Business Context and Reporting Period
This Form 6-K, dated July 30, 2014, serves as an Information Statement for Nordic American Tankers Limited (NAT) regarding a distribution in kind of common shares it owns in Nordic American Offshore Ltd. (NAO). NAT is a Bermuda-based tanker company, while NAO is a Marshall Islands corporation focused on acquiring and operating platform supply vessels (PSVs) in the North Sea. The filing details the mechanics of distributing NAO shares to NAT shareholders as a dividend, effective August 11, 2014.
Key Financial Metrics
NAO Financial Performance (Unaudited, Three Months Ended March 31, 2014):
- Charter Revenues: $13.1 million
- Net Operating Income: $3.8 million
- Net Income: $1.7 million ($0.10 per share)
- Operating Cash Flow: $0.1 million
- Cash and Cash Equivalents (as of March 31, 2014): $7.9 million
- Cash Balance (as of July 21, 2014): $56.2 million
- Long-Term Debt: $40.0 million (outstanding under Credit Facility as of March 31, 2014; repaid in July 2014)
- Total Assets (as of March 31, 2014): $288.9 million
- Shareholders' Equity (as of March 31, 2014): $245.0 million
NAO Fleet and Capitalization:
- Fleet: 6 secondhand PSVs (Initial Fleet) delivered Dec 2013/Jan 2014; 4 newbuilding PSVs under contract (2 from Ulstein, 2 from Vard).
- Outstanding Shares (NAO): 23,431,370
- Outstanding Shares (NAT): 89,182,001
Material Changes and Corporate Actions
- Distribution in Kind: NAT approved a distribution of NAO shares to shareholders holding 500+ NAT shares. The ratio is approximately 1 NAO share for every 115.4 NAT shares, based on a $0.13 per share dividend value and a $15.00 NAO offering price. Shareholders with fewer than 500 shares receive a cash equivalent.
- Debt Repayment: NAO repaid all outstanding amounts ($40 million) under its $60 million revolving credit facility in July 2014.
- Capital Raising: NAO completed an IPO in June 2014, raising approximately $100.2 million from the sale of 6.8 million shares.
- Dividend Payment: NAO paid a dividend of $0.45 per share in June 2014, funded by cash on hand and operations.
- Management Changes: Tor-Øyvind Bjørkli became NAO's CEO on April 1, 2014.
Guidance, Outlook, and Risks
Outlook and Strategy: NAO intends to maintain moderate leverage (not exceeding 20% of vessel carrying value) and pursue a mixed chartering strategy of time charters and spot market exposure. The company plans to expand its fleet and operations from the North Sea to the Barents Sea and potentially West Africa, the Gulf of Mexico, and Brazil over a five-year horizon.
Management Commentary: Management expects the PSV market to remain strong due to record growth in the drilling rig fleet. NAO's cash break-even rate is estimated at approximately $12,000 per day per vessel, while current charter rates range between $25,000 and $29,000 per day.
Risks and Contingencies:
- Market Volatility: Demand is tied to offshore oil and gas exploration spending, which is sensitive to oil prices and global economic conditions.
- Counterparty Risk: NAO relies on a small number of major oil companies (e.g., Statoil, Apache, BG International) for charters.
- Regulatory and Environmental: Strict North Sea operational requirements and evolving environmental regulations (e.g., sulfur emissions, ballast water) may increase operating costs.
- Related Party Transactions: NAT owns approximately 20.1% of NAO and provides management services via its subsidiary Scandic, creating potential conflicts of interest.
- PFIC Status: NAO is not currently a Passive Foreign Investment Company (PFIC), but U.S. shareholders face tax risks if this status changes.
Investor Verification Checklist
- Verify the exact number of NAO shares or cash payment received based on the record date of July 25, 2014.
- Confirm the tax treatment of the distribution in kind as a taxable dividend for U.S. federal income tax purposes.
- Review the terms of NAO's $60 million credit facility, noting that while currently repaid, future borrowing will be subject to restrictive covenants.
- Monitor the delivery schedule and chartering status of the four newbuilding PSVs expected in 2015.
- Assess the impact of the $1.5 million success fee payable to NAT upon NAO's NYSE listing.
- Check for updates on NAO's leverage ratio and compliance with the 20% debt-to-vessel-value target.