| DEBT | Note 10 — Debt: Debt consists of the following: (Dollars in thousands) September 30, 2022 December 31, 2021 $750 Million Facility Term Loan, due 2027, net of unamortized deferred finance costs of $7,269 $ 522,732 $ — Macquarie Credit Facility, due 2025, net of unamortized deferred finance costs of $573 and $755 17,177 18,720 ING Credit Facility, due 2026, net of unamortized deferred finance costs of $448 and $546 22,990 24,454 $390 Million Facility Term Loan, due 2025, net of unamortized deferred finance costs of $2,357 — 188,693 $525 Million Facility Term Loan, due 2024 — 216,289 $525 Million Facility Revolving Loan, due 2024 — 44,193 $360 Million Facility Term Loan, due 2024 — 105,325 $360 Million Facility Revolving Loan, due 2024 — 38,889 Ocean Yield Lease Financing, due 2031, net of unamortized deferred finance costs of $3,341 and $3,799 345,125 366,506 BoComm Lease Financing, due 2030, net of unamortized deferred finance costs of $691 and $114 52,150 9,494 Toshin Lease Financing, due 2031, net of unamortized deferred finance costs of $387 and $428 15,642 16,567 COSCO Lease Financing, due 2028, net of unamortized deferred finance costs of $1,253 and $1,353 47,732 51,393 Hyuga Lease Financing, due 2031, net of unamortized deferred finance costs of $338 15,406 — Kaiyo Lease Financing, due 2030, net of unamortized deferred finance costs of $300 14,211 — Kaisha Lease Financing, due 2030, net of unamortized deferred finance costs of $313 14,309 — 8.5% Senior Notes, due 2023, net of unamortized deferred finance costs of $538 — 24,462 1,067,474 1,104,985 Less current portion (166,965) (178,715) Long-term portion $ 900,509 $ 926,270 Capitalized terms used hereafter have the meaning given in these condensed consolidated financial statements or in the respective transaction documents referred to below, including subsequent amendments thereto. $750 Million Credit Facility On May 20, 2022, International Seaways Operating Corporation (“ISOC”), the borrower, and certain of their subsidiaries entered into a credit agreement comprising $750 million of secured debt facilities (the “$750 Million Credit Facility”) with Nordea Bank Abp, New York Branch (“Nordea”), Crédit Agricole Corporate & Investment Bank (“CA-CIB”), BNP Paribas, DNB Markets Inc. and Skandinaviska Enskilda Banken AB (PUBL) (or their respective affiliates), as mandated lead arrangers and bookrunners; Danish Ship Finance A/S and ING Bank N.V., London Branch (or their respective affiliates), as mandated lead arrangers; and National Australia Bank Limited, as co-arranger. Nordea is acting as administrative agent, collateral agent and security trustee under the credit agreement, and CA-CIB is acting as sustainability coordinator. Capitalized terms used in this paragraph and elsewhere not otherwise defined herein shall have the meanings set forth in the credit agreement. The $750 Million Credit Facility consists of (i) a five-year senior secured term loan facility in an aggregate principal amount of $530 million (the “$750 Million Facility Term Loan”) and (ii) a five-year revolving credit facility in an aggregate principal amount of $220 million (the “750 Million Facility Revolving Loan). The $750 Million Facility Term Loan contains an uncommitted accordion feature whereby, for a period of up to 24 months following the closing date, the amount of the loan thereunder may be increased up to an additional incremental $250 million (in increments of at least $10 million) for the acquisition of Additional Vessels, subject to certain conditions. The $750 Million Credit Facility is secured by a first lien on 55 of the Company’s vessels, along with their earnings, insurances and certain other assets. In addition, both facilities are secured by liens on certain additional assets of ISOC. On May 24, 2022, the available amount of $530 million under the $750 Million Facility Term Loan was drawn in full, and $70 million of the $220 million available under the $750 Million Facility Revolving Loan was also drawn. The loan proceeds, together with available cash, were used to repay (i) the $163 million outstanding principal balance under the $390 Million Credit Facility; (ii) the $284 million outstanding principal balance under the $525 Million Credit Facility; and (iii) the $127.8 million outstanding principal balance under the $360 Million Credit Facility; and to pay certain expenses related to the refinancing, including certain structuring and arrangement fees, legal and administrative fees totaling $10.5 million. The $70 million drawn under the $750 Million Facility Revolving Loan was repaid on June 15, 2022, using a portion of the proceeds from the sale of the FSO Joint Venture (see Note 7, “Equity Method Investments”). Interest on the $750 Million Credit Facility is calculated based upon Adjusted Term SOFR plus the Applicable Margin. The Applicable Margin is currently 2.40%. The facilities also include a sustainability-linked pricing mechanism. The adjustment in pricing will be linked to three factors: ● a Fleet Sustainability Score Target, reflecting the carbon efficiency of the INSW fleet as it relates to reductions in CO 2 emissions year-over-year, such that it aligns with the International Maritime Organization’s 50% industry reduction target in GHG emissions by 2050, to be calculated in a manner consistent with the de-carbonization trajectory outlined in the Poseidon Principles (the global framework by which financial institutions can assess the climate alignment of their ship finance portfolios relative to established de-carbonization trajectories) ● a Sustainability-Linked Investment Target, reflecting targeted spending of $3 million per annum on investments in energy efficiency improvements, decarbonization, and other environmental, social and corporate governance-related initiatives; and ● a Lost Time Incident Frequency Target, reflecting performance against a Lost Time Incident Frequency average published by Intertanko. The Company is required to deliver annually, commencing in July 2023, a sustainability certificate for the preceding calendar year setting out the sustainability-related calculations required under the credit agreement. If the Company achieves all of the targets set out in the credit agreement, the Applicable Margin will be decreased by 0.05% per annum, while if the Company fails to achieve any of the targets set out in the credit agreement, the Applicable Margin will be increased by that same amount (but in no case will any such adjustment result in the Applicable Margin being increased or decreased from the otherwise-applicable Applicable Margin by more than 0.05% per annum in the aggregate). The $750 Million Facility Term Loan amortizes in 19 quarterly installments of approximately $30.6 million (other than the final payment of $9.8 million) commencing November 20, 2022. The maturity date of the $750 Million Credit Facility is May 20, 2027, and is subject to acceleration upon the occurrence of certain events (as described in the credit agreement). The $750 Million Credit Facility contains customary representations, warranties, restrictions and covenants applicable to the Company, ISOC and the subsidiary guarantors (and in certain cases, other subsidiaries). Hyuga Lease Financing On January 14, 2022, the Company entered into a lease financing arrangement with Hyuga Kaiun Co., Ltd (“Hyuga”) for the sale and leaseback of a 2011-built MR, which was a $390 Million Facility Collateral Vessel, for a net sale price of $16.7 million (the “Hyuga Lease Financing”). The transaction generated net proceeds of $5.7 million, after prepaying $11.0 million of the $390 Million Facility Term Loan. Under the lease financing arrangement, the vessel is subject to a nine-year bareboat charter at a bareboat rate of $6,300 per day for the first three years, $6,200 per day for the second three years, and $6,000 per day for the last three years, with purchase options exercisable commencing at the end of the fourth year and a $2.0 million purchase obligation at the end of the nine-year term. Kaiyo Lease Financing On April 25, 2022, the Company entered into a lease financing arrangement with Kaiyo Ltd. (“Kaiyo”) for the sale and leaseback of a 2010-built MR, which was a $390 Million Facility Collateral Vessel, for a net sale price of $15.2 million (the “Kaiyo Lease Financing”). The transaction generated net proceeds of $5.4 million, after prepaying $9.8 million of the $390 Million Facility Term Loan. Under the lease financing arrangement, the vessel is subject to an eight-year bareboat charter at a bareboat rate of $6,250 per day for the first four years, and $6,150 per day for the remaining four years, with purchase options exercisable commencing at the end of the fourth year and a $1.5 million purchase obligation at the end of the eight-year term. Kaisha Lease Financing On May 12, 2022, the Company entered into a lease financing arrangement with Kabushiki Kaisha (“Kaisha”) for the sale and leaseback of a 2010-built MR, which was a $525 Million Facility Collateral Vessel, for a net sale price of $15.2 million (the “Kaisha Lease Financing”). The transaction generated net proceeds of $10.6 million, after prepaying $4.6 million of the $525 Million Facility Term Loan. Under the lease financing arrangement, the vessel is subject to an eight-year bareboat charter at a bareboat rate of $6,250 per day for the first four years, and $6,150 per day for the remaining four years, with purchase options exercisable commencing at the end of the fourth year and a $1.5 million purchase obligation at the end of the eight-year term. 8.5% Senior Notes On August 5, 2022, the Company redeemed the $25 million aggregate principal outstanding of the 8.5% Senior Notes due June 2023. Debt Covenants The Company was in compliance with the financial and non-financial covenants under all of its financing arrangements as of September 30, 2022. The $750 Million Credit Facility, the Macquarie Credit Facility, the ING Credit Facility and certain of the Company’s lease financing arrangements contain customary representations, warranties, restrictions and covenants applicable to the Company, the Borrower and the subsidiary guarantors (and in certain cases, other subsidiaries), including financial covenants that require the Company (i) to maintain a minimum liquidity level of the greater of $50 million and 5% of the Company’s Consolidated Indebtedness; (ii) to ensure the Company’s and its consolidated subsidiaries’ Maximum Leverage Ratio will not exceed 0.60 to 1.00 at any time; (iii) to ensure that Current Assets exceeds Current Liabilities (which is defined to exclude the current potion of Consolidated Indebtedness); and (iv) to ensure the aggregate Fair Market Value of the Collateral Vessels will not be less than 135% of the aggregate outstanding principal amount of the Term Loans and Revolving Loans of each Facility. The 8.5% Senior Notes Indenture (the “Indenture”), which was terminated in conjunction with the August 5, 2022 redemption described above, contained certain covenants that required the Company to (i) not permit Total Borrowings (as defined in the Indenture) to equal or exceed 70% of Total Assets (as defined in the Indenture), and (ii) ensure that Net Worth (defined as Total Assets, less Intangible Assets and Total Borrowings, as defined in the Indenture) exceeded $600 million pursuant to the Minimum Net Worth covenant in the Indenture. The Company’s credit facilities also require it to comply with a number of covenants, including the delivery of quarterly and annual financial statements, budgets and annual projections; maintaining required insurances; compliance with laws (including environmental); compliance with the Employee Retirement Income Security Act of 1974 (“ERISA”); maintenance of flag and class of the collateral vessels; restrictions on consolidations, mergers or sales of assets; limitations on liens; limitations on issuance of certain equity interests; limitations on transactions with affiliates; and other customary covenants and related provisions. Interest Expense Total interest expense before the impact of capitalized interest, including amortization of issuance and deferred financing costs (for additional information related to deferred financing costs see Note 3, “Significant Accounting Policies”), commitment, administrative and other fees for all of the Company’s debt facilities for the three and nine months ended September 30, 2022 was $16.4 million and $43.0 million, respectively, and for the three and nine months ended September 30, 2021 was $10.7 million and $24.8 million, respectively three and nine months ended September 30, 2021 was $10.8 million and $23.2 million respectively Debt Modifications, Repurchases and Extinguishments During the first quarter of 2022, the Company recognized a net loss of $0.1 million, which is included in other expense in the accompanying condensed consolidated statement of operations. The net loss reflects a write-off of $0.1 million of unamortized deferred financing costs associated with the $11.0 million principal prepayment of the $390 Million Facility Term Loan in January 2022 (in connection with the Hyuga Lease Financing transaction described above), which was treated as a partial extinguishment. During the second quarter of 2022, the Company recognized a net loss of $0.2 million, which is included in other expense in the accompanying condensed consolidated statement of operations. The net loss reflects a write-off of unamortized deferred financing costs associated with the $10.0 million principal prepayment of the $390 Million Facility Term Loan in April 2022 (in connection with the Kaiyo Lease Financing transaction described above), which was treated as a partial extinguishment. During the third quarter of 2022, the Company recognized a net loss of $0.4 million, which is included in other expense in the accompanying condensed consolidated statement of operations. The net loss reflects a write-off of unamortized deferred financing costs associated with the $25.0 million principal prepayment of the 8.5% Senior Notes in August 2022. |
