Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference Call on the Fourth Quarter 2018 Financial Results. We have with us Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode.

There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise that this conference is being recorded today. At this time, I would like to read the Safe Harbor statement.

This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect Dynagas LNG Partners' business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners filings with the Securities and Exchange Commission. And now I pass the floor to Mr. Lauritzen.

Please go ahead, sir..

Good morning, everyone, and thank you for joining us in our fourth quarter ended 31 December, 2018 earnings conference call. I’m joined today by our CFO, Michael Gregos. We have issued the press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call.

We have provided a description of those measures, as well as a discussion of why we believe this information to be useful in our press release. Moving on to slide three, to review the quarter and subsequent highlights.

On October 23, 2018 the partnership completed a public offering of 2.2 million Series B 8.75% preferred units, resulting in net proceeds of $53 million.

The Lena River completed its scheduled dry docking in late October 2018 and was rechartered to a major energy company prior to commencement of its multi-year charter with Yamal, which is expected to commence in the third quarter of 2019.

Adjusted EBITDA for the fourth quarter was recorded at $21.6 million, distributable cash flow for the quarter was reported $5.5 million and reported free cash flow of $109.9 million and available liquidity of $139.9 million as of December 31, 2018.

Subsequent to the quarter, on January 23, 2019 we declared and subsequent paid a quarterly cash distribution of $0.5625 per Series A Preferred Unit for the period from November 12, 2018 to February 11, 2019.

And on February 1, 2019 [technical difficulty] distribution of $0.7231 per Series B Preferred Unit with respect to the period from October 23, 2018 to February 22, 2019.

On January 25, 2019 the partnership announced a reduced cash distribution to common unitholders of $0.0625 for common unit in respect for the fourth quarter of 2018 down from $0.25 per common unit in prior quarters, which was paid of February 14, 2019.

Our Board of Directors believe that the decision to reduce our cash distribution to common unitholders is necessary in order to retain more of the cash generated from the partnership’s long-term contracts to maintain a steady cash balance, and in particular to facilitate the refinancing of the partnership’s $250 million notes, which mature on October 30, 2019.

The level of future cash distributions to common unitholders will be subject to among other factors, the final terms of the refinancing of the notes, including but not limited to, the level of indebtedness incurred, and the level of the debt amortized station profile, if any.

We believe that the reduction of the cash distribution is not reflective of the partnership’s underlying operational performance, with our LNG carriers continuing to generate stable and predictable long-term cash flow from long-term contracts with high quality counter parties.

I will now turn the presentation over to Michael Gregos, who will provide you with further comments to the financial results..

Thank you, Tony. Moving on to slide four, the results for the quarter were within our expectations as operating expenses and the dry-docking of Lena River were below budget. For the quarter, we generated $5.5 million in distributable cash flow and $21.6 million in adjusted EBITDA.

For the quarter, we are very pleased with the performance of our manager as we have 100% utilization and very competitive daily vessel operating expenses, which came in at $11,500 per day per vessel and the costs of the dry-docking of the Lena River ended up at $2.4 million, which is $1 million below budget with only 17 off-hire days.

For the quarter, average gross time charter hire on a cash basis amounted to about 57,500 per day per vessel, which we expect to increase to a run rate level of around $61,000 per day, when Lena River enters a long-term contract with Yamal in July of this year.

Our cash breakeven excluding our distribution to preferred and common unitholders and our dry-docking costs amounted to about $40,000 per day per versus for the quarter. If we include distributions to common and preferred unitholders, our cash breakeven amounted to $49,000 per day per vessel. Moving on to slide five.

For the quarter, our distributable cash flow was $5.5 million and after payment of distribution to preferred unitholders, distributable cash flow available to common unitholders was $2.9 million, and we paid $2.2 million in cash distributions to our common unitholders resulting in the distribution coverage ratio of 1.32 times.

For the quarter, we had a cash coverage ratio of 2.7 times, with cash coverage representing adjusted EBITDA less interest costs, loan principal payments and preferred equity dividends divided by actual distributions to common unitholders. Moving on to slide six to our debt profile.

We currently have total debt of $723 million comprising over $473 million secured Term Loan B, which is amortizing annually by $5 million and has a floating interest rate. And our $250 million unsecured notes, which mature end of October 2019.

Including our $55 million issuance in October of 2018 of Series B Preferred equity, we have cash on hand of $110 million and net debt to total capitalization of about 65% as of 31, December 2018.

We believe the financial strategy of having essentially non-amortizing debt in order to distribute to common unitholders all of the partnership’s cash flow available after debt service and distribution to preferred unitholders is no longer workable. We are currently working on the refinancing of our $250 million notes.

So as to reduce leverage over time and increase equity value. We believe the quality of our assets with our long-term time charters to quality counterparties are positive factors, which will enable us to achieve this objective.

As previously advised our cash distribution to common unitholders may be revised depending on the final terms and conditions achieved for this refinancing. Moving on to slide seven.

We believe our competitive advantage lies in our best-in-class revenue contract backlog, which amounts to about $230 million per vessel along with our outstanding operational performance as evidenced by our high utilization rate and very competitive operating expenses.

The predictability and sustainability of our cash flows is underpinned by contract coverage with two of our workflows being on contract, which protects us from rising operating costs. With the additional benefit of the dry-docks not only are paid by our charters, but also allow the vessels to remain on-hire during the dry-docks.

It is also noteworthy that we have no scheduled dry-docks until 2023.

We believe the reduction in the cast distribution to common unitholders from $0.25 per unit per quarter to $0.625 per unit per quarter was necessary to improve common unit distribution coverage, which had fallen below one-time in prior quarters and to facilitate the refinance of the partnership’s $250 million notes, which we discussed earlier.

That wraps it up from my side, I’ll pass over the presentation to Tony..

Thank you, Michael. Let's move on to slide eight. Our fleet count accounts six high specification and versatile LNG carriers with an average age of about 8.6 years. We have a diversified customer base with substantial energy companies namely Equinor, Gazprom and undisclosed major U.S.

producer, and Yamal LNG which the latter is the joint venture between Total, CNPC Novatek and the Silk Road Fund. Our contracted time charter backlog is about $1.38 billion and our average remaining charter period is about 9.5 years, which compares well versus our peers. Moving on to slide nine.

During the last years, we have been very focused on securing long-term employment for the fleet. Our fleet days fixed on long-term charters with key energy companies, drivers for our charters were the characteristics of the vessels, including their Ice Class notations and our organization’s track record.

All the vessels are employed on time charter contracts under which the charterer pays all major voyage related variable cost such as fuel, canal fees and terminal costs meaning we enjoy a visible and stable revenue.

Our counterparties are mainly active strong LNG producers, which gives the benefits that our customers are able to program their chartered vessel for long periods of time that results in relatively improved planning ability. We are 98% contracted in 2019, 100% in 2020 and 92% in 2021.

Our earliest availability is the Arctic Aurora, which potentially will be free in 2021 provided that Equinor does not exercise their option to extend the contract. So far the vessel have served Equinor with good very good results. Moving on to slide 10, we have a unique fleet five out of the six vessels in our fleet have ice class 1A notations.

The fleet can handle conventional LNG shipping, as well as operating ice bound and subzero areas. Initial capital expenditure for an ice class vessel is more expensive than conventional carriers. However, the operating costs between our ice class type carriers and conventional carriers are very similar.

The company together with our sponsor has a market share of about 82% of existing vessels with Arc-4 or equivalent ice class notation. To our knowledge, there are only two other LNG carriers in the world with equivalent notations, which are charted out on long-term.

We view the ability to trade in ice bound areas as an important advantage due to the increased production of LNG in ice bound areas and in particular, along the northern sea routes. Yamal LNG has recently commenced their production of their mega projects.

And we also expect further projects to be developed in that region and other harsh environment areas going forward. We view the ability to perform niche operations as an important driver in securing attractive long-term charters going forward.

Further to that, our fleet is optimized for terminal compatibility, which is of significant importance in a market that is changing from a fixed route trade to a worldwide trade. The fleet consists of groups of sister vessels that provides for overall relatively better economics and efficiencies.

We have now reached the end of the presentation, and I now open the floor for questions..

Thank you very much, sir. [Operator instructions] Our first question today is from Donald McLee from Berenberg. Please go ahead. .

Good morning, guys. .

Good morning..

Just to jump in, could you give some color on any progress around the debt refi? There has been limited updates over the past couple of quarters despite that sitting as probably the most significant near-term headwinds.

So any additional insights there would be appreciated?.

Yes. Hi, Donald. Well, I mean, we're looking at various options across the capital structure and we're actively working on them. We think Dynagas is a very strong credit story, and we will be able to achieve our objectives. But there's not much more that I can say, at this point..

Okay. Then maybe stepping away directly from the financing and then more to some of the indirect options you might have. How has that group of options changed over the past year, would a vessel sale be a potential due to consideration.

Has there been any discussion of a loan or some type of other security issuance to the parent level?.

No. That [indiscernible] is not part of the option that we're looking at. As I said before, we are looking at various options which are across the spectrum of the capital structure. So what we're doing essentially is, we're trying to find the most efficient solution that will increase equity value in a sustainable manner.

And we are likely enough that we do have multiple options, given that we have quality assets with quality counterparties. And essentially, what we're doing is we're going through the terms and conditions of each options and when they are all finalized, we will present them to our Board for a final decision..

Okay. And then just one more on the level of the distribution cut. You mentioned a disconnect between the equity price and what's going on in terms of the company's underlying operations.

So I was curious, maybe what's changed in the rationale for the degree of the cut this time around versus the earlier cut back in April 2018?.

Yes, when we -- I think it's important to see the cuts in the big picture. Of course, we wouldn't have liked to make two cuts. But when we go back in time a little bit, we're -- as an MLP, the MLP market kind of -- that was very negatively affected by the crash in the oil price.

So, while after the crash in the oil price the oil price recovered, but the MLP sector really didn't. So, when we did our previous cut, we have assumed that the MLP market broadly would improve going forward and enable us and other MLPs to issue cheap equity.

Whereas, that didn't happen and that is the reason why we had to make a second cut and a more severe cut that goes hand-in-hand and enables us to discuss a wide range of refinancing options..

Okay. I'll stop there and turn it over. Thanks for taking the questions..

Thank you very much. Our next question is from Ben Nolan from Stifel. Please go ahead. .

All right. Thank you.

So I have a couple, but I'll start with real quick one, just for modeling purposes, on the Lena River until the contract to Yamal starts what can you maybe disclose what the rate you expect to earn on that would be in the interim period?.

Hi, Ben, it's Michael. No, we typically don't disclose the rates especially for the short-term charter. I think the only thing we can say that once we enter the Yamal charter, the rate will be higher. So we will expect an update in let's say our average time charter rate. As I said in the earlier for the quarter we were $57,500 average.

And, once the Lena River enters, we're going to be around $61,000..

Okay. All right. Well, that's helpful I can back into there. The next one is a little bit more maybe touching on the broader theme here.

So obviously, first and foremost, you have to refinance the notes, but then thinking about the company or the partnership from a longer term perspective, pretty small and any growth might be a little bit challenging to come by via traditional means given both sort of where you're at and where the MLP market is.

Have you considered at all maybe doing some sort of -- something with the private company a pretty substantial fleet over there with good contracts? Any thoughts or what are maybe the pluses and minuses from your perspective of maybe merging the public company and the private company together?.

Yes, hi, Ben this is Tony. No, we don't have any comments to that we haven't had any discussions of that kind.

I think it’s safe to say that what we're working on now is to refinancing, that will be our number one target and one that's out of the way, then we'll see what is the best way of maintaining or growing the company?.

Okay, and then lastly, just out of curiosity and I know that it's not held at the partnership, but the private company does have two FSRUs on order was curious maybe Tony, if you can shed some light as to what the activity level is at the moment on trying to contract FSRU..

Yes, so, I think, what we've seen is that the FSRU market has gone through a little bit of a slowdown, where there was, let’s say, lack of real project visibility. That being said, we think that has changed now, we can say that we are actively looking at several projects for those FSRUs.

So, we've been hearing that the market is pretty long on FSRUs et cetera, but when we are actually starting to look at what is available for the various projects, it's not so easy to say. But what we can say is that, given now that the time to their delivery is not that far away, I mean, they're in 2021.

It’s a more timely period to discuss the employment of those vessels going forward..

Okay. All right. Thanks, I appreciate guys..

Thank you..

Thank you very much. Our next question is from Randy Giveans from Jefferies. Please go ahead. .

Hey, thanks, operator, How are you all gentlemen?.

Good, thank you. .

Very good. Just two quick questions. So any updates on possible future drop downs, maybe the Clean Planet, Clean Horizon, Clean Vision.

Have all of those commenced their charters with Yamal?.

Yeah, when it comes to the visibility on drop downs and if you have commenced of charters, and yes they -- the majority of those vessels, they have commenced their charters with Yamal, apart from Clean Ocean, and that is on with Shinyea [ph].

Now, on the question of visibility on drop downs, we’re not able to provide information on that at this moment. Again, our main area focus is the refinance. And thereafter we’ll see how to maintain or grow the company..

Okay. And then, I guess, any updates on the vessel that has some issues with the damage toll [ph] in Russia I think this last quarter the Arc-7 has a turn back to the port on the Mainland voyage..

Yes. And so, so that vessel is held with a private level by the sponsor. No, that was an issue that was resolved. It was a, let's say, temporary technological or temporary technical issue, the vessel was quickly repaired for that issue and is fully back in service..

Okay.

And then just to clarify, you said no more dry-dockings till 2022, is that correct?.

Yes..

All right, that’s it for me. Thank you..

Thank you..

[Operator Instructions] The next is from Max Yaras from Morgan Stanley. Please go ahead..

Hi, guys. Thank you. To get back to Donald's first couple of questions, can you walk through maybe some of the assumptions in the dividend cut? Is that based on propose terms that maybe are already in place for some of the options that based on a worst case scenario? Just some color on that would be helpful..

I think it's based on -- it's a number which keeps let’s say all the options open at this particular stage..

Okay. And then….

That’s all I can mention. I think, it's important to appreciate I mean we cannot really give any guidance on the distribution going forward until -- because that will depend on the outcome of the refinancing of the notes..

Okay. Sure. And then I know it's a bit out now.

But the Term Loan B, have you looked at options yet on refinancing that or maybe can you refinance that at the same time that you do the upcoming non-maturity?.

That is a possibility. Yes..

Okay. And then just finally on the market, we obviously seen some near-term weakness in LNG prices, but looking out now the December 2020 curve has come down a bit.

Can you give any color on your expectation for LNG prices or maybe some catalyst to get the rates back up a bit? Talking about JK and spot rate?.

Yes. So I mean, first of all, we're -- I mean, we're termed out in the sense that we don't have any availability in 2021. So it's not a short-term market, the market is not so important for us. But nevertheless, what we’ve seen in the last three annual seasons is that we've seen more cyclicality.

So around third and fourth quarter of the year we see a real pickup in demand for LNG carriers driven a lot by LNG going into the Far East. We believe that kind of cyclicality will continue going forward. Of course, it's not very easy to predict what the gas prices will be going forward. That's not our forte that's our charterer’s forte.

But then we do have noted that gas prices are on the spot not on long-term, but on spot are very cheap now. So, we will expect gas prices to increase going forward towards third and fourth quarter. In particular, driven by heating and industrial demand in the Far East during that time of the year.

And that will have normally a direct impact on shipping too..

All right. I appreciate the time..

Welcome..

Thank you very much. Our next question is from Michael Webber from Wells Fargo. Please go ahead. Your line is open..

Good morning, guys.

How are you?.

Good morning..

Tony, I just wanted to loop back on the primary topic here, which is the refi. So, I think, Donald or Ben kind of touched on this. But -- so where is the sponsor in all of this right now? I can imagine the sponsor wants to merge the entities now, but in terms of providing a backstop to refinancing effort, obviously the sponsor is in control.

There's some stuff you probably can't get into, but the sponsors role and a refinancing process is pretty critical. So it's tough to leave it is just we can't talk about it.

Is a sponsor willing to step in and be constructive in different ways of needs?.

Yes, we would absolutely think so. But that being said, we are in a positive way looking at the wide range of refinancing options. So, that is -- we expect that course of action, I mean, we think that that refinancing is not too far away..

And Tony, I’m not trying to get cute with your words, but when you say, you would think so, this is the refinancing process been going on for six to nine months, is that something you would know by now whether the sponsor is willing to step in or is that a conversation has even happened yet?.

Look, I don't think it's appropriate to kind of discuss in this forum right now, but….

You’ve got equity owners on the call right, so whether or not the sponsor you've had a conversation with the sponsor whether you're going to backstop or support I mean it's not improper, it might not be convenient, but it's not improper to talk about that..

I apologize, if I quoted myself incorrectly, but the sponsor is very aware, he is very well aware and the sponsor, yes would be willing to support if necessary. That is fair to say..

All right, that's helpful. I know you can't write cheques for them. So I understand that, but it's obviously critical for any kind of equity thesis. Around the dividend, I guess, I just kind of think of why you didn't cut it to zero.

And then I think Michael mentioned and I don’t want to take this out of context, but the cut you kind of -- you kind of came to a number like a landed at a number that keeps the options open at this stage. Is the right way to think about that you cut it to a point where you still think common equity is a viable option to help refinance the bond..

Yes, that's right. I mean, as we said, the various options are across the capital structure. So obviously potentially one spectrum of the capital structure is equity or similar forms preferred equity or what have you. So -- and it is important to have a distribution which can maintain that value.

So that's why we ended up with this number, which we believe would be the number that make sense and would be sustainable for the long-term given certain assumptions that obviously that it could turn out to be difference in practice..

And then, forgive me if you have mentioned this already, and it's kind of an overly simplistic question.

But, in terms of -- as you stand today, like as a timeframe or when you think kind of alleviate the overhang from the refinancing risk? Is that something you think you've done in the second quarter?.

It’s certainly a possibility, we can’t guarantee on it, but it’s certainly a possibility. Yes. .

Okay.

So possible maybe would you consider it likely or is it more likely sometime in Q3 kind of during the summer?.

I think it's likely, yes. .

Okay, that's helpful. I appreciate the time guys..

Thank you. .

Thank you very much. Unfortunately, we have no time for any further questions. I will hand the call back to Mr. Lauritzen and Mr. Gregos for closing remarks..

So thank you all for your time and for listening in on our earnings call and we look forward to speaking with you again on our next call. Thank you very much..

Thank you very much, gentlemen. Ladies and gentlemen, that does conclude the call for today. Thank you all for participating. You may now disconnect..