NAT

Business Context and Reporting Period

Company: Nordic American Tankers Limited (NAT)
Filing Type: Form 6-K (Press Release and Financial Data)
Reporting Period: Third Quarter 2012 (Ended September 30, 2012)
Date of Filing: November 15, 2012

NAT operates a homogeneous fleet of 20 Suezmax tankers, primarily employed in the spot market through the Orion Tanker Pool. The company emphasizes a conservative risk profile, low net debt, and a strategy to maintain a strong balance sheet to navigate market volatility and support consistent dividend payments.

Key Financial Metrics

Liquidity and Capital Structure: As of September 30, 2012, the company held $85.06 million in cash and cash equivalents. It established a new non-amortizing credit facility of $430 million, with $250 million drawn as of the reporting date. The facility matures in November 2017 and requires interest-only payments on drawn amounts.

Material Changes vs. Prior Periods

• Revenue Improvement: Net voyage revenue increased to $15.46 million in 3Q2012 from $11.24 million in 3Q2011, driven by an average daily spot rate of $10,700 (up from ~$8,000 in 3Q2011).
• Loss Reduction: While the company reported a net loss of $23.34 million, this was a significant improvement over the $37.67 million loss in 3Q2011. The loss per share improved from ($0.80) to ($0.44).
• Cash Position: Cash and cash equivalents surged from $10.40 million in 3Q2011 to $85.06 million in 3Q2012, bolstered by a $75.6 million equity issuance and $20 million in proceeds from the credit facility.
• Debt Levels: Long-term debt increased to $250 million from $170 million in the prior year, reflecting the drawdown on the new credit facility.

Guidance, Outlook, and Management Commentary

• Dividend Declaration: The Board declared a quarterly dividend of $0.30 per share, payable December 12, 2012, to shareholders of record as of November 29, 2012. This marks the 61st consecutive quarter of dividend payments.
• Market Outlook: Management views the company as well-positioned for a market upswing. They anticipate that spot rates will rise with global economic recovery, which would immediately increase dividend capacity.
• Strategic Acquisitions: NAT agreed to acquire the remaining 50% stake in Orion Tankers Ltd. for less than $500,000, granting full control of the pool. The company is actively inspecting acquisition candidates but exercises caution, noting that newbuilding and second-hand prices are historically low.
• Operational Efficiency: The company is implementing energy-saving measures (e.g., sliding valves, Alpha Lubricators) expected to reduce fuel consumption by 5-7 tons per day per ship, with a payback period of approximately one year.
• Risks: Key risks include global economic uncertainty (particularly in Europe), fluctuations in bunker prices, vessel off-hires, and potential liability from pending arbitration regarding the vessel Nordic Harrier.

Investor Verification Checklist

• Dividend Sustainability: Verify the company's ability to maintain the $0.30 quarterly dividend given the negative operating cash flow of ($3.16 million) in 3Q2012, despite the strong cash balance.
• Debt Covenants: Review the specific terms of the new $430 million credit facility to ensure no hidden amortization or restrictive covenants exist beyond the stated "non-amortizing" nature.
• Arbitration Outcome: Monitor the status of the arbitration claim against the former charterer of the Nordic Harrier for drydocking and maintenance costs.
• Spot Rate Volatility: Assess the sensitivity of future earnings to spot rate fluctuations, as the company relies heavily on the spot market rather than long-term time charters.
• Acquisition Integration: Confirm the completion of the Orion Tankers Ltd. acquisition and the realization of projected administrative cost synergies.