Business Context and Reporting Period
Company: Capital Product Partners L.P. (Nasdaq: CPLP)
Filing Type: Form 6-K (Press Release)
Reporting Period: Third Quarter ended September 30, 2009
Business Overview: An international owner of modern double-hull tankers, comprising 18 vessels (15 MR tankers, 2 small product tankers, 1 Suezmax). The Partnership operates under medium to long-term charters with major energy companies.
Key Financial Metrics
| Metric | Q3 2009 | Q3 2008 | 9M 2009 | 9M 2008 |
|---|---|---|---|---|
| Revenues | $30.5 million | $36.0 million | $94.1 million | $95.3 million |
| Net Income | $7.1 million | $15.7 million | $24.8 million | $35.0 million |
| Net Income Per Unit | $0.28 | $0.62 | $0.95 | $1.49 |
| Operating Surplus (Non-GAAP) | $10.7 million | $18.7 million | N/A | N/A |
| Operating Expenses | $15.3 million | $13.9 million | N/A | N/A |
| Net Interest Expense | $8.1 million | $6.5 million | N/A | N/A |
| Long-Term Debt | $474.0 million | N/A | N/A | N/A |
| Partners' Equity | $158.3 million | N/A | N/A | N/A |
| Cash & Equivalents | $1.2 million | N/A | N/A | N/A |
| Undrawn Debt Facilities | $246.0 million | N/A | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Q3 2009 revenues dropped 15% year-over-year, primarily due to the absence of $6.6 million in profit-sharing revenues recorded in Q3 2008, attributed to depressed spot markets.
- Profitability Drop: Net income per unit fell from $0.62 in Q3 2008 to $0.28 in Q3 2009. This decrease is driven by the loss of profit-sharing revenue and higher interest expenses.
- Increased Interest Costs: Net interest expense rose to $8.1 million from $6.5 million year-over-year. This increase stems from higher interest margins on loan facilities amended in July 2009 and increased bank funding costs.
- Operating Expenses: Total operating expenses increased to $15.3 million from $13.9 million, with related-party management fees rising to $7.2 million.
- Balance Sheet: Cash and cash equivalents decreased significantly from $43.1 million at year-end 2008 to $1.2 million as of September 30, 2009, largely due to vessel acquisitions and distributions.
Guidance, Outlook, and Risks
- Market Conditions: Management notes the tanker industry faces an adverse trade environment with multi-year lows in freight rates, depressed refinery utilization, and rising bunker prices. The MR tanker spot market recorded its worst Q3 since 1992.
- Charter Coverage: The fleet's charter coverage stands at approximately 97% for the remainder of 2009 and 67% for 2010. Management emphasizes a long-term chartering strategy that has insulated results from spot market volatility.
- Capital Commitments: The Partnership has zero capital commitments to purchase or build new vessels.
- Distributions: A cash distribution of $0.41 per unit was declared for Q3 2009, payable November 13, 2009.
- Risks: Key risks include the potential for further declines in vessel prices and period rates as vessels come up for rechartering, weak global oil demand (expected to drop 1.9% in 2009), and a tightening credit market.
Investor Verification Checklist
- Debt Covenants: Verify the impact of the amended loan facility terms (July 2009) on future interest margins and compliance with covenants given the reduced cash balance.
- Rechartering Risk: Assess the exposure of the 33% of the fleet not covered for 2010 against current depressed spot rates.
- Liquidity Position: Confirm the sufficiency of the $246 million undrawn debt facility to cover upcoming distributions and operating costs given the low cash balance ($1.2 million).
- Related Party Transactions: Review the $7.2 million in management fees paid to Capital Maritime & Trading Corp. and the vessel exchange transactions (M/T Agamemnon II/Ayrton II for M/T Assos/Atrotos).
- Non-GAAP Reconciliation: Review Appendix A to understand the adjustments made to Net Income to derive Operating Surplus ($10.7 million).