Scorpio Tankers in the red

Scorpio-Tankers

Scorpio Tankers reported its results for the three months ended March 31, 2017 and declaration of a quarterly dividend.

Results for the three months ended March 31, 2017 and 2016

For the three months ended March 31, 2017, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $11.5 million, or $0.07 basic and diluted loss per share, which excludes a $0.1 million, or $0.00 per basic and diluted share, write-off of deferred financing fees. For the three months ended March 31, 2017, the Company had a net loss of $11.5 million, or $0.07 basic and diluted loss per share.

For the three months ended March 31, 2016, the Company’s adjusted net income was $30.5 million (see Non-IFRS Measures section below), or $0.19 basic and $0.18 diluted earnings per share, which excludes (i) a $2.2 million loss on sales of vessels and write-down of vessels held for sale, (ii) a $1.8 million write-off of deferred financing fees, (iii) a $1.0 million unrealized gain on derivative financial instruments and (iv) a $0.6 million gain recorded on the repurchase of $5.0 million face value of the Company’s Convertible Senior Notes due 2019 (the “Convertible Notes”). The adjustments aggregated to an increase of the Company’s net income by $2.4 million or $0.02 basic and $0.01 diluted earnings per share. For the three months ended March 31, 2016, the Company had net income of $28.0 million, or $0.17 basic and diluted earnings per share.

Declaration of Dividend

On April 26, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.01 per share, payable on or about June 14, 2017 to all shareholders as of May 11, 2017 (the record date). As of April 26, 2017, 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 $5.5 million and $5.5 million during the three months ended March 31, 2017 and 2016, respectively are not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three months ended March 31, 2017, the Company’s basic weighted average number of shares was 162,711,256. The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three months ended March 31, 2017 as the Company incurred a net loss. For the three months ended March 31, 2016, the Company’s basic weighted average number of shares was 160,471,857. The Company’s diluted weighted average number of shares was 165,680,353 excluding the impact of the Convertible Notes and 197,620,040 under the if-converted method (assuming the Convertible Notes are converted into common shares). Earnings per share for the three months ended March 31, 2016 does not consider the effect of the Convertible Notes as the if-converted method was anti-dilutive. Adjusted earnings per share (see Non-IFRS Measures section below) for the three months ended March 31, 2016 was calculated using the if-converted method as the effect of which was dilutive. As of the date hereof, the Convertible Notes are not eligible for conversion.

Summary of Recent and First Quarter Significant Events

  • Below is a summary of the average daily TCE revenue and duration for voyages fixed thus far in the second quarter of 2017 as of the date hereof:
    • For the LR2s in the pool: approximately $17,000 per day for 42% of the days
    • For the LR1 in the pool: approximately $9,000 per day for 38% of the days
    • For the MRs in the pool: approximately $15,500 per day for 38% of the days
    • For the ice-class 1A and 1B Handymaxes in the pool: approximately $13,000 per day for 34% of the days
  • Below is a summary of the average daily TCE revenue earned during the first quarter of 2017:
    • For the LR2s in the pool: $16,094 per revenue day
    • For the LR1 in the pool: $13,545 per revenue day
    • For the MRs in the pool: $13,203 per revenue day
    • For the Handymaxes in the pool: $14,863 per revenue day
  • Executed agreements in April 2017 to sell and leaseback three MR product tankers, STI Beryl, STI Le Rocher and STI Larvotto, to an unaffiliated third party. Two of these sales closed in April 2017 and the third is expected to close prior to May 1, 2017.  Upon closing, all outstanding amounts under the Company’s 2011 Credit Facility are expected to be repaid, and the Company’s liquidity is expected to increase by an aggregate of approximately $30 million.
  • Took delivery of STI Selatar and STI Rambla, two LR2 product tankers that were under construction, from Sungdong Shipbuilding and Marine Engineering Co., Ltd (“SSME”) in February and March 2017, respectively. As part of these deliveries, the Company drew down an aggregate of $58.4 million from its credit facility with Credit Suisse AG dated October 2015 (the “Credit Suisse Credit Facility”) to partially finance the purchase of these vessels.
  • Took delivery of STI Galata and STI Bosphorus, two MR product tankers that were under construction, from Hyundai Mipo Dockyard Co. Ltd. of South Korea (“HMD”) in March 2017 and April 2017, respectively. As part of these deliveries, the Company drew down $20.4 million in March 2017 and $20.4 million in April 2017 from its 2017 Credit Facility (described below) to partially finance the purchase of these vessels.
  • Issued $50.0 million of 8.25% Senior Unsecured Notes due June 2019 (the “Senior Notes due 2019”) in March 2017 in an underwritten public offering and issued an additional $7.5 million of Senior Notes due 2019 in April 2017 when the underwriters fully exercised their option to purchase additional Senior Notes due 2019 under the same terms and conditions.
  • Completed a cash tender offer of its 7.50% Senior Unsecured Notes due October 2017 (the “Senior Notes due 2017”) in April 2017 and repurchased $6.1 million aggregate principal amount of the Senior Notes due 2017.
  • Executed a loan facility with Macquarie Bank Limited (London Branch), DekaBank Deutsche Girozentrale, The Export-Import Bank of Korea (“KEXIM”) and Garanti-Instituttet for Eksportkreditt (“GIEK”) for up to $172.0 million. A portion of the proceeds of this facility were used to partially finance the purchase of STI Galata and STI Bosphorus, and the remaining proceeds are expected to be used to partially finance six MR product tankers that are currently under construction at HMD.
  • Executed a loan facility with DVB Bank SE which was used to refinance the existing indebtedness on four product tankers in April 2017.
  • Upsized the Company’s BNP Paribas Credit Facility by $27.6 million, the proceeds of which were used to refinance the existing indebtedness on two MR product tankers in January and February 2017. These vessels were previously financed under the 2011 Credit Facility.
  • Executed a loan facility with HSH Nordbank AG, which was used to refinance the existing indebtedness on two MR product tankers in February 2017. These vessels were previously financed under the 2011 Credit Facility.
  • Paid a quarterly cash dividend on the Company’s common stock of $0.01 per share in March 2017.

Sale and leaseback of three vessels

In April 2017, the Company executed agreements with Bank of Communications Financial Leasing Co., Ltd. (the “Buyers”) to sell and leaseback, on a bareboat basis, three 2013 built MR product tankers, STI Beryl, STI Le Rocher and STI Larvotto. The selling price is $29.0 million per vessel and the Company will bareboat charter-in the vessels for a period of up to eight years at $8,800 per day per vessel.  These leases will be accounted for as operating leases.

The Company has the option to purchase these vessels beginning at the end of the fifth year of the agreements through the end of the eighth year of the agreements. Additionally, a deposit of $4.35 million per vessel will be retained by the Buyers and will either be applied to the purchase price of the vessel if a purchase option is exercised, or refunded to the Company at the expiration of the agreement. Two of these sales closed in April 2017, and the third is expected to close before May 1, 2017. The Company expects to record a write down of approximately $14.3 million in the second quarter of 2017 as a result of these sales.

Upon closing, all amounts outstanding under the Company’s 2011 Credit Facility are expected to be fully repaid, and the Company’s liquidity is expected to increase by an aggregate of approximately $30 million.

Issuance of $57.5 million of 8.25% Senior Unsecured Notes due June 2019

In March 2017, the Company completed a $50.0 million underwritten public offering of Senior Notes due 2019 and issued an additional $7.5 million of Senior Notes due 2019 in April 2017 when the underwriters fully exercised their option to purchase additional notes under the same terms and conditions. The aggregate net proceeds of the Senior Notes due 2019, after estimated fees and expenses, are estimated to be $55.3 million.  The Senior Notes due 2019 will mature on June 1, 2019 and bear interest at a coupon rate of 8.25% per year, payable in arrears on the 1st day of March, June, September and December of each year, commencing on June 1, 2017.  The Company may redeem the Senior Notes due 2019, at its option, in whole or in part, at any time on or after December 1, 2018, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  The Senior Notes due 2019 trade on the New York Stock Exchange under the symbol SBBC.

Cash Tender Offer for the Company’s 7.50% Senior Unsecured Notes due October 2017

In April 2017, the Company completed a cash tender offer for its Senior Notes due 2017 (NYSE:SBNB) and repurchased $6.1 million aggregate principal amount of the Senior Notes due 2017.  The cash tender offer commenced simultaneously with the offering of the Senior Notes due 2019 described above.  As of April 26, 2017, the outstanding aggregate principal amount of the Senior Notes due 2017 was $45.7 million.

Furthermore, an additional $0.2 million aggregate principal amount of the Senior Notes due 2017 were also tendered as part of a final tender deadline on April 25,  2017, which is scheduled to be settled on April 28, 2017.

DVB 2017 Credit Facility

In March 2017, the Company executed a loan facility of up to $81.4 million with DVB Bank SE (the “DVB 2017 Credit Facility”) to refinance its previous facility with DVB Bank SE. The loan facility was fully drawn in April 2017, and the aggregate proceeds were used to refinance the existing indebtedness on four product tankers which were financed under the Company’s previous DVB Credit Facility that was scheduled to mature in August 2017.

Repayments of outstanding borrowings under the DVB 2017 Credit Facility are scheduled to be made in 20 consecutive quarterly installments of $1.5 million, the last of which shall be payable together with an additional balloon installment equal to the then outstanding balance of the loan on the final maturity date of December 15, 2021. The facility bears interest at LIBOR plus a margin of 2.75% per annum. The remaining terms and conditions, including financial covenants, are similar to those in the Company’s existing credit facilities.

2017 Credit Facility

In March 2017, the Company executed a senior secured term loan facility with a group of financial institutions led by Macquarie Bank Limited (London Branch) for a total loan facility of up to $172.0 million (the “2017 Credit Facility”). The facility includes two commercial tranches of $15.0 million and $25.0 million, a KEXIM guaranteed tranche (the “KEXIM Guaranteed Tranche”) of $48.0 million, a KEXIM funded tranche of $52.0 million (the “KEXIM Funded Tranche”), and a GIEK guaranteed tranche of $32.0 million (the “GIEK Guaranteed Tranche”).

In March 2017, $20.4 million was drawn from this facility to partially finance the purchase of STI Galata and in April 2017, $20.4 million was drawn to partially finance the purchase of STI Bosphorus. The remaining availability is expected to be used to partially finance the purchase of six MR product tankers that are currently under construction at HMD. Drawdowns are available at an amount equal to the lower of 60% of the contract price and 60% of the fair market value of each respective vessel. Other key terms are as follows:

  • The first commercial tranche of $15.0 million has a final maturity of six years from the drawdown date of each vessel, bears interest at LIBOR plus a margin of 2.25% per annum, and has a 15 year repayment profile.
  • The second commercial tranche of $25.0 million has a final maturity of nine years from the drawdown date of each vessel (assuming KEXIM or GIEK have not exercised their option to call for prepayment of the KEXIM and GIEK funded and guaranteed tranches by the date falling two months prior to the maturity of the first commercial tranche and in the event that the first commercial tranche has not been extended), bears interest at LIBOR plus a margin of 2.25% per annum, and has a 15 year repayment profile.
  • The KEXIM Funded Tranche and GIEK Guaranteed Tranche have a final maturity of 12 years from the drawdown date of each vessel (assuming the commercial tranches are refinanced through that date), bear interest at LIBOR plus a margin of 2.15% per annum, and have a 12 year repayment profile.
  • The KEXIM Guaranteed Tranche has a final maturity of 12 years from the drawdown date of each vessel (assuming the commercial tranches are refinanced through that date), bears interest at LIBOR plus a margin of 1.60% per annum, and has a 12 year repayment profile.
  • The remaining terms and conditions, including financial covenants, are similar to those in the Company’s existing credit facilities.

BNP Paribas Credit Facility

In January and February 2017, the Company refinanced the outstanding indebtedness related to STI Sapphire and STI Emerald by repaying an aggregate of $26.3 million on the 2011 Credit Facility and drawing down an aggregate amount of $27.6 million from this facility (the “BNP Paribas Credit Facility”).

HSH Nordbank Credit Facility

In January 2017, the Company entered into a senior secured credit facility agreement with HSH Nordbank AG for $31.1 million (the “HSH Nordbank Credit Facility”). In February 2017, the Company refinanced the outstanding indebtedness related to STI Duchessa and STI Onyx by repaying an aggregate of $23.7 million on the 2011 Credit Facility and drawing down an aggregate of $31.1 million from this facility.

Repayments on all borrowings under the HSH Nordbank Credit Facility are scheduled to be made in 20 consecutive quarterly installments, the first eight of which are $745,669 each and the next 12 are $648,408 each, the last of which shall be payable together with an additional balloon installment equal to the then outstanding balance of the loan.  The facility 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 remaining terms and conditions, including financial covenants, are similar to those in the Company’s existing credit facilities.

Time Charter-in Update

In February 2017, the Company entered into new time charter agreements on two 2007 built, ice-class 1B Handymax product tankers which the Company then time chartered-in, each for one year at $11,250 per day, one effective March 2017 and the other effective May 2017. The Company also has options to extend these charters for an additional year, each at $13,250 per day.

In February 2017, the Company entered into a new time charter agreement on a 2013 built, LR2 product tanker, which the Company then time chartered-in, for an additional six months at $14,360 per day effective February 2017. The Company also has an option to extend the charter for an additional six months at $15,385 per day.

$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, (iii) Unsecured Senior Notes Due 2017 (NYSE:SBNB), which were issued in October 2014, and (iv) Unsecured Senior Notes Due 2019 (NYSE:SBBC), which were issued in March 2017. 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.

No securities have been repurchased under this program during 2017.

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