Capital Product Partners L.P. - Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on April 30, 2009, reports the first-quarter financial results for Capital Product Partners L.P. (CPLP) for the period ended March 31, 2009. CPLP is a Marshall Islands master limited partnership and an international owner of modern double-hull tankers, including MR tankers, small product tankers, and a Suezmax crude oil tanker. The fleet is primarily chartered to major entities such as BP Shipping, Morgan Stanley Capital Group, and Shell.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 | Q4 2008 |
|---|---|---|---|
| Revenues | $30.2 million | $27.2 million | N/A |
| Net Income | $8.8 million | $6.8 million | N/A |
| Net Income Per Unit (Total) | $0.35 | $0.35 | $0.54 |
| Operating Surplus (Non-GAAP) | $11.9 million | $10.2 million | $17.4 million |
| Operating Expenses | $14.3 million | $15.1 million | N/A |
| Interest Expense | $7.6 million | $5.6 million | N/A |
| Long-Term Debt | $474.0 million | N/A | $474.0 million |
| Partners' Equity | $141.1 million | N/A | $172.2 million |
| Cash and Equivalents | $13.8 million | N/A | $43.1 million |
| Undrawn Debt Facilities | $246.0 million | N/A | N/A |
Revenue Composition: Q1 2009 revenues consisted of $29.5 million in fixed revenue from time and bareboat charters and $0.7 million in profit-sharing revenues. The profit-sharing component decreased significantly from $6.1 million in Q4 2008 due to deteriorating spot market conditions.
Material Changes vs. Prior Periods
- Profitability: Net income per unit remained flat year-over-year at $0.35 but declined from $0.54 in the previous quarter. This decrease is primarily attributed to lower profit-sharing revenues.
- Expenses: Interest expense increased to $7.6 million from $5.6 million in Q1 2008, driven by higher debt levels and an additional $0.6 million in funding costs due to increased bank rates.
- Liquidity: Cash and cash equivalents decreased from $43.1 million at year-end 2008 to $13.8 million at March 31, 2009. This reduction was largely due to the payment of an exceptional non-recurring distribution in February 2009 and the purchase of short-term investments.
- Equity: Partners' equity declined to $141.1 million from $172.2 million in Q4 2008, reflecting the aforementioned distribution payment.
Outlook, Management Commentary, and Risks
Management Commentary: CEO Ioannis Lazaridis highlighted the predictability of base charter revenues despite adverse market conditions. The company expressed satisfaction with achieving $0.7 million in profit-sharing revenues given the market environment.
Strategic Fleet Updates: The Partnership executed two vessel swaps with its sponsor, Capital Maritime, exchanging two MR product tankers with early expiries for two younger, high-specification chemical/product tankers (M/T Agamemnon II and M/T Ayrton II). These new vessels are under 3-year time charters to BP Shipping at fixed rates higher than the replaced vessels and current market rates. This transaction increased 2009 charter coverage to nearly 100% and 2010 coverage to approximately 67%.
Distributions: The Board declared a cash distribution of $0.41 per unit for Q1 2009, reverting to pre-exceptional distribution levels. Payment is scheduled for May 15, 2009.
Risks and Outlook: Management noted a severe deterioration in the global economic and credit environment with no visible prospects for recovery. The product tanker spot market is suffering from waning demand, increased tonnage supply, and high inventories. While the company has zero capital commitments for new vessel purchases and non-amortizing credit facilities until June 2012, short-to-medium-term vessel prices and period rates are expected to remain under pressure.
Key Facts for Investor Verification
- Charter Coverage: Verify the impact of the new vessel swaps on the stated 100% charter coverage for 2009 and 67% for 2010.
- Profit Sharing Volatility: Monitor the sensitivity of revenue to spot market rates, as profit-sharing revenue dropped from $6.1 million (Q4 2008) to $0.7 million (Q1 2009).
- Liquidity Position: Assess the cash burn rate given the drop in cash reserves to $13.8 million and the reliance on $246.0 million in undrawn debt facilities.
- Interest Rate Exposure: Confirm the impact of rising bank funding costs on future interest expenses, which already increased by $2.0 million year-over-year.
- Related Party Transactions: Review the terms of the vessel swaps with Capital Maritime, including the $4.0 million additional consideration paid per vessel.