Baltic Trading common stock at an offering price of $4.60 per share.  Baltic Trading received net proceeds of $59,481 after deducting underwriters’ fees and expenses.

Baltic Trading Limited (“Baltic Trading”) was a wholly-owned indirect subsidiary of GS&T until Baltic Trading completed its initial public offering, or IPO, on March 15, 2010.  As of September 30, 2013 and December 31, 2012, Genco Investments LLC owned 6,103,471 and 5,699,088 shares of Baltic Trading’s Class B Stock, which represented a 13.97% and 24.78% ownership interest in Baltic Trading, respectively, and 70.90% and 83.17% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock, respectively.  Additionally, pursuant to the Subscription Agreement between Genco Investments LLC and Baltic Trading, for so long as GS&T directly or indirectly holds at least 10% of the aggregate number of outstanding shares of Baltic Trading’s common stock and Class B stock, Genco Investments LLC will be entitled to receive an additional number of shares of Baltic Trading’s Class B stock equal to 2% of the number of common shares issued in the future, other than shares issued under Baltic Trading’s 2010 Equity Incentive Plan.  As such, when Baltic Trading closed the equity offerings of 6,419,217 on May 28, 2013 and 13,800,000 on September 25, 2013 as noted above, GS&T was issued 128,383 and 276,000 shares, respectively, of Baltic Trading’s Class B Stock which represents 2% of the number of common shares issued.

Below is the list of Baltic Trading’s wholly owned ship-owning subsidiaries as of September 30, 2013:

Baltic Trading’s Wholly Owned Subsidiaries		Vessel		Dwt		Delivery Date		Year Built
Baltic Leopard Limited		Baltic Leopard		53,447		4/8/10		2009
Baltic Panther Limited		Baltic Panther		53,351		4/29/10		2009
Baltic Cougar Limited		Baltic Cougar		53,432		5/28/10		2009
Baltic Jaguar Limited		Baltic Jaguar		53,474		5/14/10		2009
Baltic Bear Limited		Baltic Bear		177,717		5/14/10		2010
Baltic Wolf Limited		Baltic Wolf		177,752		10/14/10		2010
Baltic Wind Limited		Baltic Wind		34,409		8/4/10		2009
Baltic Cove Limited		Baltic Cove		34,403		8/23/10		2010
Baltic Breeze Limited		Baltic Breeze		34,386		10/12/10		2010
Baltic Fox Limited		Baltic Fox		31,883		9/6/2013		2010
Baltic Hare Limited		Baltic Hare		31,887		9/5/2013		2009
Baltic Lion Limited		Baltic Lion		179,185		Q4 2013 (1)		2012
Baltic Tiger Limited		Baltic Tiger		179,185		Q4 2013 (1)		2011

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(1) Delivery dates for vessels being delivered in the future are estimates based on guidance received from the sellers.

The Company provides technical services for drybulk vessels purchased by Maritime Equity Partners LLC (“MEP”). Peter C. Georgiopoulos, Chairman of the Board of Directors of GS&T, controls and has a minority interest in MEP.  These

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services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services.  The services are provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs.  MEP has the right to cancel provision of the 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.

 

Given the current drybulk rate environment, it is probable that the Company will be unable to make required payments under its credit facilities commencing during the quarter ending March 31, 2014 without modifications to or waivers of the terms of these facilities.  Moreover, once current waivers expire and are re-measured at March 31, 2014, the Company believes it is probable that the Company will not be in compliance with the maximum leverage ratio covenants and the minimum permitted consolidated interest ratio covenants under its credit facilities.  The Company is also subject to minimum cash covenants for which compliance is measured at the end of every fiscal quarter.  These minimum cash covenants have not been waived, and the Company believes it is probable that the Company will not be in compliance with such covenants at or after March 31, 2014, and the Company may not be in compliance earlier in the event of sustained weakness in the drybulk shipping sector.  The Company’s debt facilities are described further in Note 9 — Debt.

The Company is in discussions with its lenders and expects to seek waivers or modifications to its credit agreements, which, if available, may be subject to conditions, and may also seek to refinance indebtedness, raise additional capital through equity or debt offerings or selling assets (including vessels), reduce or delay capital expenditures, or pursue other restructuring options.  Absent such waivers or modifications, if the Company does not comply with such payment obligations or these covenants and fails to cure such non-compliance following applicable notice and expiration of applicable cure periods, the Company would be in default of one or more of its credit facilities. If such a default occurs, the Company may also be in default under the Indenture for the 5.00% Convertible Senior Notes, or the 2010 Notes (discussed in Note 10 — Convertible Senior Notes). As a result, some or all of the Company’s indebtedness could be declared immediately due and payable, and alternative sources of financing would need to be sought on terms that may not be favorable to the Company.

In addition, notwithstanding the waiver of certain covenants as described above, 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 assess future compliance with the original covenants at all quarterly measurement dates within twelve months from the date of such financial statements. The Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within twelve months of March 31, 2013.  Accordingly, the outstanding debt under the 2007 Credit Facility, the $253 Million Term Loan Facility and the $100 Million Term Loan Facility (as defined in Note 9 — Debt) was reclassified as a current liability in the condensed consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of September 30, 2013.  This reclassification does not affect the existing waivers, although there can be no assurance that the Company could obtain further waivers upon their expiration.  If the Company fails to comply with its covenants under its credit facilities, the Company may also be in default under the Indenture for the 2010 Notes and its interest rate swaps.  Accordingly, the 2010 Notes and one swap previously classified as a long-term liability were likewise reclassified as current liabilities in the condensed consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of September 30, 2013.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which include the accounts of GS&T, its wholly-owned subsidiaries and Baltic Trading, a subsidiary in which the Company owns a majority of the voting interests and exercises control.  All intercompany accounts and transactions have been eliminated in consolidation.

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, 2012 (the “2012 

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10-K”). The results of operations for the three and nine month periods ended September 30, 2013 and 2012 are not necessarily indicative of the operating results for the full year.

 

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 September 30, 2013 and 2012 was $33,591 and $33,462, respectively.  Depreciation expense for vessels for the nine months ended September 30, 2013 and 2012 was $99,432 and $99,646, 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 $245/lwt multiplied by the weight of the ship in lightweight tons (lwt).

Deferred revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as revenue when earned. Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues. As of September 30, 2013 and December 31, 2012, the Company had an accrual of $323 and $407, respectively, related to these estimated customer claims.

In time charters, spot market-related time charters and pool agreements, operating costs including crew, 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. These differences in bunkers resulted in net (losses) gains of ($296) and $242 during the three months ended September 30, 2013 and 2012, respectively, and $47 and $1,665 during the nine months ended September 30, 2013 and 2012, respectively.  Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

Net loss attributable to noncontrolling interest during the three and nine months ended September 30, 2013 and 2012 reflects the noncontrolling interest’s share of the net loss of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market or on spot market-related time charters.  The spot market represents immediate chartering of a vessel, usually for single voyages.  At September 30, 2013, the noncontrolling interest held an 86.03% economic interest in Baltic Trading while only holding 29.10% of the voting power.  At December 31, 2012, the noncontrolling interest held a 75.22% economic interest in Baltic Trading while only holding 16.83% of the voting power.

Pursuant to certain agreements, GS&T technically and commercially manages vessels for Baltic Trading 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.

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Total revenues earned for these services during the three months ended September 30, 2013 and 2012 was $2,010 and $1,530, respectively, of which $772 and $703, respectively, was eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $1,045 associated with these activities for the three months ended September 30, 2013.  This resulted in estimated income tax expense of $471 for the three months ended September 30, 2013.  After allocation of certain expenses, there was taxable income of $664 associated with these activities for the three months ended September 30, 2012.  This resulted in income tax expense of $299 for the three months ended September 30, 2012.

Total revenues earned for these services during the nine months ended September 30, 2013 and 2012 was $5,015 and $4,575, respectively, of which $2,148 and $2,109, respectively, was eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $2,262 associated with these activities for the nine months ended September 30, 2013.  This resulted in estimated income tax expense of $975 for the nine months ended September 30, 2013.  After allocation of certain expenses, there was taxable income of $1,985 associated with these activities for the nine months ended September 30, 2012.  This resulted in income tax expense of $892 for the nine months ended September 30, 2012.

Baltic Trading is subject to income tax on its United States source income.  During the three months ended September 30, 2013 and 2012, Baltic Trading had United States operations which resulted in United States source income of $420 and $200, respectively.  Baltic Trading’s United States income tax expense for the three months ended September 30, 2013 and 2012 was $8 and $4, respectively.

During the nine months ended September 30, 2013 and 2012, Baltic Trading had United States operations which resulted in United States source income of $1,059 and $1,321, respectively.  Baltic Trading’s United States income tax expense for the nine months ended September 30, 2013 and 2012 was $22 and $26, respectively.

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), to improve the transparency of changes in other comprehensive income (loss) (“OCI”) and items reclassified out of accumulated other income (loss) (“AOCI”).  The amendments in ASU 2013-02 are required to be applied prospectively and are effective for reporting periods beginning after December 15, 2012.  The adoption of ASU 2013-02 will not have any impact on the Company’s consolidated financial statements other than separately disclosing in the footnotes to the consolidated financial statements amounts reclassified out of AOCI and the individual line items in the Condensed Consolidated Statement of Operations that are affected.  The Company has adopted ASU 2013-02 and the impact of adoption is not material to the Company’s condensed consolidated financial statements.  Refer to Note 12 — Accumulated Other Comprehensive Income (Loss) for additional disclosure.

The Company determines its operating segments based on the information utilized by the chief operating decision maker to assess performance.  Based on this information, the Company has two operating segments, GS&T and Baltic Trading.  Both GS&T and Baltic Trading are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.  GS&T seeks to deploy its vessels on time charters, spot market-related time charters or in vessel pools trading in the spot market and Baltic Trading seeks to deploy its vessel charters in the spot market, which represents immediate chartering of a vessel, usually for single voyages, or employing vessels on spot market-related time charters.  Segment results are evaluated based on net (loss) income.  The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s condensed consolidated financial statements.

The following table presents a reconciliation of total voyage revenue from external (third party) customers for the Company’s two operating segments to total consolidated voyage revenue from external customers for the Company for the three and nine months ended September 30, 2013 and 2012.

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		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Voyage revenue from external customers
GS&T		$	49,503			$	47,312			$	121,755			$	154,552
Baltic Trading			9,102				6,291				21,467				20,188
Total operating segments			58,605				53,603				143,222				174,740
Eliminating revenue			—				—				—				—
Total consolidated voyage revenue from external customers		$	58,605			$	53,603			$	143,222			$	174,740

The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the three and nine months ended September 30, 2013 and 2012. The intersegment revenue noted in the following table represents revenue earned by GS&T pursuant to the management agreement entered into with Baltic Trading, which includes commercial service fees, technical service fees and sale and purchase fees, if any.

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Intersegment revenue
GS&T		$	1,187			$	703			$	2,563			$	2,109
Baltic Trading			—				—				—				—
Total operating segments			1,187				703				2,563				2,109
Eliminating revenue			(1,187	)			(703	)			(2,563	)			(2,109	)
Total consolidated intersegment revenue		$	—			$	—			$	—			$	—

The following table presents a reconciliation of total net loss for the Company’s two operating segments to total consolidated net loss for the three and nine months ended September 30, 2013 and 2012. The eliminating net income noted in the following table consists of the elimination of intercompany transactions between GS&T and Baltic Trading, as well as dividends received by GS&T from Baltic Trading for its Class B shares of Baltic Trading.

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Net loss
GS&T		$	(34,277	)		$	(36,969	)		$	(125,422	)		$	(94,779	)
Baltic Trading			(2,270	)			(4,822	)			(11,979	)			(12,942	)
Total operating segments			(36,547	)			(41,791	)			(137,401	)			(107,721	)
Eliminating net income			429				246				465				1,194
Total consolidated net loss		$	(36,976	)		$	(42,037	)		$	(137,866	)		$	(108,915	)

The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated assets as of September 30, 2013 and December 31, 2012. The eliminating assets noted in the following table consist of the elimination of intercompany transactions resulting from the capitalization of fees paid to GS&T by Baltic Trading as vessel assets, including related accumulated depreciation, as well as the outstanding receivable balance due to GS&T from Baltic Trading as of September 30, 2013 and December 31, 2012.

		September 30, 2013				December 31, 2012
Total assets
GS&T		$	2,384,172			$	2,482,486
Baltic Trading			457,397				364,370
Total operating segments			2,841,569				2,846,856
Eliminating assets			(3,845	)			(3,485	)
Total consolidated assets		$	2,837,724			$	2,843,371

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As of September 30, 2013 and December 31, 2012, the Company had four and five interest rate swaps, respectively, which are described and discussed in Note 11 — Interest Rate Swap Agreements.  At September 30, 2013, the fair values of the four swaps are in a liability position of $9,292, all of which was classified within current liabilities.  At December 31, 2012, the five swaps were in a liability position of $16,052, $7 of which was classified within current liabilities.

For the nine months ended September 30, 2013, 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 $79 for the purchase of vessels and $200 for the purchase of other fixed assets.  For the nine months ended September 30, 2013, 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 $123 associated with deferred financing fees and $280 for the payment of common stock issuance costs by its subsidiary.  For the nine months ended September 30, 2013, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in current interest payable consisting of $13,199 associated with deferred financing fees.

For the nine months ended September 30, 2012, 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 $31 for the purchase of vessels and $77 for the purchase of other fixed assets.  Additionally, for the nine months ended September 30, 2012, 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 and long-term interest payable consisting of $246 and $13,199, respectively, associated with deferred financing fees.

During the nine months ended September 30, 2013 and 2012, cash paid for interest, including bond coupon interest paid, was $58,043 and $61,632, respectively.

During the nine months ended September 30, 2013 and 2012, cash paid for estimated income taxes was $775 and $926, respectively.

On May 16, 2013, the Company made grants of nonvested common stock under the Genco Shipping & Trading Limited 2012 Equity Incentive Plan in the amount of 200,634 shares in the aggregate to directors of the Company.  The aggregate fair value of such nonvested stock was $315.  On May 16, 2013, Baltic Trading made grants of nonvested common stock in the amount of 59,680 shares to directors of Baltic Trading.  The aggregate fair value of such nonvested stock was $225.

On May 17, 2012, the Company made grants of nonvested common stock under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan in the amount of 15,000 shares in the aggregate to directors of the Company.  These shares vested on May 16, 2013.  The aggregate fair value of such nonvested stock was $53.  On May 17, 2012, Baltic Trading made grants of nonvested common stock in the amount of 12,500 shares to directors of Baltic Trading.  These shares vested on May 16, 2013.  The aggregate fair value of such nonvested stock was $48.

On July 2, 2013, Baltic Trading entered into agreements to purchase two Handysize drybulk vessels from subsidiaries of Clipper Group for an aggregate purchase price of $41,000.  The Baltic Hare, a 2009 built Handysize vessel, was delivered on September 5, 2013 and the Baltic Fox, a 2010 built Handysize vessel, was delivered on September 6, 2013.  Baltic Trading financed the vessel purchases with proceeds from its May 28, 2013 common stock offering and borrowings under its 2013 Credit Facility entered into on August 30, 2013.  Refer to Note 9 – Debt below for further information regarding the 2013 Credit Facility.

Refer to Note 1 — General Information for a listing of the vessel delivery dates for the vessels in the Company’s fleet and the estimated delivery dates for vessels that Baltic Trading has entered into agreements to purchase.

Below market time charters, including those acquired during previous periods, were amortized as an increase to voyage revenue in the amount of $51 and $187 for the three months ended September 30, 2013 and 2012, respectively, and $283 and $558 for the nine months ended September 30, 2013 and 2012, respectively.

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The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”).  Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.  This investment is designated as Available For Sale (“AFS”) and is reported at fair value, with unrealized gains and losses recorded in shareholders’ equity as a component of AOCI.  At September 30, 2013 and December 31, 2012, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $41,829 and $20,988, respectively, based on the closing price on September 30, 2013 and December 28, 2012, respectively.

The Company reviews the investment in Jinhui for other than temporary impairment on a quarterly basis.  There were no impairment charges recognized for the three and nine months ended September 30, 2013 and 2012.

The unrealized gain on the Jinhui capital stock remains a component of AOCI, since this investment is designated as an AFS security.

Refer to Note 12 — Accumulated Other Comprehensive Income (Loss) for a breakdown of the components of AOCI.

The computation of basic net loss per share is based on the weighted-average number of common shares outstanding during the year. The computation of diluted net loss per share assumes the vesting of nonvested stock awards (refer to Note 20 — Nonvested Stock Awards), 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 1,217,896 nonvested shares outstanding at September 30, 2013 (refer to Note 20 — Nonvested Stock Awards), all are anti-dilutive.  The Company’s diluted net loss per share will also reflect the assumed conversion under the Company’s convertible debt if the impact is dilutive under the “if converted” method. The impact of the shares convertible under the Company’s convertible notes is excluded from the computation of diluted earnings per share when interest expense per common share obtainable upon conversion is greater than basic earnings per share.

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

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Common shares outstanding, basic:
Weighted-average common shares outstanding, basic			43,231,510				42,885,810				43,196,895				41,290,719
Common shares outstanding, diluted:
Weighted-average common shares outstanding, basic			43,231,510				42,885,810				43,196,895				41,290,719
Dilutive effect of convertible notes			—				—				—				—
Dilutive effect of restricted stock awards			—				—				—				—
Weighted-average common shares outstanding, diluted			43,231,510				42,885,810				43,196,895				41,290,719

The following table sets forth a reconciliation of the net loss attributable to GS&T and the net loss attributable to GS&T for diluted net loss per share under the “if-converted” method:

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Net loss attributable to GS&T		$	(35,034	)		$	(38,449	)		$	(128,566	)		$	(99,289	)
Interest expense related to convertible notes, if dilutive			—				—				—				—
Net loss attributable to GS&T for the computation of diluted net loss per share		$	(35,034	)		$	(38,449	)		$	(128,566	)		$	(99,289	)

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

The Company makes available employees performing internal audit services to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board.  For the nine months ended September 30, 2013 and 2012, the Company invoiced $110 and $140, respectively, to GMC, which includes time associated with such internal audit services and other expenditures.  Additionally, during the nine months ended September 30, 2013 and 2012, the Company incurred travel and other expenditures totaling $82 and $45, respectively, reimbursable to GMC or its service provider.  At September 30, 2013 and December 31, 2012, the amount due to GMC from the Company was $0 and $12, respectively.

During the nine months ended September 30, 2013 and 2012, the Company incurred legal services aggregating $20 and $16, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board.  At September 30, 2013 and December 31, 2012, the amount due to Constantine Georgiopoulos was $20 and $0, respectively.

GS&T and Baltic Trading have entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in their fleets.  Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean.  During the nine months ended September 30, 2013 and 2012, Aegean supplied lubricating oils to the Company’s vessels aggregating $1,022 and $1,170, respectively.  At September 30, 2013 and December 31, 2012, $139 and $278 remained outstanding, respectively.

During the nine months ended September 30, 2013 and 2012, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $2,570 and $2,541, respectively.  Peter C. Georgiopoulos, Chairman of the Board, controls and has a minority interest in MEP.  At September 30, 2013 and December 31, 2012, $5 and $5, respectively, was due to the Company from MEP.  Total service revenue earned by the Company for technical services provided to MEP for the nine months ended September 30, 2013 and 2012 was $2,457 and $2,466, respectively.  Lastly, as of September 30, 2013, MEP paid the Company approximately $70 of October 2013 service revenue, which is reflected in the September 30, 2013 deferred revenue balance.

Long-term debt consists of the following:

		September 30, 2013				December 31, 2012
2007 Credit Facility		$	1,055,912			$	1,055,912
$100 Million Term Loan Facility			75,484				75,484
$253 Million Term Loan Facility			180,793				180,793
2010 Baltic Trading Credit Facility			102,250				101,250
2013 Baltic Trading Credit Facility			22,000				—
Less: Current portion			(1,313,689	)			—
Long-term debt		$	122,750			$	1,413,439

On July 20, 2007, the Company entered into a credit facility with DnB NOR Bank ASA (as amended, the “2007 Credit Facility”). The maximum amount that may be borrowed under the 2007 Credit Facility at September 30, 2013 is $1,055,912.  As of September 30, 2013, the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility.

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The maximum leverage ratio covenant and minimum permitted consolidated interest ratio covenants are currently waived for the periods ending on and including December 31, 2013 pursuant to the August 1, 2012 agreements to amend or waive certain provisions of the agreements for the 2007 Credit Facility, $100 Million Term Loan Facility and the $253 Million Term Loan Facility (as defined below) (the “August 2012 Agreements”).  Additionally, the collateral maintenance financial covenant is currently waived until the Company can represent that it is in compliance with all of its financial covenants.  The Company’s cash dividends and share repurchases have been suspended until the collateral maintenance financial covenant can be satisfied.

The gross interest-bearing debt to total capital covenant ends during the period ending on and including December 31, 2013 pursuant to the August 2012 Agreements.  This covenant limits the ratio of the Company’s interest-bearing indebtedness to the sum of its interest-bearing indebtedness and its consolidated net worth in accordance with U.S. GAAP to 62.5% on the last day of any fiscal quarter during the waiver period.

Additionally, pursuant to the August 2012 Agreements, the total applicable margin over LIBOR payable on the principal amount of debt outstanding increased from 2.0% to 3.0% per annum.  The minimum cash balance required was also increased from $500 to $750 per vessel mortgaged under this facility pursuant to the August 2012 Agreements.

Pursuant to the amendment to the 2007 Credit Facility which was entered into on December 21, 2011, the Company was subject to a facility fee of 2.0% per annum on the average daily outstanding principal amount of the loans outstanding, payable quarterly in arrears, which was subject to a reduction to 1.0% if the Company consummated an equity offering resulting in an aggregate amount of $50,000 of gross proceeds.  On February 28, 2012, the Company completed an equity offering of 7,500,000 shares which resulted in gross proceeds of $53,250.  As such, effective February 28, 2012, the facility fee was reduced to 1.0%.

As of September 30, 2013, the Company believes it is in compliance with all of the financial covenants under its 2007 Credit Facility, as amended.  However, as of September 30, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $1,055,912 was classified as a current liability in the condensed consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of  September 30, 2013.

At September 30, 2013, there were no letters of credit issued under the 2007 Credit Facility.

On August 12, 2010, the Company entered into the $100,000 secured term loan facility (“$100 Million Term Loan Facility”). As of September 30, 2013, 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 September 30, 2013, there was no availability under the $100 Million Term Loan Facility.

Pursuant to the amendments to the $100 Million Term Loan Facility that were entered into on December 21, 2011 and the August 2012 Agreements, the maximum leverage ratio covenant and the minimum permitted consolidated interest ratio covenant are currently waived for the periods ending on and including December 31, 2013.

As of September 30, 2013, the Company believes it is in compliance with all of the financial covenants under the $100 Million Term Loan Facility, as amended.  However, as of September 30, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $75,484 was classified as a current liability in the condensed consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of September 30, 2013.

On August 20, 2010, the Company entered into the $253,000 senior secured term loan facility (“$253 Million Term Loan Facility”).  As of September 30, 2013, 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 September 30, 2013, there was no availability under the $253 Million Term Loan Facility.

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Pursuant to the amendments to the $253 Million Term Loan Facility that were entered into on December 21, 2011 and August 2012 Agreements, the maximum leverage ratio covenant and the minimum permitted consolidated interest ratio covenant are currently waived for the periods ending on and including December 31, 2013.

As of September 30, 2013 and December 31, 2012, 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.

As of September 30, 2013, the Company believes it is in compliance with all of the financial covenants under the $253 Million Term Loan Facility, as amended.  However, as of September 30, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $180,793 was classified as a current liability and the restricted cash related to this facility was classified as a current asset in the condensed consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability and a current asset, respectively, as of September 30, 2013.

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 Baltic Trading Credit Facility”).  An amendment to the 2010 Baltic Trading Credit Facility was entered into by Baltic Trading effective November 30, 2010.  Among other things, this amendment increased the commitment amount of the 2010 Baltic Trading Credit Facility from $100,000 to $150,000.  An additional amendment to the 2010 Baltic Trading Credit Facility was entered into by Baltic Trading effective August 29, 2013 (the “August 2013 Amendment”).  Among other things, the August 2013 Amendment implemented the following modifications to the 2010 Baltic Trading Credit Facility:

·

The requirement that certain additional vessels acquired by Baltic Trading be mortgages as collateral under the 2010 Baltic Trading Credit Facility was eliminated.

·

Restrictions on the incurrence of indebtedness by Baltic Trading and its subsidiaries were amended to apply only to those subsidiaries acting as guarantors under the 2010 Baltic Trading Credit Facility.

·

The total commitment under this facility was reduced to $110,000 and will be further reduced in three consecutive semi-annual reductions of $5,000 commencing on May 30, 2015.

·

Borrowings bear interest at an applicable margin over LIBOR of 3.00% per annum if the ratio of the maximum facility amount of the aggregate appraised value of vessels mortgaged under the facility is 55% or less, measured quarterly; otherwise, the applicable margin is 3.35% per annum.

·

Financial covenants corresponding to the liquidity and leverage under the 2013 Baltic Trading Credit Facility (as defined below) have been incorporated into the 2010 Baltic Trading Credit Facility.

As of September 30, 2013, $7,750 remained available under the 2010 Baltic Trading Credit Facility as the total commitment was reduced to $110,000 on August 29, 2013.  The total available working capital borrowings of $25,000 are subject to the total remaining availability under the 2010 Baltic Trading Credit Facility; therefore, only $7,750 is available for working capital purposes as of September 30, 2013.

As of September 30, 2013, the Company believes Baltic Trading is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility, as amended.

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 “2013 Baltic Trading Credit Facility”).  Amounts borrowed and repaid under the 2013 Baltic Trading Credit 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 2013 Baltic Trading Credit Facility bear interest at the three-month LIBOR rate plus an applicable margin of 3.35% per annum.  A commitment fee of 1.00% 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 which the entire $22,000 was borrowed.  Borrowings are to be repaid in 23 quarterly installments of $375 each commencing three

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months after the last vessel delivery date, or December 4, 2013, and a final payment of $13,375 due on the maturity date.  Amounts repaid under the 2013 Baltic Trading Credit Facility may not be reborrowed.

 

Borrowings under the 2013 Baltic Trading Credit Facility are secured by liens on Baltic Trading’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 2013 Baltic Trading Credit Facility, Baltic Trading agreed to guarantee the obligations of its subsidiaries under the 2013 Credit Facility.

The 2013 Baltic Trading Credit Facility also requires Baltic Trading, Baltic Hare Limited and Baltic Fox Limited to comply with a number of covenants, including financial covenants related to liquidity, leverage, consolidated net worth, and collateral maintenance; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); maintenance of flag and class of the initial vessels; restrictions on consolidations, mergers or sales of assets; limitations on changes in the manager of Baltic Trading’s vessels; limitations on changes to the Management Agreement; limitations on liens and additional indebtedness; prohibitions on paying dividends if an event of default has occurred or would occur as a result of payment of a dividend; restrictions on transactions with affiliates; and other customary covenants. The liquidity covenants under the facility require Baltic Hare Limited and Baltic Fox Limited to maintain $500 in its earnings account and Baltic Trading to maintain $750 per vessel in its fleet in cash or cash equivalents plus undrawn working capital lines of credit. The facility’s leverage covenant requires that the ratio of Baltic Trading’s total financial indebtedness to the value of its total assets as adjusted based on vessel appraisals not exceed 70%. The facility also requires that Baltic Trading maintains a minimum consolidated net worth of $232,796 plus fifty percent of the value of Baltic Trading’s equity offering completed on or after May 28, 2013. The facility’s collateral maintenance covenant requires that the minimum fair market value of vessels mortgaged under the facility be 130% of the amount outstanding under the facility through August 30, 2016 and 135% of such amount thereafter.

On September 4, 2013, Baltic Trading made two drawdowns of $10,730 and $11,270 for the Baltic Hare and the Baltic Fox, respectively.  As of September 30, 2013, Baltic Trading has utilized its maximum borrowing capacity of $22,000, and there was no further availability.

As of September 30, 2013, the Company believes Baltic Trading is in compliance with all of the financial covenants under the 2013 Baltic Trading Credit Facility.

As required under the August 2012 Agreements, lenders under the 2007 Credit Facility will receive a fee equal to 1.25% of the principal amount outstanding following such prepayment, or $13,199, on the earlier date of the maturity date of this facility or the date on which all obligations under this facility have been paid in full.  The $13,199 was classified as current liability in the condensed consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of September 30, 2013, consistent with the classification of the principal amount of the 2007 Credit Facility.

The following tables sets forth the effective interest rate associated with the interest expense for the Company’s debt facilities noted above, including the rate differential between the pay fixed, receive variable rate on the interest rate swap agreements that were in effect (refer to Note 11 — Interest Rate Swap Agreements), combined, the cost associated with unused commitment fees as well as the facility fee for the 2007 Credit Facility which was reduced from 2.0% to 1.0% on February 28, 2012 as noted above. Additionally, it includes the range of interest rates on the debt, excluding the impact of swaps and unused commitment fees:

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Effective Interest Rate			4.69	%			4.65	%			4.72	%			4.60	%
Range of Interest Rates (excluding impact of swaps and unused commitment fees)		3.18% to 4.31		%		3.22% to 4.50		%		3.18% to 4.38		%		3.22% to 4.63		%

The Company issued $125,000 of 5.0% Convertible Senior Notes on July 27, 2010.  The Indenture includes customary agreements and covenants, including with respect to events of default.

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The following tables provide additional information about the Company’s 2010 Notes:

		September 30, 2013				December 31, 2012
Carrying amount of the equity component (additional paid-in capital)		$	24,375			$	24,375
Principal amount of the 2010 Notes			125,000				125,000
Unamortized discount of the liability component			10,429				14,082
Net carrying amount of the liability component			114,571				110,918

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2013				2012				2013				2012
Effective interest rate on liability component			10.0	%			10.0	%			10.0	%			10.0	%
Cash interest expense recognized		$	1,575			$	1,580			$	4,687			$	4,696
Non-cash interest expense recognized			1,265				1,158				3,653				3,345
Non-cash deferred financing amortization costs included in interest expense			181				181				537				540

The remaining period over which the unamortized discount will be recognized is 1.87 years. As of September 30, 2013, the if-converted value of the 2010 Notes does not exceed their principal amount.

The Company believes it is probable that the Company will not be in compliance with certain covenants under its credit facilities at measurement dates within the twelve months after March 31, 2013.  If such a default occurs, the Company may also be in default under the Indenture for the 2010 Notes.  A default would occur under the Indenture, following applicable notice and expiration of applicable cure periods, if the Company fails to pay indebtedness in excess of $50,000 at final maturity (or when otherwise due) or if such indebtedness is accelerated.  As such, the 2010 Notes were classified as a current liability in the condensed consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of September 30, 2013.

As of September 30, 2013 and December 31, 2012, the Company had four and five interest rate swap agreements outstanding, respectively, with DnB Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s 2007 Credit Facility. The total notional principal amount of the swaps at September 30, 2013 and December 31, 2012 was $306,233 and $356,233, respectively, and the swaps have specified rates and durations.

The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of September 30, 2013 and December 31, 2012:

 

									September 30, 2013				December 31, 2012
Interest Rate Swap Detail									Notional				Notional
Trade		Fixed			Start Date		End date		Amount				Amount
Date		Rate			of Swap		of Swap		Outstanding				Outstanding
9/6/05			4.485	%	9/14/05		7/29/15		$	106,233			$	106,233
3/29/06			5.25	%	1/2/07		1/1/14			50,000				50,000
3/24/06			5.075	%	1/2/08		1/2/13			—				50,000
1/9/09			2.05	%	1/22/09		1/22/14			100,000				100,000
2/11/09			2.45	%	2/23/09		2/23/14			50,000				50,000
									$	306,233			$	356,233