Business Context and Reporting Period
Company: Capital Product Partners L.P. (Nasdaq: CPLP)
Filing Type: Form 6-K (Press Release and Unaudited Financial Statements)
Reporting Period: Third Quarter ended September 30, 2008
Business Overview: An international owner of modern double-hull tankers. As of September 30, 2008, the fleet consisted of 18 vessels (15 MR tankers, 2 small product tankers, 1 Suezmax crude tanker), all under medium-to-long-term charters.
Key Financial Metrics
| Metric | Q3 2008 | Q3 2007 | YTD 9M 2008 | YTD 9M 2007 |
|---|---|---|---|---|
| Revenues | $36.0 million | $24.1 million | $95.3 million | $57.6 million |
| Net Income | $15.7 million | $9.1 million | $35.0 million | $20.7 million |
| Net Income Per Unit (Total) | $0.56 | $0.35 | $1.46 | $0.57 |
| Operating Surplus (Non-GAAP) | $18.7 million | N/A | N/A | N/A |
| Operating Expenses | $13.9 million | N/A | N/A | N/A |
| Net Interest Expense | $6.5 million | N/A | N/A | N/A |
| Long-Term Debt | $474.0 million | N/A | N/A | N/A |
| Partners' Equity | $198.9 million | N/A | N/A | N/A |
| Undrawn Debt Facilities | $246.0 million | N/A | N/A | N/A |
| Cash Distribution Declared | $0.41 per unit | $0.39 per unit | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Q3 2008 revenues increased 49% year-over-year, driven by a larger fleet and higher profit-sharing revenues ($6.6 million in Q3 2008 vs. lower levels in prior periods) due to strong product and crude tanker markets.
- Profitability: Net income per unit rose to $0.56 in Q3 2008 from $0.35 in Q3 2007. Operating surplus reached a record $18.7 million, up from $15.7 million in Q2 2008.
- Fleet Expansion: The partnership took delivery of its 18th vessel, the Aris II, in August 2008. Three new vessels were acquired in 2008 (M/T Alexandros II, M/T Aristotelis II, M/T Aris II) and two others (M/T Amore Mio II, M/T Aristofanis) were acquired from an entity under common control.
- Debt Structure: Long-term debt increased to $474 million as of September 30, 2008, reflecting funding for new vessel acquisitions. Current liabilities decreased significantly compared to year-end 2007 due to the reclassification of related party debt.
Guidance, Outlook, and Risks
- Market Outlook: Management notes a "severe deterioration in the banking and credit world" and a "near certainty of a major global economic slowdown" which will impact world trade. However, the product spot market strengthened in Q3 due to US distillate exports and hurricane impacts on refinery utilization.
- Charter Status: Almost the entire fleet is under charter for 2009. Two vessels (Agisilaos and Arionas) had time charters extended at gross rates of $20,000 per day for an additional 13 months, including 50/50 profit-sharing arrangements.
- Liquidity Strategy: The company maintains non-amortizing revolving credit facilities ($370 million until June 2012; $350 million until March 2013) with $246 million undrawn. Management aims to maintain high distribution coverage and a strong balance sheet.
- Risks: Inflationary vessel cost environment, global economic slowdown, and credit market instability. Forward-looking statements regarding charter durations and growth are subject to risks and uncertainties.
Investor Verification Checklist
- Debt Covenants: Verify the terms of the $720 million total revolving credit facilities and any potential covenants triggered by the current credit market environment.
- Charter Expirations: Confirm the specific expiration dates of the 2009 charters to assess exposure to spot market volatility in 2010.
- Related Party Transactions: Review the $6.5 million in management fees paid to Capital Maritime & Trading Corp. and the terms of the right of first refusal on six additional MR product tankers.
- Non-GAAP Reconciliation: Review Appendix A to understand the adjustments made to Net Income to derive Operating Surplus and Available Cash.
- Derivative Instruments: Assess the $17.6 million liability recorded for derivative instruments on the balance sheet and their impact on future cash flows.