Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference Call on the Second Quarter 2019 Financial Results. We have with us today 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.

[Operator Instructions] I must advise you that the conference call is being recorded today. At this time, I would like to read the safe harbor statements.

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 that 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. Now I would like to hand the floor over to Mr. Lauritzen.

Please go ahead, sir..

Good morning, everyone, and thank you for joining us in our second quarter ended 30 June 2019 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a 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 onto Slide 3. Net income for the quarter was reported at $0.9 million and adjusted EBITDA was recorded at $20.9 million.

Free cash was recorded at $112.9 million and available liquidity of $142.9 million each as of June 30, 2019. Subsequent to the quarter on September 25, 2019 the partnership successfully closed and funded a syndicated five-year $675 million senior secured term loan with leading international banks.

Borrowings under the senior secured loans have already been utilized to repay in full on September 25, the partnership’s outstanding $470 million senior secured term loan B and together with cash on hand will be utilized to repay in full the partnership’s $250 million senior unsecured notes at the maturity date on 30th of October 2019.

Pursuant to the terms of the $675 million senior secured term loan, the partnership will not declare or pay distributions to comment unitholders while borrowings are outstanding under the senior secured term loan.

We paid in August a quarterly cash distribution of $0.5625 per Series A preferred units for the period from May 12, 2019 to August 11, 2019 and the quarterly cash distribution of $0.541116 per Series B preferred unit for the period from May 22, 2019 to August 21, 2019.

Our vessel, the Lena River commenced our employment on the long-term charter with Yamal LNG on 1st of July, 2019. In order to deliver the Lena River into the new charter, the vessel incurred a repositioning voyage which took about one-month which reduced the fleet utilization which ended up at 94% for the quarter.

Our fleet of LNG carriers are now fully diluted into all of their respective long-term charters. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results..

Thank you, Tony. Moving over the slides for the presentation.

Our results for the quarter were within our expectations with adjusted EBITDA coming in at $21 million and utilization at 94% due to the repositioning of the Lena River with respect to its transition from its previous short-term into own contract to its Yamal 15-year contract which commenced on July 1.

Other than the Lena River repositioning, the partnership had no unscheduled of hire days.

The Lena River interim short-term contract which was included on May 31 was at a lower time charter rate than the present 15-year contract at the Lena River is currently performing resulting in an average daily hire per vessel gross of commissions of $55,100 per day for the quarter.

Following the entry of the Lena River into our long-term contract, we expect our average daily time charter hire to increase to about $62,000 per day per vessel therefore, going forward, we anticipate an uptick in our adjusted EBITDA to reflect this.

The increase in operating expenses of $12,630 per day per vessel reflects primarily increased operating expenses on the Yenisei River. However, please be reminded that the Yamal contracts are OpEx pass through meaning operating expenses are paid for by charters.

Interest and finance costs for the quarter amounted to $13.1 million, mostly financing we expect this cash interest expense to decrease considerably to around $8.5 million per quarter in the near term with current LIBOR rates resulting in significant cash savings.

Moving onto Slide 5, on September 25, we closed our syndicated $675 million senior secured term loan with major international shipping lenders. This global refinancing facility will be secured by among other things first priority mortgages on the six LNG carriers in the partnership suite.

Borrowings under the term loan together with cash on hand have repaid on September 25th in full of $470 million outstanding senior secured term loan B and will be used to repay our $250 million 6.25 senior unsecured notes at the maturity date of 30th of October 2019.

The new term loan is repayable over five years and 20 consecutive quarterly payments plus a balloon payment in year five based on a 14-year amortization profile and has a margin of LIBOR plus 300 basis points significantly reducing our cash interest expense.

The terms of the term loan include financial covenants providing for the maintenance of maximum leverage ratios and minimum liquidity covenants including the requirements for the partnership to maintain a minimum cash balance of $50 million throughout the life of the credit facility in the restrictive collateral accounts.

Under the terms of the term loan, the partnership will be prohibited from paying distributions with common unitholders while borrowings are outstanding under the term loan.

Scheduled distributions preferred unitholders under the existing Series A preferred units and Series B preferred units will not be restricted provided there is no event of default while the term loan remains outstanding.

This global refinancing streamlines our debt structure and significantly improves our financial profile as debt amortization increases from less than a 1% of total debt outstanding to about 7% of total debt outstanding resulting in a gradual de-leveraging of the business and allowing the partnership to build equity value over time.

This concludes my part of the participation. I will now pass the presentation on to Tony..

Thank you, Michael. Let’s move onto Slide 6. Our fleet currently counts at six LNG carriers with an average age of about 9.1 years. We have a diversified customer base with substantial energy companies namely Equinor, Gazprom and Yamal LNG, which the latter is a joint venture between TOTAL, CNPC, NOVATEK and the Silk Road Fund.

Our contract backlog is about $1.31 billion, equivalent to an average backlog of about $218 million per vessel and our average remaining charter period is about nine years which compares very well versus our peers. Moving on to Slide 7. Our fleet of LNG carriers are fixed on time charters with key energy companies.

We believe that drivers for our charters were the characteristics of the fleet, including their ice class notations and our organization's operational performance track record. All of the vessels are employed on time charter contracts, under which the charter pays all major voyage-related variable costs, such as fuel, canal fees and terminal costs.

Our counterparties are mainly active strong energy producers that are typically able to forward program their vessels for periods of time, which gives us a certain degree of planning ability and cost control. We estimate our fleet now to be 100% contracted in 2019, 100% in 2020 and 92% in 2021.

With the Lena River having been delivered into her long-term charter with Yamal LNG, our earliest potential re-chartering availability is the Arctic Aurora, which will be free in 2021 provided that Equinor does not exercise their option to extend the contract. So far the vessel has served Equinor with good feedback and results. Moving on to Slide 8.

We have a unique and versatile fleet. Five out of the six vessels in our fleets are assigned with ice class 1A notation. Therefore, the fleet can handle conventional energy shipping as well as operate in icebound and subzero areas. Initial capital expenditure for an ice class vessel is more expensive than conventional carriers.

However, we estimate the operating cost between our ice class type carriers and conventional carriers to be very similar. To our knowledge, the company together with our sponsor has a market share of about 82% for vessels with Arc-4 or equivalent ice class notation.

To our knowledge, there are only two other LNG carriers in the world with equivalent notation, which are chartered out in the long-term. We view the ability to trade in icebound areas as an important advantage due to the increased production of LNG in such areas, and in particular along the northern sea routes.

Yamal LNG has commenced the production of their mega project and we also expect further projects to be developed in that region. We view the ability to perform conventional and niche operations as an important driver in securing attractive long-term charters.

Furthermore our fleet is optimized for terminal compatibility, which we believe is of value to our charters and the fleet consist of groups of sister vessels that provides for overall better economics operations, preventive maintenance and redundancies.

Moving onto Slide 9, we believe our company has many attractive features, our fleet is relatively young compared with the world average and provides for trading versatility.

The new financial profile of the company is simple and provides us with the competitive cost of debt and with the clear path towards gradual de-leveraging through a significant annual debt amortization.

The partnership has inflated long-term charter contracts with the international energy companies generating cash flows of the Channel 2 of the amortization requirements of the financing facility which we believe will result in building equity value over time and beyond this position the company for future growth.

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

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Thank you. We will now begin with the first question. Your line is open, please go ahead..

Hey guys, this is Ben Nolan from Stifel.

Can you hear me?.

Yes, hi Ben..

Hi Ben..

Hey, Tony, Michael. Hey well first congratulations on the financing, it took a while but I would say six vessels certainly with respect to the terms. I did want to dig in a little bit on that if I could. So with respect to clearly common dividends are restricted so long as there is a balance on the loan.

I was curious if there is also restrictions on acquisitions not that maybe you would do this right way but are those also restricted into the terms of loan?.

No, hi Ben. No, acquisitions are not restricted provided of course that pro forma of the acquisitions, we can meet the financial covenants which are in the loan agreement..

Okay, very helpful.

And then also are there any restrictions on prepayment or early retirement or anything of that sort or you’re free to repay?.

No, no we’re free to repay at any time..

Good.

And then also, I was curious you didn’t listed in there, could you maybe talk through maybe the profile of the lenders maybe specifically who they are at least maybe in general, the types of lenders that were part of the transaction?.

We cannot mention the name specifically but it’s a large group of household name of banks, huge banks which are household names. It’s a large number of banks involved in this syndicated facility, but unfortunately I can’t tell you specifically which banks they are other than they’re household names..

Okay. Now that’s fine. I was just trying to get a sense.

And then with all that said, the financing is out of the way, the groundwork and the rules of the game appear to sort of be now, it seems like in the near-term cash flow has to go to repaying debt but in the longer term curious, how do you envision the partnership developing, what’s the grand scheme of hope of where you want to be and how long and how you intend to get there from sort of a broader strategic stance?.

Yes, thank you, Ben. I mean as you mentioned, now that the overhang of the refinancing is lifted, we hope that the market will be able to better assess the quality and prospects of the partnership and of course the elimination of the distribution to common unitholders is the painful measure.

However looking ahead, it allows the partnership to build equity value over time which we hope will be eventually reflected in our unit price. And at that time, we will consider what are the best options for the partnership to finance further growth opportunities.

Obviously, our common unit price makes it unattractive to issue equity to fund acquisitions, although the decision at the end of the day depends on the use of capital and how value additive it is to the company.

So repeating myself, at present we believe immediate value growth would come from an increasing equity value as a result of the amortization profile of the new term loan facility. I think that’s what we can say for now..

Okay. But in the long-term and maybe looking at some of the assets still held at the sponsor, you’re not in a position to do anything about it now but eventually those are still potential acquisition targets or hopeful acquisition targets I suppose..

Yes, I mean listen looking ahead further into the future, we can consider growth opportunities.

From growth downs, all third-party vessels following the completion of our refinancing and elimination of our common distribution, we believe that whatever growth initiatives we undertake, there have to be financed in a way which can increase shareholder value, so we have to see where our common unit price will settle over time in order to evaluate growth initiatives, whether they would be from our sponsors vessels or third-party vessels..

Okay, understood. All right, thanks a lot guys..

Thank you..

Thank you..

Thank you very much. [Operator Instructions] Thank you very much, we’ll now take our next question. The line is open, please go ahead..

Howdy gentlemen, it’s Randy Giveans at Jefferies.

How are you?.

Very good, thank you..

Great, I guess two quick questions from me.

Obviously there is no allowances for distributions here until I guess 2024 our balance on the loan, any opportunities for unit repurchases or those also disallowed?.

No, no, they’re not. Unit repurchases are not disallowed, no. There is certain minimum liquidity covenants that we have. We have to have certain level of minimum liquidity. But as long as we meet those, they’re not disallowed no..

And is there any authorization for unit repurchases right now?.

At this stage no, at this stage no..

Okay.

And then I guess with 100% contract gain was pretty fixed, the expenses, option interest expense coming down pretty straightforward model, I guess only maybe driver changes with the off-hire expectations either in the back half of this year 2020, can you give us some updated kind of dry docking guidance around those vessels for the next maybe two years?.

Well, the next two years, we don’t have any scheduled dry dockings. Our first dry dockings commence 2022, three vessels in 2022 and three vessels in 2023..

Perfect.

Okay and then I guess just last question, you mentioned opportunities looking at further dropdowns either from your sponsor or from a third-party, is there a preferred dropdown kind of event or term, are you looking out maybe 172,000 cubic meters or the smaller 152s or is it completely just price dependent?.

No, there is no preferred vessel at this stage. As we said earlier, we’ve just completed our refinancing. We’re going to have to see where our market caps settles over time and evaluate the growth initiatives from there. And as we said, it can be the dropdowns from our sponsor or it could be third-party vessels.

We don’t have any specific vessels in mind from our sponsors fleet..

Sure. All right, well that’s it from me. Thanks again and yes congrats on the refi..

Thank you..

Thank you..

Thank you very much. [Operator Instructions] We will now take our next question. Your line is open. Please go ahead..

Hi, this is Dan Kelsh from UBS Wealth Management giving a call. Congrats again on the refinancing.

I did want to ask, if you guys had any plans sustaining your rating with Moody’s and S&P where if new lenders don’t require that, is it something you might move out from?.

Yes, that’s being withdrawn. The ratings are being withdrawn, we no longer need those ratings. So they’re being withdrawn, yes..

Okay.

And just separate follow-up questions, I had presumed prior aspect kind of repurchasing common equity but have you ever thought about repurchasing any of your preferred either, just knowing that discounted phase, is that (inaudible)?.

Well, right now we had our -- we’re really focused on our refinancing. So at this stage, we have to think about all our options and how we’re going to see. We have not really thought about it to tell you the truth..

Okay, all right. Thank you..

Okay, thank you..

Thank you very much. There are no further questions. Please continue..

Thank you very much. We would like to thank you for your time and for listening in on our earnings call. We look forward to speaking with you again on our next call. Thank you very much..

Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect..