Scorpio Tankers Inc. reported its results for the three and nine months ended September 30, 2016 and declaration of a quarterly dividend.

Results for the three months ended September 30, 2016 and 2015

For the three months ended September 30, 2016, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $18.3 million, or $0.11 basic and diluted loss per share, which excludes from net loss (i) an aggregate write-off of $9.0 million of deferred financing fees and (ii) a $0.2 million unrealized gain on derivative financial instruments. The adjustments resulted in an aggregate reduction of the Company’s net loss by $8.8 million or $0.06 basic and diluted loss per share. For the three months ended September 30, 2016, the Company had a net loss of $27.1 million, or $0.17 basic and diluted loss per share.

For the three months ended September 30, 2015, the Company’s adjusted net income was $88.1 million (see non-IFRS Measures section below), or $0.53 basic and $0.46 diluted earnings per share, which excludes (i) a gain of $1.2 million resulting from the sale of the Company’s investment in Dorian LPG Ltd. (“Dorian”), (ii) a gain of $1.4 million resulting from the early termination of the contract on a time chartered-in vessel, (iii) a reserve of $1.4 million for a pool bunker supplier in bankruptcy, (iv) a $2.0 million write-off of deferred financing fees, (v) a loss on the sale of a vessel of $2.0 million, (vi) an unrealized loss on derivative financial instruments of $35,000 and (vii) a gain of $46,000 resulting from the repurchase of $1.5 million face value of the Company’s Convertible Senior Notes due 2019 (the “Convertible Notes”). The adjustments resulted in an aggregate increase of the Company’s net income by $2.9 million or $0.02 basic and diluted earnings per share. For the three months ended September 30, 2015, the Company had net income of $85.2 million, or $0.51 basic and $0.44 diluted earnings per share.

Results for the nine months ended September 30, 2016 and 2015

For the nine months ended September 30, 2016, the Company’s adjusted net income (see Non-IFRS Measures section below) was $18.7 million, or $0.12 basic and $0.11 diluted earnings per share, which excludes from net income (i) a $2.1 million loss on sales of vessels, (ii) an aggregate write-off of $14.5 million of deferred financing fees, (iii) a $1.6 million unrealized gain on derivative financial instruments and (iv) a $1.0 million aggregate gain recorded on the repurchase of $10.0 million aggregate principal amount of the Company’s Convertible Notes. The adjustments resulted in an aggregate increase of net income by $14.0 million or $0.09 basic and $0.08 diluted earnings per share. For the nine months ended September 30, 2016, the Company had net income of $4.8 million, or $0.03 basic and diluted earnings per share.

For the nine months ended September 30, 2015, the Company’s adjusted net income was $184.9 million (see non-IFRS Measures section below), or $1.15 basic and $1.01 diluted earnings per share, which excludes (i) a gain of $1.2 million resulting from the sale of the Company’s investment in Dorian, (ii) a gain of $1.4 million resulting from the early termination of a contract on a time chartered-in vessel, (iii) a reserve of $1.4 million for a pool bunker supplier in bankruptcy, (iv) a $2.0 million write-off of deferred financing fees, (v) a net loss of $35,000 related to the gains and losses on the sales of four vessels, (vi) an unrealized loss on derivative financial instruments of $0.6 million and (vii) a gain of $46,000 resulting from the repurchase of $1.5 million face value of the Company’s Convertible Notes. The adjustments resulted in an aggregate increase of the Company’s net income by $1.4 million or $0.01 basic and $0.00 diluted loss per share. For the nine months ended September 30, 2015, the Company had net income of $183.5 million, or $1.14 basic and $1.01 diluted earnings per share.

Declaration of Dividend

On November 10, 2016, the Company’s Board of Directors declared a quarterly cash dividend of $0.125 per share, payable on or about December 22, 2016 to all shareholders as of November 25, 2016 (the record date). As of November 11, 2016, there were 174,629,755 shares outstanding.

Diluted Weighted Number of Shares

Diluted earnings per share is determined using the if-converted method. Under this method, the Company assumes that the Convertible Notes (which were issued in June 2014) are converted into common shares at the beginning of each period and the interest and non-cash amortization expense associated with these notes of $5.4 million and $16.2 million during the three and nine months ended September 30, 2016, respectively, are not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three and nine months ended September 30, 2016, the Company’s basic weighted average number of shares were 160,844,168 and 160,902,344, respectively. The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three months ended September 30, 2016 as the Company incurred a net loss. The Company’s diluted weighted average number of shares for the nine months ended September 30, 2016 was 166,839,648 which excludes the impact of the Convertible Notes since the if-converted method was anti-dilutive. As of the date hereof, the Convertible Notes are not eligible for conversion.

Summary of Recent and Third Quarter Significant Events

TCE Revenues

Below is a summary of the average daily TCE revenue and duration for voyages fixed thus far in the fourth quarter of 2016 as of the date hereof:

For the LR2s in the pool: approximately $13,000 per day for 60% of the days
For the LR1 in the pool: approximately $14,000 per day for 50% of the days
For the MRs in the pool: approximately $10,500 per day for 50% of the days
For the Handymaxes in the pool: approximately $7,000 per day for 50% of the days

Below is a summary of the average daily TCE revenue earned during the third quarter of 2016:
For the LR2s in the pool: $18,793 per revenue day
For the LR1 in the pool: $10,547 per revenue day
For the MRs in the pool: $12,254 per revenue day
For the Handymaxes in the pool: $9,450 per revenue day

Dividend Payment

In September 2016, the Company paid a quarterly cash dividend on the Company’s common stock of $0.125 per share.

Management Agreements

In September 2016, the Company entered into an agreement to amend its Administrative Services Agreement with Scorpio Services Holding Limited (“SSH”) and its Master Agreement with Scorpio Commercial Management (“SCM”) and Scorpio Ship Management (“SSM”). Under the terms of the amendments, among other things, (i) the fee of 1% payable to SSH upon any future vessel sale or purchase will be eliminated; and (ii) the fees due for a termination of the commercial and technical management arrangements in the event of the sale of one or more vessels, provided it does not amount to a change of control of the Company, have been reduced from two years of management fees to a three month notice period and three months of management fees payable to SCM and SSM. There was no consideration payable by the Company for these amendments. The effective date of these amendments was September 29, 2016.

The independent members of the Company’s Board of Directors unanimously approved the amendments to the Administrative Services Agreement and Master Agreement described in the preceding paragraph. SSH, SCM and SSM are entities related to the Company.

Debt refinancings and agreements

During the third quarter of 2016, the Company refinanced the aggregate outstanding indebtedness of $396.8 million under its 2013 Credit Facility and Newbuilding Credit Facility. As part of these transactions, the Company drew down an aggregate of $418.8 million under its NIBC Credit Facility, 2016 Credit Facility and DVB Credit Facility. Furthermore, the Company amended certain financial covenants under its K-Sure, KEXIM and 2011 Credit Facilities to make them similar to the financial covenants set forth under these new credit facilities. The Company also received a commitment for a new credit facility in November 2016. These facilities are summarized below.

2016 Credit Facility

In August 2016, the Company executed a loan facility with ABN AMRO Bank N.V, Nordea Bank Finland plc, acting through its New York branch, and Skandinaviska Enskilda Banken AB. The loan facility was fully drawn in September 2016, and the aggregate proceeds of $288.0 million were used to refinance the existing indebtedness on 16 MR product tankers.

The loan facility consists of a term loan of $192.0 million and a revolving credit facility of $96.0 million. Repayments on the term loan facility will be made in equal, consecutive quarterly installments of $6.8 million through September 2018 and $6.0 million for each quarter thereafter with a final balloon payment due at the maturity date of September 2021. All amounts borrowed under the revolving credit facility are due at the maturity date of September 2021. The facility bears interest at LIBOR plus a margin of 2.50% per annum.

This facility includes financial covenants that require the Company to maintain:

• Minimum liquidity of not less than the greater of (a) $25.0 million or (b) $250,000 per time chartered-in vessel plus $500,000 per owned vessel.
• Minimum consolidated tangible net worth of not less than $1.0 billion plus:
  • 25% of cumulative, positive consolidated net income for each quarter commencing on or after January 1, 2016; and
  • 50% of the net proceeds of any new equity issues on or after January 1, 2016.
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• The ratio of EBITDA to net cash interest expense greater than 2.50 to 1.00, calculated on a trailing four quarter basis.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 140% of the then aggregate outstanding principal amount of the loans under the credit facility.

The remaining terms and conditions are similar to those in the Company’s existing credit facilities.

NIBC Credit Facility

In June 2016, the Company executed a term loan facility with NIBC Bank N.V. This facility was fully drawn in July 2016, and the proceeds of $40.8 million were used to refinance the existing indebtedness on two MR product tankers. The facility will be repaid in eight quarterly installments of $1.0 million, followed by 12 quarterly installments of $0.8 million, and the remainder is due on maturity, which is June 2021. The facility bears interest at LIBOR plus a margin of 2.50% per annum. The remaining terms and conditions, including financial covenants, are similar to those set forth above in the Company’s 2016 Credit Facility.

DVB Credit Facility

In September 2016, the Company executed a loan facility with DVB Bank SE. The loan facility was fully drawn in September 2016, and the aggregate proceeds of $90.0 million were used to refinance the existing indebtedness on four MR product tankers. The facility will be repaid in equal, quarterly principal repayments of $1.6 million, has a final maturity of August 2017 and bears interest at LIBOR plus a margin of 1.60% per annum. The remaining terms and conditions, including financial covenants, are similar to those set forth above in the Company’s 2016 Credit Facility.

HSH Credit Facility

In November 2016, the Company received a commitment from HSH Nordbank AG for a loan facility of up to $34 million. The loan facility is expected to be used to refinance the existing indebtedness on two MR product tankers, has a final maturity of five years from the first drawdown date, and bears interest at LIBOR plus a margin of 2.50% per annum. The availability is expected to be used to finance up to 60% of the fair market value of the respective vessels. The remaining terms and conditions, including financial covenants, are similar to those set forth above in the Company’s 2016 Credit Facility. The loan facility is subject to customary conditions precedent and the execution of definitive documentation.

$250 Million Securities Repurchase Program

In May 2015, the Company’s Board of Directors authorized a Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s securities, which currently consist of its (i) Convertible Notes, which were issued in June 2014, (ii) Unsecured Senior Notes Due 2020 (NYSE: SBNA), which were issued in May 2014, and (iii) Unsecured Senior Notes Due 2017 (NYSE: SBNB), which were issued in October 2014. As of the date hereof, the Company has the authority to purchase up to an additional $153.3 million of its securities under its Securities Repurchase Program. The Company expects to repurchase its securities in the open market, at times and prices that are considered to be appropriate by the Company, but is not obligated under the terms of the Securities Repurchase Program to repurchase any of its securities.

Since July 1, 2016 through the date of this press release, the Company has repurchased an aggregate of 657,154 of its common shares at an average price of $4.26 per share; the repurchased shares are being held as treasury shares. There were 174,629,755 common shares issued and outstanding as of November 11, 2016.

Time Charter-in Update

In October 2016, the Company time chartered-in a 2006 built MR product tanker for one year at $13,500 per day. The Company also has an option to extend the charter for an additional year at $15,000 per day.

In September 2016, the Company time chartered-in two 2011 built MR product tankers, each for two years at $15,250 per day. The Company also has an option to extend each charter for an additional year at $16,000 per day.

In July 2016, the Company time chartered-in a 2013 built MR product tanker for one year at $15,800 per day. The Company also has an option to extend the charter for an additional year at $17,000 per day.

In July 2016, the Company extended the time charter-in agreement for an LR2 product tanker that is currently time chartered-in for an additional six months at $18,500 per day effective September 2016. The Company also has an option to extend the charter for an additional six months at $20,550 per day.

Fleet update

In July 2016, one of the Company’s Handymax tankers, STI Brixton, was arrested in connection with alleged damage of underwater equipment at a port. Any costs incurred to repair the alleged damage to the equipment are expected to be covered by insurance. This vessel was offhire for approximately 32 days as a result of this incident.

Source: Scorpio Tankers Inc.