Business Context and Reporting Period
Company: Capital Product Partners L.P. (Foreign Private Issuer)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited Condensed Consolidated Financial Statements for the six months ended June 30, 2012.
Filing Date: September 28, 2012
Business Overview: The Partnership is engaged in the seaborne transportation of crude oil, refined petroleum products, edible oils, and soft chemicals via time and bareboat charters. The fleet consists of double-hull medium-range product tankers and crude tankers.
Key Financial Metrics (Six Months Ended June 30, 2012)
| Metric | 2012 (in thousands) | 2011 (in thousands) |
|---|---|---|
| Total Revenues | $77,687 | $55,506 |
| Operating Income | $23,420 | $17,203 |
| Net Income | $6,595 | $17,541 |
| Net Income Attributable to Common Unitholders | $2,387 | $17,190 |
| Earnings Per Common Unit (Basic & Diluted) | $0.03 | $0.44 |
| Net Cash Provided by Operating Activities | $34,235 | $24,066 |
| Total Debt (Long-term + Current) | $463,514 | $633,580 |
| Cash and Cash Equivalents | $40,130 | $53,370 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by approximately 40% ($22.2 million) compared to the prior year, driven primarily by a significant increase in related-party revenues ($33.9 million in 2012 vs. $11.6 million in 2011).
- Net Income Decline: Despite higher revenues, Net Income dropped by 62% ($10.9 million). This was largely due to the absence of a $16.5 million "Gain from bargain purchase" recorded in 2011 related to the acquisition of the vessel Patroklos.
- Debt Reduction: Total long-term debt decreased significantly from $615.3 million to $463.5 million. The Partnership repaid approximately $149.6 million in debt using proceeds from the issuance of Class B Convertible Preferred Units and available cash.
- Asset Sales: The Partnership sold two chemical tankers (M/T Attikos and M/T Aristofanis) in early 2012, realizing a combined net gain of $1.3 million.
- Equity Issuance: Issued 15,555,554 Class B Convertible Preferred Units for net proceeds of $136.4 million.
Outlook, Management Commentary, and Risks
- Debt Restructuring: Following the debt repayment, credit facilities were amended. The $370 million facility was converted to a term loan with amortization commencing in March 2016. Margins on facilities were adjusted to 2% and 3%.
- Preferred Unit Terms: Class B Convertible Preferred Units carry a minimum quarterly distribution rate of $0.21375 (9.5% annualized). Holders have the right to convert to Common Units at $9.00 per unit. Mandatory conversion may occur if the Common Unit price exceeds 130% of the conversion price for 20 out of 30 trading days after May 23, 2015.
- Related Party Transactions: A substantial portion of revenue and operating expenses involves related parties (Capital Maritime & Trading Corp. and affiliates), including management fees and charter agreements.
- Derivatives: The Partnership utilizes interest rate swaps to mitigate interest rate risk. As of June 30, 2012, nine swap agreements expired or were closed out, reducing the total notional amount swapped to $59.1 million.
- Contingencies: The filing notes standard shipping industry risks, including claims, suits, and environmental liabilities, but states no specific provisions are currently required.
Investor Verification Checklist
- Related Party Dependence: Verify the sustainability of the 43% revenue increase driven by related-party charters and the terms of the management agreements.
- Debt Covenants: Confirm compliance with the amended credit facility terms, specifically the new amortization schedule starting in 2016 and increased interest margins.
- Preferred Unit Dilution: Assess the potential dilution impact of the 15.5 million Class B Convertible Preferred Units and the conditions triggering mandatory conversion.
- Non-Recurring Items: Exclude the 2011 bargain purchase gain when comparing core operating profitability year-over-year.
- Liquidity Position: Monitor cash flow coverage given the reduction in cash reserves ($13.2 million decrease) and the upcoming debt amortization obligations.