Tsakos Energy Navigation Limited — 2019 Form 20-F Summary
Business context and reporting period
Tsakos Energy Navigation Limited is a Bermuda-based international marine transportation company focused on crude oil, petroleum products and LNG. Its consolidated financial statements are prepared under U.S. GAAP and cover the fiscal year ended December 31, 2019; the filing is an annual report, not a standalone fourth-quarter filing. At year-end, the Company operated 65 vessels, with an average fleet age of 9.1 years and utilization of 96.2%.
The fleet operated through a combination of fixed-rate time charters, variable-rate/profit-sharing arrangements, contracts of affreightment and spot voyages. Approximately 72.3% of operating days were under time-charter arrangements during 2019.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Voyage revenues | $597.5 million | $529.9 million | +12.8% |
| Operating income (loss) | $85.9 million | $(28.1) million | Improved |
| Net income (loss) | $14.0 million | $(101.0) million | Improved |
| Net income (loss) attributable to TEN | $15.1 million | $(99.2) million | Improved |
| Net loss attributable to common stockholders | $(28.0) million | $(133.0) million | Improved |
| Basic and diluted loss per common share | $(0.32) | $(1.53) | Improved |
| Net cash provided by operating activities | $184.3 million | $73.9 million | +$110.4 million |
| Net cash used in investing activities | $(102.2) million | $(0.2) million | Higher outflow |
| Net cash used in financing activities | $(104.9) million | $(55.9) million | Higher outflow |
| Cash and cash equivalents | $184.8 million | $204.8 million | Down $19.9 million |
| Total debt, including current portion | $1.534 billion | $1.596 billion | Down $61.3 million |
| Total stockholders’ equity | $1.472 billion | $1.507 billion | Down $34.5 million |
| Average TCE per vessel per day | $21,378 | $18,226 | +17.3% |
Operating margin was approximately 14.4% in 2019, compared with a negative operating margin in 2018. Net income attributable to TEN represented approximately 2.5% of revenue, while the effect of preferred dividends and a deemed Series B dividend resulted in a $28.0 million loss attributable to common stockholders.
Voyage expenses were $125.8 million, essentially flat year over year. Vessel operating expenses declined 0.8% to $180.2 million, or approximately $7,716 per vessel per day. Depreciation and amortization declined 5.0% to $139.4 million. Interest and finance costs declined 2.7% to $74.7 million.
Material changes versus the prior comparable period
- Revenue and TCE increased primarily because tanker freight markets strengthened, especially in the first and fourth quarters, while LNG carrier charter renewals generated higher rates.
- Suezmax profit-sharing revenue increased to $32.1 million from $11.5 million, and LNG carrier TCE increased to $49,251 per day from $29,491 per day.
- Operating results benefited from lower impairment charges: $27.6 million in 2019 versus $66.0 million in 2018. The 2019 charge included impairments relating to seven vessels and a $1.0 million impairment of a private investment.
- Four vessels were classified as held for sale at December 31, 2019: Archangel, Alaska, Silia T and Izumo Princess.
- The Company delivered the aframax Mediterranean Voyager, issued 4.6 million common shares for net proceeds of $16.6 million, issued Series G convertible preferred shares for net proceeds of approximately $34.0 million, and redeemed all 2.0 million Series B preferred shares for $50.0 million.
- Debt declined despite significant refinancing activity. The Company drew $494.4 million of new debt, prepaid $400.3 million and made $156.6 million of scheduled repayments.
- Common dividends paid declined to $8.9 million, or $0.10 per share, from $13.1 million in 2018. The Board moved to semi-annual common dividends.
Liquidity, debt and commitments
Working capital remained positive at $27.0 million, down from $44.2 million. Total cash, including restricted cash, was $197.8 million. Debt represented 51.2% of debt plus equity, or 47.8% net of cash. The Company reported compliance with all financial covenants under its 29 loan agreements and had made scheduled principal and interest payments without delay.
Debt principal payments due after December 31, 2019 totaled $1.545 billion, including $238.4 million due in 2020, $224.0 million in 2021, $164.4 million in 2022, $347.8 million in 2023 and $251.0 million in 2024. The Company was required to maintain minimum unrestricted liquidity of approximately $105.0 million at year-end.
Remaining contracted payments for four vessels under construction totaled $323.3 million, with $188.8 million due in 2020 and $134.5 million in 2021. Management stated that existing cash and expected operating cash flow should cover the next twelve months if market conditions remain relatively stable, but warned that a severe COVID-19-related downturn could threaten debt service and capital commitments.
Guidance, outlook, commentary and risks
- Management reported that freight rates improved significantly in late 2019 and remained strong into early 2020, supported by higher oil production, longer-haul voyages, offshore storage demand and IMO 2020 fuel regulations.
- The outlook was highly uncertain because the COVID-19 pandemic, oil-price volatility, potential production cuts and reduced global energy consumption could weaken charter rates, utilization, vessel values and counterparties’ ability to pay.
- Fifteen vessel time charters were scheduled to expire during the remainder of 2020, creating renewal and re-chartering exposure. The Company also had 21 tankers operating on spot voyages as of April 2, 2020.
- Key financial risks include floating-rate debt and LIBOR transition risk, refinancing and balloon-payment requirements, vessel-value declines affecting loan-to-value covenants, bunker prices, foreign exchange exposure and liquidity constraints.
- Environmental requirements, including the IMO 0.5% sulfur cap effective January 1, 2020 and ballast-water treatment requirements, may increase operating and capital costs.
- The Company is dependent on Tsakos Energy Management, Tsakos Shipping and Tsakos Columbia Shipmanagement for executive, commercial and technical management. A change-of-control termination of the management agreement could have resulted in an estimated payment of approximately $172.7 million as of December 31, 2019.
- Related-party expenses totaled $44.7 million in 2019, including management fees, chartering commissions, insurance premiums, technical-management charges and travel services.
- Subsequent events included the acquisition of Caribbean Voyager, sale-and-leaseback transactions for Archangel and Alaska, the sale of Silia T for $15.5 million gross proceeds, a declared $0.05 common dividend, and authorization of a share repurchase program of up to $50 million.
- The filing states that the COVID-19 impact could be catastrophic for the shipping industry but that its financial effect could not be estimated as of the filing date.
Investor verification items
- Verify the distinction between $15.1 million of net income attributable to TEN and the $28.0 million loss attributable to common stockholders after preferred dividends and the deemed Series B dividend.
- Review the 2020 debt maturities, balloon payments, refinancing status and compliance with minimum liquidity and loan-to-value covenants.
- Assess coverage and renewal terms for the 2020-expiring charters and the proportion of vessels exposed to spot-market rates.
- Reconcile the $323.3 million newbuilding commitment with expected financing, delivery schedules and COVID-19-related construction risks.
- Evaluate vessel market values against carrying values; the filing states that 49 vessels had carrying values exceeding market values at year-end.
- Review preferred-share dividend obligations, Series G conversion or redemption provisions and potential common-share dilution.
- Monitor related-party management arrangements, fees and the potential $172.7 million termination payment.
- Confirm subsequent developments after April 14, 2020, including COVID-19 effects, charter rates, asset sales, refinancing and dividend or repurchase decisions.
- Note that the independent auditor issued an unqualified opinion and concluded that internal control over financial reporting was effective as of December 31, 2019.