Impairment charge hits INSW’s bottom line

Mar 09 2018

International Seaways (INSW) suffered a net loss of $90.7 mill for the fourth quarter of 2017, compared with net loss of $57.8 mill in 4Q16.

The 4Q17 net loss reflected a $81.1 mill vessel impairment charge and a decline in TCE revenues, compared with 4Q16, which principally reflected the impact of impairment charges of $60.1 mill and $5.6 mill of separation and transition costs.


The impairments recognised in 4Q17 stemmed from a reduction in general asset values in older vessels.


Consolidated TCE revenues for 4Q17 were $65.1 mill, compared to $82.2 mill in 4Q16. Shipping revenues were $69.4 mill for the period, compared to $85.8 mill in 4Q16.


Operating loss for the quarter was $79.5 mill, compared to a loss of $47.8 mill for 4Q16. This increase primarily resulted from reduced TCE revenues of $17.1 mill and larger impairment charges recognised in the current quarter of $21.2 mill. These impacts were partially offset by decreases in spin-off related costs and general and administrative expenses in the current period totalling $6.9 mill.


Adjusted EBITDA was $22.9 mill for the quarter, compared to $37.5 mill in 4Q16, the difference principally being driven by lower daily rates.


TCE revenues for the crude tanker segment were $42.1 mill for the quarter, compared to $54.1 mill in 4Q16.


This decrease resulted primarily from the impact of lower average blended rates in the VLCC and Aframax sectors, with spot rates declining to around $20,100 and $14,100 per day, respectively, aggregating about $11.3 mill.


This was tempered by the impact of 232 additional revenue days contributed by the two Suezmaxes and one VLCC that were acquired in the second half of 2017 aggregating $4.5 mill.


Shipping revenues for this segment were $46.3 mill for the quarter, compared to $58.8 mill in 4Q16.


TCE revenues for the product carrier segment were $23 mill for the quarter, compared to $27.5 mill in 4Q16. This decrease was primarily due to a decline in average daily blended rates earned by the LR1 and MR fleets, with spot rates declining to around $13,600 and $10,800 per day, respectively.


In addition, the impact of 142 fewer revenue days, due to the sale of two MRs during the year and the redelivery of a bareboat vessel late in December, 2017, also contributed to the lower TCE revenues.


The net loss for the full year ended 31st December, 2017 was $106.1 mill, compared with net loss of $18.2 mill for 2016.


This principally reflects $88.4 mill in vessel impairment charges, $9.2 mill of costs associated with INSW’s debt refinancing, and a decline in TCE revenues, compared to 2016, which reflected a one-time expense of $9 mill in separation and transition costs, as well as impairment charges of $109.7 mill.


Consolidated TCE revenues for the 12-month period were $275 mill, compared to $385 mill for 2016. Shipping revenues for the year were $290.1 mill, compared to $398.3 mill for the previous full year.


Operating loss for 2017 was $59.3 mill, compared to operating income of $22.8 mill for 2016. Adjusted EBITDA was $117 mill, compared to $222 mill for 2016.


“During our first full year as an independent public company, we made significant progress growing and renewing the company’s fleet, strengthening our position to take advantage of a market recovery,” said Lois Zabrocky, INSW’s president and CEO. “Including our agreement to acquire six VLCCs, with an average age of 1.7 years, we will have invested over $600 mill in nine highly-efficient, modern vessels since completing our spin-off.


“Our success capitalising on attractive asset values at the bottom of the cycle, combined with the sale of four vessels with an average age of 14.9 years will enable the company to increase the size of its fleet by 40% on a dwt basis, reduce its average age to under 9.5 years, as well as enhance our operating leverage and upside potential. We continue to prepare for a second quarter 2018 closing and intend to fund the six-vessel acquisition with a combination of available liquidity, the assumption of the debt currently secured by the vessels, and other debt financing sources.


“Building on our past successes, our priorities for 2018 are to provide safe, reliable service to customers and partners, maintain a lean and scalable model with low breakevens and continue to effectively allocate capital for the benefit of shareholders. With a strong balance sheet, we intend to continue to maintain one of the lowest leverage profiles in the sector. As we progress through 2018, our balanced fleet deployment and a moderate level of predictable cash flows from our joint ventures and contracted fixed-rate charters will enable the company to both optimise revenue through the current tanker cycle and benefit from a market recovery in both the product and crude tanker sectors,” she concluded.


In connection with the purchase agreement to acquire six VLCCs from Euronav, the company said that it intended to assume the debt currently secured by the acquired vessels, with an outstanding balance of $311 mill (as of 31st March, 2018), maturing between 2027 and 2028, and carrying a fixed annual interest rate of LIBOR plus 2%.


The transaction was still subject to a number of closing conditions but is expected to close in the second quarter of 2018.


INSW currently expects to fund the cash portion of the acquisition price from existing liquidity, as well as proceeds from financing the VLCC ‘Seaways Raffles’, which was originally purchased with cash, and the sale and leaseback of two modern Aframaxes, both of which are expected to close by mid-March, along with other financing initiatives.


In November 2017, INSW acquired the 2010-built VLCC ‘Seaways Raffles’ for $53 mill. She commenced trading in the Tankers International pool.


During 4Q17, the company sold a 2004-built MR, which was delivered to buyers in November, a 2002-built MR, which delivered to buyers in January, 2018, and a 2004-built MR, which delivered to buyers in February, 2018.


Net proceeds received from the two ships delivered to buyers in 2018 totalled $17.9 mill. In addition, the 2010-built MR ‘Alexandros II’, a chartered-in vessel, was redelivered to her head owners during the fourth quarter of last year.


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