Tsakos Energy Navigation Limited: FY2013 Form 20-F Summary
Business context and reporting period
Tsakos Energy Navigation Limited is a Bermuda-based international tanker operator reporting under U.S. GAAP. The filing is the annual Form 20-F for the fiscal year ended December 31, 2013, filed April 11, 2014; it is not a standalone fourth-quarter filing.
The Company operated 48 vessels at year-end, including crude and product tankers, one LNG carrier and two DP2 shuttle tankers, totaling approximately 4.8 million dwt. Five Aframax tankers and one LNG carrier were under construction at December 31, 2013.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Voyage revenue | $418.4 million | $394.0 million | +6.2% |
| Operating income | $4.9 million | $1.3 million | Improved |
| Net loss attributable to the Company | $37.5 million | $49.3 million | Loss narrowed |
| Net loss attributable to common shareholders | $41.1 million | $49.3 million | Loss narrowed |
| Diluted loss per common share | $0.73 | $0.92 | Improved |
| Net cash from operating activities | $117.9 million | $60.9 million | +93.8% |
| Net cash used in investing activities | $144.4 million | $43.0 million | Higher investment |
| Cash and cash equivalents | $162.2 million | $144.3 million | +12.4% |
| Restricted cash | $9.5 million | $16.2 million | Decreased |
| Total debt | $1.380 billion | $1.442 billion | Decreased |
| Total stockholders’ equity | $997.7 million | $926.8 million | Increased |
| Fleet utilization | 97.8% | 94.9% | Improved |
| Average TCE per vessel per day | $17,902 | $17,163 | +4.3% |
Operating expenses declined 1.9% to $130.8 million, while voyage expenses increased 4.6% to $117.0 million as more days were operated in spot and contract-of-affreightment employment. Interest and finance costs declined 20.7% to $40.9 million, primarily because several interest-rate swaps expired.
Working capital remained negative at $5.3 million, although it improved from negative $51.1 million in 2012. Debt represented 58.0% of total debt plus equity, or 54.8% net of cash.
Material changes versus the prior comparable period
- Revenue increased despite generally depressed tanker rates, supported by higher utilization, improved TCE and the addition of two DP2 shuttle tankers and the LNG carrier’s higher average rate.
- Fleet utilization rose to 97.8% from 94.9%, partly because 2012 included two VLCCs that were unemployed while held for sale.
- Operating results benefited from lower repairs, maintenance and insurance costs, although crew expenses rose because of higher bonuses, training, travel and Euro-denominated costs.
- The Company recorded a $28.3 million impairment charge on the vessels Silia T, Triathlon, Delphi and Millennium, compared with a $13.6 million charge in 2012. The estimated market value of the fleet was approximately $1.8 billion versus a carrying value of approximately $2.2 billion.
- Debt declined by $62.1 million after $110.0 million of new borrowings and $172.1 million of repayments. The Company also issued $47.0 million of Series B preferred shares, $47.3 million of Series C preferred shares and $7.0 million of common shares through its distribution agency agreement.
- Capital investment increased materially, including $105.8 million of final payments for the two DP2 shuttle tankers and $37.2 million of yard advances for vessels under construction.
- Common dividends fell to $0.15 per share from $0.50 per share in 2012. The Company paid $1.9 million of Series B preferred dividends during 2013.
Guidance, outlook, risks and unusual items
Management expressed reserved optimism for 2014, citing improving tanker supply-demand fundamentals, possible rate spikes and stronger product-carrier trades. Management expected LNG and offshore shuttle activity to remain relatively healthy, but did not provide formal earnings or revenue guidance.
- Charter markets remained volatile and historically weak for much of 2013. At April 10, 2014, 19 vessels were on spot charters scheduled to expire in April 2014, while several time charters were scheduled to expire during 2014. Re-chartering at attractive rates was uncertain.
- The Company had $426.5 million of remaining payments on the five Aframaxes and one LNG carrier under construction at December 31, 2013. Financing had not been finalized; management expected to secure financing during 2014.
- Debt agreements contained leverage and loan-to-value covenants. Lenders had granted waivers or modified requirements through July 1, 2014. One loan with a $34.3 million balance had a $5.9 million loan-to-value shortfall classified as a current liability. Failure to extend covenant relief could lead to additional collateral requirements or accelerated debt, with cross-default consequences.
- Management stated that all scheduled debt installments and related interest had been paid on time. It believed liquidity would be sufficient through January 1, 2015 if market conditions remained relatively stable, but warned that a material deterioration could threaten debt service and capital commitments.
- Subsequent financing improved liquidity: the Company issued 12.995 million common shares for net proceeds of $82.7 million on February 5, 2014 and issued an additional 1.1 million common shares for net proceeds of $7.2 million under the distribution agency agreement.
- The Company depends heavily on affiliated entities for executive, commercial and technical management. A termination of the management agreement following certain change-of-control events could have required an approximately $145.3 million payment.
- Major risks include tanker-rate and vessel-value volatility, leverage and floating-rate debt, refinancing and newbuilding funding, fuel and foreign-exchange costs, environmental liabilities, piracy, sanctions, insurance availability, charterer counterparty risk and related-party conflicts.
- The Company maintained $1 billion of pollution liability coverage per incident, but acknowledged that a catastrophic spill could exceed available insurance.
- Petrobras represented approximately 21.3% of 2013 revenue and Shell approximately 10.6%, creating customer concentration exposure.
Most important facts for investors to verify
- Whether the July 1, 2014 covenant waivers and modified loan-to-value requirements were extended or replaced.
- Availability and terms of financing for the LNG carrier and nine Aframax newbuildings, including the four additional Aframaxes contracted after year-end.
- Actual charter renewals and achieved rates for vessels whose charters expired or were scheduled to expire during 2014.
- Subsequent vessel values and whether further impairment charges were required.
- Cash flow coverage of scheduled debt repayments, dividends and newbuilding installments, particularly given negative working capital.
- Whether the stated dividend policy remained sustainable after preferred dividend obligations and new debt commitments.
- Exposure to Petrobras and other major charterers, including counterparty credit quality and renewal concentration.
- Terms and economic effects of related-party management, insurance, travel and brokerage arrangements.