NMM

Business Context and Reporting Period

Company: Navios Maritime Partners L.P. (Navios Partners)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2008
Business Overview: Navios Partners is an international owner and operator of drybulk carriers, primarily Panamax and Capesize vessels, engaged in the seaborne transportation of commodities such as iron ore, coal, grain, and fertilizer. The Partnership operates under long-term time charters. As of December 31, 2008, the fleet consisted of 8 owned vessels and 2 chartered-in vessels. The Partnership is managed by Navios ShipManagement Inc., a subsidiary of Navios Maritime Holdings Inc. (Navios Holdings), which also holds a controlling interest in the Partnership.

Key Financial Metrics (Year Ended Dec 31, 2008)

Note: All figures are expressed in thousands of U.S. Dollars unless otherwise noted.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased by approximately 49% to $75.1 million, driven by the full-year operation of vessels acquired or chartered-in during 2007 (Navios Prosperity, Navios Fantastiks) and the addition of Navios Aldebaran (March 2008) and Navios Aurora I (July 2008).
• Profitability: Net income rose 47% to $28.8 million. This was primarily due to increased revenue and a significant reduction in direct vessel expenses (from $5.6 million in 2007 to $0.6 million in 2008) as operating costs were shifted to a fixed management fee structure post-IPO.
• Debt Expansion: Total debt increased by $70 million to $235 million. This increase funded the acquisition of Navios Fantastiks ($34.2 million) and Navios Aurora I ($35.0 million cash portion) in 2008.
• Expense Structure: Management fees increased significantly to $9.3 million (from $0.9 million in 2007) due to the fixed daily fee arrangement ($4,000/Panamax, $5,000/Capesize) effective from the IPO date. General and administrative expenses also rose to $3.8 million.
• Asset Base: Vessels, net, increased by $155 million to $291.3 million, reflecting the capitalization of new vessel acquisitions.

Guidance, Outlook, Risks, and Contingencies

Outlook and Capital Needs

• Newbuilding Acquisition: The Partnership has a binding agreement to purchase the Capesize vessel Navios TBN I for $130.0 million upon delivery in June 2009. Financing is expected to come from borrowings under the existing credit facility and the issuance of additional equity.
• Option to Acquire: The Partnership holds an option to purchase Navios TBN II for $135.0 million, exercisable between January 1, 2009, and April 1, 2009.
• Liquidity: Management believes cash flows from operations will meet short-term liquidity needs for at least the next 12 months. A shelf registration statement was filed in January 2009 to raise up to $500 million in debt or equity.

Key Risks and Contingencies

• Market Cyclicality: The drybulk shipping industry is highly cyclical. Charter rates and vessel values have declined significantly from 2008 highs. A further decline could impair earnings and the ability to pay distributions.
• Debt Covenants: The Partnership is subject to restrictive covenants in its $295 million credit facility, including minimum liquidity, EBITDA/interest coverage, and leverage ratios. While compliant as of December 31, 2008, under original covenants (prior to January 2009 amendments), compliance might have been breached using charter-free valuations.
• Asset Impairment: Management performed an interim impairment assessment in Q4 2008 due to stock price declines and spot market deterioration. No impairment was recorded as projected cash flows exceeded carrying values. However, a material charge could occur if Panamax charter rates fall between $10-$12/day or Capesize rates fall below $13/day.
• Related Party Dependence: The Partnership relies heavily on Navios Holdings for management services, vessel acquisition opportunities, and financing. Navios Holdings owns approximately 49.6% of the Partnership.
• Regulatory and Environmental: Compliance with international regulations (MARPOL, ISM Code) and potential new environmental laws (e.g., greenhouse gas emissions) could require significant capital expenditures.

Important Facts for Investor Verification

• Debt Compliance: Verify the Partnership's continued compliance with the amended credit facility covenants, specifically the minimum free consolidated liquidity and leverage ratios, given the volatile market conditions in early 2009.
• Impairment Sensitivity: Monitor charter rate trends closely. The filing indicates that a drop in Panamax rates to $10-$12/day or Capesize rates below $13/day could trigger a material impairment charge.
• Financing for Newbuildings: Confirm the successful execution of financing for the $130 million purchase of Navios TBN I and the decision regarding the option for Navios TBN II, as these are critical to the growth strategy.
• Distribution Sustainability: Assess whether operating cash flows remain sufficient to cover the minimum quarterly distribution of $0.35 per unit, especially if spot market rates decline and vessels must be re-chartered at lower rates.
• Related Party Transactions: Review the terms of the management agreement and the fixed fees payable to Navios ShipManagement, which represent a significant portion of operating expenses and are payable regardless of profitability.