Capital Product Partners L.P. — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. The supplied filing is for Capital Product Partners L.P. (Nasdaq: CPLP), not a company identified in the request metadata as Capital Clean Energy Carriers Corp. Financial statements are prepared under U.S. GAAP. The tanker business spun off in March 2019 is reported as discontinued operations.
Business context and reporting period
The March 27, 2019 DSS Transaction spun off the partnership’s 25 crude and product tankers to Diamond S Shipping. CPLP received $319.7 million, repaid $146.5 million of debt, redeemed its Class B preferred units for $119.5 million, and completed a 1-for-7 reverse split. At year-end, continuing operations comprised 10 container vessels and one Capesize bulk carrier; three additional container vessels were acquired in January 2020, bringing the fleet to 14.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Continuing-operations revenue | $108.4 million | $117.6 million |
| Operating income | $40.1 million | $10.5 million |
| Net income/(loss), continuing operations | $24.4 million | $(7.6) million |
| Total net income/(loss), including discontinued operations | $(122.5) million | $(0.1) million |
| Net cash from continuing operating activities | $45.3 million | $60.2 million |
| Continuing investing cash flow | $(6.5) million | $37.4 million |
| Continuing financing cash flow | $(179.1) million | $(108.0) million |
| Cash and restricted cash at year-end | $63.5 million | $38.2 million |
| Total debt at year-end | $262.4 million | $445.9 million, including discontinued operations |
| Partners’ capital | $406.7 million | $881.3 million |
Continuing operating margin was approximately 37% in 2019, compared with approximately 9% in 2018. Year-end cash included $5.5 million of restricted cash. Current assets were $65.9 million and current liabilities $64.7 million. The filing states that working capital should be sufficient for existing liquidity needs for at least 12 months, subject to shipping, charter and financing conditions. Debt bore floating-rate interest; the 2019 weighted-average loan rate was 5.7%, and the partnership was in compliance with its debt covenants at year-end.
Material changes versus the prior comparable period
- Continuing revenue fell 7.8%, primarily because of fewer vessel operating days after vessel sales, partly offset by higher rates on certain container vessels.
- Operating income and continuing net income improved substantially, mainly because 2018 included a $28.8 million impairment charge on a tanker sold that year; no continuing-operations vessel impairment was recorded in 2019.
- Continuing operating cash flow declined $14.9 million. Continuing investing cash flow moved from a $37.4 million inflow to a $6.5 million outflow, reflecting 2018 vessel-sale proceeds and 2019 vessel-improvement spending.
- Continuing financing outflows increased, including the $116.9 million cash redemption of Class B units and debt repayments. Overall 2019 net loss was driven chiefly by a $149.6 million impairment in discontinued operations associated with the tanker spin-off.
- Common-unit distributions declared for 2019 were $1.26 per unit, down from $2.24 in 2018. The board declared a $0.35-per-unit fourth-quarter 2019 distribution, paid in February 2020.
Outlook, commentary, risks and unusual items
- Management’s stated strategy is to maintain medium- to long-term fixed-rate charters and pursue accretive vessel acquisitions, subject to financing and market conditions. It reported a quarterly distribution guidance figure of $0.315 per common unit; the board separately declared $0.35 for fourth-quarter 2019.
- Three charters were expected to expire in the 12 months following the report, including the drybulk vessel’s charter, whose earliest expiry was June 2020. Management highlighted the risk of lower re-charter rates and customer concentration: HMM and CMA CGM represented 40% and 39% of 2019 continuing revenue, respectively.
- After year-end, CPLP acquired three Hapag-Lloyd-chartered container vessels for $162.6 million. Financing included a $38.5 million term loan and $77.0 million of sale-leaseback financing. A separate $155.4 million ICBC Financial Leasing sale-leaseback arrangement for three existing vessels was under a non-binding term sheet, with completion expected in March 2020.
- Environmental compliance spending and vessel off-hire are risks: scrubber and ballast-water equipment retrofits were underway, with coronavirus-related shipyard delays identified as a potential issue. The filing also flags the IMO 2020 sulphur cap, possible fuel-cost effects, shipping-market overcapacity, trade disruption, charterer credit risk, floating-rate debt and LIBOR transition.
- A subsidiary paid a $500,000 fine, pleaded guilty to oil-record-book violations involving the M/V CMA CGM Amazon, and was placed on 30 months’ probation subject to an environmental compliance plan. Failure to comply could allow the DOJ to pursue further charges.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Management also reported effective disclosure controls and internal control over financial reporting as of December 31, 2019.
Important facts for investors to verify
- Confirm the issuer identity and whether this CPLP filing is the intended filing, given the company-name mismatch in the request metadata.
- Review the audited statements and transaction accounting for the tanker spin-off, including the $149.6 million discontinued-operations impairment and the resulting total net loss.
- Verify charter expirations, renewal terms and counterparty exposure, particularly concentration in HMM and CMA CGM and the June 2020 drybulk charter expiry.
- Check actual completion, pricing, covenants and repayment effects of the January 2020 vessel acquisitions and financing, and the proposed ICBCFL transaction.
- Assess distribution sustainability against operating cash flow, debt service, required capital spending, covenant limits and the stated distribution guidance.