SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
THE SECURITIES EXCHANGE ACT OF 1934
THE SECURITIES EXCHANGE ACT OF 1934
THE SECURITIES EXCHANGE ACT OF 1934
DYNAGAS LNG PARTNERS LP |
(Exact name of Registrant as specified in its charter) |
Republic of the Marshall Islands |
(Jurisdiction of incorporation or organization) |
23, Rue Basse, 98000 Monaco |
(Address of principal executive offices) |
Michael Gregos 23, Rue Basse, 98000 Monaco Tel. +377 99996445 |
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) |
Common units representing limited partnership interests | New York Stock Exchange |
6.25% Senior Notes Due 2019 | New York Stock Exchange |
9.00% Series A Cumulative Redeemable Preferred Units | New York Stock Exchange |
8.75% Series B Fixed to Floating Rate Cumulative Redeemable Perpetual Preferred Units | New York Stock Exchange |
Title of class | Name of exchange on which registered |
[_] Yes | [X] No |
[_] Yes | [X] No |
[X] Yes | [_] No |
[X] Yes | [_] No |
Large accelerated filer [_] | Accelerated filer [X] |
Non-accelerated filer [_] | Smaller reporting company [_] |
(Do not check if a smaller reporting company) | Emerging growth company [_] |
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing: |
[X] U.S. GAAP |
[_] International Financial Reporting Standards as issued by the International Accounting Standards Board |
[_] Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow. |
[_] Item 17 |
[_] Item 18 |
[_] Yes | [X] No |
· our ability to continue as a going concern;
· | LNG market trends, including charter rates, factors affecting supply and demand, and opportunities for the profitable operations of LNG carriers; |
· | our anticipated growth strategies; |
· | the effect of a worldwide economic slowdown; |
· | potential turmoil in the global financial markets; |
· | fluctuations in currencies and interest rates; |
· | general market conditions, including fluctuations in charter hire rates and vessel values; |
· | changes in our operating expenses, including dry-docking and insurance costs and bunker prices; |
· | our ability to make cash distributions on the units or any increase or decrease in or elimination of our cash distributions; |
· | our future financial condition or results of operations and our future revenues and expenses; |
· | our ability to repay or refinance our existing debt and settling of interest rate swaps (if any); |
· | our ability to incur additional indebtedness and to access the public and private debt and equity markets; |
· | planned capital expenditures and availability of capital resources to fund capital expenditures; |
· | our ability to maintain long-term relationships with major LNG traders; |
· | our ability to leverage our Sponsor’s relationships and reputation in the shipping industry; |
· | our ability to realize the expected benefits from our vessel acquisitions; |
· | our ability to purchase vessels from our Sponsor and other parties in the future, including the Additional Optional Vessels; |
· | our continued ability to enter into profitable long-term time charters; |
· | our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under long-term time charters; |
· | future purchase prices of newbuildings and secondhand vessels and timely deliveries of such vessels; |
· | our ability to compete successfully for future chartering opportunities and newbuilding opportunities (if any); |
· | acceptance of a vessel by its charterer; |
· | termination dates and extensions of charters; |
· | the expected cost of, and our ability to comply with, governmental regulations, including regulations relating to ballast water and fuel sulphur, maritime self-regulatory organization standards, as well as standard regulations imposed by our charterers applicable to our business; |
· | availability of skilled labor, vessel crews and management; |
· | our anticipated incremental general and administrative expenses as a publicly traded limited partnership and our fees and expenses payable under the fleet management agreements and the administrative services agreement with our Manager; |
· | our anticipated taxation and distributions to our unitholders; |
· | estimated future maintenance and replacement capital expenditures; |
· | our ability to retain key employees; |
· | charterers’ increasing emphasis on environmental and safety concerns; |
· | potential liability from any pending or future litigation; |
· | potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists; |
· | future sales of our common units in the public market; |
· | our business strategy and other plans and objectives for future operations; and |
· | other factors detailed in this Annual Report and from time to time in our periodic reports. |
PART I. | 1 | |
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1 |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 1 |
ITEM 3. | KEY INFORMATION | 1 |
ITEM 4. | INFORMATION ON THE PARTNERSHIP | 47 |
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 86 |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 86 |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 105 |
ITEM 7. | MAJOR UNITHOLDERS AND RELATED PARTY TRANSACTIONS | 109 |
ITEM 8. | FINANCIAL INFORMATION | 118 |
ITEM 9. | THE OFFER AND LISTING. | 121 |
ITEM 10. | ADDITIONAL INFORMATION | 122 |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 131 |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 132 |
PART II | 132 | |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 132 |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 132 |
ITEM 15. | CONTROLS AND PROCEDURES | 133 |
ITEM 16. | [RESERVED] | 134 |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 134 |
ITEM 16B. | CODE OF ETHICS | 134 |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 134 |
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 135 |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 135 |
ITEM 16F. | CHANGE IN REGISTRANTS’ CERTIFYING ACCOUNTANT | 135 |
ITEM 16G. | CORPORATE GOVERNANCE | 135 |
ITEM 16H. | MINE SAFETY DISCLOSURE | 136 |
PART III | 136 | |
ITEM 17. | FINANCIAL STATEMENTS | 136 |
ITEM 18. | FINANCIAL STATEMENTS | 137 |
ITEM 19. | EXHIBITS | 137 |
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. | KEY INFORMATION |
A. | SELECTED HISTORICAL FINANCIAL DATA |
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
STATEMENT OF INCOME | (In thousands of Dollars, except for units, per unit data and TCE rates ) | |||||||||||||||||||
Voyage revenues | $ | 127,135 | $ | 138,990 | $ | 169,851 | $ | 145,202 | $ | 107,088 | ||||||||||
Voyage expenses- including related party (1) | (2,802 | ) | (3,619 | ) | (2,961 | ) | (2,804 | ) | (2,273 | ) | ||||||||||
Vessel operating expenses | (25,042 | ) | (27,067 | ) | (26,451 | ) | (23,244 | ) | (16,813 | ) | ||||||||||
General and administrative expenses- including related party | (2,209 | ) | (1,686 | ) | (1,885 | ) | (1,805 | ) | (1,951 | ) | ||||||||||
Management fees | (6,347 | ) | (6,162 | ) | (5,999 | ) | (4,870 | ) | (3,566 | ) | ||||||||||
Depreciation | (30,330 | ) | (30,319 | ) | (30,395 | ) | (24,387 | ) | (17,822 | ) | ||||||||||
Dry-docking and special survey costs | (7,422 | ) | (6,193 | ) | (81 | ) | - | - | ||||||||||||
Operating income | $ | 52,983 | $ | 63,944 | $ | 102,079 | $ | 88,092 | $ | 64,663 | ||||||||||
Interest income | 1,051 | 203 | - | 35 | 221 | |||||||||||||||
Interest and finance costs | (50,490 | ) | (46,281 | ) | (34,991 | ) | (27,974 | ) | (14,524 | ) | ||||||||||
Other, net | 69 | (527 | ) | (234 | ) | (103 | ) | 201 | ||||||||||||
Net Income | $ | $ 3,613 | $ | 17,339 | $ | 66,854 | $ | 60,050 | $ | 50,561 | ||||||||||
EARNINGS/(LOSS) PER UNIT (basic and diluted): | ||||||||||||||||||||
Common Unit (basic and diluted) | $ | $ (0.11 | ) | $ | 0.27 | $ | 1.69 | $ | 1.60 | $ | 1.58 | |||||||||
Weighted average number of units outstanding (basic and diluted): | ||||||||||||||||||||
Common units | 35,490,000 | 34,545,740 | 20,505,000 | 20,505,000 | 17,964,288 | |||||||||||||||
Cash distributions declared and paid per common unit | $ | 1.17 | $ | 1.69 | $ | 1.69 | $ | 1.69 | $ | 1.29 | | |||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Total current assets | $ | 112,963 | $ | 70,404 | $ | 60,195 | $ | 25,814 | $ | 14,348 | ||||||||||
Vessels, net | 947,377 | 977,298 | 1,007,617 | 1,036,157 | 839,883 | |||||||||||||||
Total assets | 1,063,436 | 1,054,319 | 1,106,676 | 1,108,103 | 887,376 | |||||||||||||||
Total current liabilities | 272,742 | 22,898 | 53,056 | 51,353 | 33,249 | |||||||||||||||
Total long-term debt, including current portion, gross of deferred financing fees | 722,800 | 727,600 | 722,500 | 688,333 | 575,000 | |||||||||||||||
Total partners’ equity | 326,485 | 318,318 | 367,836 | 367,838 | 297,698 | |||||||||||||||
CASH FLOW DATA: | ||||||||||||||||||||
Net cash provided by operating activities | $ | 42,994 | $ | 59,339 | $ | 103,618 | $ | 96,944 | $ | 76,443 | ||||||||||
Net cash used in investing activities | (409 | ) | - | (37,472 | ) | (205,045 | ) | (404,530 | ) | |||||||||||
Net cash (used in)/provided by financing activities* | (132 | ) | (74,470 | ) | (32,844 | ) | 121,445 | 336,359 | ||||||||||||
FLEET PERFORMANCE DATA: | ||||||||||||||||||||
Number of vessels at the end of the year | 6 | 6 | 6 | 6 | 5 | |||||||||||||||
Average number of vessels in operation (2) | 6.0 | 6.0 | 6.0 | 5.0 | 3.8 | |||||||||||||||
Average age of vessels in operation at end of year (years) | 8.4 | 7.4 | 6.4 | 5.4 | 5.0 | |||||||||||||||
Available Days (3) | 2,144.7 | 2,140.3 | 2,196.0 | 1,836.0 | 1,384.0 | |||||||||||||||
Fleet utilization (4) | 100 | % | 98 | % | 100 | % | 99 | % | 100 | % | ||||||||||
OTHER FINANCIAL DATA: | ||||||||||||||||||||
Time Charter Equivalent (in US dollars) (5) | $ | 57,972 | $ | 63,249 | $ | 75,997 | $ | 77,559 | $ | 75,733 | ||||||||||
Adjusted EBITDA (5) | $ | 96,094 | $ | 107,545 | $ | 139,531 | $ | 113,202 | $ | 84,751 |
(1) | Voyage expenses include mainly commissions of 1.25% paid to our Manager. |
(2) | Represents the number of vessels that constituted our Fleet for the relevant year, as measured by the sum of the number of days each vessel was a part of our Fleet during the period divided by the number of calendar days in the period. |
(3) | Available Days are the total number of calendar days that our vessels were in our possession during a period, less the total number of scheduled off-hire days during the period associated with major repairs, or dry-dockings. |
(4) | We calculate fleet utilization by dividing the number of our revenue earning days, which are the total number of Available Days of our vessels net of unscheduled off-hire days, during a period, by the number of our Available Days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding employment for its vessels and minimizing the amount of days that its vessels are off hire for reasons other than scheduled off-hires for vessel upgrades, dry-dockings or special or intermediate surveys. |
(5) | Non-GAAP Financial Information |
Year Ended December 31, | ||||||||||||||||||||
(In thousands of Dollars, except for TCE rate data) | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Voyage revenues | $ | 127,135 | $ | 138,990 | $ | 169,851 | $ | 145,202 | $ | 107,088 | ||||||||||
Voyage expenses | $ | (2,802 | ) | $ | (3,619 | ) | $ | (2,961 | ) | $ | (2,804 | ) | $ | (2,273 | ) | |||||
Time charter equivalent revenues | $ | 124,333 | $ | 135,371 | $ | 166,890 | $ | 142,398 | $ | 104,815 | ||||||||||
Total Available Days | 2,144.7 | 2,140.3 | 2,196.0 | 1,836.0 | 1,384.0 | |||||||||||||||
Time charter equivalent (TCE) rate | $ | 57,972 | $ | 63,249 | $ | 75,997 | $ | 77,559 | $ | 75,733 |
(In thousands of U.S. dollars) | ||||||||||||||||||||
Reconciliation to Net Income | ||||||||||||||||||||
Net Income | $ | 3,613 | $ | 17,339 | $ | 66,854 | $ | 60,050 | $ | 50,561 | ||||||||||
Net interest and finance costs (1) | 49,439 | 46,078 | 34,991 | 27,939 | 14,303 | |||||||||||||||
Depreciation | 30,330 | 30,319 | 30,395 | 24,387 | 17,822 | |||||||||||||||
Class survey costs | 7,422 | 6,193 | 81 | - | - | |||||||||||||||
Amortization of fair value of acquired time charter | 5,267 | 7,247 | 7,268 | 218 | - | |||||||||||||||
Amortization of deferred revenue | (45 | ) | 369 | (58 | ) | 608 | 2,065 | |||||||||||||
Amortization of deferred charges | 68 | - | - | - | - | |||||||||||||||
Adjusted EBITDA | $ | 96,094 | $ | 107,545 | $ | 139,531 | $ | 113,202 | $ | 84,751 |
B. | CAPITALIZATION AND INDEBTEDNESS |
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
D. | RISK FACTORS |
· | the vessel suffers a total loss or is damaged beyond repair; |
· | we default on our obligations under the charter, including prolonged periods of vessel off-hire; |
· | war or hostilities significantly disrupt the free trade of the vessel; |
· | the vessel is requisitioned by any governmental authority; or |
· | a prolonged force majeure event occurs, such as war or political unrest, which prevents the chartering of the vessel. |
· | fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements; |
· | be unable to attract, hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and Fleet; |
· | decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions; |
· | significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions; |
· | incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or |
· | incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges. |
· | the rates we obtain from our charters; |
· | the level of our operating costs, such as the cost of crews and insurance; |
· | the continued availability of natural gas production; |
· | demand for LNG; |
· | supply of LNG carriers; |
· | prevailing global and regional economic and political conditions; |
· | currency exchange rate fluctuations; and |
· | the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business. |
· | the level of capital expenditures we make, including for maintaining or replacing vessels, building new vessels, acquiring secondhand vessels and complying with regulations; |
· | the number of unscheduled off-hire days for our Fleet and the timing of, and number of days required for, scheduled dry-docking of our vessels; |
· | our debt service requirements and restrictions on distributions contained in our debt instruments; |
· | the level of debt we will incur to fund future acquisitions, including the Additional Optional Vessels that we have the right (but not the obligation) to acquire from our Sponsor, pursuant to the terms and subject to the conditions of the Omnibus Agreement (defined below). See “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions”; |
· | fluctuations in interest rates; |
· | fluctuations in our working capital needs; |
· | variable tax rates; |
· | our ability to make, and the level of, working capital borrowings; |
· | the performance of our subsidiaries and their ability to distribute cash to us; and |
· | the amount of any cash reserves established by our Board of Directors. |
· | size, age, technical specifications and condition of the ship; |
· | efficiency of ship operation and reputation for operation of highly specialized vessels; |
· | LNG shipping experience and quality of ship operations; |
· | shipping industry relationships and reputation for customer service; |
· | technical ability and reputation for operation of highly specialized ships; |
· | quality and experience of officers and crew; |
· | safety record; |
· | the ability to finance ships at competitive rates and financial stability generally; |
· | relationships with shipyards and the ability to get suitable berths; |
· | its willingness to assume operational risks; |
· | construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications; and |
· | competitiveness of the bid in terms of overall price. |
· | provides that our General Partner may make determinations or take or decline to take actions without regard to our or our unitholders’ interests. Our General Partner may consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting us, our affiliates or our unitholders. Decisions made by our General Partner will be made by its sole owner. Specifically, our General Partner may decide to exercise its right to make a determination to receive common units in exchange for resetting the target distribution levels related to the incentive distribution rights, call right, pre-emptive rights or registration rights, consent or withhold consent to any merger or consolidation of the Partnership, appoint certain of our directors or vote for the election of any director, vote or refrain from voting on amendments to our Partnership Agreement that require a vote of the outstanding units, voluntarily withdraw from the Partnership, transfer (to the extent permitted under our Partnership Agreement) or refrain from transferring its units, the general partner interest or incentive distribution rights or vote upon the dissolution of the Partnership; |
· | provides that our directors and officers are entitled to make other decisions in “good faith,” meaning they reasonably believe that the decision is in our best interests; |
· | generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of our Board of Directors, or our Conflicts Committee, and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third-parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our Board of Directors may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and |
· | provides that neither our General Partner nor our officers or our directors will be liable for monetary damages to us, our members or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our General Partner, our directors or officers or those other persons engaged in actual fraud or willful misconduct. |
· | The unitholders are unable to remove our General Partner without its consent because our General Partner and its affiliates, including our Sponsor, own sufficient units to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common units (including common units held by the General Partner and its Affiliates) voting together as a single class is required to remove our General Partner. Our Sponsor currently owns 15,595,000 of our common units, representing approximately 44% of the outstanding common units. |
· | Our Partnership Agreement contains provisions that limit the removal of members of our Board of Directors. Appointed Directors may be removed (i) without Cause (as defined in the Partnership Agreement) only by the General Partner and (ii) with Cause only by the General Partner, the vote of the holders of a majority of the outstanding units at a properly called meeting of our Limited Partners, or by vote of the majority of the other members of our Board of Directors. Elected Directors may be removed with Cause only by vote of the majority of the other members of our Board of Directors or by a vote of the majority of the outstanding common units at a properly called meeting of our Limited Partners. |
· | Common unitholders are entitled to elect only three of the five members of our Board of Directors. Our General Partner in its sole discretion appoints the remaining two directors. |
· | Election of the three directors elected by unitholders is staggered, meaning that the members of only one of three classes of our elected directors are selected each year. In addition, the two directors appointed by our General Partner serve until a successor is duly appointed by the General Partner. |
· | Our Partnership Agreement contains provisions limiting the ability of unitholders to call meetings of unitholders, to nominate directors and to acquire information about our operations as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management. |
· | Unitholders’ voting rights are further restricted by the Partnership Agreement providing that if at any time any person or group, other than our General Partner and its affiliates, or a direct or subsequently approved transferee of our General Partner or its affiliates or a transferee approved by the Board of Directors, acquires, in the aggregate, beneficial ownership of more than 4.9% of any class or series of our limited partner interests then outstanding, that person or group will lose voting rights on all of its limited partner interests of such class or series in excess of 4.9%, except for the Series A Preferred Units and Series B Preferred Units, and such limited partner interests will not be considered to be outstanding when sending notices of a meeting of limited partners, calculating required votes (except for nominating a person for election to our Board of Directors), determining the presence of a quorum, or for other similar purposes. The voting rights of any such limited partner interests in excess of 4.9% will effectively be redistributed pro rata among the other limited partner interests (as applicable) holding less than 4.9% of the voting power of such class or series. Our General Partner, its affiliates and persons who acquired limited partner interests with the prior approval of our Board of Directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors. Units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise. |
· | There are no restrictions in our Partnership Agreement on our ability to issue additional equity securities. |
· | renew existing charters upon their expiration; |
· | obtain new charters; |
· | successfully interact with shipyards; |
· | obtain financing on commercially acceptable terms; |
· | maintain access to capital under the Sponsor credit facility; or |
· | maintain satisfactory relationships with suppliers and other third-parties. |
· | the amount and timing of asset purchases and sales; |
· | cash expenditures; |
· | borrowings; |
· | estimates of maintenance and replacement capital expenditures; |
· | the issuance of additional units; and |
· | the creation, reduction or increase of reserves in any quarter. |
· | increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially reasonable terms; |
· | increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally; |
· | increases in the production levels of low-cost natural gas in domestic natural gas consuming markets, which could further depress prices for natural gas in those markets and make LNG uneconomical; |
· | increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets; |
· | decreases in the consumption of natural gas due to increases in its price, decreases in the price of alternative energy sources or other factors making consumption of natural gas less attractive; |
· | any significant explosion, spill or other incident involving an LNG facility or carrier; |
· | infrastructure constraints, including but not limited to, delays in the construction of liquefaction facilities, the inability of project owners or operators to obtain governmental approvals to construct or operate LNG facilities, as well as community or political action group resistance to new LNG infrastructure due to concerns about the environment, safety and terrorism; |
· | labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or regasification; |
· | decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects; |
· | new taxes or regulations affecting LNG production or liquefaction that make LNG production less attractive; or |
· | negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or its growth. |
· | worldwide supply and demand for natural gas; |
· | the cost of exploration, development, production, transportation and distribution of natural gas; |
· | expectations regarding future energy prices for both natural gas and other sources of energy; |
· | the level of worldwide LNG production and exports; |
· | government laws and regulations, including but not limited to environmental protection laws and regulations; |
· | local and international political, economic and weather conditions; |
· | political and military conflicts; and |
· | the availability and cost of alternative energy sources, including alternate sources of natural gas in gas importing and consuming countries. |
· | prevailing economic conditions in the natural gas and energy markets; |
· | a substantial or extended decline in demand for LNG; |
· | increases in the supply of vessel capacity; |
· | the size and age of a vessel; and |
· | the cost of retrofitting or modifying secondhand vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, customer requirements or otherwise. |
· | marine disasters; |
· | piracy; |
· | environmental accidents and hazards; |
· | weather; |
· | mechanical failures; |
· | grounding, fire, explosions and collisions; |
· | human error; and |
· | war, political unrest and terrorism. |
· | death or injury to persons, loss of property or environmental damage; |
· | delays or failure in the delivery of cargo; |
· | loss of revenues from or termination of charter contracts; |
· | governmental fines, penalties or restrictions on conducting business; |
· | spills, pollution and the liability associated with the same; |
· | higher insurance rates; and |
· | damage to our reputation and customer relationships generally. |
· | our payment of cash distributions to our unitholders; |
· | actual or anticipated fluctuations in quarterly and annual results; |
· | fluctuations in the seaborne transportation industry, including fluctuations in the LNG carrier market; |
· | mergers and strategic alliances in the shipping industry; |
· | changes in governmental regulations or maritime self-regulatory organization standards; |
· | shortfalls in our operating results from levels forecasted by securities analysts; announcements concerning us or our competitors; |
· | the failure of securities analysts to publish research about us, or analysts making changes in their financial estimates; |
· | general economic conditions; |
· | terrorist acts; |
· | future sales of our units or other securities; |
· | investors’ perception of us and the LNG shipping industry; |
· | the general state of the securities market; and |
· | other developments affecting us, our industry or our competitors. |
· | our existing unitholders’ proportionate ownership interest in us will decrease; |
· | the amount of cash available for distribution per unit may decrease; |
· | the relative voting strength of each previously outstanding unit may be diminished; and |
· | the market price of our common units may decline. |
· | arise out of or relate in any way to the Partnership Agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the Partnership Agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us); |
· | are brought in a derivative manner on our behalf; |
· | assert a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our General Partner, or owed by our General Partner, to us or the limited partners; |
· | assert a claim arising pursuant to any provision of the Partnership Act; or |
· | assert a claim governed by the internal affairs doctrine, |
· | obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes on favorable terms, or at all; |
· | make distributions to unitholders; |
· | incur additional indebtedness, create liens or issue guarantees; |
· | charter our vessels or change the terms of our existing charter agreements; |
· | sell, transfer or lease our assets or vessels or the shares of our vessel-owning subsidiaries; |
· | make investments and capital expenditures; |
· | reduce our partners’ capital; and |
· | undergo a change in ownership or Manager. |
· | failure to pay any principal, interest, fees, expenses or other amounts when due; |
· | failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases; |
· | default under other indebtedness; |
· | an event of insolvency or bankruptcy; |
· | failure of any representation or warranty to be materially correct; and |
· | a change of control whereby the Partnership or its affiliates no longer hold, indirectly or directly, 100% of the interests in Arctic LNG Carriers. |
· | neither our Partnership Agreement nor any other agreement requires our Sponsor or our General Partner or their respective affiliates to pursue a business strategy that favors us or utilizes our assets, and their officers and directors have a fiduciary duty to make decisions in the best interests of their respective unitholders, which may be contrary to our interests; |
· | our Partnership Agreement provides that our General Partner may make determinations or take or decline to take actions without regard to our or our unitholders’ interests. Specifically, our General Partner may exercise its call right, pre-emptive rights, registration rights or right to make a determination to receive common units in exchange for resetting the target distribution levels related to the incentive distribution rights, consent or withhold consent to any merger or consolidation of the Partnership, appoint certain directors or vote for the election of any director, vote or refrain from voting on amendments to our Partnership Agreement that require a vote of the outstanding units, voluntarily withdraw from the Partnership, transfer (to the extent permitted under our Partnership Agreement) or refrain from transferring its units, the General Partner interest or incentive distribution rights or vote upon the dissolution of the Partnership; |
· | our General Partner and our directors and officers have limited their liabilities and any fiduciary duties they may have under the laws of the Marshall Islands, while also restricting the remedies available to our unitholders, and, as a result of purchasing common units, unitholders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by the General Partner and our directors and officers, all as set forth in the Partnership Agreement; |
· | our General Partner and our Manager are entitled to reimbursement of all reasonable costs incurred by them and their respective affiliates for our benefit; our Partnership Agreement does not restrict us from paying our General Partner and our Manager or their respective affiliates for any services rendered to us on terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf; |
· | our General Partner may exercise its right to call and purchase our common units if it and its affiliates own more than 80% of our common units; and is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of its limited call right; and |
· | although a majority of our directors are elected by common unitholders, our General Partner will likely have substantial influence on decisions made by our Board of Directors. |
· | on terms no less favorable to us than those generally being provided to or available from unrelated third-parties; or |
· | “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us). |
ITEM 4. | INFORMATION ON THE PARTNERSHIP |
A. | HISTORY AND DEVELOPMENT OF THE PARTNERSHIP |
B. | BUSINESS OVERVIEW |
· | optimal sizing with a carrying capacity of between approximately 150,000 and 155,000 cbm (which is a medium- to large-size class of LNG carrier) that maximizes operational flexibility as such vessel is compatible with most existing LNG terminals around the world; |
· | the vessels in our Fleet consist of two series of sister vessels, which are vessels built at the same shipyard, Hyundai Heavy Industries Co. Ltd., that share (i) a near-identical hull and superstructure layout, (ii) similar displacement, and (iii) roughly comparable features and equipment; |
· | utilization of a membrane containment system that uses insulation built directly into the hull of the vessel with a membrane covering inside the tanks designed to maintain integrity and that uses the vessel’s hull to directly support the pressure of the LNG cargo, which we refer to as a “membrane containment system” (see “—The International Liquefied Natural Gas (LNG) Shipping Industry—The LNG Fleet” for a description of the types of LNG containment systems); and |
· | double-hull construction, based on the current LNG shipping industry standard. |
Vessel Name | Year Built | Cargo Capacity (cbm) | Ice Class | Propulsion | Charterer | Earliest Charter Expiration | Latest Charter Expiration | Latest Charter Expiration including options to extend | ||||||||
Clean Energy | 2007 | 149,700 | No | Steam | Gazprom | March 2026 | April 2026 | n/a | ||||||||
Ob River | 2007 | 149,700 | Yes | Steam | Gazprom | March 2028 | May 2028 | n/a | ||||||||
Amur River | 2008 | 149,700 | Yes | Steam | Gazprom | June 2028 | August 2028 | n/a | ||||||||
Arctic Aurora | 2013 | 155,000 | Yes | TFDE * | Equinor | July 2021 | September 2021(1) | September 2023 | (1) | |||||||
Yenisei River | 2013 | 155,000 | Yes | TFDE * | Yamal | Q4 2033 | Q2 2034 | Q2 2049 | (2) | |||||||
Lena River | 2013 | 155,000 | Yes | TFDE * | Charterer | June 2019 | February 2020 | n/a | (3) | |||||||
Yamal | 2034 | 2035 | 2049 | (2) |
* | As used in this Annual Report, “TFDE” refers to tri-fuel diesel electric propulsion system. |
(1) | On August 2, 2018, the Arctic Aurora was delivered to Equinor under a time charter contact with an initial term of three years +/- 30 days. This charter is in direct continuation of the vessel’s previous charter with Equinor. Equinor will have the option to extend the charter term by two consecutive 12-month periods at escalated rates. |
(2) | On August 14, 2018, immediately upon completion of its mandatory statutory class five-year special survey and dry-docking, the Yenisei River was delivered early to Yamal pursuant to an addendum to the charter party with Yamal under which we agreed to extend the firm charter period from 15 years to 15 years plus 180 days. The Lena River is contracted to commence employment with Yamal within a two-month delivery window starting from July 1, 2019, which is expected to be further narrowed down as we approach the delivery date. The charter contracts for the Yenisei River and the Lena River with Yamal in the Yamal LNG Project each have an initial term of 15.5 and 15 years, respectively, which may each be extended by three consecutive periods of five years. Each of these time charter contracts is subject to important conditions, which, if not satisfied, or waived by the charterer, may result in their cancellation, early termination or amendment, before or after their charter term commences, in which case, we may not receive the contracted revenues thereunder. |
(3) | On October 26, 2018, the Lena River was delivered to a new multi-month charter with a major energy company which is expected to have a firm period of approximately fifteen months, unless the charter is terminated earlier at owners’ option in order for the vessel to meet the delivery requirements under its existing charter party agreement with Yamal for the Yamal LNG project. |
Vessel Name | Shipyard(2) | Delivery Date | Cargo Capacity Cbm | Ice Class | Charter Commencement | Charterer | Earliest Charter Expiration | ||||||||||
Additional Optional Vessels*: | |||||||||||||||||
Boris Vilkitsky (1) | DSME | 12/26/2017 | 172,410 | Yes | Q4-2017 | Yamal | Q4-2045 | ||||||||||
Fedor Litke (1) | DSME | 01/08/2018 | 172,410 | Yes | Q1-2018 | Yamal | Q4-2045 | ||||||||||
Georgiy Brusilov(1) | DSME | 12/10/2018 | 172,410 | Yes | Q4-2018 | Yamal | Q4-2045 | ||||||||||
Boris Davydov(1) | DSME | 01/18/2019 | 172,410 | Yes | Q1-2019 | Yamal | Q4-2045 | ||||||||||
Nikolay Zubov(1) | DSME | 02/22/2019 | 172,410 | Yes | Q1-2019 | Yamal | Q4-2045 |
* | Our Sponsor directly or indirectly owns a 49.0% interest in these vessels. |
(1) | Vessel operates under a fixed rate time charter contract for the Yamal LNG Project until December 31, 2045, plus two consecutive five-year extension options. |
(2) | As used in this Annual Report, “DSME” refers to the shipyard Daewoo Shipbuilding & Marine Engineering Co. |
ALG | USA# | LIB | BRU | UAE | INO | MAL | AUS | QAT | TNT | NIG | OMA | EGY | EQG | NOR | RUS | YMN | PER | FRA | BEL# | ESP# | Papua | Others## | Total | |
2006 | 18.0 | 1.3 | 0.5 | 7.2 | 5.2 | 21.6 | 20.5 | 13.2 | 22.7 | 11.9 | 12.8 | 8.4 | 10.9 | - | - | - | - | - | - | - | - | - | 154.1 | |
2007 | 18.0 | 0.9 | 0.6 | 6.8 | 5.5 | 20.3 | 21.7 | 14.8 | 28.1 | 13.2 | 15.4 | 8.9 | 9.9 | 1.0 | 0.1 | - | - | - | - | - | - | - | 165.3 | |
2008 | 15.5 | 0.7 | 0.4 | 6.7 | 5.5 | 19.6 | 21.8 | 14.8 | 29.0 | 13.0 | 15.3 | 8.0 | 9.9 | 4.1 | 1.6 | - | - | - | - | - | - | - | 165.6 | |
2009 | 15.3 | 0.6 | 0.5 | 6.4 | 5.1 | 19.0 | 21.6 | 17.7 | 36.1 | 14.4 | 11.7 | 8.4 | 9.4 | 3.4 | 2.3 | 4.8 | 0.3 | - | 0.2 | - | - | - | 177.2 | |
2010 | 14.1 | 1.2 | 0.0 | 6.4 | 5.8 | 22.9 | 22.3 | 18.5 | 55.3 | 15.1 | 17.4 | 8.4 | 7.1 | 3.8 | 3.4 | 9.8 | 4.0 | 1.3 | 0.4 | - | - | - | 217.3 | |
2011 | 12.5 | 1.5 | 0.1 | 6.9 | 5.8 | 21.3 | 24.3 | 18.9 | 74.9 | 13.8 | 18.9 | 8.0 | 6.3 | 3.8 | 2.9 | 10.5 | 6.5 | 3.7 | 0.4 | 0.5 | - | - | 241.5 | |
2012 | 10.5 | 0.5 | - | 6.6 | 5.5 | 17.5 | 23.2 | 20.5 | 76.7 | 13.7 | 19.9 | 8.2 | 4.9 | 3.5 | 3.3 | 10.8 | 5.2 | 3.9 | 0.3 | 1.2 | - | 0.7 | 236.9 | |
2013 | 10.9 | 0.1 | - | 6.9 | 5.4 | 16.4 | 24.7 | 22.1 | 77.0 | 14.4 | 16.3 | 8.4 | 2.7 | 3.7 | 2.8 | 10.4 | 7.0 | 4.1 | 1.1 | 2.1 | - | 0.9 | 237.5 | |
2014 | 12.6 | 0.3 | - | 6.0 | 5.8 | 15.8 | 24.8 | 23.1 | 75.5 | 14.1 | 18.5 | 7.8 | 0.3 | 3.7 | 3.9 | 10.6 | 6.5 | 4.2 | 1.1 | 3.8 | 3.4 | 1.5 | 243.3 | |
2015 | 11.8 | 0.6 | - | 6.4 | 5.6 | 16.0 | 24.9 | 29.0 | 77.6 | 12.4 | 20.1 | 7.4 | - | 3.6 | 4.4 | 10.6 | 1.4 | 3.6 | 0.9 | 2.3 | 7.1 | 1.4 | 247.4 | |
2016 | 11.6 | 3.2 | - | 6.0 | 5.4 | 15.5 | 23.4 | 41.5 | 76.2 | 10.4 | 17.3 | 7.8 | 0.5 | 3.2 | 4.6 | 10.2 | - | 4.0 | 1.1 | - | 0.1 | 7.6 | 3.2 | 253.0 |
2017 | 12.3 | 12.2 | - | 6.9 | 5.6 | 18.7 | 26.9 | 55.6 | 77.5 | 10.2 | 20.3 | 8.2 | 0.8 | 3.9 | 3.9 | 11.5 | - | 3.7 | 1.1 | 0.0 | 0.0 | 8.1 | 3.2 | 290.7 |
2018E | 12.0 | 15.0 | 6.8 | 5.7 | 18.0 | 25.0 | 69.6 | 78.0 | 10.1 | 20.0 | 8.0 | 0.8 | 3.8 | 3.9 | 19.0 | 3.8 | 1.0 | 0.0 | 0.0 | 8.0 | 4.5 | 313.0 | ||
% Change 17-18 | -2.8% | 22.5% | - | -1.2% | 2.0% | -3.8% | -7.0% | 25.2% | 0.6% | -0.9% | -1.7% | -2.9% | 2.6% | -1.3% | 0.0% | 65.4% | - | 2.2% | -12.2% | - | - | -1.5% | 39.9% | 7.7% |
Importer | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018E |
Argentina | - | - | 0.3 | 0.7 | 1.3 | 3.2 | 3.4 | 4.7 | 4.8 | 4.3 | 3.8 | 3.4 | 3.0 |
Belgium | 3.1 | 2.3 | 2.1 | 4.8 | 4.7 | 4.8 | 3.1 | 1.6 | 2.1 | 2.8 | 2.1 | 0.9 | 1.6 |
Brazil | - | - | - | 0.3 | 2.0 | 0.8 | 2.5 | 4.1 | 5.8 | 5.2 | 2.2 | 1.6 | 2.0 |
Canada | - | - | - | 0.7 | 1.5 | 2.4 | 1.3 | 0.8 | 0.6 | 0.5 | 0.2 | 0.3 | 0.4 |
Chile | - | - | - | 0.5 | 2.2 | 2.8 | 3.0 | 3.0 | 2.8 | 3.1 | 3.1 | 3.3 | 3.6 |
China | 0.7 | 2.8 | 3.2 | 5.6 | 9.3 | 12.1 | 14.6 | 18.3 | 19.8 | 19.1 | 26.2 | 38.2 | 53.9 |
Dom. Rep. | 0.2 | 0.3 | 0.3 | 0.4 | 0.6 | 0.7 | 0.9 | 1.2 | 0.9 | 1.3 | 1.3 | 0.9 | 1.2 |
Egypt | - | - | - | - | - | - | - | - | - | 2.8 | 0.6 | 6.2 | 2.5 |
France | 10.1 | 9.5 | 9.2 | 9.5 | 10.2 | 10.6 | 7.5 | 6.4 | 5.4 | 4.8 | 7.0 | 7.4 | 7.8 |
Greece | 0.4 | 0.6 | 0.7 | 0.5 | 0.9 | 0.9 | 0.7 | 0.5 | 0.4 | 0.3 | 0.0 | 1.3 | 1.5 |
India | 5.8 | 7.3 | 7.9 | 9.2 | 8.9 | 12.5 | 15.0 | 12.8 | 13.8 | 15.9 | 16.5 | 18.7 | 22.3 |
Indonesia | - | - | - | - | - | - | 0.7 | 1.0 | 1.6 | 2.0 | 2.0 | 2.6 | 2.0 |
Israel | - | - | - | - | - | - | - | 0.4 | 0.3 | 0.4 | 0.0 | 0.5 | 0.0 |
Italy | 2.3 | 1.8 | 1.1 | 2.1 | 6.6 | 6.4 | 5.2 | 3.7 | 3.5 | 4.3 | 4.1 | 6.0 | 5.6 |
Japan | 59.8 | 64.8 | 67.3 | 62.7 | 68.2 | 78.1 | 86.7 | 87.0 | 88.0 | 86.2 | 83.3 | 83.6 | 82.9 |
Jordan | - | - | - | - | - | - | - | - | - | 2.9 | 3.3 | 3.3 | 3.0 |
Kuwait | - | - | - | 0.7 | 2.0 | 2.3 | 2.0 | 1.6 | 2.7 | 2.7 | 2.7 | 3.5 | 3.0 |
Lithuania | - | - | - | - | - | - | - | - | 0.1 | 0.4 | 0.0 | 0.9 | 0.0 |
Malaysia | - | - | - | - | - | - | 0.1 | 1.5 | 1.7 | 1.6 | 1.2 | 1.8 | 1.1 |
Mexico | 0.7 | 1.6 | 2.6 | 2.6 | 4.2 | 3.0 | 3.5 | 5.7 | 6.8 | 5.2 | 4.3 | 4.8 | 4.2 |
Netherlands | - | - | - | - | - | 0.6 | 0.6 | 0.6 | 0.4 | 0.4 | 1.1 | 0.8 | 1.0 |
Pakistan | - | - | - | - | - | - | - | - | - | 1.1 | 2.9 | 4.6 | 6.0 |
Portugal | 1.4 | 1.7 | 1.9 | 2.1 | 2.2 | 2.2 | 1.5 | 1.8 | 1.2 | 0.7 | 0.7 | 2.7 | 1.2 |
Puerto Rico | 0.5 | 0.5 | 0.6 | 0.6 | 0.6 | 0.5 | 1.0 | 1.3 | 1.3 | 1.2 | 0.9 | 0.9 | 1.0 |
South Korea | 24.9 | 25.1 | 26.7 | 25.1 | 32.4 | 36.0 | 35.9 | 39.6 | 37.3 | 31.9 | 32.1 | 37.8 | 44.0 |
Spain | 17.8 | 17.7 | 21.0 | 19.7 | 20.1 | 17.6 | 14.7 | 10.9 | 11.5 | 9.5 | 9.6 | 12.1 | 10.0 |
Singapore | - | - | - | - | - | - | - | 0.9 | 1.9 | 2.2 | 2.2 | 3.0 | 3.2 |
Taiwan | 7.4 | 8.0 | 8.8 | 8.6 | 10.9 | 11.9 | 11.7 | 12.6 | 13.2 | 13.7 | 14.2 | 16.6 | 16.7 |
Thailand | - | - | - | - | - | 0.7 | 1.0 | 1.5 | 1.4 | 2.6 | 3.1 | 3.8 | 4.4 |
Turkey | 4.2 | 4.4 | 3.9 | 4.2 | 5.8 | 4.5 | 5.7 | 4.0 | 5.3 | 5.5 | 5.6 | 7.3 | 7.1 |
UAE | - | - | - | - | 0.1 | 1.0 | 1.0 | 1.1 | 1.3 | 1.6 | 1.5 | 2.5 | 2.8 |
UK | 2.6 | 1.1 | 0.8 | 7.5 | 13.6 | 18.5 | 10.0 | 6.8 | 6.1 | 9.4 | 7.7 | 4.9 | 6.6 |
USA | 12.1 | 15.9 | 7.3 | 9.3 | 8.9 | 7.3 | 3.7 | 2.0 | 1.2 | 1.9 | 1.8 | 1.5 | 1.8 |
Africa | 7.4 | ||||||||||||
Other* | - | - | - | - | - | - | - | - | - | - | 3.4 | 2.8 | 5.6 |
World Total | 154.1 | 165.3 | 165.6 | 177.2 | 217.3 | 241.5 | 236.9 | 237.4 | 243.3 | 247.3 | 258.3 | 290.3 | 313.0 |
· | Bay and Gulf of Bothnia, Gulf of Finland - Finnish-Swedish Ice Class Rules (FSICR) |
· | Gulf of Finland (Russian territorial waters) - Russian Maritime Register (RMR) Ice Class Rules |
· | Barents, Kara, Laptev, East Siberian and Chukchi Seas - Russian Maritime Register (RMR) Ice Class Rules |
· | Beaufort Sea, Baffin Bay, etc. - Canadian Arctic Shipping Pollution Prevention Rules (CASPPR) |
· | RMR Ice Class Rules |
Class | Standard |
1A Super (1AS) | Design notional level ice thickness of 1.0m. For extreme harsh ice conditions. |
1A | Design notional level ice thickness of 0.8m. For harsh ice conditions. |
1B | Design notional level ice thickness of 0.6m. For medium ice conditions. |
1C | Design notional level ice thickness of 0.4m. For mild ice conditions. |
· | Ice class merchant vessels (compliant with the FSICR for navigation in the northern Baltic); |
· | Fairway navigation channels; and |
· | Ice breaker assistance. |
· | reduced level of sea ice has extended the summer shipping season in the Arctic and is making some areas easy to navigate; |
· | increase in mineral resource development activities in the Arctic; |
· | commodity demand growth in Asian economies; |
· | technological developments which have made NSR a more feasible shipping route than in the past; and |
· | chronic political problems in the Middle East, piracy in North Africa, and non-transparent commercial disputes over the Suez in Egypt. |
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||||||||
Number of Vessels | 4 | 34 | 46 | 71 | 23 | 18 | 19 | |||||||||||||||||||||
Total Cargo Volume (tons) | 111,000 | 820,789 | 1,261,545 | 1,355,897 | 274,000 | 39,586 | 214,513 |
· | The Moss Rosenberg spherical system, which was designed in the 1970s and is used by a large portion of the existing LNG fleet. In this system, multiple self-supporting, spherical tanks are built independent of the carrier and arranged inside its hull. |
· | The Gaz Transport membrane system, which is built inside the carrier and consists of insulation between the thin primary and secondary barriers. The membrane is designed to accommodate thermal expansion and contraction without overstressing the membrane. |
Size | No. | 000 Cbm |
0-17,999 cbm | 50 | 314 |
18-49,999 cbm | 17 | 418 |
50-74,999 cbm | 4 | 278 |
75-124,999 cbm | 3 | 255 |
125-149,999 cbm | 204 | 28,489 |
150-199,999 cbm | 240 | 39,873 |
200-219,999 cbm | 31 | 6,608 |
220,000+ cbm | 14 | 3,727 |
Total | 563 | 79,963 |
Size Range in CBM | Average Age (Years) | |
0-18,000 | 9.7 | |
18-50,000 | 8.7 | |
50-75,000 | 16.7 | |
75-125,000 | 20.6 | |
125-150,000 | 17.6 | |
150-200,000 | 4.2 | |
200-220,000 | 10.5 | |
220,000+ | 9.8 | |
Average Age -Total Fleet | 12.2 |
· | LNG projects are expensive and typically involve an integrated chain of dedicated facilities. Accordingly, the overall success of an LNG project depends heavily on long-term planning and coordination of project activities, including marine transportation; and |
· | LNG carriers are expensive to build, and vessel financing is supported by the corresponding cash-flow from long-term fixed-rate charters. |
i. | injury to, destruction or loss of, or loss of use of natural resources and related assessment costs; |
ii. | injury to, or economic losses resulting from, the destruction of real and personal property; |
iii. | loss of subsistence use of natural resources that are injured, destroyed or lost; |
iv. | net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources; |
v. | lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and |
vi. | net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources. |
· | on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status; |
· | on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; |
· | the development of vessel security plans; |
· | ship identification number to be permanently marked on a vessel’s hull; |
· | a continuous synopsis record kept onboard showing a vessel’s history including, the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and |
· | compliance with flag state security certification requirements. |
C. | ORGANIZATIONAL STRUCTURE |
D. | PROPERTY, PLANT AND EQUIPMENT |
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A. | RESULTS OF OPERATIONS |
· | Ownership days. The number of vessels in our Fleet is a key factor in determining the level of our revenues. Aggregate expenses also increase as the size of our Fleet increases; |
· | Charter rates. Our revenue is dependent on the charter rates we are able to obtain on our vessels. Charter rates on our vessels are based primarily on demand for and supply of LNG carrier capacity at the time we enter into the charters for our vessels, which is influenced by LNG market trends, such as the demand and supply for natural gas and in particular LNG as well as the supply of LNG carriers available for profitable employment. The charter rates we obtain are also dependent on whether we employ our vessels under multi-year charters or charters with initial terms of less than two years. As of the date of this Annual Report, apart from the Lena River, (which is currently employed under a charter with an earliest charter expiration of June 2019 and latest charter expiration of February 2020 after the conclusion of which the vessel will be employed under a 15-year contract with Yamal), all the vessels in our Fleet are employed under multi-year time charters with staggered maturities, which will make us less susceptible to cyclical fluctuations in charter rates than vessels operated on charters of less than two years. However, we will be exposed to fluctuations in prevailing charter rates when we seek to re-charter our vessels upon the expiry of their respective current charters and when we seek to charter vessels that we may acquire in the future; |
· | Utilization of our Fleet. Historically, our Fleet has had a limited number of unscheduled off-hire days. However, an increase in annual off-hire days would reduce our utilization. The efficiency with which suitable employment is secured, the ability to minimize off-hire days and the amount of time spent positioning vessels also affects our results of operations. If the utilization of our Fleet is reduced, our financial results would be affected; |
· | Daily operating expenses. The level of our vessel operating expenses, including crewing costs, insurance and maintenance costs. Our ability to control our vessel operating expenses also affects our financial results. These expenses include commission expenses, crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, lubricating oil costs, tonnage taxes and other miscellaneous expenses. In addition, factors beyond our control, such as developments relating to market premiums for insurance and the value of the U.S. dollar compared to currencies in which certain of our expenses, primarily crew wages, are paid, can cause our vessel operating expenses to increase; |
· | Our ability to exercise the options to purchase the Additional Optional Vessels; |
· | The timely delivery of the vessels we may acquire in the future; |
· | Our ability to maintain solid working relationships with our existing charterers and our ability to increase the number of our charterers through the development of new working relationships; |
· | The performance of our charterer’s obligations under their charter agreements; |
· | The effective and efficient technical management of the vessels under our management agreements; |
· | Our ability to obtain acceptable debt financing to fund our capital commitments; |
· | The ability of our Sponsor to fund its capital commitments and take delivery of the Additional Optional Vessels under construction; |
· | The supply and demand relationship for LNG shipping services; |
· | Our ability to obtain and maintain regulatory approvals and to satisfy technical, health, safety and compliance standards that meet our charterer’s requirements; |
· | Economic, regulatory, political and governmental conditions that affect shipping and the LNG industry, which includes changes in the number of new LNG importing countries and regions, as well as structural LNG market changes impacting LNG supply that may allow greater flexibility and competition of other energy sources with global LNG use; |
· | Our ability to successfully employ our vessels at economically attractive rates, as our charters expire or are otherwise terminated; |
· | Our access to capital required to acquire additional ships and/or to implement our business strategy; |
· | Our level of debt, the related interest expense, our debt amortizations levels and the timing of required principal installments; |
· | The level of our general and administrative expenses, including salaries and costs of consultants; |
· | Our charterer’s right for early termination of the charters under certain circumstances; |
· | Performance of our counterparties, which are limited in number, including our charterer’s ability to make charter payments to us; and |
· | The level of any distribution on all classes of our units. |
Year Ended December 31, | ||||||||||||
(expressed in United states dollars except for operational data) | 2018 | 2017 | 2016 | |||||||||
Ownership days | 2,190.0 | 2,190.0 | 2,196.0 | |||||||||
Available Days (1) | 2,144.7 | 2,140.3 | 2,196.0 | |||||||||
Revenue Earning Days (2) | 2,139.5 | 2,089.1 | 2,195.8 | |||||||||
Time Charter Equivalent (1) | $ | 57,972 | $ | 63,249 | $ | 75,997 | ||||||
Daily operating expenses | $ | 11,435 | $ | 12,359 | $ | 12,045 | ||||||
Fleet Utilization (1) | 100 | % | 98 | % | 100 | % |
Carrying Value (in millions of US dollars) | ||||||||||||||||
Vessel | Capacity (cbm) | Year Built/ Purchased | December 31, 2018 | December 31, 2017 | ||||||||||||
Clean Energy | 149,700 | 2007 | $ | 125.1 | $ | 129.6 | ||||||||||
Ob River | 149,700 | 2007 | 125.3 | 129.7 | ||||||||||||
Amur River | 149,700 | 2008 | 134.8 | 139.5 | ||||||||||||
Arctic Aurora | 155,000 | 2014 | 185.6 | 191.0 | ||||||||||||
Yenisei River | 155,000 | 2014 | 174.0 | 179.0 | ||||||||||||
Lena River | 155,000 | 2015 | 202.6 | 208.5 | ||||||||||||
TOTAL | 914,100 | $ | 947.4 | $ | 977.3 |
· | reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values; |
· | news and industry reports of similar vessel sales; |
· | news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates; |
· | approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated; and |
· | vessel sale prices and values of which we are aware through both formal and informal communications with ship-owners, shipbrokers, industry analysts and various other shipping industry participants and observers. |
(i) | the lower revenues earned on the Arctic Aurora, which, on August 2, 2018, rolled-over into a new charter with Equinor (which was in direct continuation of its previous charter contract with Equinor) at a lower charter rate; |
(ii) | the lower revenues earned on the Lena River, which concluded employment under its five-year legacy charter with Gazprom in October 2018 and after completion of its scheduled special survey and dry-docking, was subsequently delivered into a multi-month charter with a major energy company at a lower charter rate. |
(iii) | the lower revenues earned on the Ob River, which concluded employment under its legacy multi-year charter contract with Gazprom in April 2018 and subsequently began employment under a ten-year charter party with an entity, which is part of the wider Gazprom group of companies, at a lower charter rate. |
· | a maximum loan to value ratio of the aggregate principal amount of the Term Loan B to the fair market value of the collateral vessels, based on the average of the “charter-free” appraised values from two specified appraisers as of a certain date; |
· | a minimum interest coverage ratio on a consolidated basis, which if not met restricts us from, among other things, paying any dividend or other distribution; and |
· | a specified minimum debt service coverage ratio, meaning the ratio of operating cash flow available for debt servicing for the preceding 12-month period to all scheduled payments of principal, interest and fees due by the borrowers during such period, tested on the last day of each fiscal quarter. |
Year Ended December 31, | ||||||||||||
(Amounts in thousands of Dollars) | 2018 | 2017 | 2016 | |||||||||
Net cash provided by operating activities | $ | 42,994 | $ | 59,339 | $ | 103,618 | ||||||
Net cash used in investing activities | (409 | ) | — | (37,472 | ) | |||||||
Net cash used in financing activities | (132 | ) | (74,470 | ) | (32,844 | ) | ||||||
Cash and cash equivalents and restricted cash at beginning of year | 67,464 | 82,595 | 49,293 | |||||||||
Cash and cash equivalents and restricted cash at end of year | $ | 109,917 | $ | 67,464 | $ | 82,595 |
(i) | the decrease in voyage revenues as discussed in “Item 5. Operating and Financial Review and Prospects”; and |
(ii) | increase in interest and finance costs, as also discussed in “Item 5. Operating and Financial Review and Prospects.” |
(i) | the decrease in voyage revenues discussed in “Item 5. Operating and Financial Review and Prospects—A. Results of Operations”, above. |
(ii) | the increase in debt service and other finance costs resultant to our entering to the Term Loan B transaction, and |
(iii) | the $6.2 million costs incurred in relation with the three steam turbine vessels in our Fleet that were dry-docked in 2017. The decrease was partially offset by positive cash movement in working capital accounts between the compared periods. |
C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES |
D. | TREND INFORMATION |
E. | OFF-BALANCE SHEET ARRANGEMENTS |
F. | CONTRACTUAL OBLIGATIONS |
Payments due by period | ||||||||||||||||||||
Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Long-term debt | $ | 722,800 | 254,800 | 9,600 | 458,400 | - | ||||||||||||||
Interest on long term debt (1) | 157,309 | 46,555 | 66,134 | 44,620 | - | |||||||||||||||
Management fees & commissions payable to the Manager (2)(3) | 28,590 | 8,054 | 9,759 | 2,596 | 8,181 | |||||||||||||||
Executive services fee (4) | 3,008 | 616 | 1,233 | 1,159 | - | |||||||||||||||
Administrative services fee (5) | 40 | 40 | - | - | - | |||||||||||||||
Total | $ | 911,747 | 310,065 | 86,726 | 506,775 | 8,181 |
(1) | Our variable rate long-term debt outstanding as of December 31, 2018 bears variable interest at a margin over LIBOR. The calculation of interest payments has been made assuming interest rates based on the one-month period LIBOR, the LIBOR specific to our Term Loan B facility as of December 31, 2018 and our applicable margin rate. |
(2) | Under the terms of the Management Agreements, we currently pay a management fee of $2,985 per day which is subject to an annual increase of 3% and further annual increases to reflect material unforeseen costs increases of providing the management services, by an amount to be agreed between us and our Manager, which amount will be reviewed and approved by our Conflicts Committee. The Management Agreements also provide for commissions of 1.25% of charter-hire revenues arranged by the Manager. The agreements will terminate automatically after a change of control of the applicable shipping subsidiary and/or of the owner’s ultimate parent, in which case an amount equal to fees of at the least 36 months and not more than 60 months, will become payable to the Manager. |
(3) | Not including $2.2 million of the “Management fees & commissions payable to the Manager” related to the commissions on variable hire contained in certain time charter contracts with Yamal, which represents the operating expenses of the vessel and is subject to annual adjustments on the basis of the actual operating costs incurred within each year. The actual amount of “Management fees & commissions payable to the Manager” payable to the Manager in respect of such variable hire rate may therefore differ from the amounts included in the contractual obligations, due to the annual variations in each vessel’s respective operating cost. |
(4) | On March 21, 2014, we entered into the Executive Services Agreement with our Manager, with retroactive effect to the date of the closing of our IPO, pursuant to which our Manager provides us with the services of our executive officers, who report directly to our Board of Directors. Under the Executive Services Agreement, our Manager is entitled to an executive services fee of €538,000 per annum, for the initial five year term, payable in equal monthly installments. The Executive Services Agreement had an initial term of five years and, on November 18, 2018, has been automatically renewed for successive five year terms, unless terminated earlier. The calculation of the contractual services fee set forth in the table above assumes an exchange rate of €1.000 to $1.1455 the EURO/USD exchange rate as of December 31, 2018 and does not include any incentive compensation which our Board of Directors may agree to pay. |
(5) | On December 30, 2014 and effective as of the IPO closing date, we entered into the Administrative Services Agreement with our Manager, pursuant to which the Partnership is provided with certain financial, accounting, reporting, secretarial and information technology services, for a monthly fee of $10,000, plus expenses, payable in quarterly installments. The Agreement can be terminated upon 120 days’ notice granted either by the Partnership’s Board or by the Manager as per the provisions of the agreement. |
G. | SAFE HARBOR |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | DIRECTORS AND SENIOR MANAGEMENT |
Name | Age | Position |
Georgios Prokopiou | 72 | Chairman of the Board of Directors and Appointed Director |
Tony Lauritzen | 42 | Chief Executive Officer and Appointed Director |
Michael Gregos | 47 | Chief Financial Officer |
Levon Dedegian | 67 | Class III Director |
Alexios Rodopoulos | 71 | Class II Director |
Evangelos Vlahoulis | 72 | Class I Director |
B. | COMPENSATION OF DIRECTORS |
C. | BOARD PRACTICES |
D. | EMPLOYEES |
E. | UNIT OWNERSHIP |
ITEM 7. | MAJOR UNITHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | MAJOR UNITHOLDERS |
Name of Beneficial Owner | Number | Percent(1) | ||||||
Dynagas Holding Ltd.(2) | 15,595,000 | 43.9 | % | |||||
All executives, officers and directors as a group(3) | * | * |
(1) | Based on 35,490,000 common units outstanding as of the date of this Annual Report. |
(2) | Dynagas Holding Ltd. is beneficially owned by the Prokopiou Family, including the chairman of our Board of Directors, Georgios Prokopiou and his daughters Elisavet Prokopiou, Johanna Procopiou, Marina Kalliope Prokopiou, and Maria Eleni Prokopiou, which collectively have a business address at 23, Rue Basse, 98000 Monaco. |
(3) | Neither any member of our Board of Directors or executive officer individually, nor all of them taken as a group, hold more than 1% of our outstanding common units apart from Mr. Georgios Prokopiou, whose ownership interests are separately presented in the above table. |
B. | RELATED PARTY TRANSACTIONS |
(1) | acquiring, owning, operating or chartering any Non-Four-Year LNG carriers; |
(2) | (i) acquiring or owning one or more Four-Year LNG carrier(s) (other than with respect to the Sponsor’s ownership interest in the entities that own the Additional Optional Vessels, which is covered in (ii) below) if such Dynagas Holding Entity (as defined in the Omnibus Agreement) offers to sell such Four-Year LNG carrier to us for the acquisition price plus any administrative costs in accordance with the procedures set forth in the Omnibus Agreement (and we do not fulfill our obligation to purchase such Four-Year LNG carrier in accordance with the terms of the Omnibus Agreement) and (ii) owning any Optional Interests (as defined in the Omnibus Agreement) in the entities that own the Additional Optional Vessels at any time on or after the time at which such interests are treated as a Four-Year LNG carrier pursuant to the Omnibus Agreement, if the related Dynagas Holding Entities (as applicable), offer to sell such Optional Interests to us for the pro rata portion of the acquisition price relating to the corresponding LNG carrier owned by such entity plus any administrative costs in accordance with the procedures set forth in the Omnibus Agreement (and we do not fulfill our obligation to purchase such Optional Interests in accordance with the terms of the Omnibus Agreement); |
(3) | operating or chartering an LNG carrier under a charter with a term of four or more years if such Dynagas Holding Entity (other than in the case of an Additional Optional Vessel) offers to sell such LNG carrier to us for fair market value (i) promptly after the time it becomes a Four-Year LNG carrier and (ii) at each renewal or extension of that charter if such renewal or extension is for a term of four or more years, in each case in accordance with the procedures set forth in the Omnibus Agreement; |
(4) | acquiring and owning a controlling interest in one or more Four-Year LNG carriers as part of the acquisition of an interest in business or package of assets that owns, operates or charters such Four-Year LNG carriers; provided, however; if a majority of the value of the business or assets acquired is attributable to Four-Year LNG carriers, as determined in good faith by our Sponsor’s board of directors, the Dynagas Holding Entity must offer to sell such Four-Year LNG carrier(s) to us for their fair market value plus any administrative costs in accordance with the procedures set forth in the Omnibus Agreement (for the avoidance of doubt, nothing herein shall prohibit the acquisition and owning of one or more Four-Year LNG carriers as part of the acquisition of a minority interest in a business or package of assets that owns, operates or charters Four-Year LNG carriers); |
(5) | acquiring a non-controlling interest in any company, business or pool of assets; |
(6) | acquiring, owning, operating or chartering any Four-Year LNG carrier if we do not fulfill our obligation to purchase such Four-Year LNG carrier in accordance with the terms of the Omnibus Agreement; |
(7) | acquiring, owning, operating or chartering any Four-Year LNG carrier that is subject to the offers to us described in paragraphs (2), (3) and (4) above pending our determination whether to accept such offers and pending the closing of any offers we accept; |
(8) | providing vessel management services relating to any LNG carrier; |
(9) | acquiring and owning any Four-Year LNG carrier as part of a financing arrangement, including by way of a sale leaseback transaction, which is accounted for as a financial lease under United States generally accepted accounting principles; or |
(10) | acquiring, owning, operating or chartering any Four-Year LNG carrier if we have previously advised our Sponsor that we consent to such acquisition, operation or charter. |
· | certain defects in title to our Sponsor’s assets contributed or sold to us and any failure to obtain, prior to the time they were contributed or sold to us, certain consents and permits necessary to conduct, own and operate such assets, which liabilities arise within three years after the closing of our IPO (or, in the case of the Optional Vessels which we have rights to purchase, within three years after our purchase of them, if applicable); and |
· | tax liabilities attributable to the operation of the assets contributed or sold to us prior to the time they were contributed or sold. |
· | approved by our Conflicts Committee, although neither our General Partner nor our Board of Directors are obligated to seek such approval; |
· | approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner or any of its affiliates, although neither our General Partner nor our Board of Directors is obligated to seek such approval; |
· | on terms no less favorable to us than those generally being provided to or available from unrelated third-parties, but neither our General Partner nor our Board of Directors is required to obtain confirmation to such effect from an independent third-party; or |
· | fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us. |
· | the fiduciary duties imposed on our General Partner and our directors by the Partnership Act; |
· | material modifications of these duties contained in our Partnership Agreement; and |
· | certain rights and remedies of unitholders contained in the Partnership Act. |
Marshall Islands law fiduciary duty standards | Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a Partnership Agreement providing otherwise, would generally require a General Partner and the directors of a Marshall Islands limited partnership to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a Partnership Agreement providing otherwise, would generally prohibit a General Partner or the directors of a Marshall Islands limited partnership from taking any action or engaging in any transaction where a conflict of interest is present. |
Partnership Agreement modified standards | Our Partnership Agreement contains provisions that waive or consent to conduct by our General Partner and its affiliates and our directors that might otherwise raise issues as to compliance with fiduciary duties under the laws of the Marshall Islands. For example, our Partnership Agreement provides that when our General Partner is acting in its capacity as our General Partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under the laws of the Marshall Islands. In addition, when our General Partner is acting in its individual capacity, as opposed to in its capacity as our General Partner, it may act without any fiduciary obligation to us or the unitholders whatsoever, unless another express standard is provided for in the Partnership Agreement. These standards reduce the obligations to which our General Partner and our Board of Directors would otherwise be held. Our Partnership Agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by our Conflicts Committee must be on terms no less favorable to us than those generally being provided to or available from unrelated third-parties. In addition to the other more specific provisions limiting the obligations of our General Partner and our directors, our Partnership Agreement further provides that our General Partner and our officers and directors, will not be liable for monetary damages to us or our limited partners for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that our General Partner or our officers or directors engaged in actual fraud or willful misconduct. |
Rights and remedies of unitholders | The provisions of the Partnership Act resemble the provisions of the limited partnership act of Delaware. For example, like Delaware, the Partnership Act favors the principles of freedom of contract and enforceability of Partnership Agreements and allows the Partnership Agreement to contain terms governing the rights of the unitholders. The rights of our unitholders, including voting and approval rights and our ability to issue additional units, are governed by the terms of our Partnership Agreement. As to remedies of unitholders, the Partnership Act permits a limited partner to institute legal action on behalf of the partnership to recover damages from a third-party where a General Partner or a Board of Directors has refused to institute the action or where an effort to cause a General Partner or a Board of Directors to do so is not likely to succeed. These actions include actions against a General Partner for breach of its fiduciary duties or of the Partnership Agreement. |
C. | INTERESTS OF EXPERTS AND COUNSEL |
ITEM 8. | FINANCIAL INFORMATION |
A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
· | Our unitholders have no contractual or other legal right to receive distributions other than the obligation under our Partnership Agreement to distribute available cash on a quarterly basis, which is subject to the broad discretion of our Board of Directors to establish reserves and other limitations. |
· | We are and will be subject to restrictions on distributions under our existing financing arrangements as well as under any new financing arrangements or other transactions that we may enter into in the future. Our new and existing financing arrangements may contain financial and other covenants that must be satisfied prior to paying distributions in order to declare and pay such distributions or that may restrict or prohibit the payment of distributions. If we are unable to satisfy the requirements contained in any of our financing arrangements or are otherwise in default under any of those agreements, there could be a material adverse effect on our financial condition and our ability to make cash distributions to our unitholders notwithstanding our cash distribution policy. |
· | We are required to make substantial capital expenditures to maintain and replace our Fleet. These expenditures may fluctuate significantly over time, particularly as our vessels near the end of their respective useful lives. In order to minimize these fluctuations, our Partnership Agreement requires us to deduct estimated, as opposed to actual, maintenance and replacement capital expenditures from the amount of cash that we would otherwise have available for distribution to our unitholders. In years when estimated maintenance and replacement capital expenditures are higher than actual maintenance and replacement capital expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance and replacement capital expenditures were deducted. |
· | Although our Partnership Agreement requires us to distribute all of our available cash, our Partnership Agreement, including provisions contained therein requiring us to make cash distributions may be amended, with the approval of a majority of the outstanding common units. |
· | Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our Board of Directors, taking into consideration the terms of our Partnership Agreement. |
· | Under Section 57 of the Marshall Islands Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. |
· | We may lack sufficient cash to pay distributions to our unitholders due to decreases in total operating revenues, decreases in hire rates, the loss of a vessel or increases in operating or general and administrative expenses, principal and interest payments on outstanding debt, taxes, working capital requirements, maintenance and replacement capital expenditures or anticipated cash needs. See “Item 3. Key Information—D. Risk Factors” for a discussion of these factors. |
· | Our ability to make distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable limited partnership and limited liability company laws in the Marshall Islands and other laws and regulations. |
Marginal Percentage Interest in Distributions | ||||||||||||||
Total Quarterly Distribution Target Amount | Unitholders | General Partner | Holders of IDRs | |||||||||||
Minimum Quarterly Distribution | $0.365 | 99.9 | % | 0.1 | % | 0.0 | % | |||||||
First Target Distribution | up to $0.420 | 99.9 | % | 0.1 | % | 0.0 | % | |||||||
Second Target Distribution | above $0.420 up to $0.456 | 85.0 | % | 0.1 | % | 14.9 | % | |||||||
Third Target Distribution | Above $0.456 up to $0.548 | 75.0 | % | 0.1 | % | 24.9 | % | |||||||
Thereafter | above $0.548 | 50.0 | % | 0.1 | % | 49.9 | % |
B. | SIGNIFICANT CHANGES |
ITEM 9. | THE OFFER AND LISTING. |
A. | OFFER AND LISTING DETAILS |
ITEM 10. | ADDITIONAL INFORMATION |
A. | SHARE CAPITAL |
B. | MEMORANDUM AND ARTICLES OF ASSOCIATION |
C. | MATERIAL CONTRACTS |
D. | EXCHANGE CONTROLS |
E. | TAXATION |
· | we are organized in a foreign country (our “country of organization”) that grants an “equivalent exemption” to corporations organized in the United States; and |
· | more than 50% of the value of our units is owned, directly or indirectly, by individuals who are “residents” of our country of organization or of another foreign country that grants an “equivalent exemption” to corporations organized in the United States, which we refer to as the “50% Ownership Test,” or |
· | our units are “primarily and regularly traded on an established securities market” in our country of organization, in another country that grants an “equivalent exemption” to United States corporations, or in the United States, which we refer to as the “Publicly-Traded Test.” |
· | we have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and |
· | substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. |
· | an individual citizen or resident of the United States (as determined for United States federal income tax purposes), |
· | a corporation (or other entity that is classified as a corporation for United States federal income tax purposes) organized under the laws of the United States or any of its political subdivisions), |
· | an estate the income of which is subject to United States federal income taxation regardless of its source, or |
· | a trust if (i) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a United States person for United States federal income tax purposes. |
· | at least 75% of our gross income (including the gross income of our vessel-owning subsidiaries) for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or |
· | at least 50% of the average value of the assets held by us (including the assets of our vessel-owning subsidiaries) during such taxable year produce, or are held for the production of, passive income. |
· | the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common units; |
· | the amount allocated to the current taxable year and any taxable year prior to the taxable year we were first treated as a PFIC with respect to the Non-Electing Holder would be taxed as ordinary income; and |
· | the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayers for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. |
· | fails to provide an accurate taxpayer identification number; |
· | is notified by the IRS that it has failed to report all interest or corporate distributions required to be reported on its U.S. federal income tax returns; or |
· | in certain circumstances, fails to comply with applicable certification requirements. |
F. | DIVIDENDS AND PAYING AGENTS |
G. | STATEMENTS BY EXPERTS |
H. | DOCUMENTS ON DISPLAY |
I. | SUBSIDIARY INFORMATION |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Charterer | 2018 | 2017 | 2016 | |||||||||
Gazprom | 69 | % | 72 | % | 66 | % | ||||||
Equinor (formerly, Statoil) | 18 | % | 19 | % | 16 | % | ||||||
Yamal | 8 | % | - | - | ||||||||
PetroChina | 3 | % | 3 | % | - | |||||||
Major energy company | 2 | % | - | - | ||||||||
Shell | - | 6 | % | 18 | % | |||||||
Total | 100 | % | 100 | % | 100 | % |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
ITEM 15. | CONTROLS AND PROCEDURES |
A. | Disclosure Controls and Procedures |
B. | Management’s Report on Internal Control over Financial Reporting |
· | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; |
· | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of Partnership’s management and directors; and |
· | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
C. | Attestation Report of the Registered Public Accounting Firm |
D. | Changes in internal control over financial reporting |
ITEM 16. | [RESERVED] |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16B. | CODE OF ETHICS |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
2018 | 2017 | |||||||
Audit Fees | € | 251,250 | € | 139,000 | ||||
Audit-Related Fees | - | - | ||||||
Tax Fees | € | 8,100 | € | 6,000 | ||||
All Other Fees | - | - | ||||||
€ | 259,350 | € | 145,000 |
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 16F. | CHANGE IN REGISTRANTS’ CERTIFYING ACCOUNTANT |
ITEM 16G. | CORPORATE GOVERNANCE |
· | Executive Sessions. The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE also requires that all independent directors meet in an executive session at least once a year. As permitted under Marshall Islands law and our Partnership Agreement, our non-management directors do not regularly hold executive sessions without management and we do not expect them to do so in the future. |
· | Nominating/Corporate Governance Committee. The NYSE requires that a listed U.S. company have a nominating/corporate governance committee of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee. As permitted under Marshall Islands law and our Partnership Agreement, we do not currently have a nominating or corporate governance committee. |
· | Audit Committee. The NYSE requires, among other things, that a listed U.S. company have an audit committee with a minimum of three members, all of whom are independent. As permitted by Rule 10A-3 under the Exchange Act, our audit committee consists of two independent members of our Board, Alexios Rodopoulos and Evangelos Vlahoulis. |
· | Corporate Governance Guidelines. The NYSE requires that a listed U.S. Company adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under Marshall Islands law or our Partnership Agreement and we have not adopted such guidelines. |
· | Unitholder Approval of the Issuance of Certain Securities, including Equity Compensation Plans. The NYSE requires that unitholders be given the opportunity to vote on certain security issuances, including security issuances above certain thresholds and all equity-compensation plans and material revisions thereto, with limited exemptions for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. As permitted under Marshall Islands law and our Partnership Agreement, we do not require unitholder approval on security issuances, including security issuances that are senior to our common units, and equity-compensation plans and any material revisions thereto. |
· | Proxies. As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to the NYSE pursuant to the NYSE corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law and as provided in our Partnership Agreement, we will notify our unitholders of meetings between 10 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our Partnership Agreement provides that any unitholder or group of unitholders that beneficially own 15% or more of our outstanding common units are entitled to nominate directors for election at an annual meeting if written notice is given to the Board of Directors not more than 120 days and not less than 90 days prior to the date of the annual meeting. |
ITEM 16H. | MINE SAFETY DISCLOSURE |
ITEM 17. | FINANCIAL STATEMENTS |
ITEM 18. | FINANCIAL STATEMENTS |
ITEM 19. | EXHIBITS |
Exhibit Number | Description | |
1.1 | ||
1.2 | ||
1.3 | ||
1.4 | ||
1.5 | ||
1.6 | ||
1.7 | ||
1.8 | ||
4.1 | ||
4.2 | ||
4.3 | ||
4.4 | ||
4.5 | ||
4.6 | ||
4.7 | ||
4.8 | ||
4.9 | ||
8.1 | ||
12.1 | ||
12.2 | ||
13.1 | ||
13.2 | ||
15.1 | ||
15.2 | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
(1) | Incorporated by reference to the Partnership’s Registration Statement on Form F-1, which was declared effective by the Securities and Exchange Commission on November 12, 2013 (Registration No. 333-191653) |
(2) | Incorporated by reference to the Partnership’s Annual Report on Form 20-F, which was filed with the Securities and Exchange Commission on March 25, 2014 |
(3) | Incorporated by reference to the Partnership’s Registration Statement on Form 8-A12B, filed with the Securities and Exchange Commission on October 23, 2018. |
(4) | Incorporated by reference to the Partnership’s Annual Report on Form 20-F, which was filed with the Securities and Exchange Commission on March 10, 2015. |
(5) | Incorporated by reference to the Partnership’s Annual Report on Form 20-F, which was filed with the Securities and Exchange Commission on April 18, 2016. |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |
Report of Independent Registered Public Accounting Firm | F-3 |
Report of Independent Registered Public Accounting Firm | F-4 |
Consolidated Balance Sheets as of December 31, 2018 and 2017 | F-5 |
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016 | F-6 |
Consolidated Statements of Partners’ Equity for the years ended December 31, 2018, 2017 and 2016 | F-7 |
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 | F-8 |
Notes to the Consolidated Financial Statements | F-9 |
Note | December 31, 2018 | December 31, 2017 | ||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 109,917 | $ | 67,464 | ||||||||
Trade accounts receivable | 48 | 155 | ||||||||||
Prepayments and other assets | 692 | 1,103 | ||||||||||
Inventories | 1,220 | 799 | ||||||||||
Due from related party | 4 | 1,086 | 883 | |||||||||
Total current assets | 112,963 | 70,404 | ||||||||||
FIXED ASSETS, NET: | ||||||||||||
Vessels, net | 5 | 947,377 | 977,298 | |||||||||
Total fixed assets, net | 947,377 | 977,298 | ||||||||||
OTHER NON CURRENT ASSETS: | ||||||||||||
Due from related party | 4 | 1,350 | 1,350 | |||||||||
Accrued charter revenue | 342 | — | ||||||||||
Deferred charges | 1,404 | — | ||||||||||
Above-market acquired time charter contract | 8 | — | 5,267 | |||||||||
Total assets | $ | 1,063,436 | $ | 1,054,319 | ||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Current portion of long-term debt, net of unamortized deferred financing fees of $3,046 and $2,145, respectively | 6 | $ | 251,754 | $ | 2,655 | |||||||
Trade accounts payable | 5,736 | 4,497 | ||||||||||
Due to related party | 4 | 306 | 72 | |||||||||
Accrued liabilities | 4,206 | 4,051 | ||||||||||
Unearned revenue | 10,740 | 11,623 | ||||||||||
Total current liabilities | 272,742 | 22,898 | ||||||||||
NON-CURRENT LIABILITIES: | ||||||||||||
Deferred revenue | 3,147 | 1,405 | ||||||||||
Long-term debt, net of current portion and unamortized deferred financing fees of $6,938 and $11,102, respectively | 6 | 461,062 | 711,698 | |||||||||
Total non-current liabilities | 464,209 | 713,103 | ||||||||||
Commitments and contingencies | 9 | — | — | |||||||||
PARTNERS’ EQUITY: | ||||||||||||
Common unitholders (unlimited authorized; 35,490,000 units issued and outstanding as at December 31, 2018 and 2017) | 10 | 199,400 | 245,055 | |||||||||
Series A Preferred unitholders (3,450,000 authorized; 3,000,000 Series A Preferred Units issued and outstanding as at December 31, 2018 and 2017) | 10 | 73,216 | 73,216 | |||||||||
Series B Preferred unitholders: (2,530,000 authorized; 2,200,000 Series B Preferred Units issued and outstanding as at December 31, 2018 and none issued as at December 31, 2017) | 10 | 53,885 | — | |||||||||
General Partner (35,526 units issued and outstanding as at December 31, 2018 and 2017) | 10 | (16 | ) | 47 | ||||||||
Total partners’ equity | 326,485 | 318,318 | ||||||||||
Total liabilities and partners’ equity | $ | 1,063,436 | $ | 1,054,319 |
Note | 2018 | 2017 | 2016 | |||||||||||||
REVENUES: | ||||||||||||||||
Voyage revenues | 8 | $ | 127,135 | $ | 138,990 | $ | 169,851 | |||||||||
EXPENSES: | ||||||||||||||||
Voyage expenses | (1,148 | ) | (1,789 | ) | (749 | ) | ||||||||||
Voyage expenses-related party | 4 | (1,654 | ) | (1,830 | ) | (2,212 | ) | |||||||||
Vessel operating expenses | (25,042 | ) | (27,067 | ) | (26,451 | ) | ||||||||||
Dry-docking and special survey costs | (7,422 | ) | (6,193 | ) | (81 | ) | ||||||||||
General and administrative expenses | (1,452 | ) | (961 | ) | (1,170 | ) | ||||||||||
General and administrative expenses- related party | 4 | (757 | ) | (725 | ) | (715 | ) | |||||||||
Management fees-related party | 4 | (6,347 | ) | (6,162 | ) | (5,999 | ) | |||||||||
Depreciation | 5 | (30,330 | ) | (30,319 | ) | (30,395 | ) | |||||||||
Operating income | $ | 52,983 | $ | 63,944 | $ | 102,079 | ||||||||||
OTHER INCOME/(EXPENSES): | ||||||||||||||||
Interest and finance costs | 6, 12 | (50,490 | ) | (46,281 | ) | (34,991 | ) | |||||||||
Interest income | 1,051 | 203 | — | |||||||||||||
Other, net | 69 | (527 | ) | (234 | ) | |||||||||||
Total other expenses, net | (49,370 | ) | (46,605 | ) | (35,225 | ) | ||||||||||
Partnership’s Net Income | $ | 3,613 | $ | 17,339 | $ | 66,854 | ||||||||||
Common unitholders’ interest in Net Income | $ | (4,042 | ) | $ | 9,302 | $ | 34,652 | |||||||||
Series A Preferred unitholders’ interest in Net Income | $ | 6,750 | $ | 6,750 | $ | 6,750 | ||||||||||
Series B Preferred unitholders’ interest in Net Income | $ | 909 | $ | — | $ | — | ||||||||||
Subordinated unitholders’ interest in Net Income | $ | — | $ | 1,208 | $ | 25,323 | ||||||||||
General Partner’s interest in Net Income | $ | (4 | ) | $ | 79 | $ | 129 | |||||||||
(Loss)/Earnings per unit, basic and diluted: | 11 | |||||||||||||||
Common unit (basic and diluted) | $ | (0.11 | ) | $ | 0.27 | $ | 1.69 | |||||||||
Weighted average number of units outstanding, basic and diluted: | 11 | |||||||||||||||
Common units | 35,490,000 | 34,545,740 | 20,505,000 |
Partners’ Capital | ||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred | Series B Preferred | Common | Subordinated | General Partner | Series A Preferred | Series B Preferred | Common | Subordinated | General Partner | Total | ||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2015 | 3,000,000 | — | 20,505,000 | 14,985,000 | 35,526 | $ | 73,216 | $ | — | $ | 302,954 | $ | (8,427 | ) | $ | 95 | $ | 367,838 | ||||||||||||||||||||||||||
—Net income | — | — | — | — | — | 6,750 | — | 34,652 | 25,323 | 129 | 66,854 | |||||||||||||||||||||||||||||||||
—Distributions declared and paid (common and preferred units) (Note 10) | — | — | — | — | — | (6,750 | ) | — | (34,654 | ) | (25,325 | ) | (127 | ) | (66,856 | ) | ||||||||||||||||||||||||||||
BALANCE, December 31, 2016 | 3,000,000 | — | 20,505,000 | 14,985,000 | 35,526 | $ | 73,216 | $ | — | $ | 302,952 | $ | (8,429 | ) | $ | 97 | $ | 367,836 | ||||||||||||||||||||||||||
—Net income | — | — | — | — | — | 6,750 | — | 9,302 | 1,208 | 79 | 17,339 | |||||||||||||||||||||||||||||||||
—Conversion of subordinated units to common units (Note 10) | — | — | 14,985,000 | (14,985,000 | ) | — | — | — | (15,171 | ) | 15,171 | — | — | |||||||||||||||||||||||||||||||
—Distributions declared and paid (common and preferred units) (Note 10) | — | — | — | — | — | (6,750 | ) | — | (52,028 | ) | (7,950 | ) | (129 | ) | (66,857 | ) | ||||||||||||||||||||||||||||
BALANCE, December 31, 2017 | 3,000,000 | — | 35,490,000 | — | 35,526 | $ | 73,216 | $ | — | $ | 245,055 | $ | — | $ | 47 | $ | 318,318 | |||||||||||||||||||||||||||
—Net income | — | — | — | — | — | 6,750 | 909 | (4,042 | ) | — | (4 | ) | 3,613 | |||||||||||||||||||||||||||||||
— Issuance of Series B Preferred Units, net of issuance costs (Note 10) | — | 2,200,000 | — | — | — | — | 52,976 | — | — | — | 52,976 | |||||||||||||||||||||||||||||||||
—Distributions declared and paid (common and preferred units) (Note 10) | — | — | — | — | — | (6,750 | ) | — | (41,613 | ) | — | (59 | ) | (48,422 | ) | |||||||||||||||||||||||||||||
BALANCE, December 31, 2018 | 3,000,000 | 2,200,000 | 35,490,000 | — | 35,526 | $ | 73,216 | $ | 53,885 | $ | 199,400 | $ | — | $ | (16 | ) | $ | 326,485 |
Note | 2018 | 2017 | 2016 | |||||||||||||
Cash flows from Operating Activities: | ||||||||||||||||
Net income: | $ | 3,613 | $ | 17,339 | $ | 66,854 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 5 | 30,330 | 30,319 | 30,395 | ||||||||||||
Amortization and write-off of deferred financing fees | 12 | 3,261 | 5,387 | 1,984 | ||||||||||||
Deferred revenue amortization | (45 | ) | 369 | (58 | ) | |||||||||||
Amortization of deferred charges | 68 | — | — | |||||||||||||
Amortization of fair value of acquired time charter | 8 | 5,267 | 7,247 | 7,268 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts receivable | 107 | (55 | ) | 3 | ||||||||||||
Prepayments and other assets | 389 | (315 | ) | (178 | ) | |||||||||||
Inventories | (421 | ) | 35 | (486 | ) | |||||||||||
Due from/to related parties | 31 | (235 | ) | (346 | ) | |||||||||||
Trade accounts payable | 1,149 | 1,584 | (1,105 | ) | ||||||||||||
Accrued liabilities | 155 | 299 | 155 | |||||||||||||
Deferred charges | (1,472 | ) | — | — | ||||||||||||
Deferred revenue | 1,445 | — | — | |||||||||||||
Unearned revenue | (883 | ) | (2,635 | ) | (868 | ) | ||||||||||
Net cash provided by Operating Activities | $ | 42,994 | $ | 59,339 | $ | 103,618 | ||||||||||
Cash flows from Investing Activities: | ||||||||||||||||
Other additions to vessels’ equipment | 5 | (409 | ) | — | (37,472 | ) | ||||||||||
Net cash used in Investing Activities | $ | (409 | ) | $ | — | $ | (37,472 | ) | ||||||||
Cash flows from Financing Activities: | ||||||||||||||||
Payment of preferred units issuance costs | — | — | (119 | ) | ||||||||||||
Net proceeds from issuance of preferred units | 10 | 53,138 | — | — | ||||||||||||
Payment of securities registration and other filing costs | (48 | ) | (145 | ) | — | |||||||||||
Distributions declared and paid | (48,422 | ) | (66,857 | ) | (66,856 | ) | ||||||||||
Proceeds from long-term debt | 6 | — | 480,000 | 66,667 | ||||||||||||
Repayment of long-term debt | 6 | (4,800 | ) | (474,900 | ) | (32,500 | ) | |||||||||
Payment of deferred finance fees | — | (12,568 | ) | (36 | ) | |||||||||||
Net cash used in Financing Activities | $ | (132 | ) | $ | (74,470 | ) | $ | (32,844 | ) | |||||||
Net increase/ decrease in cash and cash equivalents and restricted cash | 42,453 | (15,131 | ) | 33,302 | ||||||||||||
Cash and cash equivalents and restricted cash at beginning of the year | 67,464 | 82,595 | 49,293 | |||||||||||||
Cash and cash equivalents and restricted cash at end of the year | $ | 109,917 | $ | 67,464 | $ | 82,595 | ||||||||||
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||||||||||
Cash and cash equivalents | 109,917 | 67,464 | 57,595 | |||||||||||||
Restricted cash | — | — | 25,000 | |||||||||||||
Cash and cash equivalents and restricted cash | $ | 109,917 | $ | 67,464 | $ | 82,595 | ||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||||||
Cash paid during the year for: | ||||||||||||||||
Interest | $ | 47,033 | $ | 39,796 | $ | 32,781 |
Company Name | Country of incorporation/ formation | Vessel Name | Delivery Date from shipyard | Delivery date to Partnership | Cbm Capacity |
Pegasus Shipholding S.A. (“Pegasus”) | Marshall Islands | Clean Energy | March 2007 | May 2013 | 149,700 |
Lance Shipping S.A. (“Lance”) | Marshall Islands | Ob River | July 2007 | May 2013 | 149,700 |
Seacrown Maritime Ltd. (“Seacrown”) | Marshall Islands | Amur River | January 2008 | May 2013 | 149,700 |
Fareastern Shipping Limited (“Fareastern”) | Malta | Arctic Aurora | July 2013 | June 2014 | 155,000 |
Navajo Marine Limited (“Navajo”) | Marshall Islands | Yenisei River | July 2013 | September 2014 | 155,000 |
Solana Holding Ltd. (“Solana”) | Marshall Islands | Lena River | October 2013 | December 2015 | 155,000 |
Company Name | Country of incorporation/formation | Purpose of incorporation |
Dynagas Equity Holding Limited (“Dynagas Equity”) (1) | Marshall Islands | Holding company that owns all of the outstanding share capital of Arctic LNG Carriers Ltd. (“Arctic LNG”). |
Dynagas Operating GP LLC (“Dynagas Operating GP”) | Marshall Islands | Limited Liability Company in which the Partnership holds a 100% membership interest and which has 100% of the Non-Economic General Partner Interest in Dynagas Operating LP. |
Dynagas Operating LP (“Dynagas Operating”) | Marshall Islands | Limited partnership in which the Partnership holds a 100% limited partnership interest and which owns 100% of the issued and outstanding share capital of Dynagas Equity. |
Dynagas Finance Inc. | Marshall Islands | Wholly owned subsidiary of the Partnership whose activities are limited to co-issuing the 2019 Notes discussed under Note 6 and engaging in other activities incidental thereto. |
Arctic LNG | Marshall Islands | Wholly owned subsidiary of the Partnership which is directly wholly owned by Dynagas Equity and which owns all of the issued and outstanding share capital of Pegasus, Lance, Seacrown, Fareastern, Navajo, Solana and Dynagas Finance LLC. |
Dynagas Finance LLC | Delaware | Wholly owned subsidiary of Arctic LNG and co-borrower of the Partnership’s $480 million senior secured term loan (“Term Loan B”) discussed under Note 6. |
(a) | Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Dynagas Partners and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Dynagas Partners, as the holding company, determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity. Under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810 “Consolidation”, a voting interest entity is an entity in which the total equity investment at risk is deemed sufficient to absorb the expected losses of the entity, the equity holders have all the characteristics of a controlling financial interest and the legal entity is structured with substantive voting rights. |
The holding company consolidates voting interest entities in which it owns all, or at least a majority (generally, greater than 50%) of the voting interest. Variable interest entities (“VIE”) are entities, as defined under ASC 810, that in general either have equity investors with non-substantive voting rights or that have equity investors that do not provide sufficient financial resources for the entity to support its activities. The holding company has a controlling financial interest in a VIE and is, therefore, the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. A VIE should have only one primary beneficiary which is required to consolidate the VIE. A VIE may not have a primary beneficiary if no party meets the criteria described above. The Partnership evaluates all arrangements that may include a variable interest in an entity to determine if it is the primary beneficiary, and would therefore be required to include assets, liabilities and operations of a VIE in its consolidated financial statements. As of the years ended December 31, 2018, 2017 and 2016, no such interests existed | ||
(b) | Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | |
(c) | Going concern: The Partnership’s policy is in accordance with ASU No. 2014-15, "Presentation of Financial Statements - Going Concern", issued in August 2014 by the FASB. ASU 2014-15 provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and on related required footnote disclosures. For each reporting period, management is required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued (Note 3). | |
(d) | Other Comprehensive Income: The Partnership follows the provisions of ASC 220, “Comprehensive Income”, which requires separate presentation of certain transactions which are recorded directly as components of equity. The Partnership has no such transactions which affect other comprehensive income and accordingly, for the years ended December 31, 2018, 2017 and 2016, comprehensive income equaled net income. | |
(e) | Foreign Currency Translation: The functional currency of the Partnership is the U.S. Dollar because the Partnership’s vessels operate in international shipping markets and therefore, the Partnership primarily transacts business in U.S. Dollars. The Partnership’s books of accounts are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of such transactions. At the balance sheet date, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. Dollars using the balance sheet date exchange rates. Resulting gains or losses are included in “Other, net” in the accompanying consolidated statements of income. | |
(f) | Cash and Cash Equivalents: The Partnership considers highly liquid investments, such as time deposits with an original maturity of three months or less, to be cash equivalents. | |
(g) | Restricted cash: Restricted cash may comprise of (i) minimum liquidity collateral requirements or minimum required cash deposits that are required to be maintained under the Partnership’s financing arrangements, (ii) cash deposits in so-called “retention accounts” which may only be used as per the Partnership’s borrowing arrangements for the purpose of serving the loan installments coming due or, (iii) other cash deposits required to be retained until other specified conditions prescribed in the Partnership’s debt agreements are met. In the event that the obligation to maintain such deposits is expected to elapse within the next operating cycle, these deposits are classified as current assets. Otherwise, they are classified as non-current assets. |
(h) | Trade Accounts Receivable: The amount shown as trade receivables at each balance sheet date, includes accounts receivable from charterers, net of any provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts primarily based on the aging of such balances and any amounts in dispute. Provision for doubtful accounts as of December 31, 2018 and 2017, was nil. | |
(i) | Inventories: Inventories consist of lubricants which are stated at the lower of cost or net realizable value, following the adoption of ASU 2015-11, “Simplifying the Measurement of Inventory”. Cost is determined by the first in, first out method. Inventories may also consist of bunkers during periods when vessels are unemployed or under voyage charters and spares in warehouses, in which case, they are also stated at the lower of cost or net realizable value and cost is still determined by the first in, first out method. | |
(j) | Insurance Claims: The Partnership records insurance claim recoveries for insured losses incurred on damage to fixed assets, loss of hire and for insured crew medical expenses. Insurance claim recoveries are recorded, net of any deductible amounts, at the time when (i) the Partnership’s vessels suffer insured damages or at the time when crew medical expenses are incurred, (ii) recovery is probable under the related insurance policies, (iii) the Partnership can estimate the amount of such recovery following submission of the insurance claim and (iv) provided that the claim is not subject to litigation. | |
(k) | Vessels, Net: Vessels are stated at cost, which consists of the contract price and any material expenses incurred upon delivery (initial repairs, improvements and delivery expenses, capitalized interest and on-site supervision costs incurred during the construction periods). Subsequent expenditures for conversions and major improvements are also capitalized when such expenditures appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels; otherwise these amounts are charged to expense as incurred. The cost of each of the Partnership’s vessels is depreciated beginning from the time when the vessel is ready for her intended use, on a straight-line basis, to the time that the vessel reaches the end of its’ economic useful life, after considering the estimated residual value of the vessel. The Partnership currently uses a scrap rate estimate of $0.685 per lightweight ton per LNG carrier. Management estimates that the useful life of each of the Partnership’s vessels to be 35 years from the date of initial delivery from the shipyard. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. When regulations place limitations on the ability of a vessel to trade on a worldwide basis, such vessel’s remaining useful life is adjusted as of the date such regulations are adopted. | |
(l) | Impairment of Long-Lived Assets: The Partnership follows ASC 360-10-40 “Impairment or Disposals of Long-Lived Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. When the estimate of undiscounted projected operating cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the asset is evaluated for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset. The Partnership reviews its long-lived assets for impairment whenever events or changes in circumstances, such as business plans to dispose a vessel earlier than the end of its useful life and prevailing market conditions, indicate that the carrying amount of the assets may not be recoverable. When such indications are present, the Partnership determines undiscounted projected net operating cash flows for each vessel and compares the result to the vessel’s carrying value. The fair values of the assets are determined through Level 2 inputs of the fair value hierarchy as defined in ASC 820, “Fair value measurements and disclosures” based on management’s estimates, assumptions, use of available market data, use of third party valuations and other market observable data. In developing estimates of future cash flows, the Partnership must make assumptions about future charter rates, vessel operating expenses, fleet utilization and the estimated remaining useful life of the vessels. These assumptions are based on historical trends as well as future expectations. |
The projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed fleet days and by estimating charter rates for the unfixed days. Expected outflows for scheduled vessel maintenance and vessel operating expenses are based on the Partnership’s budget by using historical data, which is adjusted annually with the assumption of the average annual inflation rate prevailing at the time of test. In developing the estimate for the effective fleet utilization, the Partnership takes into account the period(s) each vessel is expected to undergo her scheduled maintenance (dry-docking and special surveys) and each vessel’s loss of hire resulting from repositioning or other conditions. In developing estimates for the remaining estimated useful lives of the current fleet and scrap values, the Partnership utilizes methods which are identical to those employed as part of the Partnership’s depreciation policy. As and for each of the years ended December 31, 2018, 2017 and 2016, the Partnership incurred no impairment loss. | ||
(m) | Intangible Assets/Liabilities Related to Time Charters Acquired: When and where the Partnership identifies any assets or liabilities associated with the acquisition of a vessel, the Partnership records all such identified assets or liabilities at fair value. Fair value is determined by reference to market data. In connection with the acquisition of a vessel, the Partnership determines the fair value of any asset or liability acquired based on the market value of the time charters assumed when a vessel is acquired. The amount to be recorded either as an asset or a liability at the date of vessel acquisition is determined by comparing the existing charter rate in the existing time charter agreement of the acquired vessel with the market rates for equivalent time charter agreements prevailing at the time the vessel is acquired. When the present value of the time charter assumed is greater than the current fair value of such charter, the difference is recorded as an asset. When the present value of the existing time charter assumed is less than the current fair value of such charter, the difference is recorded as liability. Assets and liabilities are amortized as adjustments to revenues over the remaining term of the assumed time charter and are classified as non-current assets or liabilities, as applicable, in the accompanying consolidated balance sheets. Impairment testing is performed when events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. | |
(n) | Accounting for Special Survey and Dry-Docking Costs: The Partnership follows the direct expense method of accounting for dry-docking and special survey costs, in which case, such costs are expensed in the period incurred. The vessels undergo dry-dock or special survey approximately every five years during the first fifteen years of their life and, subsequently, every two and a half years to the end of their useful life. Costs relating to routine repairs and maintenance are also expensed in the period they are incurred. | |
(o) | Financing Costs: In accordance with ASU 2015-03, “Interest – Imputation of Interest”, costs associated with long-term debt, including but not limited to, fees paid to lenders, fees required to be paid to third parties on the lender’s behalf in connection with debt financing or refinancing, or any unamortized portion thereof, are presented by the Partnership as a reduction of long-term debt. Such fees are deferred and amortized to interest and finance costs during the life of the related debt instrument using the effective interest method. Unamortized fees relating to loans repaid or refinanced as debt extinguishments and loan commitment fees are expensed as interest and finance costs in the period incurred in the accompanying statements of income. Any unamortized balance of costs relating to refinanced long-term debt is deferred and amortized over the term of the credit facility in the period that such refinancing occurs, subject to the provisions of the accounting guidance with respect to “Debt – Modifications and Extinguishments”. | |
(p) | Concentration of Credit Risk: Financial instruments, which may potentially subject the Partnership to significant concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts receivable. The maximum exposure to loss due to credit risk is the book value at the balance sheet date. The Partnership places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Partnership performs periodic evaluations of the relative credit standing of those financial institutions. The Partnership limits its credit risk with accounts receivable by performing ongoing credit evaluations of each of its charterer’s financial condition and generally does not require collateral for its accounts receivable. |
Charterer | 2018 | 2017 | 2016 | |||||||||
A | 69 | % | 72 | % | 66 | % | ||||||
B | 18 | % | 19 | % | 18 | % | ||||||
C | — | — | 16 | % | ||||||||
Total | 87 | % | 91 | % | 100 | % |
(q) | Accounting for Revenues and Related Expenses: The Partnership generates its revenues from charterers under time charter agreements for the employment of its vessels. The Partnership’s vessels are each employed under a time charter agreement, where a contract is entered into with a charterer for the charterer’s use of a vessel for a specific period of time and at a specified daily charter hire rate. If a time charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized, as it is earned ratably over the duration of the period of the time charter. Revenues from time chartering of vessels are accounted for as operating leases. The Partnership early adopted ASC 842 as of September 30, 2018, with adoption reflected as of January 1, 2018, the beginning of the annual period in accordance with ASC 250. In particular, under the new guidance, the Partnership elected certain practical expedients, which allowed the Partnership’s existing lease arrangements, in which it was a lessor, classified as operating leases under ASC 840 to continue to be classified as operating leases under ASC 842. Leases, which commenced on or after January 1, 2018 were classified as operating leases under ASC 842. The Partnership has determined that the non-lease components in its time charter contracts relate to services for the operation of the vessel, which include crew, technical, safety, commercial services, among others. The Partnership has elected to account for the lease and non-lease component of time charter agreements as a combined component in its consolidated financial statements, having taken into account that the non-lease components would be accounted for ratably on a straight-line basis over the duration of the time charter and that the lease component is considered as the predominant component. The Partnership qualitatively assessed that more value is ascribed to the vessel rather than to the services provided under the time charter agreements. Such revenues are recognized on a straight line basis at the average minimum lease revenue over the rental periods of such charter agreements, as service is performed. . Revenue generated from variable lease payments is recognized in the period when changes in facts and circumstances on which the variable lease payments are based occur. The residual or excess amounts from actually collected hire based on the time charter agreement for each period, if any, is classified as deferred revenue in the accompanying consolidated balance sheets. Unearned revenue includes cash received prior to the balance sheet date for which all criteria to recognize as revenue have not yet been met as at the balance sheet date and, accordingly, is related to revenue earned after such date. Apart from the agreed hire rate, the owner may be entitled to an additional income, such as ballast bonus, which is considered as reimbursement of owner’s expenses and is recognized together with the lease component over the duration of the charter. The Partnership has made an accounting policy election to recognize the related ballast costs, which mainly consisting of bunkers, incurred over the period between the charter party date or the prior redelivery date (whichever is latest) and the delivery date to the charterer, as contract fulfilment costs in accordance with ASC 340-40 and amortized over the charter period Voyage expenses, primarily consist of commissions which are paid by the Partnership as well as port, canal and bunker expenses that are unique to a particular charter and which are paid by the charterer under the time charter arrangements or by the Partnership during periods of off-hire. All voyage expenses are expensed as incurred, except for commissions. Commissions paid to brokers are deferred and amortized over the related charter period to the extent revenue has been deferred since commissions are earned as the Partnership’s revenues are earned. |
(r) | Repairs and Maintenance: All repair and maintenance expenses including underwater inspection expenses are expensed in the period incurred. Such costs are included in vessel operating expenses in the accompanying consolidated statements of income. | |
(s) | Earnings/ (Loss) Per Unit: As of December 31, 2018, the Partnership’s capital structure consisted of common units, two separate classes of preferred units, a general partner interest and incentive distribution rights. The incentive distribution rights are a separate class of non-voting interests that are currently held by the Partnership’s General Partner but, subject to certain restrictions, may be transferred or sold apart from the General Partner’s interest. The Partnership calculates basic earnings/ (loss) per each class of units by allocating period distributed and undistributed earnings/ (losses) to the General Partner, limited partners and incentive distribution rights holders using the two-class method and in accordance with the Partnership’s Fourth Amended and Restated Limited Partnership Agreement dated October 23, 2018 (the “Limited Partnership Agreement”). Basic earnings/ (losses) per common unit are computed by allocating distributed and undistributed net income/ (losses) available to common unitholders, after subtracting the interest on the Partnership’s net income/ (loss) of all classes of preferred unitholders, subordinated unitholders (up to January 23, 2017 or the “Sponsor Subordinated Units Conversion Date”, see Note 10) and the General Partner by the weighted average number of common units outstanding during the year. Any undistributed earnings for the period are allocated to the various unitholders based on the distribution waterfall for cash available for distribution specified in the Limited Partnership Agreement. Where distributions relating to the period are in excess of earnings, the surplus is also allocated according to the cash distribution model. Diluted earnings per common unit reflect the potential dilution that could occur if securities or other contracts to issue units were exercised, if any. The Partnership had no dilutive securities outstanding during the three-year period ended December 31, 2018. | |
(t) | Segment Reporting: The Partnership operates under one reportable segment relating to its operations as it operates solely LNG vessels. The Partnership reports financial information and evaluates its operations and operating results by the type of vessel and not by the length or type of vessel employment for its customers i.e time charters. The Partnership’s management does not use discrete financial information to evaluate operating results for each type of charter. Although revenue can be identified by charter type, management cannot and does not identify expenses, profitability or other financial information in such a manner. When the Partnership charters a vessel to a charterer, the charterer is free to trade the vessel worldwide. As a result, the disclosure of geographic information is impracticable. | |
(u) | Fair Value Measurements: The Partnership follows ASC 820, “Fair Value Measurements and Disclosures”, which defines and provides guidance for the measurement of fair value. This guidance creates a fair value hierarchy of measurement and indicates that, when possible, fair value is the price that would be received in the sale of an asset or the price that would be paid in the transfer of a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable data that are not corroborated by market data (Level 3). For example, the reporting entity’s own data has a Level 3 priority because it is not or not yet observable or corroborated by market data. Observable market based inputs or unobservable inputs that are corroborated by market data are classified under Level 2 of the fair value hierarchy. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. ASC 820 applies when assets or liabilities in the consolidated financial statements are to be measured at fair value, but does not require additional use of fair value beyond the requirements in other accounting principles. |
(v) | Commitments and Contingencies: Commitments are recognized when the Partnership has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will likely be required to satisfy such obligation and a reliable estimate of the amount of such obligation can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the present value of the expenditure expected to be required to settle the obligation. Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless there is a remote possibility of an outflow of resources embodying economic benefits. Contingent assets are not recognized in the consolidated financial statements but are disclosed when an inflow of economic benefits is probable. | |
(w) | Accounting for Financial Instruments: The principal financial assets of the Partnership consist of cash and cash equivalents, restricted cash, amounts due from related parties and trade accounts receivable. The principal financial liabilities of the Partnership consist of trade and other accounts payable, accrued liabilities, long-term debt and amounts due to related parties. The Partnership may also consider, from time to time, entering into interest rate swap agreements to manage its exposure to fluctuations of interest rate risk associated with its borrowings. Derivative financial instruments are generally used to manage risk related to fluctuations of interest rates. ASC 815, “Derivatives and Hedging”, requires all derivative contracts to be recorded at fair value, as determined in accordance with ASC 820, Fair Value Measurements and Disclosures (Note 7). The changes in fair value of a derivative contract are recognized in earnings unless specific hedging criteria are met. At the inception of a hedge relationship, the Partnership formally designates and documents the hedge relationship with respect to hedge accounting, the risk management objective and the strategy undertaken for the hedge. The documentation includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting exposure to changes in the hedged item’s cash flows attributable to the hedged risk. A cash flow hedge is the mitigation of risk exposure resulting from variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they actually have been highly effective throughout the financial reporting periods for which they were designated. All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives is recorded in “Accumulated Other Comprehensive Income/ (Loss)” and subsequently recognized in earnings when the hedged items impact earnings. |
i) | ASU 2014-09 (Topic 606): On January 1, 2018, the Partnership adopted the provisions of ASU 2014-09 (Topic 606). The standard, as amended from time to time, outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers and supersedes most legacy revenue recognition guidance. The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services by applying the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in each contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in each contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. |
ii) | ASU 2016-02: In February 2016, the FASB issued ASU No. 2016-02, “Leases (ASC 842)”, and as amended, which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. Entities are also provided with practical expedients that allow entities not to: (i) reassess whether any expired or existing contracts are considered or contain leases; (ii) reassess the lease classification for any expired or existing leases; and (iii) reassess initial direct costs for any existing leases. In addition, the new standard (i) provides entities with an additional (and optional) transition method to adopt the new leases standard, under which an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption consistent with preparers’ requests and (ii) provide lessors with a practical expedient, by class of underlying asset, in order not to separate non-lease components from the associated lease component and to instead account for those components as a single component if both of the following are met: (a) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the non-lease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with ASC 606. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. |
iii) | The Partnership elected to early adopt ASC 842 as of September 30, 2018, with such adoption being reflected as of January 1, 2018, the beginning of the annual period in accordance with ASC 250, by using the modified retrospective transition method and elected to apply to apply the additional and optional transition method to existing leases at the beginning of the period of adoption of January 1, 2018. The prior period comparative information has not been restated and continues to be reported under the accounting guidance in effect for those periods (ASC 840), including the disclosure requirements The Partnership qualified for all and elected to apply all the practical expedients discussed above. The Partnership further evaluated that the predominant component in its time charter agreements is the lease component. In this respect, the Partnership made an accounting policy election to account for both the lease and non-lease components in its lease contracts as an operating lease in accordance with the provisions of ASC 842. The early adoption of ASC 842 had no material effect on the Partnership’s consolidated financial position and results of operations for the year ended December 31, 2018. |
iv) | ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” as updated by ASU 2018-03 “Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)”. The amendments in this update affect all entities that hold financial assets or owe financial liabilities and address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This new standard was adopted on January 1, 2018 and had no impact on the Partnership’s consolidated financial statements and note disclosures. |
v) | ASU No. 2016-15, “Statement of Cash Flows Classification of Certain Cash Receipts”. This update addresses eight specific cash flow issues and provides specific guidance in how certain cash receipts and cash payments should be presented and classified in the statement of cash flows under Topic 230 with the objective of reducing the current and potential future diversity in practice. ASU No. 2016-15 was adopted as of January 1, 2018 and its adoption did not result in any changes in the classification of cash receipts and cash payments in the Partnership’s reported consolidated statements of cash flows. |
vi) | ASU 2017-01, “Business Combinations, Clarifying the Definition of a business”. The amendments in this update were issued in order to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. This ASU provides a screen to determine when a set of assets and activities does not constitute a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similarly identifiable assets, the set is not a business. The implementation of this update as of January 1, 2018, had no impact on the Partnership’s consolidated financial statements. |
i) | ASU 2016-13: In June 2016, the FASB issued ASU 2016-13- Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For public entities, the amendments of this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted. Management is in the process of assessing the impact of the amendment of this Update on the Partnership's consolidated financial position and performance. |
ii) | ASU No. 2018-13: In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement”, which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that year. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. Management is currently evaluating the impact of this adoption on its consolidated financial statements and related disclosures. |
Years ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Included in voyage expenses | ||||||||||||
Charter hire commissions (a) | $ | 1,654 | $ | 1,830 | $ | 2,212 | ||||||
Included in general and administrative expenses – related party | ||||||||||||
Executive services fee (d) | $ | 637 | $ | 605 | $ | 595 | ||||||
Administrative services fee (e) | $ | 120 | $ | 120 | $ | 120 | ||||||
Management fees-related party | ||||||||||||
Management fees (a) | $ | 6,347 | $ | 6,162 | $ | 5,999 |
Year ended December 31, | ||||||||
2018 | 2017 | |||||||
Assets: | ||||||||
Working capital advances granted to the Manager (a) | $ | 1,086 | $ | 883 | ||||
Security deposits to Manager (a) | $ | 1,350 | $ | 1,350 | ||||
Liabilities included in Due to related party: | ||||||||
Executive service charges due to Manager (d) | $ | 154 | $ | — | ||||
Administrative service charges due to Manager (e) | $ | 30 | $ | 30 | ||||
Other Partnership expenses due to Manager | $ | 122 | $ | 42 | ||||
Total liabilities due to related party, current | $ | 306 | $ | 72 |
(i) | a commission of 1.25% over charter-hire agreements arranged by the Manager, and, |
(ii) | a lump sum new-building supervision fee of $700 for the services rendered by the Manager in respect of the construction of the vessel, if applicable, plus out of pocket expenses. |
Under certain of the Partnership’s time charter contracts with a third party charterer, if Vasora Marine Company Limited (“Vasora”), an entity unrelated to the Partnership, that has also entered into a time charter contract with the same charterer for its vessel under construction, defaults to take delivery of its vessel according to the terms of the shipbuilding contract with the shipyard, then the charterer will have the right to terminate or amend the Partnership’s time charter contracts. Vasora is beneficially owned by the managing director of Dynagas Ltd, the Partnership’s Manager.
The Partnership did not have any monetary transactions with Vasora during the year ended December 31, 2018, 2017 or 2016 and did not have any receivables from or payables to the entity at December 31, 2018 and 2017. The vessel is expected to be delivered within 2019. Upon delivery of the vessel, the Partnership’s time charter contracts will no longer be affected by any potential non-compliance by Vasora.
Vessel Cost | Accumulated Depreciation | Net Book Value | ||||||||||
Balance December 31, 2016 | $ | 1,167,500 | $ | (159,883 | ) | $ | 1,007,617 | |||||
—Depreciation | — | (30,319 | ) | (30,319 | ) | |||||||
Balance December 31, 2017 | $ | 1,167,500 | $ | (190,202 | ) | $ | 977,298 | |||||
Other additions to vessels’ cost | 409 | — | 409 | |||||||||
Depreciation | — | (30,330 | ) | (30,330 | ) | |||||||
Balance December 31, 2018 | $ | 1,167,909 | $ | (220,532 | ) | $ | 947,377 |
Year Ended | |||||||||
Debt instruments | Borrowers-Issuers | December 31, 2018 | December 31, 2017 | ||||||
$480 Million Term Loan Facility | Arctic LNG and Dynagas Finance LLC | 472,800 | 477,600 | ||||||
$250 Million Senior Unsecured Notes | Dynagas Partners and Dynagas Finance | 250,000 | 250,000 | ||||||
Total debt | $ | 722,800 | $ | 727,600 | |||||
Less deferred financing fees | (9,984 | ) | (13,247 | ) | |||||
Total debt, net of deferred finance costs | $ | 712,816 | $ | 714,353 | |||||
Less current portion, net of deferred financing fees | $ | (251,754 | ) | $ | (2,655 | ) | |||
Long-term debt, net of current portion and deferred financing fees | $ | 461,062 | $ | 711,698 |
· | meet a specified maximum loan to value ratio, which is the ratio of the aggregate principal amounts due under the Term Loan B to the aggregate fair value of the collateral vessels under the Term Loan B; |
· | meet a specified minimum debt service coverage ratio, the ratio of the twelve month rolling operating cash flow of Arctic LNG to the twelve month rolling debt service payments under the Term Loan B; |
· | maintain aggregate free liquidity of at least $20.0 million; |
· | meet a maximum leverage ratio expressed as a percentage of total borrowings to total book assets; and |
· | maintain a certain minimum net worth level. |
Year ending December 31, | Amount | |||
2019 | $ | 254,800 | ||
2020 | 4,800 | |||
2021 | 4,800 | |||
2022 | 4,800 | |||
2023 | 453,600 | |||
Total long-term debt | $ | 722,800 |
◾ | Cash and cash equivalents, trade accounts receivable, amounts due from/to related parties and trade accounts payable: The carrying values reported in the accompanying consolidated balance sheets for those financial instruments (except for the fair value of non-current portion of amounts due from related party) are considered Level 1 items as they represent liquid assets and liabilities with short-term maturities and are reasonable estimates of their fair values. The carrying value of these instruments is separately reflected in the accompanying consolidated balance sheets. The fair value of non-current portion of the amounts due from related parties, determined through Level 3 inputs of the fair value hierarchy by discounting future cash flows using the Partnership’s estimated cost of capital, is $1,128 as of December 31, 2018, compared to its carrying value of $1,350 as of the same date. |
◾ | Long-term debt: The Term Loan, B discussed in Note 6, has an approximate recorded value due to the variable interest rate payable and is thus considered a Level 2 item in accordance with the fair value hierarchy as LIBOR rates are observable at commonly quoted intervals for the full terms of the loans. The 2019 Notes have a fixed rate and their estimated fair value, determined through Level 2 inputs of the fair value hierarchy (quoted price in over-the-counter market), is approximately $237.2 million as of December 31, 2018, compared to its carrying value of $250.0 million. |
◾ | Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
◾ | Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and |
◾ | Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the determination of the fair value of the assets or liabilities. |
Year ending December 31, | Amount | |||
2019 | $ | 121,333 | ||
2020 | 125,783 | |||
2021 | 114,794 | |||
2022 | 103,824 | |||
2023 | 103,824 | |||
2024 and thereafter | 654,475 | |||
Total | $ | 1,224,033 |
Period/ Year ending December 31, | Amount | |||
2019 | $ | 6,537 | ||
2020 | 6,752 | |||
Total | $ | 13,289 | ||
• | first, 100% to the holders of common units and to the General Partner in accordance with their relative percentage interests, until the distributed amount in respect of each common unit equals the minimum quarterly distribution; and |
• | second, 100% to the holders of common units and to the General Partner in accordance with their relative percentage interests, until each unit has received an aggregate distribution of a specified dollar amount. |
Total Quarterly Distribution Target Amount | Unitholders | General Partner | Holders of IDRs | ||||||||||||
Minimum Quarterly Distribution | $0.365 | 99.9 | % | 0.1 | % | 0.0 | % | ||||||||
First Target Distribution | up to $0.420 | 99.9 | % | 0.1 | % | 0.0 | % | ||||||||
Second Target Distribution | above $0.420 up to $0.456 | 85.0 | % | 0.1 | % | 14.9 | % | ||||||||
Third Target Distribution | Above $0.456 up to $0.548 | 75.0 | % | 0.1 | % | 24.9 | % | ||||||||
Thereafter | above $0.548 | 50.0 | % | 0.1 | % | 49.9 | % |
Year ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Partnership’s Net income | $ | 3,613 | $ | 17,339 | $ | 66,854 | ||||||
Less: | ||||||||||||
Net Income attributable to preferred unitholders | 7,659 | 6,750 | 6,750 | |||||||||
Net Income attributable to subordinated unitholders | — | 1,208 | 25,323 | |||||||||
General Partner’s interest in Net Income | (4 | ) | 79 | 129 | ||||||||
Net income/(loss) attributable to common unitholders | $ | (4,042 | ) | $ | 9,302 | $ | 34,652 | |||||
Weighted average number of common units outstanding, basic and diluted | 35,490,000 | 34,545,740 | 20,505,000 | |||||||||
Earnings/ (Losses) per common unit, basic and diluted | $ | (0.11 | ) | $ | 0.27 | $ | 1.69 |
Year ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Interest expense (Note 6) | $ | 46,884 | $ | 39,775 | $ | 32,887 | ||||||
Amortization and write-off of deferred financing fees | 3,261 | 5,387 | 1,984 | |||||||||
Commitment fees (Note 6) | — | — | 2 | |||||||||
Other | 345 | 1,119 | 118 | |||||||||
Total | $ | 50,490 | $ | 46,281 | $ | 34,991 |
(a) | Fourth quarter of 2018 common unit cash distribution: On January 23, 2019, the Partnership’s Board of Directors approved a plan to reduce further the common units’ quarterly distribution from $0.25 per common unit to $0.0625 per common unit, or from $1.00 to $0.25 on an annualized basis. This reduction took effect from the common unit cash distribution in respect of the fourth quarter of 2018. The fourth quarter 2018 common unit cash distribution amounted to $2.2 million and was paid on February 14, 2019, to all common unitholders of record as of February 7, 2019. |
(b) | Quarterly Series A Preferred unit cash distribution: On January 21, 2019, the Partnership’s Board of Directors declared a cash distribution of $0.5625 per unit on its Series A Preferred Units for the period from November 12, 2018 to February 11, 2019. The cash distribution is expected to be paid on February 12, 2019, to all Series A preferred unitholders of record as of February 5, 2019. |
(c) | Initial Series B Preferred unit cash distribution: On January 31, 2019, the Partnership’s Board of Directors approved an initial distribution on the Series B Preferred Units in an amount equal to $0.7231 per unit for the period from and including October 23, 2018 to, but excluding, February 22, 2019. The initial distribution on the Series B Preferred Units was paid on February 22, 2019, to all Series B Preferred unitholders of record as of February 15, 2019. |
(d) | First quarter of 2019 common unit cash distribution: On April 22, 2019, the Partnership's Board of Directors declared a cash distribution on the Partnership's common units in respect of the first quarter of 2019. The first quarter 2019 common unit cash distribution amounted to $2.2 million and is due to be paid on May 10, 2019, to all common unitholders of record as of May 3, 2019. |
F-32
DYNAGAS LNG PARTNERS LP | |||||
By: | /s/ Michael Gregos | ||||
Name: | Michael Gregos | ||||
Title: | Chief Financial Officer (Principal Financial Officer) | ||||
Date: | April 24, 2019 |