Business Context and Reporting Period
Company: The Mosaic Company (Mosaic)
Filing Type: Form 8-K (Current Report)
Date of Report: October 24, 2017
Event: Entry into a Material Definitive Agreement involving a Time Charter for an articulated tug-and-barge unit (ATB) to transport anhydrous ammonia.
Key Financial Metrics and Obligations
- Asset Acquisition Cost: The ATB was purchased by Bankers Commercial Corporation (BCC) for $230 million.
- Charter Term: October 24, 2017, through December 31, 2024.
- Payment Structure: Mosaic subsidiary (TPS) pays "Time Charter Hire" comprising:
- Basic Hire: Fixed sum covering financing costs (amortization of portion of purchase price) and a final balloon payment of $132,020,000.
- Management Hire: $1,232.88 per day.
- Other Hire: Includes vessel-related costs, reimbursement for operation/repair/maintenance, and supplemental hire for indemnification or acceleration events.
- Debt Covenants: Mosaic guaranteed TPS's obligations, subject to covenants in its Credit Agreement:
- Consolidated Indebtedness to Consolidated Capitalization ratio: Maximum 0.65 to 1.0.
- Minimum Interest Coverage Ratio: 3.5 to 1.0.
Material Changes and Agreements
This filing reports the execution of a "hell or high water" Time Charter, creating an absolute and unconditional obligation for TPS to pay hire regardless of vessel usage. The agreement involves a complex chain of ownership and financing:
- Ownership Chain: BCC (subsidiary of BTMU) owns the ATB; Savage Harvest Operations, LLC (subsidiary of Savage Companies) holds a Bareboat Charter; TPS (Mosaic subsidiary) holds the Time Charter.
- Related Party Transactions: Mosaic and Savage Companies each hold a 50% interest in Gulf Sulphur Services Ltd., LLLP. Savage affiliates also provide sulfur transportation services to Mosaic.
- Guarantees: Mosaic provided a Guaranty to BCC and Lenders. Savage provided a guaranty of warranties and covenants to TPS.
Outlook, Risks, and Contingencies
- Acceleration Risk: Payment obligations could be accelerated upon events of default, including payment defaults by TPS, insolvency of Mosaic/TPS, or acceleration of Mosaic's other indebtedness.
- Termination Rights:
- TPS may terminate early upon specified defaults or elect to purchase the ATB after the third anniversary (with one year's notice) absent defaults.
- Savage Harvest may terminate upon the three-year anniversary with one year's notice.
- Step-in Rights: TPS has "quiet enjoyment" rights and may replace Savage Harvest under the charter if Savage defaults, though failure to do so could trigger acceleration of payments.
- Covenant Compliance: A default under the Time Charter may occur if Mosaic breaches covenants in its Credit Agreement (e.g., leverage or interest coverage ratios).
Investor Verification Checklist
- Verify Mosaic's current Consolidated Indebtedness to Consolidated Capitalization ratio and Interest Coverage Ratio against the 0.65 and 3.5 thresholds.
- Review the full text of the Time Charter (Exhibit 10.1) and Guaranty (Exhibit 10.2) for specific default triggers and indemnification details.
- Assess the impact of the $132,020,000 balloon payment on future liquidity and cash flow projections.
- Monitor the status of the related-party joint venture, Gulf Sulphur Services, and other Savage-affiliated contracts.
- Confirm whether the "hell or high water" clause impacts Mosaic's ability to suspend payments during operational disruptions.