Business Context and Reporting Period
This Form 6-K filing by KNOT Offshore Partners LP (NYSE: KNOP) is dated June 23, 2014. The report discloses the entry into agreements to acquire two shuttle tankers, the Hilda Knutsen and the Torill Knutsen, from Knutsen NYK Offshore Tankers AS. The Partnership expects the acquisitions to close within approximately 30 days, subject to customary conditions.
Key Financial Metrics and Transaction Details
- Acquisition Costs:
- Hilda Knutsen: Purchase price of $166.0 million, net of $109.6 million outstanding indebtedness.
- Torill Knutsen: Purchase price of $169.0 million, net of $112.1 million outstanding indebtedness.
- Funding Strategy: The Partnership expects to fund the cash portion of the purchase prices by issuing equity.
- Operational Status: Both vessels are operating in the North Sea under time charters with Eni Trading & Shipping S.p.A. (Eni), commencing in Q3 2013.
- Financial Statements: The filing includes audited combined financial statements for the target entities for years ended December 31, 2013 and 2012, and unaudited interim statements for the three months ended March 31, 2014. Pro forma financial statements for the Partnership are also attached.
Material Changes and Contractual Terms
The primary material change is the pending expansion of the Partnership's fleet. The vessels are currently under five-year time charters with Eni. Key contractual terms include:
- Eni holds options to extend each charter for up to five one-year periods.
- For the Torill Knutsen, Eni has an option exercisable before May 31, 2016, to extend the charter term to ten years in exchange for a reduction in the hire rate.
Outlook, Risks, and Contingencies
Management anticipates closing the acquisitions within 30 days. However, the filing explicitly states that if customary closing conditions are not satisfied or waived, the Partnership will not complete either or both acquisitions. Additionally, the transactions may close with adjusted terms or may not close as anticipated. The filing incorporates by reference into the Partnership's Form F-3 registration statement.
Investor Verification Checklist
- Verify the satisfaction of customary closing conditions required to finalize the acquisitions.
- Review the attached Pro Forma Financial Statements (Exhibit 99.3) to assess the impact of the acquisitions on the Partnership's capital structure.
- Confirm the terms of the equity issuance planned to fund the cash portion of the purchase prices.
- Monitor the status of Eni's charter extension options, particularly the potential 10-year extension for the Torill Knutsen.