Capital Product Partners L.P. — 2012 Form 20-F
Filing and period: This is an annual report for the fiscal year ended December 31, 2012, not a standalone fourth-quarter filing. The supplied filing identifies the issuer as Capital Product Partners L.P.; this differs from the requested company name, Capital Clean Energy Carriers Corp. Financial amounts below are in U.S. dollars unless noted.
Business context
The partnership operated 25 vessels at year-end: 18 MR product tankers, four Suezmax crude tankers, two container ships and one Capesize bulk carrier. All were on medium- or long-term time or bareboat charters, with an average remaining charter term of about four years. Capital Maritime, an affiliate and major customer, accounted for 45% of 2012 revenue; BP Shipping accounted for 23%.
Key financial metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $154.0 million | $130.3 million |
| Operating income | $3.2 million | $35.3 million |
| Operating margin | About 2.1% | About 27.1% |
| Net income (loss) | $(21.2) million | $87.1 million |
| Net margin | About (13.8)% | About 66.8% |
| Basic and diluted loss/income per common unit | $(0.46) | $1.78 |
| Cash from operating activities | $84.8 million | $56.5 million |
| Cash and cash equivalents at year-end | $43.6 million | $53.4 million |
| Restricted cash | $10.5 million | $6.8 million |
| Total debt | $458.4 million | $633.6 million |
Revenue rose about 18%, primarily because the Crude Carriers vessels contributed for a full year. Operating income fell sharply, reflecting higher depreciation and a $43.2 million impairment charge on two VLCCs exchanged in the year-end vessel transaction. The 2011 net result included an $82.5 million bargain-purchase gain, so the year-over-year net-income comparison is not representative of recurring operations. Interest and finance costs were $26.7 million in 2012, down from $33.8 million. The company reported a 3.11% weighted-average loan rate, versus 5.28% in 2011.
Operating cash flow increased by $28.3 million. Investing activities provided $15.9 million, mainly from selling two small tankers; financing activities used $110.6 million, including $175.2 million of debt repayments and $73.3 million of distributions. Year-end liquidity, including cash and undrawn long-term borrowings, was $109.5 million; undrawn facility availability was $55.4 million.
Capital structure, distributions and material transactions
- In 2012 the partnership issued 15.56 million Class B convertible preferred units for $140 million gross proceeds, or $136.4 million net. Proceeds and cash funded $149.6 million of debt prepayments. Class B units are convertible one-for-one into common units and carry a $0.21375 quarterly distribution, senior to common-unit distributions.
- Debt amortization was deferred until March 2016; the 2007 facility was converted to a term loan, the 2008 facility’s undrawn $52.5 million tranche was cancelled, and margins on the 2007 and 2008 facilities increased to 2.0% and 3.0%. Facilities mature in 2017 and 2018.
- The partnership sold the M/T Attikos and M/T Aristofanis, generating $19.7 million net proceeds and a $1.3 million gain. It exchanged two VLCCs for two Maersk-chartered container vessels, recognized the $43.2 million impairment on the VLCCs and repaid $5.2 million of debt.
- Common-unit distributions remained $0.2325 per quarter ($0.93 annualized). The board declared the fourth-quarter 2012 common distribution after year-end; the Class B distribution was declared at $0.21375 per unit.
Outlook, commentary and principal risks
- Management’s stated objective was to maintain a sustainable quarterly distribution and increase distributions over time, subject to market conditions and financing needs. It reported no capital commitments to purchase or build additional vessels and expected working capital to meet existing liquidity needs for at least 12 months.
- Management cited weak shipping markets and historically depressed tanker and container charter rates. Several tanker charters were due to expire or be redelivered during 2013, creating exposure to lower rechartering rates. The filing gives no quantified earnings or distribution guidance.
- OSG entered Chapter 11 in November 2012. Three vessels were on long-term bareboat charters to OSG subsidiaries at rates described as substantially above market; OSG requested materially lower rates, and negotiations and bankruptcy-court outcomes remained uncertain.
- Customer and related-party concentration is significant: Capital Maritime and BP together generated 68% of revenue. The filing also identifies counterparty concerns relating to COSCO, charterer exposure in the container market and reliance on Capital Maritime for management services.
- Credit facilities require, among other tests, EBITDA-to-net-interest of at least 2.0x, net debt to fleet market value no greater than 0.725x, and collateral vessel value of at least 125% of outstanding debt. The partnership said it complied at year-end; falling vessel values, covenant breaches or refinancing constraints could restrict distributions or trigger accelerated repayment. Debt amortization resumes in March 2016.
- Management estimated that charter-free market values of certain vessels were about $173.5 million below their aggregate carrying values, versus $92.7 million a year earlier. It said projected undiscounted cash flows supported carrying amounts, apart from the impairment recognized on the exchanged VLCCs.
- Other material risks include global trade and oil-demand weakness, tanker and container vessel oversupply, drydock costs and off-hire, variable LIBOR exposure, environmental regulation, uninsured losses and the priority of Class B distributions over common distributions.
Investor facts to verify
- Confirm the issuer identity: the filing is for Capital Product Partners L.P., not the company named in the request.
- Review the audited financial statements and impairment support for the $43.2 million vessel charge, as well as management’s vessel-value and cash-flow assumptions.
- Track OSG restructuring developments, requested charter-rate reductions and the status of the three OSG charters.
- Assess upcoming charter expirations and achievable replacement rates, particularly for tankers, and verify the contribution of related-party revenue.
- Check current covenant headroom, vessel collateral valuations, restricted cash, undrawn borrowing availability and the 2016 amortization schedule.
- Confirm the distribution’s sustainability after preferred-unit priority distributions, debt service, reserves and vessel maintenance or drydock spending.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Standalone fourth-quarter financial results are not clearly provided in the filing text.