Capital Product Partners L.P., an international diversified shipping partnership, released its financial results for the second quarter ended June 30, 2017.
The Partnership’s net income for the quarter ended June 30, 2017 was $9.8 million compared with $14.9 million for the second quarter of 2016 and $12.3 million for the previous quarter ended March 31, 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 June 30, 2017 (the “Class B Units” and the “Class B Unitholders”), and the interest attributable to the general partner, net income per common unit for the quarter ended June 30, 2017 was $0.06, compared to $0.10 for the second quarter of 2016 and $0.08 for the previous quarter ended March 31, 2017.
Operating surplus prior to the capital reserve and the Class B Units distributions for the quarter ended June 30, 2017 amounted to $30.5 million, a decrease of 16.7% compared to $36.6 million for the second quarter of 2016 and a decrease of 6.7% compared to $32.7 million for the previous quarter ended March 31, 2017. We allocated $14.6 million to the capital reserve during the second 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 $13.0 million for the second quarter 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 second quarter of 2017 reached $62.1 million corresponding to an increase of 2.0% compared to $60.9 million during the second quarter of 2016. The increase in total revenues was primarily a result of the expansion of our fleet, partly offset by the lower charter rates earned by certain of our vessels compared to the second quarter of 2016.
Total expenses for the second quarter of 2017 were $45.7 million compared to $40.3 million in the second quarter of 2016. Total vessel operating expenses during the second quarter of 2017 amounted to $22.0 million, an increase of 17.6% compared to $18.7 million during the second 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’ in September 2016 and M/T ‘Aktoras’ and M/T ‘Aiolos’ in March 2017, which were previously employed on bareboat charters. Total expenses for the second quarter of 2017 include vessel depreciation and amortization of $18.5 million compared to $17.9 million in the second quarter of 2016, corresponding to an increase of 3.4%, also attributable to the expansion of our fleet. General and administrative expenses for the second quarter of 2017 were $1.5 million, in line with the second quarter of 2016.
Total other expense, net for the second quarter of 2017 was $6.6 million compared to $5.7 million in the second quarter of 2016. Total other expense, net includes interest expense and finance costs of $6.7 million, compared to $6.0 million in the second quarter of 2016. The increase primarily reflects higher interest costs incurred during the second quarter of 2017, mainly as a result of an increase in the LIBOR weighted average interest rate compared to the same period in 2016.
As of June 30, 2017, total partners’ capital amounted to $929.8 million, an increase of $2.0 million compared to $927.8 million as of December 31, 2016. The increase primarily reflects net income for the six months ended June 30, 2017, partly offset by distributions declared and paid during the first half of 2017 in the total amount of $25.6 million.
Total cash as of June 30, 2017, amounted to $156.3 million out of which restricted cash (under our credit facilities) amounted to $18.0 million.
As of June 30, 2017, the Partnership’s total debt decreased by $8.7 million to $596.3 million, compared to $605.0 million as of December 31, 2016 due to scheduled loan principal payments during the first half of 2017.
New $460 million credit facility for the refinancing of substantially all of our existing credit facilities
On May 22, 2017, we entered into a firm offer letter for a senior secured term loan facility (the “New Facility”) of up to $460.0 million with 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. The lenders also include Alpha Bank S.A., Piraeus Bank S.A. and Skandinaviska Enskilda Banken AB (Publ). The closing of the credit facility is subject to finalization of the long form loan documentation. We intend to use the net proceeds of the loans under the New Facility, together with available cash of approximately $120.6 million, to refinance, four out of five of our existing credit facilities amounting to $580.6 million in total: (i) our 2007 revolving credit facility of up to $370.0 million led by HSH, (ii) our 2008 non-amortizing credit facility of up to $350.0 million led by HSH, (iii) our 2011 credit facility of up to $25.0 million with Credit Agricole Bank, and (iv) our 2013 senior secured credit facility of up to $225.0 million led by ING. Following our planned refinancing, our debt will consist only of the loans outstanding under the New Facility and our 2015 credit facility with ING, and will total approximately $475.8 million. The New Facility has a six year maturity from drawdown, but it will be repayable in any event no later than November 2023. The New Facility is comprised of two tranches. Tranche A amounts to the lower of (i) $259.0 million and (ii) 57.5% of the value of 11 of our vessels with an average age of 3.0 years, and shall be repaid in 24 equal quarterly instalments of up to $4.8 million in addition to a balloon instalment of $143.0 million (payable together with the final quarterly instalment). Tranche B amounts to the lower of (i) $201.0 million and (ii) 57.5% of the value of 24 of our vessels with an average age of 10.3 years, and shall be repaid fully in 24 equal quarterly instalments of up to $8.4 million. The loans drawn under the New Facility will bear interest at LIBOR plus a margin of 3.25%. Our covenants under the New Facility are substantially similar to covenants made under our existing credit facilities and do not contain any restrictions on distributions to our unit holders in the absence of an event of default.
Fleet Employment Update
The M/T ‘Aktoras’ (36,759 IMO II/III Chemical Product Tanker built 2006 Hyundai Mipo Dockyard, South Korea) and M/T ‘Aiolos’ (36,725 IMO II/III Chemical Product Tanker built 2007 Hyundai Mipo Dockyard, South Korea) were redelivered to us on 11 and 25 March 2017 respectively from their previous ten year bareboat employment with BP Shipping Ltd (“BP”), which was at above market rates compared to period rates prevailing currently in the market. Both vessels were trading ‘dirty’ petroleum products during their employment with BP and as a result had to incur off hire days, in order to be prepared for clean product trading. In addition, in order to transition the vessels to clean petroleum product trading and reposition them for longer term employment, they have been trading on voyage or short time charters during the second quarter of 2017.
The M/T ‘Alkiviadis’ (36,721 dwt, Ice Class 1A IMO II/III Chemical/ Product, built 2006 Hyundai Mipo Dockyard Company Ltd., South Korea) has extended its employment with CSSA S.A. (the shipping affiliate of Total S.A.) for an additional 12 months (+/- 30 days) at a gross daily rate of $12,750 per day. The charter extension will commence in early August with the earliest charter expiration in July 2018. The vessel is currently earning a gross daily rate of $13,300 per day.
As a result of the new charter, our charter coverage for 2017 and 2018 now stands at 83% and 52%, respectively.
Quarterly Common and Class B Unit Cash Distribution
On July 20, 2017, the Board of Directors of the Partnership declared a cash distribution of $0.08 per common unit for the second quarter of 2017 payable on August 11, 2017 to common unit holders of record on August 3, 2017.
In addition, on July 20, 2017, the Board of Directors of the Partnership declared a cash distribution of $0.21375 per Class B Unit for the second quarter of 2017, in line with the requirements of the Partnership’s Second Amended and Restated Partnership Agreement, as amended. The second quarter of 2017 Class B Unit cash distribution will be paid on August 10, 2017 to Class B Unitholders of record on August 2, 2017.
Neo-Panamax Container Market
The neo-panamax charter market continued to see improving charter rates for most of the second quarter of 2017, as increased employment opportunities absorbed idle tonnage. However, the charter market remains volatile, as rates seemed to cool off in most container segments towards the end of the quarter.
Increased vessel demand led to a further decrease of the idle container fleet from 4.5% at the end of the first quarter of 2017 to approximately 2.7%.
In addition, analysts have revised their demand growth projections for containerized cargo for full year 2017 to 4.8% from 4.3% in the previous quarter.
At the same time, the expected net fleet growth for 2017 has increased from 1.7% at the end of previous quarter to 2.7%, due to a slowdown in container vessel demolition, as well as reduced slippage for newbuilding deliveries in the second quarter of 2017. Analysts estimate that approximately 278,641 TEU’s have been scrapped in the first half of 2017 compared to 268,250 in the same period last year. At the end of the second quarter of 2017, the container orderbook stood at 13.7% of the current fleet, down from 15.1% in the previous quarter, which is at the lowest level on record.
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 arrangement of our new $460.0 million credit facility to refinance, together with available cash, substantially all of our existing credit facilities. There are many benefits to the forthcoming refinancing. First, we expect that the contemplated refinancing will give our unitholders enhanced visibility on our financial position, as this will refinance the vast majority of our debt obligations well into 2023. Second, the envisaged prepayment associated with the refinancing will significantly reduce our indebtedness with our pro forma debt to capitalization ratio amounting to 33.8% as of June 30, 2017 (after giving effect to the refinancing) compared to 39.1% as of June 30, 2017. Additionally, we believe that the dual tranche structure of our new facility greatly mitigates the refinancing risk for the Partnership in the future, as the tranche collateralized by close to two thirds of our vessels will be fully amortizing without a balloon payment at maturity of the loan. The only bullet payment upon maturity of our new facility is therefore expected to amount to $143.0 million, compared to assumed net book value of the collateral fleet of $846.1 million, assuming solely, for this purpose, depreciation and amortization in line with our accounting policies and no write offs through 2023. Finally, annual amortization under our new credit facility is expected to be lower than the amount we currently allocate to our capital reserve, in addition to any interest cost savings from our reduced indebtedness.
“We strongly believe that this transaction will further strengthen our balance sheet and will be an important cornerstone, as we turn our attention to growth. We aim, subject to market conditions and the availability of financing, to further increase the long-term distributable cash flow of the Partnership by pursuing additional accretive transactions including a number of acquisition opportunities from Capital Maritime & Trading Corp. (“Capital Maritime”), our sponsor.”