Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners conference call on the first quarter 2019 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, at which time, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. I must advise you the conference is being recorded today, and 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 differ and affect Dynagas LNG Partners business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners filings within the Securities and Exchange Commission. I pass the floor to Mr. Lauritzen. Please go ahead, sir.
Morning, everyone, and thank you for joining us in our first quarter and the 31st March 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. Let's move to slide three. On it, our net income was reported at about $1.9 million for the quarter, and adjusted EBITDA was reported at $21.7 million. Distributable cash flow for the quarter ended up at $5.8 million. Furthermore, we reported free cash of $112.3 million and available liquidity of $142.3 million each as of March 31st, 2019.
Subsequent to the quarter, we paid in May 2019 a cash distribution to common unit holders of six cents in a quarter in respect of the first quarter of 2019. We also paid in May a quarterly cash distribution of 56 cents and a quarter for Series A Preferred Units for the period from February 12, 2019 to May 11, 2019, and a quarterly cash distribution of 64 cents and 11 sixteenths per Series B Preferred Units for the period from February 22, 2019 to May 21st, 2019. On May 31st, 2019, one of our vessels, the Lena River, completed her multi-month employment with a major energy company and is currently ballasting en route for delivery to her multi-year charter with Yamal LNG, which is all going well, expected to occur on about 1st of July 2019.
I will now turn the presentation over to Michael, who will provide you with further comments to the financial results.
Thank you, Tony. Going to slide four of the presentation, the operations of our fleet during the quarter were within our expectations, with our vessels utilization being 100% and adjusted EBITDA amounting to $21.7 million. For the quarter, five out of our six LNG carriers were trading under their previously announced term time charters, with the exception of the Lena River, which was trading under an interim short-term time charter pending for delivery into her 15-year Yamal time charter in early July. Our EBITDA for the quarter reflects the fact that this interim short-term Lena River time charter was at a lower contract rate than her previous Gazprom contract and also her upcoming Yamal contract.
Once the Lena River enters her 15-year Yamal contract, we expect a slight uptick in EBITDA to about $24 million per quarter, which we believe will be reflected in our financial results from the third quarter onwards. Operating expenses came in slightly higher compared to prior quarters, primarily due to scheduled replenishment of spare parts for the Yenisei River. However, please note that the Yamal time charter contracts are on an operating cost pass-through basis, meaning that our charters pay for all operating expenses as reasonably incurred. Moving on to slide five, distributable cash flow for the quarter amounted to $5.8 million, and common unit distributable cash flow coverage came in at 1.3 times. Cash coverage for the quarter came in at 2.7 times as a result of our minimal debt amortization.
Slide six, our top priority continues to be the refinancing of our $250 million unsecured notes, which are maturing in October 2019. We are in an advanced stage with commercial banks and other capital sources to fund the payment due on the maturity date of our notes and refinance our $470 million Term Loan B. We are cautiously optimistic that we will be successful in concluding this financing transaction. However, we cannot assure you we will do so as we have not yet received the requisite commitments from all the new lenders. The process of obtaining the requisite commitments has been quite long, which may be attributed to the size of the transaction and the number of banks involved.
This refinancing transaction of our entire indebtedness, if consummated in its contemplated form, will require the partnership to make significant quarterly debt repayments, restrict us from using part of our cash, and eliminate distributions to common unit holders, but will not affect the distribution to the Series A and Series B Preferred Units holders.
This contemplated transaction, if consummated, as contemplated, will also reduce our cost of debt compared to the cost of our current Term Loan B and achieve our objectives of de-leveraging and building equity value for the long term. We believe this financing transaction is in the long-term interest of the partnership and would like to mention that the quality of our fleet and the long-term charter cover we have secured for our vessels, have been instrumental in our ability to pursue this refinancing. Moving on to slide seven. As stated earlier, our LNG carriers are employed on long-term contracts. Once the Lena River enters her 15-year contract in the third quarter of this year, we estimate our 12-month forward run rate will be about $96 million-$97 million per annum as previously described in prior presentations.
If we deduct about $11.5 million in distribution for Series A and Series B Preferred Units holders, we are left with about $85 million in cash flow available for debt service. Our current level of debt service payments, which for the quarter was $13.5 million, or $54 million on an annualized basis, reflect our current non-amortizing debt and are not a guide of future debt service payments, which will increase materially if, as part of our refinancing, we transition to rapidly amortizing debt. To conclude, in terms of timing of our refinancing, we are cautiously optimistic and hopeful we will conclude this refinancing within the next two months, although we cannot give any assurances that this will be the case. That wraps it up for my side. I will pass the presentation over to Tony.
Thank you, Michael. Let us move on to slide eight to summarize the partnership's profile. Our fleet currently counts six LNG carriers, with an average age of about 8.8 years. We have a diversified customer base with international 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 $1.35 billion, and our average remaining charter period is about 9.3 years. Moving on to slide nine. Our fleet of LNG carriers are fixed on long-term charters with international energy companies. We believe that drivers for our charters were the characteristics of the fleet, including its Ice Class notation and our organization's performance track record. All the vessels are employed on time charter contracts, under which the charterer pays for all major voyage-related variable costs, such as fuel, canal fees, and terminal costs.
Our counterparties are mainly asset-strong energy producers that are typically able to forward-program their vessels for periods of time, which gives us a degree of planning ability and cost control. Our fleet is estimated to be 98% contracted in 2019, 100% in 2020, and 92% in 2021. The Lena River completed her charter with an undisclosed energy major on 31st of May 2019 in China, and the vessel has commenced her ballasting voyage to Europe, where the vessel will be delivered into her long-term charter with Yamal LNG on or about 1st of July 2019, all going well. The previous charterers will pay a ballasting voyage to fuel and hire from China to Singapore, from which location the continued ballasting will be for the partnership's account.
Our earliest vessel availability is now 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 10. We have a unique fleet, a versatile fleet. Five out of the six vessels in our fleet have Ice Class 1A notation. Therefore, the fleet can handle conventional LNG shipping as well as operate in icebound and subzero areas. Initial capital expenditure for an ice class vessel is somewhat more expensive than conventional carriers. However, the operating cost between our ice class type carriers and conventional carriers are similar. To our knowledge, we estimate that the company, together with our sponsor, has a market share of about 82% for vessels with Ice 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 added ability to trade in icebound areas an important advantage due to the increased production of LNG in icebound areas, and in particular, along the Northern Sea Route. Yamal LNG has commenced production of their mega projects. 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 long-term charters. Our fleet is designed for wide terminal compatibility, which we believe is of importance in a market that is changing from a fixed route trade to a worldwide trade. The fleet consists of groups of sister vessels, which we believe provide for overall relatively better economics and efficiency.
We have now reached the end of the presentation. I now open the floor for questions.
Thank you. As a reminder, if you do wish to ask a question, please press star and one on your telephone keypads and wait for your name to be announced. We will now take our first question. It comes from the line of Sanford Burns from Stifel. Please go ahead. Your line is now open.
Hi. Good morning, everyone. Just wondering to follow up on your commentary about the financing. You mentioned the size of transaction, the number of banks that have been, some of the issues you've been facing in completing it. Wondering if you could just maybe give some further color in terms of the process and why some of these institutions are taking as long as they have, is it counterparty risk, the macro environment, perceived concerns about the vessel quality? Any other color you can provide in terms of how the process is working its way through.
No, thank you. No, that's a good question. No, there's nothing unusual in the process. Typically, this is a very large transaction, let's say, for the commercial or the banking market. When there are many banks involved, each bank has its own timeline, and its own processes. We have to satisfy all these banks' processes and timelines. That, I think it's the number of banks primarily, which are involved in this quite large transaction, which is the reason for the process taking a bit longer than usual.
Could you share with us an estimate of how many banks? Are you talking about over 10, over 20 or is it something you'd rather not provide?
Well, yeah, I can give you some color. There's three lead banks. How many banks we will end up with, we don't know yet, but it could be up to 10 banks. It could be. Possibly.
Okay. One last question from me. Just also in terms of what you are working on with the group of lenders, does any of this involve any of the vessels up at the parent at this point in time, or the financing is strictly against the six vessels that are at DLNG?
The financing is strictly over the six vessels of DLNG. It has nothing to do with the parent.
Okay, great. Thank you, and good luck with everything.
Thank you.
Thank you. We'll now take our next question. It's from the line of Michael Webber from Wells Fargo. Please go ahead, your line is now open.
Good morning, guys. How are you?
Morning.
I wanted to ask you, checking your release around once you're through with the refinancing, being able to focus on new projects, and if we make the assumption that you're able to refinance the near-term maturity, and the distributions go to zero. What realistic liquidity would you guys have to play with to go out and look at new business? How would you look at that? It's not a gotcha question, it's trying to just kind of staring at this, trying to figure out what ammunition you're playing with in that scenario.
Yeah, no, listen, our plan is that there was a slide in the presentation that showed we have, let's say, essentially $85 million of cash available for debt service. We do envision the majority of that cash being used for service debt and principal and interest.
Right.
I think once we believe that as we utilize our secured cash flow, to pay down debt, our capital structure will improve. Eventually, we believe that these actions will, in the longer term, lead to an increase in our equity value, which might give us an opportunity to issue attractively priced debt and equity and thereafter, be focused to grow the Partnership.
Right. You're talking about organically de-levering after the refinance to the point where the currency is viable to then go out and grow? I mean, it seems like that'd be a pretty elongated timeframe.
Well, I mean, the way we think of it is
Go ahead.
Well, I mean, we have these fixed assets. They're on automatic pilot, essentially, significantly reducing debt. It will give us an opportunity to, as we de-leverage, to improve our capital structure. Thereafter, we'll be able to look at growth prospects.
Right. I just think kind of the direction I'm going is with the relationship with the parent, I asked this last quarter, and just to kind of follow up on it in terms of what role is the parent playing right now in facilitating the refinancing? Then I guess I've got a follow-up to that, but just within the context of there hasn't been that many moving pieces to the story for a couple of years now, the parent has been there. I guess I'm trying to think about the context of what role the parent is playing now in trying to facilitate a refinancing to kind of stop the bleeding versus being willing to step in to sell assets once the equity is devalued.
Well, Mike, the sponsor has a material holding in the partnership. I think it owns 44% of the partnership's common units, it has not bought or sold one common unit since the partnership's IPO in 2013. Although we cannot speak for the sponsor, we believe that if it is required, the sponsor will consider supporting the partnership as far as the sponsor's financial resources allow. We think it's still premature to comment on what form of support this could take, given that at this stage, the financing transaction we're working on does not require the sponsor's financial support. Although, we have to add, as you're asking, that the sponsor's long-standing relationship and reputation in the banking sector have been instrumental in this process. Also having said that, under the contemplated financing, the sponsor is required to maintain a certain ownership stake in the partnership.
Right. Tony, I know it's tough for you to speak for other people, but if I just look at the last two to three years and I just look at the equity chart, at some point I would have thought the idea that the sponsor is required to step in, is it literally the precipice of a default in which the sponsor feels compelled to step in? At what point is there a trigger where they say, "Hey, maybe I want to protect this equity value"? We've been hearing the same thing for a couple of years, and the stock's only gone one direction.
Well, listen, the sponsor is owned by a very traditional shipping family, which it doesn't typically speculate or invest in stock. This is one of the reasons why the sponsor has not bought or sold one share since the partnership's inception. I think it's a little far-fetched what you say regarding a default. In practice, in reality, the free flow of our common units is very limited. The sponsor accumulating more shares could further limit the trading liquidity of our common units. The sponsor does have a significant and material holding in the partnership. It owns 44% of the partnership's common units.
No, I understand that. I'm just trying to think about the context with which we should think about the relationship with the sponsor. If there's no willingness, I guess you can frame it as kind of a traditional ownership structure, but there's not a willingness to step in to backstop the existing equity value at any point in the last couple of years. Maybe once we get past the refinancing, they're willing to take back devalued equity for a dropdown. For other common shareholders, I'm trying to think about how I would think about that relationship.
Well, that's an opinion you have. I mean, the reality is that the partnership on its own can stand on its own legs. It does not require the sponsor's support. You're giving the impression that we need the sponsor's support, but we do not need it. This financing can be done on our own. As Tony said, if it is required, then the sponsor will support the partnership as far as its financial resources allow.
All right, Kat. Yeah, thanks for the time.
Thank you.
There appears to be no further questions at this time. Speaker, please continue.
Well, thank you to all for listening in on our conference call, and we look forward to speaking with you next time.
Sorry, we've just had one further question. It's from Randy Gibbons. Your line is now open.
Okay.
Howdy, gentlemen. How are you?
We're good, thank you.
Yeah, quick question for me. Just trying to get an expected timing for the current distribution in terms of when the last one will be paid. Will that be possibly this quarter, or will there be another one or two payments before you have to discontinue that distribution?
Yeah. That will depend on when the outcome of this refinancing. I can't really comment on that. As we said before, we hope this refinancing is finalized within the next 2 months. We'll be able to answer that question at that point in time.
Okay, that's fine. Then 1 more question. Any updates on the Yamal LNG project, specifically with the Lena River that's supposed to commence, I believe, next month? Is that still on schedule?
Yeah, it's still on schedule. The vessel has been released from her previous charter and is en route, ballasting towards Europe, where she will deliver on or about 1st of July, all going well, to Yamal LNG.
Perfect. All right. Hey, well, that's good to me. Thank you.
Thank you very much.
No further questions. Now please continue.
Thank you very much to all.
Thank you. That does conclude the conference for today. Thank you all for participating, and you may now disconnect.