Capital Product Partners L.P., an international diversified shipping partnership, today released its financial results for the third quarter ended September 30, 2017 and more details on the successful refinancing of substantially all of the Partnership's indebtedness.
The Partnership's net income for the quarter ended September 30, 2017 was $9.7 million compared with $11.8 million for the third quarter of 2016 and $9.8 million for the previous quarter ended June 30, 2017. After taking into account the preferred interest in net income attributable to the unit holders of the 12,983,333 Class B Convertible Preferred Units outstanding as of September 30, 2017 (the “Class B Units”, and such unit holders the “Class B Unitholders”), and the interest attributable to the general partner, net income per common unit for the quarter ended September 30, 2017 was $0.05, compared to $0.07 for the third quarter of 2016 and $0.06 for the previous quarter ended June 30, 2017.
Operating surplus prior to allocations to our capital reserve and distributions to the Class B Units for the quarter ended September 30, 2017 amounted to $30.3 million, compared to $31.7 million for the third quarter of 2016 (before the $29.7 million in proceeds from the sale of shares in Hyundai Merchant Marine Co. Ltd (“HMM”) that we received in connection with HMM's financial restructuring), and $30.5 million for the previous quarter ended June 30, 2017. We allocated $14.6 million to the capital reserve during the third quarter of 2017, unchanged compared to the previous quarter. Operating surplus after the quarterly allocation to the capital reserve and distributions to the Class B Unitholders was $12.9 million for the third quarter of 2017. Operating surplus is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. Please refer to “Appendix A” at the end of the press release for a reconciliation of this non-GAAP measure with net income.
Total revenues for the third quarter of 2017 reached $62.7 million corresponding to an increase of 4.0% compared to $60.3 million during the third quarter of 2016. The increase in total revenues was primarily a result of the expansion of our fleet and the lower number of off hire days experienced by our vessels during the third quarter of 2017 compared to the same period in 2016, partly offset by lower charter rates earned by certain of our vessels compared to charter rates earned during the third quarter of 2016.
Total expenses for the third quarter of 2017 were $45.8 million compared to $42.4 million in the third quarter of 2016. Total vessel operating expenses during the third quarter of 2017 amounted to $21.4 million, an increase of 12.0% compared to $19.1 million during the third quarter of 2016. The increase primarily reflects the expansion of our fleet and the increase in the number of vessels in our fleet incurring operating expenses, following the redelivery of M/T ‘Atlantas II’, M/T ‘Aktoras’ and M/T ‘Aiolos’, which were previously employed on bareboat charters. Total expenses for the third quarter of 2017 include vessel depreciation and amortization of $18.5 million compared to $18.1 million in the third quarter of 2016, corresponding to an increase of 2.2%, also attributable to the expansion of our fleet. General and administrative expenses for the third quarter of 2017 were $1.6 million, compared to $1.8 million in the third quarter of 2016.
Total other expense, net for the third quarter of 2017 was $7.2 million compared to $6.1 million in the third quarter of 2016. Total other expense, net includes interest expense and finance costs of $7.5 million for the third quarter of 2017, compared to $6.0 million in the third quarter of 2016. The increase primarily reflects higher interest costs incurred during the third quarter of 2017, mainly as a result of an increase in the LIBOR weighted average interest rate compared to the same period in 2016 and commitment fees incurred under our new senior secured term loan facility, which is described in further detail below.
As of September 30, 2017, total partners' capital amounted to $936.8 million, an increase of $9.0 million compared to $927.8 million as of December 31, 2016. The increase primarily reflects net income for the nine months ended September 30, 2017 and the net proceeds from the issuance of common units under our at-the-market equity offering, partly offset by distributions declared and paid during the first nine months of 2017 of $38.5 million.
Total cash as of September 30, 2017 amounted to $176.2 million, of which restricted cash (under our credit facilities) amounted to $18.0 million.
As of September 30, 2017, the Partnership's total debt was $592.0 million, a decrease of $13.0 million compared to $605.0 million as of December 31, 2016 due to scheduled loan principal payments during the first nine months of 2017.
Refinancing of Four of our Existing Credit Facilities
On September 6, 2017, CPLP entered into a loan agreement for a new senior secured term loan facility (the “New Facility”) for an aggregate principal amount of up to $460.0 million with a syndicate of lenders led by HSH Nordbank AG (“HSH”) and ING Bank N.V. (“ING”) as mandated lead arrangers and bookrunners and BNP Paribas and National Bank of Greece S.A. as arrangers. On October 2, 2017, the Partnership fully repaid $14.0 million outstanding under its credit facility with Credit Agricole Bank entered into in 2011. Finally, on October 4, 2017 (the “Drawdown Date”), the Partnership drew the full amount of $460.0 million and together with available cash of approximately $102.2 million, fully repaid total indebtedness of $562.2 million consisting of (i) $186.0 million under the revolving credit facility led by HSH entered into in 2007, (ii) $181.6 million under the non-amortizing credit facility led by HSH entered into in 2008 and (iii) $194.6 million under the senior secured credit facility led by ING entered into in 2013.
The New Facility is comprised of two tranches. Tranche A amounts to $259.0 million, is secured by 11 of our vessels with an average age of 3.2 years and is required to be repaid in 24 equal quarterly instalments of $4.8 million, in addition to a balloon instalment of $143.0 million which is payable together with the final quarterly instalment in the fourth quarter of 2023. Tranche B, amounting to $201.0 million, is secured by 24 of our vessels with an average age of 10.6 years and is required to be repaid fully in 24 equal quarterly instalments of $8.4 million. The final installment of Tranche B is due in the fourth quarter of 2023. We will start paying quarterly instalments under both tranches A and B on January 4, 2018. The loans drawn under the New Facility bear interest at LIBOR plus a margin of 3.25%. The covenants under the New Facility are substantially similar to the covenants of our refinanced credit facilities and do not contain any restrictions on distributions to our unit holders in the absence of an event of default.
Following the refinancing, our debt consists only of the loans outstanding under the New Facility of $460.0 million and our 2015 credit facility with ING of $15.8 million, amounting $475.8 million in total.
Fleet Employment Update
The M/T ‘Miltiadis M II’ (162,397 dwt, Ice Class 1A Crude/Product Tanker built 2006, Daewoo Shipbuilding & Marine Engineering Co., Ltd. South Korea) has been chartered to Capital Maritime & Trading Corp. (“Capital Maritime” or our “Sponsor”) for a period of ten to twelve months at a gross daily rate of $18,000 plus 50/50 profit share on actual earnings above $22,000 per day time charter equivalent earned by the charterer settled every six months. The new charter commenced in October 2017. The earliest redelivery under the new charter is in August 2018. The vessel was previously employed under a one year time charter to Capital Maritime at a gross daily rate of $25,000.
On August 25, 2017 the Partnership announced that it has secured new time charter employment for three Medium Range (“MR”) tankers as follows:
The M/T ‘Amadeus’ (50,108 dwt, IMO II/III Eco Chemical/Product Tanker built 2015, Samsung Heavy Industries (Nigbo) Co. Ltd.) secured employment with Repsol Trading S.A. (‘Repsol') for one year (+/- 30 days) at a gross daily rate of $14,500. The charterer has the option to extend the time charter for an additional year (+/-30 days) at a gross daily rate of $14,750. The new charter commenced in October 2017.
The M/T ‘Aktoras’ (36,759 dwt, IMO II/III Chemical Product Tanker built 2006 Hyundai Mipo Dockyard, South Korea) and the M/T ‘Aiolos’ (36,725 dwt, IMO II/III Chemical Product Tanker built 2007 Hyundai Mipo Dockyard, South Korea) have been chartered to Capital Maritime for ten to twelve months at $11,000 gross per day plus 50/50 profit share on actual earnings settled every six months. The vessels have been trading on voyage or short time charters following the expiry of their employment with BP Shipping Limited at the end of the first quarter of 2017. The new charters commenced in September 2017.
The employment of M/T ‘Miltadis M II’, M/T ‘Aktoras’ and M/T ‘Aiolos’ with Capital Maritime were unanimously approved by the Conflicts Committee of the Partnership.
As a result of the above employments, the Partnership's charter coverage for 2017 and 2018 is 90% and 60%, respectively.
Quarterly Common and Class B Unit Cash Distribution
On October 19, 2017, the Board of Directors of the Partnership (the “Board”) declared a cash distribution of $0.08 per common unit for the third quarter of 2017 payable on November 13, 2017 to common unit holders of record on November 3, 2017.
In addition, on October 19, 2017, the Board declared a cash distribution of $0.21375 per Class B Unit for the third quarter of 2017, in line with the requirements of the Partnership's Second Amended and Restated Partnership Agreement, as amended. The third quarter of 2017 Class B Unit cash distribution will be paid on November 10, 2017 to Class B Unitholders of record on November 2, 2017.
Management Commentary
Mr. Jerry Kalogiratos, Chief Executive and Chief Financial Officer of the Partnership's General Partner, commented:
“We are pleased to have completed a major milestone for the Partnership with the refinancing of substantially all of the Partnership's indebtedness at the beginning of the fourth quarter 2017. As previously announced, there are a number of benefits to the completed refinancing. First, the refinancing provides our unitholders enhanced visibility on our financial position and the maturity profile of our indebtedness, as our new credit facility does not mature until the fourth quarter of 2023. Second, the refinancing has significantly reduced our indebtedness, with our pro forma debt to capitalization ratio amounting to 33.7 % as of September 30, 2017 (after giving effect to the refinancing) compared to 38.7% as of September 30, 2017. Additionally, we believe that the dual tranche structure of our new facility mitigates refinancing risk in the future, as the tranche collateralized by our vessels with an average age of 10.6 years will be fully amortizing without a balloon payment at maturity of the loan. The only bullet payment upon maturity of our new facility amounts to $143.0 million, compared to projected net book value of the collateral fleet of $846.1 million, assuming depreciation and amortization is in line with our accounting policies and no write-offs through 2023. Finally, the annual amortization of $52.8 million under our new credit facility is lower than the amount we currently allocate to our capital reserve, in addition to any interest cost savings from our reduced indebtedness. As a result, we expect that we will consider a potential reduction in the capital reserve from the next quarter onwards, which should translate to a corresponding contribution to our Operating Surplus after the quarterly allocation to the capital reserve and Class B Units distribution. Any such reduction would be subject to Board approval.
“With the refinancing transaction behind us, we expect to turn our focus to growth. As previously disclosed, we have access to a range of acquisition opportunities from Capital Maritime. We aim, subject to market conditions and the availability of financing, to take advantage of these opportunities going forward with the objective of further increasing the long-term distributable cash flow of the Partnership and our common unit distributions.”
Full Report
Source: Capital Product Partners