Scorpio Bulkers reports third quarter loss

Scorpio_Bulkers_

Scorpio Bulkers Inc. reported its results for the three and nine months ended September 30, 2015.

Results for the three and nine months ended September 30, 2015 and 2014

For the three months ended September 30, 2015, the Company’s adjusted net loss was $16.3 million, or $0.05 adjusted loss per diluted share, which excludes (i) a loss / write down on assets held for sale of $0.3 million and (ii) the $1.4 million write off of a portion of the deferred financing costs of two credit facilities, or $0.01 loss per diluted share (see Non-GAAP Measures section below). For the three months ended September 30, 2015, the Company had a GAAP net loss of $18.1 million, or $0.06 loss per diluted share. This loss includes the loss / write down on assets held for sale, the write off of a portion of deferred financing costs accumulated on two credit facilities for which the commitments were reduced pursuant to the removal from the facilities of certain vessels that have been classified as held for sale, and the noncash amortization of stock-based compensation of $6.3 million.

For the three months ended September 30, 2014, the Company had a net loss of $18.9 million, or $0.14 loss per diluted share including noncash amortization of stock-based compensation of $6.3 million.

For the nine months ended September 30, 2015, the Company’s adjusted net loss was $49.7 million, or $0.22 adjusted loss per diluted share, which excludes (i) a loss / write down on assets held for sale of $151.7 million and (ii) the $7.3 million write off of a portion of the deferred financing costs of three credit facilities, or $0.68 loss per diluted share (see Non-GAAP Measures section below). For the nine months ended September 30, 2015, the Company had a GAAP net loss of $208.8 million, or $0.90 loss per diluted share. This loss includes the loss / write down on assets held for sale, the write off of a portion of deferred financing costs accumulated on three credit facilities for which the commitments were reduced pursuant to the removal from the facilities of certain vessels that have been classified as held for sale, and the noncash amortization of stock-based compensation of $18.5 million.

For the nine months ended September 30, 2014, the Company had a net loss of $44.6 million, or $0.34 loss per diluted share including noncash amortization of stock-based compensation of $17.6 million.

Recent Significant Events

Fleet Financing Update and Credit Facility Amendments

Including the credit facilities described below, the Company has now either signed credit facility agreements or received commitments for 59 of the 60 vessels in its fleet. In addition, the Company has received a proposal from a leading European financial institution to finance a portion of the cost of our one remaining unfinanced dry bulk vessel. The terms and conditions of this facility, for which commitment is expected during the fourth quarter of 2015, are consistent with those of the Company’s existing credit commitments. The closing of any resultant credit facilities would remain subject to credit approval and customary conditions precedent, including negotiation and execution of definitive documentation.

Between September 30, 2015 and October 30, 2015, the Company reached agreements to amend each of its loan agreements such that the interest coverage ratio, as defined in each agreement, will not be applicable until the first quarter of 2017, at which point the ratio will be 1.00 to 1.00 and will be calculated on a year-to-date basis for calendar year 2017. Prior to these amendments, the interest coverage ratio was applicable to the third quarter of 2015; however, because the Company has no consolidated net interest expense through September 30, 2015, this covenant would not have been applicable for the period ended September 30, 2015.

$411.3 Million Credit Facility

On July 14, 2015, the Company’s $411.3 million senior secured credit facility, which was expected to finance a portion of the purchase price of seven Capesize vessels under construction at Sungdong Shipbuilding & Marine Engineering Co., Ltd., was further reduced by approximately $34 million pursuant to the sale of one Capesize vessel contract described below, and the facility will be used to finance a portion of the purchase price of six Capesize vessels, three of which have been delivered. Please refer to the table below which shows the amounts outstanding and amounts available on this credit facility as of October 29, 2015. As a result of this reduction, we wrote off approximately $0.9 million of deferred financing costs accumulated on this facility which represents the portion of the facility that can no longer be utilized. This write off is reflected in financial expense, net in the Consolidated Statement of Operations.

$330 Million Credit Facility

On August 4, 2015, our $330 Million Credit Facility, which was to finance a portion of the purchase price of 22 of our newbuilding vessels (consisting of 16 Ultramax vessels and six Kamsarmax vessels), was reduced by $15 million pursuant to the sale of one of the Ultramax vessel contracts. Please refer to the table below which shows the amounts outstanding and amounts available on this credit facility as of October 29, 2015. As a result of this reduction, we wrote off approximately $0.5 million of deferred financing costs accumulated on this facility which represents the portion of the facility that can no longer be utilized. This write off is reflected in financial expense, net in the Consolidated Statement of Operations.

$76.5 Million Credit Facility

On October 12, 2015, the Company entered into a $76.5 million credit agreement with ABN AMRO Bank N.V. and The Export-Import Bank of China for a senior secured loan facility. This facility was arranged by ABN AMRO Bank N.V., with insurance cover to be provided from China Export & Credit Insurance Corporation, or Sinosure. The insurance coverage has now recently been approved by Sinosure. This credit facility will be used to finance a portion of the purchase price of three Capesize vessels (of which one vessel has been delivered for which we borrowed $26 million in bridge financing, a second vessel delivered during Q4 2015 and one vessel is currently under construction at Shanghai Waigaoqiao Shipbuilding Co., Ltd., China for delivering in Q4 2015). The terms and conditions of this facility, including covenants, are similar to those in the Company’s existing credit facilities and customary for financings of this type. This facility supplants the commitment for the $230.3 Million Credit Facility, described in prior press releases, which would have been used to finance a portion of the purchase price of seven Capesize vessels.

Proposed $13.5 Million Upsize to the $42 Million Credit Facility

On September 30, 2015, we received a commitment from a leading European financial institution for a $13.5 million upsize to our original $42 million senior secured credit facility. The proceeds of the upsized commitment will finance a portion of the purchase price of one Ultramax vessel that was delivered to the Company in Q3 2015 from Imabari Shipbuilding Co. Ltd. This facility is expected to mature in September 2021. The terms and conditions of this facility, including covenants, are similar to those in the Company’s existing credit facilities and customary for facilities of this type. The closing of this loan facility is subject to customary conditions precedent, including the execution of definitive documentation.

Proposed $27.25 Million Credit Facility

On October 5, 2015, we received a commitment from ABN AMRO Bank N.V. for a $27.25 million senior secured loan facility. The proceeds of this facility are expected to finance a portion of the purchase price of two Ultramax vessels currently under construction at to Imabari Shipbuilding Co. Ltd., with expected deliveries in Q1 2016. This facility is expected to have two tranches, which are expected to mature 5 years from the date of drawdown of each vessel. The terms and conditions of this facility, including covenants, are similar to those in the Company’s existing credit facilities and customary for facilities of this type. The closing of this loan facility is subject to customary conditions precedent, including the execution of definitive documentation.

Summary of Voyages Fixed Thus Far in the Fourth Quarter of 2015

Below is a summary of the voyages fixed thus far in the fourth quarter of 2015:

For the Kamsarmax fleet: approximately $7,900 per day for 55% of the days
For the Ultramax fleet: approximately $7,900 per day for 56% of the days
For the Capesize fleet: approximately $11,900 per day for 81% of the days
Vessel Sale Program Update

During the three months ended September 30, 2015, we completed the sale of 11 newbuilding contracts that we had classified as assets held for sale at June 30, 2015, consisting of four LR2 newbuilding product tankers, two newbuilding Aframax tankers, three Capesize newbuilding vessels, one Kamsarmax newbuilding vessel and one Ultramax newbuilding vessel. This brings the total newbuilding contract sales to 20. We are no longer under any obligation for remaining contractual installments under those contracts.

Newbuilding Vessels Deliveries

Between July 1, 2015 and October 29, 2015 the Company has taken delivery from shipyards of the following newbuilding vessels:

SBI Echo, an Ultramax vessel, was delivered from Imabari Shipbuilding Co., Ltd.
SBI Montesino, a Capesize vessel, was delivered from Sungdong Shipbuilding & Marine Engineering Co., Ltd.
SBI Lyra, an Ultramax vessel, was delivered from Dalian COSCO KHI Ship Engineering Co. Ltd.
SBI Rumba, a Kamsarmax vessel, was delivered from Imabari Shipbuilding Co., Ltd.
SBI Tango, an Ultramax vessel, was delivered from Imabari Shipbuilding Co., Ltd.
SBI Maia, an Ultramax vessel, was delivered from Nantong COSCO KHI Ship Engineering Co. Ltd.
SBI Subaru, an Ultramax vessel, was delivered from Dalian COSCO KHI Ship Engineering Co. Ltd.
SBI Hydra, an Ultramax vessel, was delivered from Nantong COSCO KHI Ship Engineering Co. Ltd.
SBI Capoeira, a Kamsarmax vessel, was delivered from Hudong-Zhonghua (Group) Co., Ltd.
SBI Electra, a Kamsarmax vessel, was delivered from Jiangsu Yangzijiang Shipbuilding Co., Ltd.
SBI Valrico, a Capesize vessel, was delivered from Shanghai Waigaoqiao Shipbuilding Co., Ltd.
SBI Pegasus, an Ultramax vessel, was delivered from Chengxi Shipyard Co. Ltd.
SBI Carioca, an Ultramax vessel, was delivered from Hudong-Zhonghua (Group) Co., Ltd.
SBI Magnum, a Capesize vessel, was delivered from Sungdong Shipbuilding & Marine Engineering Co., Ltd.
SBI Conga, a Kamsarmax vessel, was delivered from Hudong-Zhonghua (Group) Co., Ltd.
SBI Flamenco, a Kamsarmax vessel, was delivered from Jiangsu Yangzijiang Shipbuilding Co., Ltd.
SBI Ursa, an Ultramax vessel, was delivered from Dalian COSCO KHI Ship Engineering Co. Ltd.

Explanation of Components of Financial Results for the three months ended September 30, 2015 and 2014

For the three months ended September 30, 2015 and 2014, the Company recorded a net loss of $18.1 million and $18.9 million, respectively.

Time charter equivalent, or TCE revenue, a Non-GAAP measure, is vessel revenues less voyage expenses (including bunkers and port charges). TCE revenue is included herein because it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot charters, time charters, and pool charters), and it provides useful information to investors and management.

TCE revenue was $15.2 million for the three months ended September 30, 2015, associated with 12 vessels time chartered-in and 16 vessels owned comprised of four Kamsarmax vessels, nine Ultramax vessels and three Capesize vessels, compared to TCE revenue of $12.4 million during the three months ended September 30, 2014, associated with chartering in 22 vessels and one owned vessel. TCE revenue per day was $7,875 and $6,941 for the three months ended September 30, 2015 and 2014, respectively (see the breakdown of daily TCE averages below). The increase in TCE revenue during the three months ended September 30, 2015 compared to the prior year period is primarily attributable to increases in daily TCE rates and revenue days associated with the increase in vessels during the three months ended September 30, 2015 compared to the three months ended September 30, 2014.

Vessel operating costs for the three months ended September 30, 2015 were $7.3 million related to 16 vessels owned during the three months ended September 30, 2015. Vessel operating costs for the three months ended September 30, 2014 were $0.4 million related to two Kamsarmax vessels owned during the three months ended September 30, 2014.

Charterhire expense was $11.3 million and $22.9 million for the three months ended September 30, 2015 and 2014, respectively, relating to the time chartered-in vessels including those described below. Such decrease during the three months ended September 30, 2015 compared to the prior year period relates to a fewer number of vessels time chartered-in during the current year. See the Company’s Fleet List below for the terms of these agreements.

Depreciation for the three months ended September 30, 2015 was $3.5 million and relates to 16 vessels owned. Depreciation for the three months ended September 30, 2014 was $0.1 million and relates to two vessels owned during the three months ended September 30, 2014.

General and administrative expense was $8.9 million for the three months ended September 30, 2015. Such amount included $6.3 million restricted stock amortization and the balance primarily related to payroll, directors’ fees, professional fees and insurance. General and administrative expense was $8.0 million for the three months ended September 30, 2014, which included $6.3 million of noncash restricted stock amortization.

During the three months ended September 30, 2015 the Company recorded a loss of $0.3 million associated with the incremental write downs and sale of certain construction contracts classified as held for sale at June 30, 2015. The 11 contracts to construct vessels classified as assets held for sale as of June were sold during the three months ended September 30, 2015.

During the three months ended September 30, 2015, the Company recorded a $1.4 million loss associated with writing off a portion of deferred financing costs accumulated on two credit facilities for which the commitments were reduced pursuant to the removal from the facilities of certain vessels that have been sold.

Explanation of Components of Financial Results for the nine months ended September 30, 2015 and 2014

For the nine months ended September 30, 2015 and 2014, the Company recorded a net loss of $208.8 million and $44.6 million, respectively.

TCE revenue was $40.5 million for the nine months ended September 30, 2015, associated with 20 vessels time chartered-in and 16 vessels owned compared to TCE revenue of $27.8 million during the nine months ended September 30, 2014, associated with 24 time chartered-in vessels and one owned vessel. TCE revenue per day was $7,145 and $7,570 for the nine months ended September 30, 2015 and 2014, respectively (see the breakdown of daily TCE averages below). The decrease in TCE revenue per day is due to the weakness in the dry bulk market. The increase in TCE revenue during the nine months ended September 30, 2015 compared to the prior year period is primarily attributable to the increase in the number of revenue days associated with the increase in vessels, which increased to 5,669 days during the nine months ended September 30, 2015 compared to 3,677 days during the prior year period.

Vessel operating costs for the nine months ended September 30, 2015 was $14.8 million related to 16 vessels owned. Vessel operating costs for the nine months ended September 30, 2014 were $0.4 million related to two vessels owned during the nine months ended September 30, 2014.

Charterhire expense was $41.1 million and $49.5 million for the nine months ended September 30, 2015 and 2014, respectively, relating to the time chartered-in vessels including those described below. This decrease is due to fewer f days for which vessels were chartered-in during the 2015 period compared to the 2014 period. See the Company’s Fleet List below for the terms of these agreements.

Depreciation for the nine months ended September 30, 2015 was $7.7 million and 16 vessels owned. Depreciation for the nine months ended September 30, 2014 was $0.1 million relates to two vessels owned during the nine months ended September 30, 2014.

General and administrative expense was $25.8 million for the nine months ended September 30, 2015. Such amount included $18.5 million of noncash restricted stock amortization and the balance primarily related to payroll, directors’ fees, professional fees and insurance. General and administrative expense was $23.4 million for the nine months ended September 30, 2014. Such amount included $17.6 million of noncash restricted stock amortization and the balance primarily related to payroll, directors’ fees, professional fees and insurance.

During the nine months ended September 30, 2015, the Company recorded a loss of $151.7 million associated with writing down 13 contracts to construct vessels that the Company has classified as held for sale during the nine months ended September 30, 2015, as well as incremental write downs of certain construction contracts classified as held for sale at December 31, 2014.

During the nine months ended September 30, 2015, the Company recorded a $7.3 million loss associated with writing off a portion of deferred financing costs accumulated on four credit facilities for which the commitments were reduced pursuant to the removal from the facility of certain vessels that have sold.

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