Business Context and Reporting Period
Company: Capital Product Partners L.P. (Nasdaq: CPLP)
Filing Type: Form 6-K (Press Release)
Reporting Period: Fourth Quarter ended December 31, 2009
Business Overview: An international owner of modern double-hull tankers, comprising 18 vessels (15 MR tankers, 2 small product tankers, and 1 Suezmax crude oil tanker). Most vessels are under medium to long-term charters.
Key Financial Metrics
| Metric | Q4 2009 | Q4 2008 | Full Year 2009 |
|---|---|---|---|
| Revenues | $29.4 million | $37.4 million | $123.5 million |
| Net Income | $5.3 million | $14.7 million | $30.0 million |
| Net Income Per Unit | $0.21 | $0.06 (adjusted) | $1.15 |
| Operating Surplus (Non-GAAP) | $10.2 million | $17.4 million | N/A |
| Operating Expenses | $16.1 million | $15.9 million | N/A |
| Net Interest Expense | $8.0 million | $6.8 million | $32.1 million |
| Long-Term Debt | $474.0 million | $474.0 million | $474.0 million |
| Undrawn Debt Facilities | $246.0 million | N/A | N/A |
| Cash & Equivalents | $3.6 million | $43.1 million | $3.6 million |
| Partners' Capital | $157.1 million | $193.9 million | $157.1 million |
Material Changes vs. Prior Period
- Revenue Decline: Q4 2009 revenues dropped 21% compared to Q4 2008, primarily due to the absence of profit share revenues as the product tanker spot market remained at historically depressed levels.
- Expense Increase: Total operating expenses rose slightly to $16.1 million from $15.9 million, driven by repairs to the M/T Attikos and extraordinary items related to remaining fleet vessels.
- Interest Costs: Net interest expense increased to $8.0 million from $6.8 million due to higher interest margins on loan facilities effective June 30, 2009, and increased bank funding costs.
- Liquidity Position: Cash and cash equivalents decreased significantly from $43.1 million at year-end 2008 to $3.6 million at year-end 2009, largely due to $70.5 million in distributions paid to unitholders during 2009.
- Capital Expenditure Reserve: The annual capital expenditure reserve was lowered to $9.8 million from $15.2 million, reflecting substantial reductions in tanker vessel values.
Guidance, Outlook, and Management Commentary
- Distribution Guidance: Management reduced the target annual distribution level to $0.90 per unit (paid equally over four quarters), down from the previous $1.64 annual level. This adjustment is deemed prudent given the challenging economic environment and lower charter rates.
- Market Outlook: The tanker spot market showed signs of recovery in Q4 2009 due to seasonal demand and cold weather, though rates remain low compared to historical averages. The Suezmax market has sustained an upward trend into 2010.
- Charter Coverage: Following new charters for the M/T Axios and M/T Agisilaos, fleet coverage stands at approximately 75% for 2010 and 41% for 2011. Eight vessels are coming off charter in 2010, with three more in 2011.
- Strategic Rationale: The reduced distribution target aims to provide greater financial flexibility, liquidity, and the ability to pursue accretive acquisitions and growth opportunities.
- Risks: Key risks include the cyclical nature of the shipping market, subdued global oil product trade, refinery utilization levels, and the continued growth of the product tanker fleet.
Investor Verification Checklist
- Verify the sustainability of the new $0.90 annual distribution target against the 75% charter coverage for 2010.
- Monitor the rechartering rates for the eight vessels coming off charter in 2010, as current market rates are significantly lower than previous contracts.
- Assess the impact of the $246 million undrawn debt facilities on liquidity given the drop in cash reserves to $3.6 million.
- Review the reconciliation of Operating Surplus to Net Income to understand cash flow generation capabilities versus GAAP earnings.
- Track the implementation of the single-hull tanker phase-out and its potential effect on market recovery in 2010/2011.