Business Context and Reporting Period
Company: Nordic American Tankers Limited (NAT)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2018
Business Overview: NAT is an international tanker company operating a fleet of 25 Suezmax tankers (average 156,000 dwt). The fleet includes three newbuildings delivered in 2018. The company operates vessels on spot and time charter agreements.
Key Financial Metrics
| Metric (USD '000) | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2017 |
|---|---|---|
| Voyage Revenue | 202,852 | 224,558 |
| Net Operating Loss | (44,017) | (32,108) |
| Net Loss | (84,840) | (53,604) |
| Net Loss Per Share (Basic/Diluted) | (0.60) | (0.53) |
| Cash and Cash Equivalents (Sep 30, 2018) | 45,529 | 58,359 (Dec 31, 2017) |
| Long-Term Debt (Credit Facility) | 337,484 | 391,600 (Dec 31, 2017) |
| Time Charter Equivalent (TCE) Rate | $10,986/day | $16,048/day |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenue decreased 9.7% to $202.9 million, driven by lower market rates (TCE down 31.5% to $10,986/day) despite a 67% reduction in off-hire days.
- Expense Increases: Voyage expenses rose 15.4% due to higher bunker prices. General and administrative expenses increased 24.8% due to staff costs.
- Depreciation Reduction: Depreciation expense fell 41.0% to $44.9 million, primarily due to the sale of eight vessels and a change in residual value estimates.
- Financial Expenses: Interest expense increased 71.6% due to higher rates on the Credit Facility and new financing. "Other Financial Expense" surged 4,575.4% to $13.5 million, largely due to the expensing of $13.1 million in fees associated with the cancellation of a $375 million Backstop Facility.
- Asset Disposal: The company sold eight pre-2000 vessels, generating net cash inflows of $71.7 million and incurring a loss on disposal of $3.4 million.
Guidance, Outlook, and Risks
- Market Outlook: Management expects improved tanker market rates in 2019. Spot rates rebounded significantly in Q4 2018, with TCE averaging $17,811/day for the period concluded as of the report date, a 48.4% increase from Q3 2018.
- Liquidity and Financing:
- The company is in compliance with modified covenants on its $500 million Credit Facility (outstanding balance $337.5 million as of Sep 30, 2018; $333.3 million as of Nov 29, 2018).
- Dividend distribution is capped at $4.3 million under current credit terms.
- The company is assessing alternative financing arrangements to replace the cancelled Backstop Facility, expected to be finalized in late 2018 or early 2019.
- Risks and Contingencies:
- Associate Investment: Nordic American Offshore Ltd (NAO), an equity method investee, is facing liquidity strains and breached covenants on its own credit facility. NAO's business combination with Horizon Maritime Services was cancelled, causing a decline in its share price.
- Market Volatility: Results remain highly sensitive to freight rates, bunker prices, and vessel values.
- Dividends: Declared $0.02/share for Q2 (paid Sep 7) and $0.01/share for Q3 (expected payment Dec 7).
Investor Verification Checklist
- Covenant Compliance: Verify continued compliance with the modified Credit Facility covenants (minimum value adjusted equity of $175M, liquidity of $20M) given the recent market volatility.
- Financing Refinancing: Monitor the status of the replacement financing for the cancelled $375 million Backstop Facility and the $333.3 million outstanding Credit Facility balance.
- Associate Exposure: Assess the potential impact of NAO's liquidity issues and covenant breaches on NAT's equity investment and future earnings.
- Asset Sales: Confirm the closing of the pending sale of two pre-2000 vessels announced in November 2018 for approximately $20.0 million.
- Market Rates: Validate the sustainability of the Q4 2018 spot rate rebound ($28k-$58k/day range) against the full-year 2019 outlook.