Capital Product Partners L.P. — 2015 Form 20-F
Reporting period: Fiscal year ended December 31, 2015; filed February 17, 2016. The filing identifies the registrant as Capital Product Partners L.P. This differs from the company name in the request metadata, so confirm the intended issuer.
Business context and reporting period
The partnership owned 34 vessels at year-end: 24 product and crude tankers, nine container carriers and one drybulk carrier. Fleet average age was about 6.8 years, with a revenue-weighted average remaining charter term of about 6.4 years. Two container vessels were idle; most other vessels were employed under medium- or long-term charters. The company’s stated objective was to sustain quarterly distributions and grow them over time.
Financial results and liquidity
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $220.3 million | $192.8 million | +14.3% |
| Operating income | $73.8 million | $60.7 million | +21.6% |
| Net income | $55.4 million | $44.0 million | +25.9% |
| Net income per common unit, basic | $0.38 | $0.31 | Up $0.07 |
| Cash from operations | $134.2 million | $125.3 million | +7.1% |
| Cash and cash equivalents at year-end | $90.2 million | $164.2 million | Down $74.0 million |
| Total debt | $571.6 million | $577.9 million | Down $6.3 million |
Operating margin was approximately 33.5% in 2015 versus 31.5% in 2014; net margin was approximately 25.1% versus 22.8% (calculated from reported figures). Interest expense and finance costs were $20.1 million, up from $19.2 million. Vessel operating expenses rose to $70.3 million from $62.0 million, reflecting a larger fleet, more vessels on floating-fee management and special surveys.
At year-end, current assets were $99.8 million and current liabilities $61.2 million. Restricted cash was $17.0 million and undrawn long-term borrowing capacity was $35.0 million; management reported total liquidity of $142.2 million. Operating cash flow less investing cash outflow was negative $75.7 million, with 2015 investing cash use largely funding four vessel acquisitions. The partnership reported compliance with all financial debt covenants.
Material changes versus the prior comparable period
- Revenue and earnings increased, mainly due to a larger average fleet, higher charter rates on certain vessels and increased profit-sharing revenue.
- Four vessels from the sponsor-related dropdown transaction were acquired in 2015; the final vessel was expected to be delivered in February 2016. The four acquisitions cost $230.0 million, funded with $115.0 million of facility borrowings and $115.0 million of cash.
- A $133.3 million common-unit offering in April 2015 funded prepayments of scheduled debt installments and other partnership purposes. Amendments deferred further scheduled amortization on three facilities until late 2017 and extended the 2007 and 2008 facilities to December 2019; the margin on the 2007 facility rose from 2.0% to 3.0% over LIBOR.
- Ten vessels underwent special surveys in 2015, compared with none in 2014; the company reported 192 off-hire days from drydocking.
- Net income in 2014 was below 2013, whose results included $73.6 million of non-operating gains from bargain purchases and sale of a claim. Those gains did not recur in 2014 or 2015.
Outlook, risks and unusual items
- Market outlook: Management described 2015 tanker-market conditions as favorable, citing demand, low oil prices and improved chartering for some vessels. It also warned of potential new vessel supply. Container charter rates and asset values weakened amid slowing trade routes and increased capacity; drybulk rates were also under pressure.
- Customers and concentration: Capital Maritime accounted for 29% of 2015 revenue and Hyundai Merchant Marine (HMM) for 21%. The filing said HMM was developing a restructuring proposal. Loss, renegotiation or non-payment by key charterers could impair cash flow and distributions.
- Debt and distribution exposure: Most borrowings carry floating LIBOR-based rates, and there were no interest-rate swaps outstanding. A 100-basis-point LIBOR increase was estimated to add about $5.7 million to annual interest expense. Debt covenants include minimum liquidity, interest-coverage and vessel-collateral tests; breaches could restrict distributions or accelerate repayment. Scheduled aggregate principal payments were $13.0 million in 2016, $36.1 million in 2017, $114.7 million in 2018, $269.7 million in 2019 and $138.1 million in 2020.
- Asset values: Management estimated that the carrying value of certain vessels exceeded their aggregate charter-free market value by about $130.1 million at year-end, up from $100.7 million in 2014. It recorded no impairment, concluding projected undiscounted cash flows supported carrying values; that conclusion depends on assumptions about future charter rates, utilization and costs.
- Capital needs and distributions: The remaining dropdown vessel required a $73.6 million payment, expected to be funded with the undrawn 2013 facility and available cash. Five vessels were expected to undergo special survey in 2016. The fourth-quarter 2015 distribution was held flat at $0.2385 per common unit; Class B distribution was $0.21975 per unit. Class B units have priority over common distributions.
- Other risks: The filing highlights environmental and ballast-water compliance costs, drydocking and off-hire, vessel oversupply and obsolescence, Greek political and banking exposure, and related-party reliance on Capital Maritime and its manager. It reported one vessel port call to Iran in 2015, which management said was compliant with applicable sanctions. No material legal proceedings were reported.
- Controls and audit: Management and Deloitte reported effective internal control over financial reporting at December 31, 2015. Deloitte issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the issuer identity and relationship between the metadata name and the filing’s registrant, Capital Product Partners L.P.
- Review HMM’s restructuring and credit condition, charter payment performance, and the partnership’s exposure to its largest customers and sponsor.
- Check covenant headroom, upcoming debt maturities, refinancing access and sensitivity to LIBOR and vessel valuations.
- Assess whether operating cash flow and liquidity can support the final vessel purchase, scheduled surveys, debt service and preferred distributions without reducing common distributions.
- Test the vessel impairment assumptions against current charter-free market values and rechartering prospects, particularly for idle container vessels.
- Review the terms and governance implications of related-party vessel acquisitions, charters and management agreements, as well as Class B distribution priority and potential unit dilution.