Capital Product Partners L.P. — 2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020; filed April 27, 2021. This is an annual report, not a standalone fourth-quarter filing. The request identifies Capital Clean Energy Carriers Corp., but the filing is for Capital Product Partners L.P. (Nasdaq: CPLP); verify the issuer and filing match.
Business context
The partnership owns and charters ocean-going vessels. At year-end 2020, its fleet comprised 13 neo-Panamax container vessels and one Capesize drybulk vessel. Results are presented under U.S. GAAP and continuing operations; the tanker business spun off in March 2019 is reported as discontinued operations. The 2020 comparison is affected by the January 2020 acquisition of three container vessels.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $140.9 million | $108.4 million | +30.0% |
| Operating income | $47.2 million | $40.1 million | +17.7% |
| Operating margin | 33.5% | 37.0% | Down 3.5 percentage points |
| Net income from continuing operations | $30.4 million | $24.4 million | +24.3% |
| Net margin from continuing operations | 21.6% | 22.5% | Down 0.9 percentage points |
| Operating cash flow | $80.7 million | $45.3 million | +78.2% |
| Investing cash flow | ($185.2) million | ($6.5) million | Primarily vessel acquisition spending |
| Financing cash flow | $95.4 million | ($179.1) million | Debt proceeds partly offset repayments and distributions |
- Operating expenses rose to $93.6 million from $68.2 million, including higher vessel operating costs, depreciation and survey-related expenses. Five vessels underwent special surveys in 2020, including three with scrubber installations.
- Interest expense and finance costs were $16.7 million versus $17.0 million; the weighted-average loan interest rate fell to 3.6% from 5.7%.
- At December 31, 2020, cash and cash equivalents were $47.3 million, with an additional $7.0 million of restricted cash. Total assets were $822.2 million, total liabilities $400.1 million, and partners’ capital $422.1 million.
- Total borrowings were $379.7 million, up from $262.4 million at year-end 2019. No financing-arrangement amounts were undrawn. The partnership reported compliance with all financial covenants at year-end.
- Distributions declared and paid during 2020 totaled $17.1 million, or $0.90 per common unit, compared with $28.8 million in 2019. A $0.10-per-unit fourth-quarter 2020 distribution was declared in January 2021 and paid in February.
Material changes and subsequent developments
- Revenue and operating cash flow increased, primarily reflecting the larger average fleet after three 10,000-TEU vessels were acquired in January 2020. Higher operating costs, depreciation, off-hire and survey costs partially offset the revenue growth.
- In February 2021, the partnership acquired three additional Panamax container vessels for $40.5 million, financed through sale-leaseback arrangements, cash and a $6.0 million seller’s credit. The vessels were chartered to Hapag-Lloyd at a gross rate of $12,300 per day.
- In April 2021, it agreed to sell the M/V CMA CGM Magdalena and M/V Adonis for $195.0 million in total, with deliveries expected in May and July/August 2021. The filing estimates approximately $97.4 million would be repaid to ICBC Financial Leasing upon delivery.
- In January 2021, the board authorized a two-year common-unit repurchase program of up to $30.0 million. By April 20, 2021, 164,038 units had been repurchased for $1.7 million.
Outlook, risks and unusual items
- Management’s stated objective is to increase cash available for distributions while maintaining financial strength, primarily through medium- to long-term fixed-rate charters and potentially accretive vessel acquisitions. The filing gives no numerical earnings or distribution guidance.
- Container charter rates fell sharply in the first half of 2020 amid COVID-19 disruption, then rose rapidly in the second half. The partnership cites continuing uncertainty about pandemic effects, trade volumes, supply-chain disruptions, crew changes, off-hire, and future charter markets.
- Customer concentration is substantial: HMM, CMA CGM and Hapag-Lloyd accounted for 37%, 22% and 20% of 2020 revenue, respectively. A charterer default or renegotiation could materially affect cash flow and debt compliance.
- Financing arrangements carry floating LIBOR-based rates and impose liquidity, leverage, interest-coverage and collateral-value tests; breaches may restrict distributions or accelerate debt. A 100-basis-point LIBOR increase would have increased 2020 interest expense by approximately $3.7 million. The filing also warns that the LIBOR transition could raise borrowing costs.
- Management estimated that the charter-free market value of certain vessels was below carrying value by approximately $57.0 million in aggregate at year-end 2020. Undiscounted projected cash flows supported carrying values, so no vessel impairment was recorded in 2020. Future charter-rate assumptions were identified by the auditor as a critical audit matter.
- Other material risks include volatile shipping markets and vessel values, environmental compliance and retrofit costs, uninsured off-hire exposure, and dependence on external financing. The partnership has not reserved for estimated replacement capital expenditures since 2011 and depends on financing access to maintain or grow its fleet.
- A subsidiary paid a $0.5 million DOJ fine in 2019 for oil-record-book violations involving the M/V Akadimos and was placed on probation for 30 months, through March 2022, with an environmental compliance plan. The filing reports no other material legal proceedings or contingencies requiring provision.
- The auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective at year-end 2020.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is Capital Product Partners L.P., not Capital Clean Energy Carriers Corp.
- Review the full audited statements and debt notes, including the $379.7 million borrowing balance, amortization schedule, lease-financing obligations and covenant headroom.
- Assess charterer credit quality and revenue concentration, including the effect of the 2021 sale of two vessels and expirations or renewals of existing charters.
- Check the completed sale proceeds, debt repayment, and resulting fleet, revenue and liquidity position after the 2021 vessel acquisitions and disposals.
- Evaluate distribution sustainability against operating cash flow, debt service, capital needs, and the board’s discretion to reserve or reduce distributions.
- Review vessel valuations and the assumptions behind impairment testing, especially forecast charter rates, and monitor environmental retrofit and COVID-related operating costs.