Business context and reporting period
This is Capital Product Partners L.P.’s audited Form 20-F annual report for the fiscal year ended December 31, 2014, filed February 25, 2015—not a standalone fourth-quarter report. The request metadata names Capital Clean Energy Carriers Corp.; that does not match the registrant identified in the filing.
The Marshall Islands partnership owned 30 vessels at year-end: 18 product tankers, four crude tankers, seven containerships and one drybulk carrier. The fleet averaged 6.8 years of age, with a revenue-weighted average remaining charter term of about 8.3 years. Financial statements are in U.S. GAAP and U.S. dollars.
Financial and operating performance
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue | $192.8 million | $171.5 million |
| Operating income | $60.7 million | $41.3 million |
| Net income | $44.0 million | $99.5 million |
| Net income per common unit, basic | $0.31 | $1.04 |
| Operating cash flow | $125.3 million | $129.6 million |
| Investing cash flow | $(30.3) million | $(335.3) million |
| Financing cash flow | $5.3 million | $226.2 million |
- Revenue rose 12.4%, primarily reflecting more operating days and a larger average fleet. Operating expenses were $132.1 million, including $62.0 million in vessel operating expenses and $57.5 million in depreciation and amortization. Operating margin was approximately 31.5%; net margin was approximately 22.8%.
- Net income fell despite stronger operating income because 2013 included $42.3 million in bargain-purchase gains and a $31.4 million gain on sale of the OSG claim. 2014 also had higher interest expense and finance costs, at $19.2 million versus $16.0 million.
- Operating cash flow declined modestly; the company attributed the comparison mainly to the one-time OSG claim proceeds in 2013. Distributions paid during 2014 totaled $102.8 million.
- At year-end, cash and cash equivalents were $164.2 million, restricted cash $15.0 million, and reported total liquidity—including undrawn long-term borrowings—$329.2 million. The company had $150 million undrawn under its 2013 facility.
- Total debt was $577.9 million, down from $583.3 million. Debt is primarily floating-rate LIBOR-based and secured by the vessels. A 100-basis-point LIBOR increase was estimated to add about $5.8 million to annual interest expense. The company reported compliance with its debt covenants.
- Total assets were $1.493 billion and partners’ capital $872.6 million. The filing estimated that certain vessels’ aggregate charter-free market value was about $100.7 million below carrying value, but recorded no impairment because projected undiscounted cash flows supported carrying amounts.
Material changes, outlook and risks
- In September 2014, the partnership issued 17.25 million common units, receiving approximately $173.5 million net of offering expenses; it used $60 million to repurchase and cancel 5.95 million units held by sponsor Capital Maritime and advanced $30.2 million toward five contracted newbuilds. The five-vessel purchase price is $311.5 million; the remaining commitment at year-end was $281.3 million.
- The five newbuilds—three containerships and two MR product tankers—were scheduled for delivery from March to November 2015. Management said the acquisition was funded through available cash and the undrawn 2013 facility. The partnership also received a right of first refusal over six additional newbuild tankers.
- The board’s stated objective is to maintain a sustainable quarterly distribution and increase it over time, subject to market conditions, financing requirements and board discretion. No earnings or distribution-growth guidance was provided. The partnership declared fourth-quarter 2014 distributions of $0.2325 per common unit and $0.21375 per Class B unit, paid in February 2015.
- Class B units rank ahead of common units for distributions and receive their stated distribution before common-unit distributions. The 2014 IDR reset lowered distribution thresholds; the sponsor waived its IDR rights between $0.2425 and $0.25 per common unit.
- Near-term principal due was $5.4 million in 2015, followed by substantial scheduled repayments: $98.5 million in 2016, $245.5 million in 2017 and $170.8 million in 2018. The non-amortizing period on most facilities ends in March 2016, creating refinancing and cash-flow demands.
- Charterer concentration is material: Capital Maritime, Hyundai Merchant Marine and Maersk accounted for 38%, 24% and 12% of 2014 revenue, respectively. Thirteen of 30 vessels were chartered to Capital Maritime. Counterparty weakness or loss of above-market charters could reduce revenues and distributions.
- Management cited weak or volatile tanker, drybulk and container markets, vessel oversupply, low charter rates, vessel-value declines, customer credit risk, refinancing and covenant exposure, floating-rate interest costs, and environmental compliance costs. The filing also discusses construction-delay/performance risks for the newbuilds and the 2014 leadership transition.
- Management and the auditor reported effective internal controls over financial reporting; the auditor gave an unqualified opinion on the financial statements and controls. The filing reported no material legal proceedings or unresolved staff comments.
Important facts for investors to verify
- Confirm the issuer identity: the supplied company name differs from the registrant, Capital Product Partners L.P.
- Review the 2015 newbuild delivery schedule, remaining funding needs, and whether the contracted vessels deliver on time and to specification.
- Assess the 2016–2018 debt repayment and refinancing plan, covenant headroom, and sensitivity to LIBOR and vessel valuations.
- Verify charterer credit quality, renewal prospects for charters expiring in 2015–2016, and exposure to Capital Maritime and HMM.
- Evaluate whether distributions remain covered by recurring operating cash flow after debt service, preferred-unit distributions, and capital needs; distinguish recurring results from 2013 one-time gains.
- Review the assumptions supporting the no-impairment conclusion and the approximately $100.7 million estimated market-value shortfall on certain vessels.