NAT

Nordic American Tankers Limited - Form 6-K Summary

Business Context and Reporting Period

This Form 6-K, filed on September 11, 2020, presents the unaudited interim condensed consolidated financial statements and management discussion for the six months ended June 30, 2020. Nordic American Tankers Limited is an international tanker company operating a homogeneous fleet of 23 Suezmax crude oil tankers, averaging approximately 156,000 deadweight tons. The company primarily employs its vessels in the spot market, with one vessel on a longer-term time charter.

Key Financial Metrics

Note: Total Debt includes the 2019 Senior Secured Credit Facility ($264.7M) and financing for 2018-built vessels ($116.1M).

Material Changes vs. Prior Period

• Revenue Surge: Voyage revenue increased by 64.9% to $254.7 million, driven by a 124.8% increase in the TCE rate per day ($45,800 vs. $20,377). This was offset by a 5.0% decrease in Total TCE days due to higher off-hire days (257 days in 2020 vs. 27 days in 2019).
• Profitability Turnaround: The company reported a net income of $88.7 million, a significant improvement from a net loss of $9.3 million in the prior year period. Net operating income surged 686.6%.
• Expense Management: Voyage expenses rose 6.6% primarily due to higher commissions and off-hire costs, while interest expense decreased 17.7% due to debt repayments.
• Liquidity Improvement: Cash and cash equivalents more than doubled to $112.8 million, supported by strong operating cash flows of $118.3 million.

Guidance, Outlook, and Risks

Market Outlook: Management notes that the Suezmax orderbook is at a historic low (9% of the fleet), which is encouraging for future market balance. The company expects to meet working capital needs for the next 12 months through cash on hand, operating cash flow, and its At-The-Market (ATM) equity program.

Recent Developments:

• Repaid $31.9 million on the 2019 Senior Secured Credit Facility in August 2020 using excess cash from Q2 2020 operations.
• Declared and paid a dividend of $0.20 per share in September 2020.
• Issued 2.46 million shares under the ATM program in the first half of 2020, raising $14.8 million in net proceeds.

Risks and Contingencies:

• Credit Facility Covenants: The 2019 Senior Secured Credit Facility includes a discretionary excess cash mechanism requiring repayment of 50% of net earnings from collateral vessels. The company remains in compliance with covenants, including a minimum liquidity of $30.0 million.
• Market Volatility: Results are highly dependent on global oil demand, OPEC production levels, and charter rates.
• Covid-19: Operations have not been materially affected, though crew changes remain a challenge.

Investor Verification Checklist

• Debt Structure: Verify the impact of the "excess cash mechanism" on future debt reduction and interest costs, as this accelerates repayments based on market performance.
• Off-Hire Days: Investigate the significant increase in off-hire days (257 days in H1 2020 vs. 27 days in H1 2019) and its effect on future TCE days.
• Dividend Sustainability: Assess the ability to maintain the $0.20 per share dividend given the cyclical nature of tanker rates and the mandatory debt repayment triggers.
• ATM Program Status: Confirm the remaining capacity under the $40 million ATM program and the company's intent to utilize it further.
• 2018 Vessel Financing: Review the terms of the bareboat charter agreements for the three 2018-built vessels, including the obligation to purchase them for $13.6 million each upon completion of the ten-year term.