Scorpio Tankers posts third quarter loss

Scorpio Tankers

Scorpio Tankers Inc. reported its results for the three and nine months ended September 30, 2018.

Results for the three months ended September 30, 2018 and 2017

For the three months ended September 30, 2018, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $64.9 million, or $0.21 basic and diluted loss per share, which excludes from the net loss (i) a $0.9 million loss recorded on the Company’s exchange of $15.0 million of its convertible notes (as described below), and (ii) a $5.9 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $6.8 million, or $0.02 per basic and diluted share. For the three months ended September 30, 2018, the Company had a net loss of $71.7 million, or $0.23 basic and diluted loss per share.

For the three months ended September 30, 2017, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $34.0 million, or $0.15 basic and diluted loss per share, which excludes from the net loss (i) $2.3 million of transaction costs related to the merger with Navig8 Product Tankers Inc. (“NPTI”), and (ii) a $0.6 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $2.9 million, or $0.01 basic and diluted loss per share. For the three months ended September 30, 2017, the Company had a net loss of $36.9 million, or $0.16 basic and diluted loss per share.

Results for the nine months ended September 30, 2018 and 2017

For the nine months ended September 30, 2018, the Company’s adjusted net loss was $141.3 million (see Non-IFRS Measures section below), or $0.46 basic and diluted loss per share, which excludes from the net loss (i) an aggregate loss of $17.8 million recorded on the Company’s exchange of $203.5 million of its convertible notes (as described below), (ii) a $12.9 million write-off of deferred financing fees, and (iii) $0.3 million of transaction costs related to the merger with NPTI. The adjustments resulted in an aggregate reduction of the Company’s net loss by $31.1 million or $0.10 per basic and diluted share. For the nine months ended September 30, 2018, the Company had a net loss of $172.4 million, or $0.56 basic and diluted loss per share.

For the nine months ended September 30, 2017, the Company’s adjusted net loss was $62.5 million (see Non-IFRS Measures section below), or $0.33 basic and diluted loss per share, which excludes from the net loss (i) a $23.3 million loss on sales of vessels, (ii) $34.8 million of transaction costs related to the merger with NPTI, (iii) a $5.4 million gain recorded on the purchase of the four NPTI subsidiaries that own four LR1 tankers, and (iv) a $1.5 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $54.2 million, or $0.28 per basic and diluted share. For the nine months ended September 30, 2017, the Company had a net loss of $116.7 million, or $0.61 basic and diluted loss per share.

Declaration of Dividend

On October 30, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.01 per share, payable on or about December 13, 2018 to all shareholders of record as of December 5, 2018 (the record date). As of October 30, 2018, there were 515,893,564 shares outstanding.

Summary of Other Recent and Third Quarter Significant Events

-Below is a summary of the average daily Time Charter Equivalent (TCE) revenue (see Non-IFRS Measures section below) and duration for voyages fixed for the Company’s vessels thus far in the fourth quarter of 2018 as of the date hereof (See footnotes to ‘Other operating data’ table below for the definition of daily TCE revenue):

— For the LR2s in the pool: approximately $13,000 per day for 45% of the days.

— For the LR1s in the pool: approximately $12,750 per day for 46% of the days.

— For the MRs in the pool: approximately $12,000 per day for 46% of the days.

— For the ice-class 1A and 1B Handymaxes in the pool: approximately $11,000 per day for 42% of the days.

-Below is a summary of the average daily TCE revenue earned on the Company’s vessels during the third quarter of 2018:

— For the LR2s in the pool: $12,160 per revenue day.

— For the LR1s in the pool: $8,335 per revenue day.

— For the MRs in the pool: $9,494 per revenue day.

— For the ice-class 1A and 1B Handymaxes in the pool: $8,852 per revenue day.

-From June 2018 through October 2018, the Company closed on agreements to refinance a total of 41 of its vessels through a series of bank loans and lease financing arrangements raising $321.7 million in aggregate of new liquidity, after the repayment of the existing secured debt related to these vessels. These agreements are described below.

-In September and October 2018, the Company entered into an agreement to retrofit 23 of its LR2s with Exhaust Gas Cleaning Systems (“Scrubbers”), and agreed letters of intent (which are subject to the execution of definitive documentation) with suppliers, engineering firms, and ship repair facilities to cover the purchase and installation of Scrubbers on substantially all of its remaining owned and financed leased LR2, LR1, and MR tanker vessels (approximately 67 vessels) between the second quarter of 2019 and the second quarter of 2020. The Scrubbers and their installation are expected to cost between $1.5 and $2.2 million per vessel, and the Company anticipates that between 60-70% of these costs will be financed.

-In October 2018, the Company raised estimated net proceeds of $319.7 million in an underwritten public offering of 182.2 million shares of common stock (including 20.0 million shares of common stock issued when the underwriters partially exercised their overallotment option to purchase additional shares) at a public offering price of $1.85 per share. Scorpio Bulkers Inc., or SALT, and Scorpio Services Holding Limited, or SSH, each a related party, purchased 54.1 million common shares and 5.4 million common shares, respectively, at the public offering price.

-In September 2018, the Company entered into an agreement with its commercial manager, Scorpio Commercial Management S.A.M., or SCM, whereby SCM will reimburse certain of the commissions that SCM charges the Company’s vessels to effectively reduce such to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.

-In September 2018, the Company entered into agreements with certain of its lenders who are party to credit facilities with the Company, to permanently remove the minimum interest coverage ratio financial covenant from the terms of each facility. As a result, the Company is no longer required to maintain a ratio of EBITDA to net interest expense on any of its secured credit facilities or lease financing arrangements.

-In September 2018, the Company paid a quarterly cash dividend with respect to the second quarter of 2018 on the Company’s common stock of $0.01 per share.

-In July 2018, the Company exchanged $15.0 million in aggregate principal amount of its Convertible Senior Notes due 2019 (the “Convertible Notes due 2019”) for $15.0 million in aggregate principal amount of its Convertible Senior Notes due 2022 (the “Convertible Notes due 2022”).
Refinancing Initiatives

The table and discussion set forth below summarizes the Company’s previously announced refinancing initiatives, all of which have closed as of the date of this press release.

ABN AMRO/SEB Credit Facility

In June 2018, the Company executed a senior secured term loan facility with ABN AMRO Bank N.V. and Skandinaviska Enskilda Banken AB for $120.6 million. This loan was fully drawn in June 2018, and the proceeds were used to refinance the existing indebtedness of $87.6 million on the K-Sure Credit Facility relating to five vessels consisting of one Handymax product tanker (STI Hammersmith), one MR product tanker (STI Westminster), and three LR2 product tankers (STI Connaught, STI Winnie and STI Lauren).

The ABN AMRO/SEB Credit Facility has a final maturity of June 2023 and bears interest at LIBOR plus a margin of 2.60% per annum. The loan will be repaid in equal quarterly installments of $2.9 million per quarter, in aggregate, for the first eight installments and $2.5 million per quarter, in aggregate, thereafter, with a balloon payment due upon maturity. The terms and conditions, including financial covenants, of the ABN AMRO/SEB Credit Facility are similar to those in the Company’s existing credit facilities.

$88.0 Million Sale and Leaseback

In July 2018, the Company reached an agreement to sell and leaseback two Handymax product tankers (STI Battersea and STI Wembley) and two MR product tankers (STI Texas City and STI Meraux) to an international financial institution. The borrowing amounts under the arrangement were $21.2 million per Handymax and $22.8 million per MR ($88.0 million in aggregate), and these agreements, which have been accounted for as financing arrangements, closed in September 2018. The proceeds were utilized to repay $14.8 million of the outstanding indebtedness on the DVB 2017 Credit Facility, $12.6 million of the outstanding indebtedness on the K-Sure Credit Facility, and $30.0 million of the outstanding indebtedness on the 2016 Credit Facility for these vessels.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels beginning at the end of the second year of each agreement. The leases bear interest at LIBOR plus a margin of 3.6% per annum and will be repaid in quarterly installments of $0.5 million per vessel. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date. The Company is subject to certain additional terms and conditions under this arrangement, including financial covenants, which are similar to those set forth in its existing lease financing arrangements.

ING Credit Facility Upsize

In June 2018, the Company executed an agreement to upsize its $132.5 million credit facility with ING Bank N.V. to $171.2 million. In September 2018, the Company drew down $38.7 million from this facility and placed STI Rotherhithe and STI Notting Hill as collateral under this agreement. The proceeds were used to refinance the existing indebtedness of $26.9 million on the Company’s K-Sure Credit Facility relating to one Handymax product tanker (STI Rotherhithe) and one MR product tanker (STI Notting Hill).

The upsized portion of the loan facility has a final maturity of June 2022 and bears interest at LIBOR plus a margin of 2.40% per annum. The loan will be repaid in equal quarterly installments of $1.0 million per quarter, in aggregate, for the first eight installments and $0.8 million per quarter, in aggregate, thereafter, with a balloon payment due upon maturity. The remaining terms and conditions of the upsized portion, including financial covenants, are similar to those set forth in the Company’s existing credit facilities.

$35.7 Million Term Loan Facility

In June 2018, the Company executed an agreement with a leading European financial institution for a term loan facility of $35.7 million. The loan facility was drawn in August 2018 and the proceeds were used to repay $26.5 million of the existing indebtedness on the BNP Paribas Credit Facility related to two MR product tankers (STI Memphis and STI Soho).

The loan facility has a final maturity of June 2021, bears interest at LIBOR plus a margin of 2.50% per annum and will be repaid in equal quarterly installments of $0.8 million, in aggregate, with a balloon payment due upon maturity. The remaining terms and conditions, including financial covenants, are similar to those set forth in the Company’s existing credit facilities.

China Huarong Shipping Sale and Leaseback

In May 2018, the Company reached an agreement to sell and leaseback six 2014 built MR product tankers (STI Opera, STI Virtus, STI Venere, STI Aqua, STI Dama and STI Regina) to China Huarong Shipping Financial Leasing Co., Ltd. The borrowing amount under the arrangement was $144.0 million in aggregate. These agreements, which have been accounted for as financing arrangements, closed in August 2018, and the proceeds were utilized to repay $92.7 million of the outstanding indebtedness under the 2016 Credit Facility.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels beginning at the end of the third year of each agreement. The leases bear interest at LIBOR plus a margin of 3.5% per annum and will be repaid in equal quarterly principal installments of $0.6 million per vessel. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date. The Company is subject to certain additional terms and conditions under this arrangement, including financial covenants, which are similar to those set forth in its existing lease financing arrangements.

AVIC International Sale and Leaseback

In July 2018, the Company executed an agreement to sell and leaseback three MR product tankers (STI Ville, STI Fontvieille and STI Brooklyn) and two LR2 product tankers (STI Rose and STI Rambla) to AVIC International Leasing Co., Ltd. The borrowing amounts under the arrangement are $24.0 million per MR and $36.5 million per LR2 ($145.0 million in aggregate). These agreements, which have been accounted for as financing arrangements, closed in August and September 2018, and the proceeds were utilized to repay $32.7 million of the outstanding indebtedness on the NIBC Credit Facility, $13.0 million of the outstanding indebtedness on the K-Sure Credit Facility, $28.3 million of the outstanding indebtedness on the Scotiabank Credit Facility, and $26.1 million of the outstanding indebtedness on the Credit Suisse Credit Facility for these vessels.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels beginning at the end of the second year of each agreement. The leases bear interest at LIBOR plus a margin of 3.7% per annum and will be repaid in quarterly principal installments of $0.5 million per MR and $0.8 million per LR2. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date. The Company is subject to certain additional terms and conditions under this arrangement, including financial covenants, which are similar to those set forth in its existing lease financing arrangements.

2018 CMB Sale and Leaseback

In July 2018, the Company executed an agreement to sell and leaseback six MR product tankers (STI Battery, STI Milwaukee, STI Tribeca, STI Bronx, STI Manhattan and STI Seneca) to CMB Financial Leasing Co., Ltd. The borrowing amount under the arrangement was $141.6 million in aggregate, and these agreements, which have been accounted for as financing arrangements, closed in August 2018. The proceeds were utilized to repay $33.5 million of the outstanding indebtedness on the DVB 2017 Credit Facility, $39.7 million of the outstanding indebtedness on the K-Sure Credit Facility, and $14.4 million of the outstanding indebtedness on the BNP Paribas Credit Facility for these vessels.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels at the start of the fourth year of each agreement. The leases bear interest at LIBOR plus a margin of 3.2% per annum and will be repaid in quarterly principal installments of $0.4 million per vessel. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date. The Company is subject to certain additional terms and conditions under this arrangement, including financial covenants, which are similar to those set forth in its existing lease financing arrangements.

$116.0 Million Sale and Leaseback

In June 2018,the Company reached an agreement to sell and leaseback two MR product tankers (STI Gramercy and STI Queens) and two LR2 product tankers (STI Oxford and STI Selatar) in two separate transactions to an international financial institution. The borrowing amounts under the arrangement were $24.0 million per MR and $34.0 million per LR2 ($116.0 million in aggregate), and these agreements, which have been accounted for as financing arrangements, closed in August 2018. The proceeds were utilized to repay $26.5 million of the outstanding indebtedness on the Credit Suisse Credit Facility and $46.6 million of the outstanding indebtedness on the K-Sure Credit Facility for these vessels.

Under the terms of these agreements, the Company will make a fixed payment, which includes principal and interest, for seven years at $7,935 per day for each MR and $11,040 per day for each LR2. In addition, the Company has purchase options beginning at the end of the third year of each agreement, and a purchase obligation for each vessel upon the expiration of each agreement. We are subject to certain additional terms and conditions under this arrangement, which are similar to those set forth in our existing lease financing arrangements.

$157.5 Million Sale and Leaseback

In July 2018, the Company agreed to sell and leaseback six MR product tankers (STI San Antonio, STI Benicia, STI St. Charles, STI Yorkville, STI Mayfair and STI Duchessa) and one LR2 product tanker (STI Alexis) to an international financial institution. The borrowing amount under the arrangement was $157.5 million in aggregate, and these agreements, which will be accounted for as financing arrangements, closed in October 2018. In September 2018, the Company repaid the outstanding indebtedness for two vessels consisting of $14.2 million on the HSH Credit Facility and $13.6 million on the K-Sure Credit Facility, in advance of the October closing of these transactions. Upon closing, the proceeds were utilized to repay the outstanding indebtedness of $59.2 million on the 2016 Credit Facility and the outstanding indebtedness of $25.8 million on the DVB 2017 Credit Facility for the remaining five vessels.

Each agreement is for a fixed term of seven years, and the Company has options to purchase the vessels beginning at the end of the third year of each agreement. The leases bear interest at LIBOR plus a margin of 3.0% per annum and will be repaid in equal quarterly principal installments of $0.5 million per MR and $0.6 million for the LR2. Each agreement also has a purchase obligation at the end of the seventh year. The Company is subject to certain additional terms and conditions under this arrangement, including financial covenants, which are similar to those set forth in its existing lease financing arrangements.

$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, in addition to its common shares, currently consist of its (i) Convertible Notes due 2019, 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 2019 (NYSE: SBBC), which were issued in March 2017, and (iv) Convertible Notes due 2022, which were issued in May and July 2018.

No securities were repurchased under this program during the period commencing January 1, 2018 and ending on the date of this press release.

As of the date hereof, the Company has the authority to purchase up to an additional $147.1 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.

Diluted Weighted Number of Shares

Diluted earnings per share is determined using the if-converted method. Under this method, the Company assumes that its Convertible Notes due 2019 and Convertible Notes due 2022 (which were issued in June 2014 and May 2018, respectively) were converted into common shares at the beginning of each period and the interest and non-cash amortization expense associated with these notes of $6.0 million and $17.5 million during the three and nine months ended September 30, 2018, respectively, were not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three and nine months ended September 30, 2018, the Company’s basic weighted average number of shares was 310,032,639 and 309,291,442, respectively. The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three and nine months ended September 30, 2018, respectively, as the Company incurred net losses.

As of the date hereof, the Convertible Notes due 2019 and Convertible Notes due 2022 are not eligible for conversion.

Amendment of Minimum Interest Coverage Ratio

In September 2018, the Company entered into agreements with certain of its lenders who are party to credit facilities with the Company, to permanently remove the minimum interest coverage ratio financial covenant from the terms of each facility. As a result, the Company is no longer required to maintain a ratio of EBITDA to net interest expense on any of its secured credit facilities or lease financing arrangements.

As part of these agreements, and for certain of the facilities (as detailed below), the minimum threshold for the aggregate fair market value of the vessels as a percentage of the then aggregate principal amount of each facility was revised to be no less than the following:

Convertible Notes Exchange

In July 2018, the Company exchanged $15.0 million in aggregate principal amount of its Convertible Notes due 2019 for $15.0 million in aggregate principal amount of its Convertible Notes due 2022. The new notes issued in this exchange have identical terms, are fungible with and are part of the series of Convertible Notes due 2022 which were issued in May 2018. This exchange was executed with certain holders of the Convertible Notes due 2019 via separate, privately negotiated agreements.

This transaction was accounted for as an extinguishment of debt and the Company recorded a loss on extinguishment of $0.9 million during the third quarter of 2018 as a result.

The Convertible Notes due 2022 bear interest at a coupon rate of 3.0%, which is payable semi-annually on November 15 and May 15 of each year and carried an initial conversion rate of 250 shares of the Company’s common stock per $1,000 principal amount ($4.00 per share). The conversion rate is subject to adjustment from time to time upon the occurrence of certain events (such as the payment of dividends). The conversion rate was adjusted to 252.1317 shares of the Company’s common stock per $1,000 principal amount in September 2018 due to the scheduled payment of a quarterly dividend. The Convertible Notes due 2022 mature on May 15, 2022 and are non-redeemable. The remaining terms and conditions are similar to those set forth in the Company’s Convertible Notes due 2019.

[Scorpio Tankers]

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