Business context and reporting period
Tsakos Energy Navigation Limited, a Bermuda-based foreign private issuer listed on the NYSE, filed its Form 20-F for the fiscal year ended December 31, 2020. The company provides worldwide marine transportation of crude oil, petroleum products and LNG through a diversified fleet of tankers, LNG carriers and DP2 shuttle tankers. The filing is an annual report rather than a standalone fourth-quarter filing.
At December 31, 2020, the fleet comprised 66 vessels, including 2 LNG carriers and 3 DP2 shuttle tankers, with approximately 7.3 million deadweight tons. The company operates through subsidiaries and outsources executive, commercial and technical management to affiliated entities.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Voyage revenues | $644.1 million | $597.5 million | +7.8% |
| Operating income | $96.7 million | $85.9 million | +12.6% |
| Net income | $27.2 million | $14.0 million | +94.3% |
| Net income attributable to TEN | $24.0 million | $15.1 million | +58.7% |
| Net loss attributable to common stockholders | $15.1 million | $28.0 million | Improved, but remained a loss |
| Basic and diluted loss per common share | $0.80 loss | $1.58 loss | Improved |
| Net cash from operating activities | $205.4 million | $184.3 million | +$21.1 million |
| Net cash used in investing activities | $94.6 million | $102.2 million | Lower use of cash |
| Net cash used in financing activities | $136.8 million | $104.9 million | Higher use of cash |
| Cash and cash equivalents | $160.5 million | $184.8 million | -$24.4 million |
| Total debt, before deferred finance costs | $1.51 billion | $1.54 billion | -$34.8 million |
| Total stockholders’ equity | $1.38 billion | $1.47 billion | -$90.5 million |
Average time charter equivalent revenue increased to $23,638 per vessel per day from $21,378. Fleet utilization declined to 94.2% from 96.2%, while average vessel operating expense increased to $7,821 per ship per day from $7,716.
Operating margin was approximately 15.0% in 2020 versus 14.4% in 2019. Net income margin was approximately 4.2% versus 2.3%. After preferred dividends and deemed dividends, common stockholders remained unprofitable.
Material changes versus the prior comparable period
- Revenue and operating income benefited from strong tanker markets and floating-storage demand during the first half of 2020, although rates weakened materially in the second half, particularly in the spot market.
- Voyage expenses rose 15.5% to $145.3 million as spot and contract-of-affreightment operating days increased. Vessel operating expenses declined slightly to $179.2 million.
- Impairment charges increased to $28.8 million from $27.6 million. Four vessels were impaired, including Arctic, Antarctic, Izumo Princess and Sakura Princess.
- The company recorded a $6.5 million net loss on vessel sales. Silia T., Didimon and Sakura Princess were sold for aggregate net proceeds of $93.6 million.
- The company delivered Caribbean Voyager, Apollo Voyager and Artemis Voyager and completed several sale-and-leaseback transactions.
- The company redeemed all 2.0 million Series C preferred shares for $50.0 million and repurchased 978,936 common shares for $9.8 million.
- Common dividends increased to $0.50 per share from $0.25 per share, totaling $9.4 million in 2020. A $0.10 per share dividend was declared for payment in June 2021.
- Working capital shifted from positive $27.0 million at year-end 2019 to negative $74.5 million at year-end 2020, primarily because of lower cash, higher current lease obligations and derivative liabilities.
Liquidity, debt and commitments
Debt to total capital was 52.2% at December 31, 2020, or 49.2% net of cash. Management reported compliance with all 30 loan agreements and applicable financial covenants, including a consolidated leverage ratio of 66.7% versus a 70% maximum covenant. The company stated that it had made scheduled principal and interest payments without delay.
Debt principal payments scheduled after year-end total $1.51 billion, including $235.1 million due in 2021, $175.1 million in 2022, $262.2 million in 2023, $295.3 million in 2024 and $210.7 million in 2025. The company also had $237.4 million of remaining construction payments for one shuttle tanker and one LNG carrier, with $172.1 million due in 2021 and $65.3 million in 2022.
Management stated that available cash, expected operating cash flow and existing time-charter employment should cover the next twelve months if market conditions remain relatively stable. It also warned that a significant deterioration in markets could threaten timely debt service and capital commitments.
Guidance, outlook, commentary and risks
- Management expected tanker demand and rates to benefit from recovering oil demand, declining inventories, gradual restoration of OPEC+ production and a relatively low tanker orderbook. No formal financial guidance was provided.
- COVID-19 reduced oil demand and charter rates, disrupted crew changes and delayed some repairs and maintenance. The company expected continued uncertainty, particularly for spot-market and expiring time-charter vessels.
- Approximately two-thirds of the fleet was exposed to prevailing market rates as of April 2, 2021, and 15 tanker charters were scheduled to expire during 2021. The company maintained a higher spot-market exposure because of weak period rates.
- Vessel market values were substantially below carrying values for much of the fleet. Management estimated fleet market value at approximately $2.1 billion versus carrying value of approximately $2.7 billion after impairment; 58 vessels had carrying values above estimated market values.
- Key risks include volatile tanker and LNG charter rates, vessel oversupply, charterer credit risk, vessel impairments, refinancing and balloon-payment risk, covenant compliance, floating-rate debt and LIBOR transition, bunker prices, foreign-exchange exposure, environmental regulations, piracy, sanctions, cyber risk and operational accidents.
- The company disclosed ongoing U.S. Department of Justice and SEC investigations concerning whether conduct by certain shipbrokers in connection with Brazilian-related charters may have involved FCPA violations. The company began its own investigation and is cooperating with the agencies.
- Related-party arrangements remain significant. 2020 charges included $20.3 million of management fees, $8.1 million of commissions, $9.5 million of insurance premiums and $4.4 million of travel services. A change-of-control termination of the management agreement could have required an estimated $169.0 million payment as of December 31, 2020.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Vessel impairment was identified as the critical audit matter because of significant judgment regarding future charter rates and cash flows.
Investor verification checklist
- Verify the full debt maturity schedule, refinancing plans and compliance with loan-to-value, leverage and minimum-liquidity covenants.
- Assess exposure to spot rates, the 2021 charter expirations and the portion of revenue secured by fixed-rate or minimum-rate contracts.
- Review vessel fair values, impairment assumptions and the potential for additional write-downs if tanker markets remain weak.
- Monitor cash balances, negative working capital, newbuilding funding requirements and the company’s ability to sustain common and preferred dividends.
- Follow developments in the FCPA investigation and evaluate potential financial, legal and reputational consequences.
- Review related-party management, brokerage, insurance and travel arrangements, including the management agreement’s change-of-control provisions.
- Evaluate the impact of COVID-19, environmental compliance costs, sulfur and ballast-water rules, greenhouse-gas regulation and the transition away from LIBOR.
- Confirm post-year-end actions, including the Series G preferred-share exchange, newbuilding financing, declared dividends and the expected delivery of the LNG carrier and shuttle tanker.