International Seaways, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. INSW transports crude oil and refined petroleum products. At quarter-end it owned or operated 36 vessels and had three dual-fuel LNG VLCCs under construction.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Shipping revenue | $46.8 million | $125.3 million |
| Time charter equivalent (TCE) revenue | $45.2 million | $119.7 million |
| Vessel operations | Loss of $11.8 million | Income of $53.3 million |
| Net income (loss) | Loss of $13.4 million; $(0.48) per share | Income of $33.0 million; $1.13 basic per share |
| Operating cash flow | Use of $21.0 million | Provided $38.3 million |
| Cash, cash equivalents and restricted cash | $172.4 million at March 31 | $215.7 million at December 31, 2020 |
| Total debt, net of discount and financing costs | $520.9 million | $535.8 million at December 31, 2020 |
| Working capital | $124.0 million | $148.0 million at December 31, 2020 |
Reported cash and cash equivalents were $156.2 million; $16.2 million was restricted. Total liquidity was $212.4 million, including restricted cash and $40.0 million of undrawn revolver capacity. Net debt to total capitalization was 26.5%, versus 24.8% at year-end. Interest expense declined to $7.3 million from $12.0 million. The filing does not provide a single company-wide operating-margin figure.
Changes and drivers
- Shipping revenue fell about 63% and TCE revenue fell 62%, principally because of substantially lower rates across vessel classes. Management attributed approximately $68.0 million of the TCE decline to rates; lower revenue days and fleet changes also contributed.
- Average daily TCE rates declined to $18,258 from $43,663 for Crude Tankers and to $10,720 from $26,873 for Product Carriers. Both segments reported adjusted vessel-operation losses: $1.0 million and $2.7 million, respectively.
- Lower vessel and charter-hire expenses partly offset weaker revenue. Vessel expenses were $26.3 million versus $33.0 million; charter hire was $5.7 million versus $10.2 million.
- Q1 2020 results included $13.5 million of debt-related losses and a $2.8 million gain on vessel disposals; these items make the year-over-year comparison less representative of recurring performance.
- Cash decreased $43.3 million during the quarter, reflecting operating cash use, debt principal payments of $15.4 million, capital expenditures and transaction costs, derivative payments, and dividends.
Outlook, transactions and key risks
- Management expects 2021 to be a weaker tanker-rate environment than 2020, while anticipating that oil supply and demand may move back toward balance and support a market recovery. It cautioned that Q1 results are not necessarily indicative of full-year results.
- Although INSW was compliant with debt covenants at March 31, management warned that forecast lower TCE rates could cause a breach of the 2.50:1 interest-coverage covenant under the Core Term Loan and Sinosure facilities at Q3 2021. Without a cure or waiver, lenders could accelerate debt and foreclose on 20 pledged vessels. Potential responses include seeking waivers or placing more vessels on time charters.
- INSW agreed to acquire Diamond S Shipping in a stock-for-stock merger, expected to close in Q3 2021 subject to shareholder approvals, regulatory approvals, and other conditions. The agreed exchange ratio is 0.55375 INSW shares per Diamond S share; expected post-merger ownership is approximately 55.75% for existing INSW shareholders and 44.25% for Diamond S shareholders. INSW may pay a $31.5 million special dividend before closing.
- Three LNG-capable VLCCs are scheduled for delivery in Q1 2023 and are expected to operate under seven-year Shell time charters with a floor rate plus profit sharing. Construction cost is approximately $290 million; a financing commitment covers approximately 85%, subject to definitive documentation and customary conditions.
- VIE exposure included a reported maximum potential loss of $175.6 million, principally reflecting investments; the company said it did not consider such a loss probable. Separately, potential future payments related to guarantees of equity-method investee debt and swaps were up to $39.8 million. Certain UK multi-employer pension assessments remain unquantifiable and unreserved.
- COVID-19 continued to adversely affect operations and markets. Other disclosed risks include tanker-rate and vessel-value cyclicality, covenant compliance, merger completion and integration, LIBOR transition, and operating, environmental, and counterparty risks.
Most important facts for investors to verify
- Whether tanker rates and operating cash flow recover sufficiently to sustain liquidity and meet the Q3 2021 interest-coverage covenant.
- Available unrestricted liquidity after excluding $16.2 million of restricted cash, upcoming debt service, and committed vessel spending.
- Merger approvals, closing conditions, final financing and integration costs, and whether the contemplated special dividend is declared.
- Final financing terms and delivery schedule for the three newbuilds, plus the economics and performance terms of their Shell charters.
- Realized segment TCE rates, off-hire and drydock days, and the extent to which fixed-charter coverage cushions spot-market weakness.