M/T αgisilaos
Capital Product Partners L.P. (Nasdaq: CPLP) is an international diversified shipping company and
leader in the seaborne transportation of a wide range of cargoes, including oil, refined oil products,
edible oils and chemicals, as well as dry cargo and containerized goods. We have elected to be
treated as a C-Corporation for tax purposes (our U.S. investors receive the standard 1099 form).
We are well-positioned to benefit from the growth dynamics of the global shipping industry and
to capitalize on potential acquisition opportunities in the fragmented shipping market. We benefit
from the commercial and technical management agreement with our sponsor, Capital Maritime
& Trading Corp., and established and reputable tanker shipping company.
Dear Unit Holders,
We are very pleased with the steps we took to grow the Part-
nership during 2013 in a manner that is accretive to our
distributable cash flow per unit, generating attractive returns
for our unit holders.
STRATEGIC
DEVELOPMENTS
Accretive Container
Vessel Acquisitions
with Long-Term Period
Employment
In 2013, we diversified the pro-
file of our fleet as we acquired
five 5,023 TEU container sister
vessels. All vessels were built in
2013 at Hyundai Heavy Indus-
tries Co. Ltd. The vessels were
originally ordered by our Spon-
sor, Capital Maritime & Trading
Corp. (“Capital Maritime”) and
have each secured 12 year time
charter employment to Hyundai
Merchant Marine at a gross rate
of $29,350 per day. The acquisi-
tions totaled an amount of $325
million funded with the issuance
of common and convertible pre-
ferred units, debt and cash from
our available liquidity.
In detail, to finance the con-
tainer vessels acquisitions, in
March 2013, we issued 9.1 mil-
lion Class B Convertible Preferred
Units at a price of $8.25 per unit.
Then, in August 2013, we issued
13,685,000 common units at a
public offering price of $9.25 per
common unit. Capital GP L.L.C.,
our general partner, participated
in both offerings. Further to our
equity financing, we entered into
a new senior secured credit facil-
ity of up to $225.0 million, led
by ING Bank N.V., from which we
utilized $75m for the acquisition
of the containers.
Following these acquisitions, we
believe that we have substan-
tially enhanced the cash flow
visibility of the Partnership.
Fleet Renewal with
Additional Earnings
Capacity
In November 2013, we sold
the M/T ‘Agamemnon II’, a
2008-built product tanker, and
acquired the M/T ‘Aristotelis’, an
eco-type, 2013 built, MR product
tanker. The acquisition of M/T
‘Aristotelis’ was funded with
proceeds from the sale of M/T
‘Agamemnon II’ and from our
cash balances. The Partnership
took delivery of the M/T ‘Aris-
totelis’ later that month, and
chartered it at a time charter
of $17,000 gross per day for 18
to 24 months, a premium rate
compared to other vessels in our
fleet.
INDUSTRY
OVERVIEW
OPERATIONAL
EXPERTISE
T he largest part of our fleet
operates in the MR product
tanker segment. In 2013,
U.S. product exports surged to
more than 3 million barrels per
day and overall product tanker
demand increased by 4.8%, thus
offering substantially higher
employment opportunities for
MR tankers compared to previ-
ous years. As a result, the product
tanker period market experienced
increased activity throughout
2013 and period rates rose to
the highest levels since July 2009.
The number of period fixtures for
product tankers in 2013 is esti-
mated to have reached their high-
est level on record.
For 2014, analysts expect prod-
uct tanker demand to increase by
4.7% on the back of stronger oil
demand, rising exports from the
U.S. Gulf and favorable changes
in the refinery landscape.
On the supply side, net fleet
growth for product tankers for
2014 is forecasted to be in the
region of 3.9%. In addition, the
MR orderbook seems to have sta-
bilized, with most product tanker
shipyard capacity until the mid-
dle of 2016 being accounted
for. We believe that the current
MR product tanker orderbook at
18.7% of the total fleet in combi-
nation with the demand funda-
mentals and the orderbook slip-
page should not affect the rising
trend of the spot and period char-
ter rates going forward.
Operationally, we continue
to perform at a consistently
high level, on par with the
expectations set forth by our
management and Board of Direc-
tors. Our vessels are operated
under a management agreement
with Capital Ship Management
Corp. (“CSM”), a subsidiary of our
sponsor, which provides safe,
efficient and cost-effective fleet
operation. CSM meets the high-
est standards in the health, safety
and environmental areas and it is
one of the few ship management
companies to have successfully
completed the exhaustive vetting
processes of numerous major oil
companies and traders.
In 2013,
U.S. product exports
surged to more than
3.000.000.000
barrels per day
and overall product
tanker demand
increased by
4.8%
M/T aias
M/T aVaX
LOOKING
AHEAD
Our staggered product tanker
employment strategy posi-
tions us well to capture an
improving product tanker rate
environment, as a number of our
product tanker charters expire
throughout 2014. Our Partner-
ship boasts liquidity, a strong bal-
ance sheet and has no newbuild-
ing commitments, which allows
us the opportunity to potentially
grow our unit distribution cover-
age through accretive acquisi-
tions in the product tanker and
container carrier markets.
We believe that the improved dis-
tribution coverage along with the
better tanker market fundamen-
tals and potential growth oppor-
tunities provide a solid base for a
potential upward revision of our
annual distribution guidance in
the future.
In summary, we look to 2014
with confidence. We would like
to take the opportunity to thank
you, our unit holders, our employ-
ees and clients for your ongoing
interest and support.
Personally, after 10 years with
the Sponsor, Capital Maritime,
and the Partnership, I am seek-
ing new challenges. Our Partner-
ship is well positioned for growth
with a solid balance sheet and I
believe it is now the right time to
make this transition, while I con-
tinue to serve the Partnership as
a non-executive director. I would
like to thank all my colleagues,
the Board, and our Chairman, Mr.
Evangelos Marinakis in particu-
lar, for their trust and support all
these years.
Ioannis E. Lazaridis
Chief Executive
& Chief Financial Officer,
Μay 5, 2014
M/T aMoRE Mio ii
5
FLEET LIST AND CHARTERERS
VESSEL NAME
AVAX
AIOLOS
ATLANTAS
AKTORAS
AIAS
AMOUREUX
AMORE MIO II
ARISTOTELIS
AXIOS
ATROTOS
APOSTOLOS
ASSOS
ANEMOS I
AKERAIOS
AGISILAOS
ARIONAS
ALKIVIADIS
ALEXANDROS II
ARISTOTELIS II
ARIS II
MILTIADIS M. II
AYRTON II
DWT
47,834
36,725
36,760
36,759
150,393
149,993
159,982
51,604
47,872
47,786
47,782
47,872
47,782
47,781
36,760
36,725
36,721
51,258
51,226
51,218
162,397
51,260
CHARTERER
YEAR BUILT
TYPE OF VESSEL
2007 - South Korea
Ice Class 1A IMO II/III Chem./Prod.
2007 - South Korea
Ice Class 1A IMO II/III Chem./Prod.
2006 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2006 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2008 - Japan
2008 - Japan
Crude oil Suezmax
Crude oil Suezmax
2001 - South Korea
Crude oil Suezmax
2013 - South Korea
ECO IMO II/III Chem./Prod.
2007 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2007 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2007 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2006 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2007 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2007 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2006 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2006 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2006 - South Korea
Ice Class 1A IMO II/III Chem.l/Prod.
2008 - South Korea
IMO II/III Chem./Prod.
2008 - South Korea
IMO II/III Chem./Prod.
2008 - South Korea
IMO II/III Chem./Prod.
2006 - South Korea
Crude oil Suezmax
2009 - South Korea
IMO II/III Chem./Prod.
CAPE AGAMEMNON
179,221
2010 - South Korea
Capesize dry cargo
AGAMEMNON
ARCHIMIDIS
HYUNDAI PREMIUM
HYUNDAI PARAMOUNT
HYUNDAI PRIVILEGE
HYUNDAI PRESTIGE
HYUNDAI PLATINUM
7,943
7,943
5,023
5,023
5,023
5,023
5,023
2007 - South Korea
2006 - South Korea
2013 - South Korea
2013 - South Korea
2013 - South Korea
2013 - South Korea
2013 - South Korea
Container Carrier
Container Carrier
Container Carrier
Container Carrier
Container Carrier
Container Carrier
Container Carrier
6
30 Vessels - 2.1mm DWT (~41k TEUs)
6.0 years Weighted average Fleet age
(Industry average age data from Clarksons as of March 2014 weighted for the composition of the CPLP fl eet)
STRONG CHARTER COVERAGE WITH ATTRACTIVE RATES
AND PROFIT SHARE ARRANGEMENTS
TYPE
VESSEL NAME
EXPIRY OF CURRENT CHARTERS
GROSS
RATE
PROFIT
SHARE
Jan 14
Jan 15
Jan 16
Dec 16
Dec 17
Dec 18
Dec 19
Dry Bulk
CAPE AGAMEMNON
Containership
HYUNDAI PREMIUM
Containership
HYUNDAI PRESTIGE
Containership
HYUNDAI PARAMOUNT
Containership
HYUNDAI PRIVILEGE
Containership
HYUNDAI PLATINUM
Product Tanker
ARIS II
Product Tanker
ARISTOTELIS II
Product Tanker
ALEXANDROS II
Product Tanker
Product Tanker
Product Tanker
Containership
Product Tanker
AIOLOS
ATLANTAS
AKTORAS
ARCHIMIDIS
AYRTON II
Containership
AGAMEMNON
Product Tanker
Product Tanker
ATROTOS
ASSOS
Product Tanker
ARISTOTELIS
Product Tanker
ANEMOS I
Crude Tanker
AIAS
Product Tanker
AKERAIOS
Product Tanker
APOSTOLOS
Crude Tanker
Product Tanker
Crude Tanker
Crude Tanker
AMOUREUX
ARIONAS
AMORE MIO II
MILTIADIS M II
Product Tanker
AVAX
Product Tanker
AGISILAOS
Product Tanker
Product Tanker
ALKIVIADIS
AXIOS
Weighted average remaining charter duration 8.7 years, as of March 2014
[1] Bareboat Charter
$42,200
$29,350
$29,350
$29,350
$29,350
$29,350
$6,250 [1]
$6,250 [1]
$6,250 [1]
$13,500 [1]
$6,750 [1]
$13,500 [1]
$34,000
$15,350
$34,000
$14,750
$14,750
$17,000
$14,850
$24,000
$14,950
$14,850
$24,000
$14,250
$17,000
$23,185
$14,750
$14,250
$14,250
$14,750
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
7
FLEET IN PROGRESS (DWT)
Product tanker
Crude tanker
Container vessel
Capesize bulk carrier
Quarter, year
DWT
Number of vessels
MILTIADIS M II
AMOUREUX
AIAS
AMORE MIO
CAPE AGAMEMNON
HYUNDAI PLATINUM
HYUNDAI PRIVLEDGE
HYUNDAI PRESTIGE
HYUNDAI PARAMOUNT
HYUNDAI PREMIUM
M/V AGAMEMNON
M/V ARCHIMIDIS
ARISTOTELIS
ASSOS
ALKIVIADIS
ARIS II
ARISTOTELIS II
ALEXANDROS II
ANEMOS I
APOSTOLOS
AKERAIOS
AYRTON II
ATROTOS*
AVAX
AXIOS
ARIONAS
AGISILAOS
AIOLOS
AKTORAS
ATLANTAS
ALEXANDER THE GREAT
ACHILLEAS
MILTIADIS M II
AMOUREUX
AIAS
AMORE MIO II
CAPE AGAMEMNON
ASSOS
ALKIVIADIS
ARIS II
ARISTOTELIS II
ARISTOFANIS
ALEXANDROS II
ANEMOS I
APOSTOLOS
AKERAIOS
AYRTON II
ATROTOS*
AMORE MIO II
ARIS II
ARISTOTELIS II
ARISTOFANIS
ALEXANDROS II
ANEMOS I
ATTIKOS
APOSTOLOS
AKERAIOS
AYRTON II
ATROTOS*
AGAMEMNON II
AGAMEMNON II
AVAX
AXIOS
ARIONAS
AGISILAOS
AIOLOS
AKTORAS
ATLANTAS
AVAX
AXIOS
ARIONAS
AGISILAOS
AIOLOS
AKTORAS
ATLANTAS
AMORE MIO II
ALEXANDROS II
ANEMOS I
ATTIKOS
APOSTOLOS
AKERAIOS
ATROTOS
ASSOS
AVAX
AXIOS
ARIONAS
AGISILAOS
AIOLOS
AKTORAS
ATLANTAS
ASSOS
AVAX
AXIOS
ARIONAS
AGISILAOS
AIOLOS
AKTORAS
ATLANTAS
IPO Fleet
327,307
8
Q1, 2008
741,678
15
Q1, 2010
910,748
19
Q1, 2012
2,221,166
26
Q4, 2013
2,136,307
30
M/T aXios
M/T capE agaMEMNoN
M/V hyuNdai pREsTigE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F (Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 or
■ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........................................ to ........................................ or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report: .......................................
Commission file number: 1-33373
CAPITAL PRODUCT PARTNERS L.P. (Exact name of Registrant as specified in its charter)
Republic of The Marshall Islands (Jurisdiction of incorporation or organization)
A: 3 Iassonos Street, Piraeus, 18537 Greece
T: +30 210 458 4950
(Address and telephone number of principal executive offices and company contact person)
Ioannis E. Lazaridis, i.lazaridis@capitalpplp.com
(Name and Email of company contact person)
Securities registered or to be registered pursuant
to Section 12(b) of the Act:
01. Title of each class Common units representing limited partnership interests
02. Name of each exchange on which registered Nasdaq Global Market
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the
annual report.
88,440,710 Common Units | 1,765,457 General Partner Units | 18,922,221 Class B Convertible Preferred Units
11
01. Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes
■ No
02. If this report is an annual or transition report, indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
■ No
03. Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
■ Yes
No
04. Indicate by check mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files.)
■ Yes
No
05. Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer” and
“large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
■ Accelerated filer
Non-accelerated filer
06. Indicate by check mark which basis of accounting the registrant has used to prepare
the financial statements included in this filing:
■ U.S. GAAP
International Financial Reporting Standards as issued by the International Accounting Standards Board
Other
07. If “Other” has been checked in response to the previous question, indicate by check mark
which financial statements item the registrant has elected to follow.
Item 17
Item 18
08. If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
■ No
12
CAPITAL PRODUCT PARTNERS L.P.
TABLE OF CONTENTS
Forward-Looking Statements............................................................................................................................................................................................................................................. 14
PART I
Item 1 Identity of Directors, Senior Management and Advisors................................................................................................................................................................. 16
Item 2 Offer Statistics and Expected Timetable.................................................................................................................................................................................................... 16
Item 3 Key Information........................................................................................................................................................................................................................................................ 16
Item 4 Information on the Partnership...................................................................................................................................................................................................................... 50
Item 4A Unresolved Staff Comments.......................................................................................................................................................................................................................... 69
Item 5 Operating and Financial Review and Prospects.................................................................................................................................................................................... 69
Item 6 Directors, Senior Management and Employees..................................................................................................................................................................................... 85
Item 7 Major Unitholders and Related-Party Transactions........................................................................................................................................................................... 90
Item 8 Financial Information............................................................................................................................................................................................................................................ 95
Item 9 The Offer and Listing............................................................................................................................................................................................................................................. 97
Item 10 Additional Information...................................................................................................................................................................................................................................... 98
Item 11 Quantitative and Qualitative Disclosures About Market Risk............................................................................................................................................... 107
Item 12 Description of Securities Other than Equity Securities.............................................................................................................................................................. 107
PART II
Item 13 Defaults, Dividend, Arrearages and Delinquencies....................................................................................................................................................................... 108
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds.......................................................................................................... 108
Item 15 Controls and Procedures................................................................................................................................................................................................................................ 108
Item 16A Audit Committee Financial Expert...................................................................................................................................................................................................... 110
Item 16B Code of Ethics................................................................................................................................................................................................................................................... 110
Item 16C Principal Accountant Fees and Services........................................................................................................................................................................................... 110
Item 16D Exemptions from the Listing Standards for Audit Committees........................................................................................................................................ 111
Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers...................................................................................................................... 111
Item 16F Change in Registrant’s Certifying Accountant............................................................................................................................................................................. 111
Item 16G Corporate Governance................................................................................................................................................................................................................................. 111
PART III
Item 17 Financial Statements....................................................................................................................................................................................................................................... 112
Item 18 Financial Statements....................................................................................................................................................................................................................................... 112
Item 19 Exhibits.................................................................................................................................................................................................................................................................... 113
Signatures.................................................................................................................................................................................................................................................................................... 117
13
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F (the “Annual Report”) should be read in conjunction with our audited consolidated financial
statements and accompanying notes included herein.
O ur disclosure and analysis in this Annual Report concerning our business, operations, cash flows, and financial position, including, in
particular, the likelihood of our success in developing and expanding our business, include forward-looking statements. In addition, we
and our representatives may from time to time make other oral or written statements which are also forward-looking statements. Such
statements include, in particular, statements about our plans, strategies, business prospects, changes and trends in our business, financial
condition and the markets in which we operate, and involve risks and uncertainties. In some cases, you can identify the forward-looking
statements by the use of words such as “may”, “could”, “should”, “would”, “expect”, “plan”, “anticipate”, “likely”, “intend”, “forecast”, “believe”,
“estimate”, “project”, “predict”, “propose”, “potential”, “continue”, “seek” or the negative of these terms or other comparable terminology. Although
these statements are based upon assumptions we believe to be reasonable based upon available information, including projections of rev-
enues, operating margins, earnings, cash flow, working capital and capital expenditures, they are subject to risks and uncertainties that are
described more fully in this Annual Report in “Item 3D: Risk Factors” below. These forward-looking statements represent our estimates and
assumptions only as of the date of this Annual Report and are not intended to give any assurance as to future results. As a result, you are
cautioned not to rely on any forward-looking statements. Forward-looking statements appear in a number of places in this Annual Report
and include statements with respect to, among other things:
• expectations of our ability to make cash distributions on our common units and the Class B Convertible Preferred Units (the “Class B
Units”), which rank senior to our common units and receive distributions prior to any distributions on our common units;
• our ability to increase our distributions over time;
• global economic outlook and growth;
• shipping conditions and fundamentals, including the balance of supply and demand in the tanker, drybulk and container markets in
which we operate, as well as trends and conditions in the newbuilding markets and scrapping of older vessels;
• increases in domestic or worldwide oil consumption;
• future supply of, and demand for, refined products and crude oil;
• future refined product and crude oil prices and production;
• our ability to operate in new markets, including the container carrier market;
• tanker, drybulk and container carrier industry trends, including charter rates and factors affecting the chartering of vessels;
• our future financial condition or results of operations and our future revenues and expenses, including revenues from profit sharing
arrangements and required levels of reserves;
• future levels of operating surplus and levels of distributions, as well as our future cash distribution policy;
• future charter hire rates and vessel values;
• anticipated future acquisition of vessels from Capital Maritime & Trading Corp. (“Capital Maritime” or “CMTC”) and from third parties;
• anticipated future chartering arrangements with Capital Maritime and third parties;
• our ability to leverage to our advantage Capital Maritime’s relationships and reputation in the shipping industry;
• our ability to compete successfully for future chartering and newbuilding opportunities;
• our current and future business and growth strategies and other plans and objectives for future operations;
• our ability to access debt, credit and equity markets;
• changes in the availability and costs of funding due to conditions in the bank market, capital markets and other factors;
• our ability to refinance our debt and/or achieve further postponement of any amortization of our debt if necessary under the current
terms of our credit facilities;
• the ability of our customers to meet their obligations under the terms of our charter agreements, including the timely payment of the
rates under the agreements;
• the financial viability and sustainability of our customers;
• changes in interest rates and any interest rate hedging practices in which we may engage;
• the debt amortization payments and repayment of debt and settling of interest rate swaps we may make, if any;
• the effectiveness of our risk management policies and procedures and the ability of counterparties to our derivative contracts to fulfill
their contractual obligations;
• our ability to maintain long-term relationships with major refined product importers and exporters, major crude oil companies and major
commodity traders;
14
• planned capital expenditures and availability of capital resources to fund capital expenditures;
• the ability of our manager, Capital Ship Management Corp., a subsidiary of Capital Maritime (“Capital Ship Management”), to qualify for
short- and long-term charter business with oil major charterers and oil traders;
• our ability to maximize the use of our vessels, including the redeployment or disposition of vessels no longer under long-term time charter;
• our continued ability to enter into long-term, fixed-rate time charters with our charterers and to recharter our vessels as their existing
charters expire at attractive rates;
• the changes to the regulatory requirements applicable to the oil transportation industry, including, without limitation, stricter require-
ments adopted by international organizations, such as the International Maritime Organization and the European Union, or by individual
countries or charterers and actions taken by regulatory authorities and governing such areas as safety and environmental compliance;
• the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards,
including with new environmental regulations and standards being introduced, as well as with standard regulations imposed by our
charterers applicable to our business;
• the impact of heightened regulations and the actions of regulators and other government authorities, including anti-corruption laws and
regulations, as well as sanctions and other governmental actions;
• our anticipated general and administrative expenses and our costs and expenses under the management agreements and the administra-
tive services agreement with our manager, and for reimbursement for fees and costs of Capital GP L.L.C., our general partner;
• increases in costs and expenses including but not limited to: crew wages, insurance, provisions, port expenses, lube oil, bunkers, repairs,
maintenance and general and administrative expenses;
• the adequacy of our insurance arrangements and our ability to obtain insurance and required certifications;
• the impact of the floating fee structure under which an increasing number of our vessels are managed on operating expenses;
• potential increases in costs and expenses under our management agreements following expiration and/or renewal of such agreements
in connection with certain of our vessels;
• the impact of heightened environmental and quality concerns of insurance underwriters and charterers;
• the anticipated taxation of our partnership and distributions to our common and Class B unitholders;
• estimated future maintenance and replacement capital expenditures;
• expected demand in the shipping sectors in which we operate in general and the demand for our crude oil and medium range vessels
in particular;
• the expected lifespan and condition of our vessels;
• our ability to employ and retain key employees;
• our track record, and past and future performance, in safety, environmental and regulatory matters;
• potential liability and costs due to environmental, safety and other incidents involving our vessels;
• the effects of increasing emphasis on environmental and safety concerns by customers, governments and others, as well as changes in
maritime regulations and standards;
• expected financial flexibility to pursue acquisitions and other expansion opportunities;
• anticipated funds for liquidity needs and the sufficiency of cash flows; and
• future sales of our units in the public market.
These and other forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and
beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties, including those risks discussed in “Item
3D: Risk Factors” below. The risks, uncertainties and assumptions involve known and unknown risks and are inherently subject to significant
uncertainties and contingencies, many of which are beyond our control. We caution that forward-looking statements are not guarantees and
that actual results could differ materially from those expressed or implied in the forward-looking statements.
Unless required by law, we expressly disclaim any obligation to update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from
time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our busi-
ness or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in
any forward-looking statement. You should carefully review and consider the various disclosures included in this Annual Report and in our
other filings made with the U.S. Securities and Exchange Commission (the “SEC”) that attempt to advise interested parties of the risks and
factors that may affect our business, prospects and results of operations.
15
PART I
PART I Item 1. Identity of Directors, Senior Management and Advisors (Not Applicable)
PART I Item 2. Offer Statistics and Expected Timetable (Not Applicable)
PART I Item 3. Key Information
A. SELECTED FINANCIAL DATA
W e have derived the following selected historical financial data for the three years ended December 31, 2013, and as of December 31,
2013 and 2012, from our audited consolidated financial statements as of and for the years ended December 31, 2013, 2012 and
2011 (the “Financial Statements”) respectively, appearing elsewhere in this Annual Report. The historical financial data presented
as of December 31, 2011, 2010 and 2009 and for the years ended December 31, 2010 and 2009 have been derived from audited financial
statements not included in this Annual Report and are provided for comparison purposes only. Our historical results are not necessarily
indicative of the results that may be expected in the future. Different factors affect our results of operations, including amongst others,
the number of vessels in our fleet, prevailing charter rates, management and administrative services fees, as well as financing and interest
swap arrangements we enter into. Consequently, the below table should be read together with, and is qualified in its entirety by reference
to, the Financial Statements and the accompanying notes included elsewhere in this Annual Report. The table should also be read together
with “Item 5A: Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Our Financial Statements are prepared in accordance with United States generally accepted accounting principles as described in Note 1
(Basis of Presentation and General Information) to the Financial Statements included herein. All numbers are in thousands of U.S. Dollars,
except numbers of units and earnings per unit.
16
Income Statement Data (in $)
Revenues
Revenues – related party
Total revenues
Expenses:
Voyage expenses (2)
Voyage expenses – related party (2)
Vessel operating expenses (3)
Vessel operating expenses—related party (3)
General and administrative expenses
Loss / (gain) on sale of vessels to third parties
Depreciation and amortization
Vessels’ impairment charge
Total operating expenses
Operating income
Gain from bargain purchase
Gain on sale of claim
Interest expense and finance costs
Gain on interest rate swap agreement
Interest and other income
Partnership’s net income / (loss)
Class B unit holders’ interest in our net income / (loss)
General partner’s interest in our net income / (loss)
Limited and subordinated unit holders’interest in our net income / (loss)
Net income / (loss) allocable to limited partner per (4):
Common unit basic
Subordinated unit basic
Total unit basic
Common unit diluted
Subordinated unit diluted
Total unit diluted
Weighted–average units outstanding basic:
Common units
Subordinated units
Total units
Weighted–average units outstanding diluted
Common units
Subordinated units
Total units
Balance Sheet Data (at end of period)
Vessels, net and under construction (10) (11) (16)
Total assets
1
3
R
E
B
M
E
C
E
D
D
E
D
N
E
R
A
E
Y
2013
116,520
54,974
171,494
5,776
314
38,284
17,039
9,477
7,073
52,208
–
2012
84,012
69,938
2011
98,517
31,799
153,950
130,316
2010 (1)
113,562
11,030
124,592
2009 (1)
134,519
–
134,519
5,114
554
22,126
23,634
9,159
(1,296)
48,235
43,178
11,565
165
4,949
30,516
10,609
–
37,214
–
95,018
35,298
82,453
–
7,009
–
1,034
30,261
3,506
–
31,464
–
73,274
51,318
–
–
3,993
–
2,204
30,830
2,876
–
30,685
–
70,588
63,931
–
–
130,171
150,704
41,323
42,256
31,356
3,246
–
–
(15,991)
(26,658)
(33,820)
(33,259)
(32,675)
4
533
99,481
18,805
1,598
79,078
1.04
–
1.04
1.01
–
1.01
1,448
775
(21,189)
10,809
(640)
(31,358)
(0.46)
–
(0.46)
(0.46)
–
(0.46)
2,310
879
87,120
–
1,742
85,378
1.78
–
1.78
1.78
–
1.78
–
860
18,919
–
359
–
1,460
32,716
–
584
17,577
28,641
0.54
–
0.54
0.54
–
0.54
1.15
1.17
1.15
1.15
1.17
1.15
75,645,207
68,256,072
47,138,336
32,437,314
23,755,663
–
–
–
–
1,061,488
75,645,207
68,256,072
47,138,336
32,437,314
24,817,151
97,369,136
68,256,072
47,138,336
32,437,314
23,755,663
–
–
–
–
1,061,488
97,369,136
68,256,072
47,138,336
32,437,314
24,817,151
1,176,819
959,550
1,073,986
1,401,772
1,070,128
1,196,289
707,339
758,252
239,760
703,707
760,928
188,352
Total partners’ capital / stockholders’ equity (6-9) (12-15)
781,426
573,828
517,326
Number of units
Common units
Class B units
Subordinated units (5)
General Partner units
Dividends declared per common and subordinated unit
Dividends declared per class B unit
Cash Flow Data
Net cash provided by operating activities
Net cash (used in) / provided by investing activities
Net cash provided by / (used in) financing activities
109,128,388
86,343,388
70,787,834
38,720,594
25,323,623
88,440,710
69,372,077
69,372,077
37,946,183
24,817,151
18,922,221
15,555,554
–
–
–
–
–
–
–
–
1,765,457
1,415,757
1,415,757
774,411
506,472
0.93
0.86
0.93
0.48
129,576
(335,346)
226,191
84,798
15,935
(110,552)
0.93
–
56,539
(16,656)
(18,984)
1.09
–
50,051
(79,202)
58,070
2.27
–
72,562
(55,770)
(56,389)
(01) The results of operations for the vessels set out below are
included in our income statements for the periods prior to their
acquisitions by us, as described below, as these vessels were
acquired from an entity under common control. However, such
earnings for the periods prior to their acquisitions were not
allocated to our unitholders and were not included in the cash
available for distribution calculation. Specifically, we refer to
the amount of historical earnings per unit for:
(a) the period from January 1, 2009 to April 6, 2009 and April 12,
2009 for the M/T Agamemnon II, and M/T Ayrton II respectively;
(b) the year ended December 31, 2009 and for the period from
January 1, 2010 to June 29, 2010 for the M/T Alkiviadis; and
(c) the period from April 13, 2009 to December 31, 2009 and
from January 1, 2010 to February 28, 2010 for the M/T Atrotos.
(02) Vessel voyage expenses primarily consist of commissions, port
expenses, canal dues and bunkers.
(03) Our vessel operating expenses have consisted of management
fees payable to Capital Ship Management, our manager, pursu-
ant to the terms of our three separate management agreements
and actual operating expenses such as crewing, repairs and
maintenance, insurance, stores, spares, lubricants and other
operating expenses incurred by our vessels.
(04) On January 1, 2009, we adopted accounting guidance newly
available at the time relating to the Application of the Two-
Class Method and its application to Master Limited Partnerships
which considers whether the incentive distributions of a master
limited partnership represent a participating security when
considered in the calculation of earnings per unit under the
Two-Class Method. This guidance also considers whether our
Second Amended and Restated Agreement of Limited Partner-
ship, as amended (the “partnership agreement”) contains any
contractual limitations concerning distributions to the incentive
distribution rights that would impact the amount of earnings to
allocate to the incentive distribution rights for each reporting
period. According to the two class method, the portion of net
income allocated to nonvested shares reduces the net income
available to common unitholders.
(05) Following the early termination of the subordination period
on February 14, 2009, all of our 8,805,522 subordinated units
converted into common units on a one-for-one basis.
(06) In February and August 2010, we completed two equity offer-
ings of 6,281,578 and 6,052,254 common units, which include
the partial exercise of the underwriters’ overallotment option
of 481,578 and 552,254 common units, respectively. During
the same periods we issued, in exchange for cash, 128,195
and 123,515 general partner units, respectively, to our general
partner in order for it to maintain its 2% interest in us.
(07) On August 31, 2010, we issued, either directly or through our
general partner, 795,200 restricted units to the members of our
board of directors, to all employees of our general partner, our
manager, Capital Maritime and certain key affiliates and other
eligible persons. Please read “Item 6E: Share Ownership—Omni-
bus Incentive Compensation Plan” and Note 14 (Omnibus Incen-
tive Compensation Plan) to our Financial Statements included
herein for additional information.
(08) On June 9, 2011, we completed the acquisition of Patroklos
Marine Corp., the vessel owning company of the M/V Cape
Agamemnon, from Capital Maritime. The acquisition was
funded through $1.5 million from available cash and the incur-
rence of $25.0 million of debt under a new credit facility entered
into in 2011 (as amended, the “2011 credit facility”) and the
remainder through the issuance of 6,958,000 common units
to Capital Maritime. On September 30, 2011 we completed a
merger with Crude Carriers Corp., a company incorporated in
2009 under the laws of The Marshall Islands, (“Crude Carriers”
or “Crude”) in a unit-for-share transaction. The exchange ratio
was 1.56 of our common units for each Crude Carriers share.
(09) In accordance with certain subscription agreements entered into
on May 11 and June 6, 2012, we issued a total of 15,555,554
Class B units to a group of investors, including Capital Maritime,
and received net proceeds of $136.4 million, which, together
with an amount of $13.2 million from our available cash, were
used to prepay bank debt of $149.6 million.
(10) During the first half of 2012, we sold the M/T Attikos and the
M/T Aristofanis, the two small tankers in our fleet, to unrelated
third parties. The proceeds from these sales plus cash were used
to repay bank debt of $20.5 million.
(11) On December 22, 2012, we acquired all of Capital Maritime’s
interest in its wholly owned subsidiaries that owned the two
7,943 twenty foot equivalent (“TEU”) container carrier vessels
M/V Archimidis and M/V Agamemnon, in exchange for all of our
interest in our wholly owned subsidiaries that owned the two
Very Large Crude Carriers (“VLCC”) M/T Alexander the Great and
M/T Achilleas. Capital Maritime paid a total net consideration of
$0.3 million in connection with this transaction and has waived
any compensation for the early termination of the charters of
the two VLCCs. In view of this transaction we repaid $5.2 million
in debt. As a consequence of this exchange we recognized an
impairment charge of $43.2 million in our consolidated state-
ments of comprehensive income / (loss) which was the result of
the difference between the carrying and the fair market value
of the M/T Alexander the Great and M/T Achilleas on the date
of the exchange.
(12) In accordance with a subscription agreement entered into on
March 15, 2013, we issued a total of 9,100,000 Class B units to
a group of investors, including Capital Maritime, and received
net proceeds of $72.6 million, which, together with a $54.0 mil-
lion draw down from our existing $350.0 million credit facility
entered into in 2008 (as amended, the “2008 credit facility”) and
an amount of $3.4 million from our available cash, were used
to acquire the shares of two separate vessel owning companies,
each of which owns a 5,000 TEU high specification container
vessel, built in 2013, from Capital Maritime at a price of $65.0
million each.
(13) In August 2013, we completed an equity offering of 13,685,000
common units, which included the full exercise of the underwrit-
ers’ overallotment option of 1,785,000 common units, receiv-
ing net proceeds of $119.8 million after deducting expenses
related to the offering. The net proceeds together with a draw
down of $75.0 million from our new term loan facility of up to
$225.0 million we entered into during 2013 (as amended, the
“2013 credit facility”), and together with $0.2 million from our
available cash were used to fund the acquisition cost of three
separate vessel owning companies each of which owned a 5,000
TEU high specification container vessel, built in 2013, from
Capital Maritime at a price of $65.0 million each.
18
(14) In August 2013, we issued 349,700 general partner units to our
general partner in exchange for a capital contribution of 349,700
common units, in order for it to maintain its 2% interest in us.
(15) In July, August, October and December 2013, certain holders
of our Class B Units converted 5,733,333 Class B Units into
common units in accordance with the terms of the partnership
agreement.
(16) In November 2013, we sold the M/T Agamemnon II (51,238 dwt
IMO II/III Chemical Product Tanker built 2008, STX Shipbuild-
ing & Offshore, S. Korea) at a price of $33.5 million to unaffiliated
third parties. Furthermore in November 2013, we acquired an
eco-type MR product tanker the M/T Aristotelis (51,604 dwt
IMO II/III Chemical Product Tanker built 2013, Hyundai Mipo
Dockyard Ltd, S. Korea). The acquisition price of $38.0 million
was funded from the selling proceeds of the M/T Agamemnon
II and from Capital Product Partners L.P.’s (the “Partnership” or
“CPLP”) available cash. The M/T Aristotelis replaced the M/T
Agamemnon II as a security under the Partnership’s credit facil-
ity entered into in 2007 of $370.0 million (as amended, the
“2007 credit facility”).
Please read “Item 4A: History and Development of the Partnership—2013 Developments” and Note 3 (Acquisitions), Note 5 (Vessels),
Note 7 (Long Term Debt), and Note 13 (Partners’ Capital) to our Financial Statements included herein for additional information.
B. CAPITALIZATION AND INDEBTEDNESS (Not applicable)
C. REASONS FOR THE OFFER AND USE OF PROCEEDS (Not applicable)
D. RISK FACTORS
An investment in our securities involves a high degree of risk. Some of the following risks relate principally to the countries and the industry
in which we operate and the nature of our business in general. Although many of our business risks are comparable to those of a corpora-
tion engaged in a similar business would face, limited partner interests are inherently different from the capital stock of a corporation. In
particular, if any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely
affected. In that case, we might not be able to pay distributions on our common units or Class B Units, the trading price of our common units
could decline and you could lose all or part of your investment.
RISKS RELATING TO THE TANKER INDUSTRY
Global economic conditions may have a material adverse effect on our ability to pay distributions as well as on our business,
financial position, distributions and results of operations, and, along with changes in the oil markets, could result in decreased
demand for our vessels and services, and could materially affect our ability to recharter our vessels at favorable rates.
Oil has been one of the world’s primary energy sources for a number of decades. The global economic growth of previous years had
a significant impact on the demand for oil and subsequently on the oil trade and shipping demand. However, the past five years
were marked by a major economic slowdown which has had, and continues to have, a significant impact on world trade, including
the oil trade. Global economic conditions remain fragile with significant uncertainty remaining with respect to recovery prospects, levels
of recovery and long-term economic growth effects. In particular, the uncertainty surrounding the future of the Euro zone, the economic
prospects of the United States and the future economic growth of China, Brazil, Russia, India and other emerging markets are all expected to
affect demand for product and crude tankers going forward. Demand for oil and refined petroleum products remains weak as a result of the
weak global economic environment, which in combination with the diminished availability of trade credit and deteriorating international
liquidity conditions, led to decreased demand for tanker vessels, creating downward pressure on charter rates. This economic downturn has
also affected vessel values overall. Despite global oil demand growth remaining marginally positive for 2013, charter rates for product and
crude tankers remained, and continue to be, at historically low levels. Continuing positive oil demand growth is expected to come primarily
from emerging markets which have been historically volatile, such as China and India, and a slowdown in these countries’ economies may
severely affect global oil demand growth, and may result in protracted, reduced consumption of oil products and a decreased demand for
our vessels and lower charter rates, which could have a material adverse effect on our business, results of operations, cash flows, financial
condition and ability to make cash distributions.
If these global economic conditions persist we may not be able to operate our vessels profitably or employ our vessels at favorable charter
rates as they come up for rechartering. In the long term, oil demand may also be reduced by an increased reliance on alternative energy
sources and/or a drive for increased efficiency in the use of oil as a result of environmental concerns or high oil prices. Furthermore, a
significant decrease in the market value of our vessels may cause us to recognize losses if any of our vessels are sold or if their values are
impaired, and may affect our ability to comply with our loan covenants. A deterioration of the current economic and market conditions
or a negative change in global economic conditions or the product or crude tanker markets would be expected to have a material adverse
effect on our business, financial position, results of operations and ability to make cash distributions and comply with our loan covenants,
as well as our future prospects and ability to grow our fleet.
19
Charter rates for tanker vessels are highly volatile and are currently near historically low levels and may further decrease
in the future, which may adversely affect our earnings and our ability to make cash distributions, as we may not be able to
recharter our vessels or we may not be able to recharter them at competitive rates.
The shipping industry is cyclical, which may result in volatility in charter hire rates and vessel values. We may not be able to successfully
charter our vessels in the future or renew existing charters at the same or similar rates. Charter hires are currently near historically low
levels and may further decrease in the future, which may adversely affect our earnings as we may not be able to recharter our vessels for
period charters at competitive rates or at all. We are particularly exposed to the fundamentals of the product and crude tanker markets as
the majority of the vessels in our fleet are tankers and all the period charters scheduled to expire over the next 12 month period relate to
tanker vessels. We may only be able to recharter these vessels at reduced or unprofitable rates as their current charters expire, or we may not
be able to recharter these vessels at all. In the event the current low rate environment continues and charterers do not display an increased
interest in chartering vessels for longer periods at improved rates, we may not be able to obtain competitive rates for our vessels and our
earnings and distributions may be adversely affected. Even if we manage to successfully charter our vessels in the future, our charterers may
go bankrupt or fail to perform their obligations under the charter agreements, they may delay payments or suspend payments altogether,
they may terminate the charter agreements prior to the agreed-upon expiration date or they may attempt to renegotiate the terms of the
charters. If we are required to enter into a charter when charter hire rates are low, our results of operations and our ability to make cash
distributions to our unitholders could be adversely affected.
Alternatively, we may have to deploy these vessels in the spot market, which, although common in the tanker industry, is cyclical and highly
volatile, with rates fluctuating significantly based upon demand for oil and oil products and tanker supply, amongst others. In the past, the
spot market has also experienced periods when spot rates have declined below the operating cost of vessels and currently charter rates in the
spot market are also close to historical lows. The successful operation of our vessels in the spot market depends upon, among other things,
obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to
pick up cargo. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods
in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
The demand for period charters may not increase and the tanker charter market may not significantly recover over the next several months or
may decline further. The occurrence of any of these events could have a material adverse effect on our business, results of operations, cash flows,
financial condition and ability to meet our obligations and to make cash distributions. In addition, the market value and charter hire rates of
product and crude oil tankers can fluctuate substantially over time due to a number of different factors outside of our control, including:
• the supply for oil and oil products which is influenced by, amongst others:
(a) international economic activity;
(b) geographic changes in oil production, processing and consumption;
(c) oil price levels;
(d) inventory policies of the major oil and oil trading companies;
(e) competition from alternative sources of energy; and
(f) strategic inventory policies of countries such as the United States, China and India.
• the demand for oil and oil products;
• regional availability of refining capacity;
• prevailing economic conditions in the market in which the vessel trades;
• availability of credit to charterers and traders in order to finance expenses associated with the relevant trades;
• regulatory change;
• lower levels of demand for the seaborne transportation of refined products and crude oil;
• increases in the supply of vessel capacity; and
• the cost of retrofitting or modifying existing ships, as a result of technological advances in vessel design or equipment, changes in appli-
cable environmental or other regulations or standards, or otherwise.
The market value of vessels is influenced by the ability of buyers to access bank finance and equity capital and any disruptions to the
market and the possible lack of adequate available finance may negatively affect such market values. If we sell a vessel at a time when
the market value of our vessels has fallen, the sale may be at less than the vessel’s carrying amount, resulting in a loss. In addition, a
decrease in the future charter rate and/or market value of our vessels could potentially result in an impairment charge. A decline in the
market value of our vessels could also lead to a default under any prospective credit facility to which we become a party, affect our ability
to refinance our existing credit facilities and/or limit our ability to obtain additional financing.
Increasing self-sufficiency in energy by the United States could lead to a decrease in imports of oil to that country, which to
date has been one of the largest importers of oil worldwide.
The United States is expected to overtake Saudi Arabia as the world’s top oil producer by 2017, according to an annual long-term report
by the International Energy Agency (“IEA”). The steep rise in shale oil and gas production is expected to push the country toward self-
20
sufficiency in energy. In recent years the share of total U.S. consumption met by total liquid fuel net imports, including both crude oil and
products, has been decreasing since peaking at over 60% in 2005 and it is estimated that it fell at around 33% in 2013 as a result of lower
consumption and the substantial increase in domestic crude oil production. The IEA expects the net import share to decline to 24% in
2015, which would be the lowest level since 1970. A slowdown in oil imports to the United States, one of the most important oil trading
nations worldwide, may result in decreased demand for our vessels and lower charter rates, which could have a material adverse effect on
our business, results of operations, cash flows, financial condition and ability to make cash distributions.
An oversupply of tanker vessel capacity may lead to reductions in charter hire rates, vessel values and profitability.
The market supply of tankers is affected by a number of factors such as demand for energy resources and primarily oil and petroleum products,
level of charter hire rates, asset and newbuilding prices, availability of financing as well as overall economic growth in parts of the world economy,
including Asia, and has been increasing as a result of the delivery of substantial newbuilding orders over the last few years. Newbuildings, especially
for crude vessels, were delivered in significant numbers starting at the beginning of 2006 and continued to be delivered in significant numbers
through to 2012 and 2013. In addition, it is estimated by Clarkson Research Services Limited that the newbuilding order book, which extends to
2017 equals approximately 12.3% of the existing world tanker fleet and the order book may increase further in proportion to the existing fleet. If
the capacity of new ships delivered exceeds the capacity of tankers being scrapped and lost, tanker capacity will increase. If the supply of tanker
capacity increases and if the demand for tanker capacity does not increase correspondingly, charter rates and vessel values could materially
decline. If such a reduction occurs, we may only be able to recharter our vessels at reduced or unprofitable rates as their current charters expire,
or we may not be able to charter these vessels at all. A reduction in charter rates and the value of our vessels may have a material adverse effect
on our business, results of operations, cash flows, financial condition and ability to make cash distributions.
A number of third party owners have ordered so-called “eco-type” vessel designs, which offer substantial bunkers savings as
compared to older designs. Increased demand for and supply of “eco-type” vessels could reduce demand for our vessels and
expose us to lower vessel utilization and/or decreased charter rates.
The product tanker newbuilding order book as of January 2014 is estimated at 353 vessels or 18.6% of the current product tanker fleet
according to Clarksons Research Services Limited. The majority of these orders are based on new vessel designs, which purport to offer
material bunker savings compared to older designs, which include our vessels. Such savings could result in a substantial reduction of bun-
ker cost for charterers compared to our vessels. As the supply of such “eco-type” vessel increases and if charterers prefer such vessels over
our vessels, this may reduce demand for our vessels, impair our ability to recharter our vessels at competitive rates and have a material
adverse effect on our cash flows and operations.
RISKS INHERENT IN THE DRYBULK TRADE
We are exposed to various risks in the international drybulk shipping industry, which is cyclical and volatile.
S ince our acquisition of the M/V Cape Agamemnon from Capital Maritime on June 10, 2011, we have been subject to various risks of the
drybulk shipping industry. The drybulk shipping industry is cyclical with attendant volatility in charter rates, vessel values and profit-
ability. In addition, the degree of charter hire rate volatility among different types of drybulk carriers has varied widely. After reaching
historical highs in mid-2008, charter hire rates for Capesize drybulk carriers such as the M/V Cape Agamemnon have been decreasing and are
currently at or, near historical low levels. The M/V Cape Agamemnon is currently deployed on a period time charter. In the future we may have
to charter it pursuant to short-term time charters, and may be exposed to changes in spot market and short-term charter rates for drybulk
carriers, and such changes may affect our earnings and the value of the M/V Cape Agamemnon at any given time.
Moreover, the factors affecting the supply and demand for drybulk vessels are outside of our control and are difficult to predict with con-
fidence. As a result, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.
Factors that influence demand for vessel capacity include, among others:
• supply and demand for drybulk products;
• changes in global production of products transported by drybulk vessels;
• seaborne and other transportation patterns, including the distances over which drybulk cargoes are transported and changes in such
patterns and distances;
• the globalization of manufacturing;
• global and regional economic and political conditions;
• developments in international trade;
• environmental and other regulatory developments;
• currency exchange rates; and
• weather.
21
Factors that influence the supply of vessel capacity include, among others:
• the number of newbuild deliveries, which among other factors relates to the ability of shipyards to deliver newbuilds by contracted
delivery dates and the ability of purchasers to finance such newbuilds;
• the scrapping rate of older vessels;
• the number of vessels that are in or out of service, including due to vessel casualties;
• changes in environmental and other regulations and standards that may limit the profitability or useful lives of vessels; and
• port and canal congestion and closures.
We currently anticipate that the future demand for the M/V Cape Agamemnon following completion of its charter and, in turn, drybulk
charter rates, will be dependent, among other things, upon economic growth in the global economy including the world’s developing
economies such as China, India, Brazil and Russia, seasonal and regional changes in demand, changes in the capacity of the global dry-
bulk vessel fleet and the sources and supply of drybulk cargo to be transported by sea. A decline in demand for commodities transported
in drybulk vessels or an increase in supply of drybulk vessels could cause a significant decline in charter rates, which could materially
adversely affect our business, financial condition and results of operations.
The M/V Cape Agamemnon is currently chartered at rates that are at a substantial premium to the spot and period market,
and the loss of this charter could result in a significant loss of expected future revenues and cash flows.
The M/V Cape Agamemnon is currently under a 10 year time charter to Cosco Bulk Carrier Co. Ltd. (“Cosco”), an affiliate of the China Ocean
Shipping (Group) Company (“COSCO Group”) and one of the largest drybulk charterers globally, which commenced in July 2010 and was
amended in November 2011. The earliest expiry under the charter is June 2020. Since the charter amendment in November 2011, the
gross charter rate is a flat rate of $42,200 per day.
Cosco has faced financial difficulties and has incurred losses recently. The loss of this customer could result in a significant loss of revenues,
cash flow and our ability to maintain or improve distributions over the long term. We could lose this customer or the benefits of the charter
entered into with it if, among other things:
• the customer is unable or unwilling to perform its obligations under the charter, including the payment of the agreed rates in a timely manner;
• the customer continues to face financial difficulties forcing it to declare bankruptcy or to default under the charter;
• the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
• the customer seeks to renegotiate the terms of the charter agreement due to prevailing economic and market conditions or due to con-
tinued poor performance by the charterer;
• the customer exercises certain rights to terminate the charter;
• the customer terminates the charter because we fail to comply with the terms of the charter, the vessel is lost or damaged beyond repair,
there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter;
• a prolonged force majeure event affecting the customer, including war or political unrest prevents us from performing services for that
customer; or
• the customer terminates the charter because we fail to comply with the safety and regulatory criteria of the charterer or the rules and
regulations of various maritime organizations and bodies.
In the event we lose the benefit of the charter with Cosco prior to its expiration date, we would have to recharter the vessel at the then
prevailing charter rates. In such event, we may not be able to obtain competitive, or profitable, rates for this vessel and our earnings and
ability to make cash distributions may be adversely affected.
A negative change in the economic conditions in the United States, the European Union or the Asian region, especially in China,
Japan or India, could reduce drybulk trade and demand, which could reduce charter rates and have a material adverse effect
on our business, financial condition and results of operations.
A significant number of the port calls made by capesize bulk carriers involve the loading or discharging of raw materials in ports in the
Asian region, particularly China, Japan and India. As a result, a negative change in economic conditions in any Asian country, particularly
China, Japan or India, could have a material adverse effect on our business, financial position and results of operations, as well as our
future prospects, by reducing demand and, as a result, charter rates and affecting our ability to recharter the M/V Cape Agamemnon at a
profitable rate. In past years, China and India have had two of the world’s fastest growing economies in terms of gross domestic product
and have been the main driving force behind increases in marine drybulk trade and the demand for drybulk vessels. If economic growth
declines in China, Japan, India and other countries in the Asian region, we may face decreases in such drybulk trade and demand. Moreover,
a slowdown in the United States and Japanese economies, or the economies of the European Union, as has occurred recently, or certain
Asian countries will likely adversely affect economic growth in China, India and elsewhere. Such an economic downturn in any of these
countries could have a material adverse effect on our business, financial condition and results of operations.
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An oversupply of drybulk vessel capacity may lead to reductions in charter hire rates, vessel values and profitability.
The market supply of drybulk vessels has been increasing, and the number of drybulk vessels on order as of January 2014, was estimated
by market sources to be approximately 20.7% of the then-existing global drybulk fleet in terms of dwt, with deliveries expected mainly
during the succeeding 24 months, although available data with regard to cancellations of existing newbuild orders or delays of newbuild
deliveries are not always accurate.
Despite increased demolition of older drybulk vessels in 2011–2013, the drybulk fleet continues to grow at a rapid pace. An oversupply
of drybulk vessel capacity will likely result in a reduction of charter hire rates. Upon the expiration of its current period time charter in
June 2020, if we cannot enter into a new period time charter for the M/V Cape Agamemnon on acceptable terms, we may have to secure
charters in the spot market, where charter rates are more volatile and revenues are, therefore, less predictable, or we may not be able to
charter the vessel at all.
The international drybulk shipping industry is highly competitive, and with only one drybulk vessel in our fleet, we may not
be able to compete successfully for charters with established companies with greater resources, and we may not be able to
successfully operate the vessel.
We have historically owned tanker vessels and have been active in the tanker market only. We employ the M/V Cape Agamemnon in the
highly competitive drybulk market. The drybulk market is capital intensive and highly fragmented. Competition arises primarily from
other vessel owners, some of which have substantially greater resources than we have or will have. Competition for the transportation of
drybulk cargo by sea is intense and depends on price, customer relationships, operating expertise, professional reputation and size, age,
location and condition of the vessel. In this highly fragmented market, companies operating larger fleets as well as additional competitors
with greater resources may be able to offer lower charter rates than we are able to offer, which could have a material adverse effect on our
ability to utilize the M/V Cape Agamemnon and, accordingly, its profitability.
The operation of drybulk vessels has certain unique operational risks, and failure to adequately maintain the M/V Cape Agam-
emnon could have a material adverse effect on our business, financial condition and results of operations.
The M/V Cape Agamemnon is the only drybulk vessel in our fleet. With a drybulk vessel, the cargo itself and its interaction with the vessel
may create operational risks. By their nature, drybulk cargoes are often heavy, dense and easily shifted, and they may react badly to water
exposure. In addition, drybulk vessels are often subjected to battering treatment during unloading operations with grabs, jackhammers
(to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to
treatment during unloading procedures may be more susceptible to breach while at sea. Breaches of a drybulk vessel’s hull may lead to
the flooding of the vessel’s holds. If a drybulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and water-
logged that its pressure may buckle the vessel’s bulkheads, leading to the loss of a vessel. If we or Capital Maritime, as manager, do not
adequately maintain the M/V Cape Agamemnon, we may be unable to prevent these events. The occurrence of any of these events could
have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATING TO THE CONTAINER CARRIER TRADE
We are exposed to various risks in the ocean-going container shipping industry, which is cyclical and volatile in terms of
charter rates and profitability.
W ith the exception of the M/V Cape Agamemnon, we have historically owned tanker vessels and have been active in the tanker
market only. Since December 2012, we have acquired seven container vessels from Capital Maritime, and have become subject
to various risks of the container shipping industry. We employ these seven vessels in the container shipping market in which we
had limited experience prior to 2010. The ocean-going container shipping industry is both cyclical and volatile in terms of charter rates
and profitability and demand for our vessels depends on demand for the shipment of cargoes in containers and, in turn, containerships.
Containership charter rates peaked in 2005 but have declined sharply and have remained low throughout 2013, as the impact of the
European sovereign debt crisis and economic slowdown across the globe have affected international trade including exports from China
to Europe and the United States, and have been subject to downward fluctuations, which in many cases have resulted in historical lows.
Liner companies have experienced a substantial drop-off in container shipping activity, resulting in decreased average freight rates since
the second half of 2011, and the continuation of such decreased freight rates or any further declines in freight rates would negatively
affect the liner companies to which we charter our containerships. Variations in containership charter rates result from changes in the
supply and demand for ship capacity and changes in the supply and demand for the major products transported by containerships. The
economics of the container business have also been affected negatively by the large number of containership newbuild vessels ordered
prior to the onset of the downturn. Accordingly, weak conditions in the containership sector may affect our ability to generate cash flows
and maintain liquidity, as well as adversely affect our ability to obtain financing.
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The factors affecting the supply and demand for containerships are outside of our control, and the nature, timing and degree of changes
in industry conditions are unpredictable and include supply and demand for products shipped in containers, changes in global production
of products transported by containerships, global and regional economic and political conditions, developments in international trade,
environmental and other regulatory developments, the distance container cargo products are to be moved by sea, changes in seaborne
and other transportation patterns, port and canal congestion and currency exchange rates, number and price of newbuilding deliveries,
availability of shipyard capacity and scrapping rate of older vessels as well as the overall number of containerships that are out of service.
Consumer confidence and consumer spending remain relatively weak and uncertain. Consumer purchases of discretionary items, many
of which are transported by sea in containers, generally decline during periods where disposable income is adversely affected or there is
economic uncertainty and, as a result, liner company customers may ship fewer containers or may ship containers only at reduced rates.
Any such decrease in shipping volume could adversely impact liner companies and increasing the counterparty risk associated with the
charters for our vessels and, in turn, affect overall demand for containerships.
Our ability to recharter our containerships upon the expiration or termination of their current time charters and the charter rates payable
under any renewal options or replacement time charters will depend upon, among other things, the prevailing state of the containership
charter market, which can be affected by consumer demand for products shipped in containers. If the charter market is depressed when
our containerships’ time charters expire, we may be forced to recharter our containerships at reduced or even unprofitable rates, or we
may not be able to recharter them at all, which may reduce or eliminate our earnings or make our earnings volatile. The same issues will
be faced if we acquire additional vessels and attempt to obtain multi-year time charters as part of our acquisition and financing plan.
The decline in the containership market has affected the major liner companies and the value of container vessels, which follow the trends
of freight rates and containership charter rates, and can affect the earnings on our charters, and similarly, our cash flows and liquidity.
The decline in the containership charter market has had and may continue to have additional adverse consequences for the container
industry including, a less active secondhand market for the sale of vessels, charterers not performing under, or requesting modifications
of, existing time charters. A further downturn in the container shipping industry could adversely affect our ability to pay distributions to
our unitholders and affect our results of operations and financial condition.
The factors affecting the supply and demand for containerships and supply and demand for products shipped in containers are outside of
our control and are difficult to predict with confidence. As a result, the nature, timing, direction and degree of changes in industry condi-
tions are unpredictable.
Factors that influence demand for containership capacity include, among others:
• supply and demand for products suitable for shipping in containers;
• changes in global production of products transported by containerships;
• seaborne and other transportation patterns, including the distances over which container cargoes are transported and changes in such
patterns and distances;
• the globalization of manufacturing;
• global and regional economic and political conditions;
• developments in international trade;
• environmental and other regulatory developments;
• currency exchange rates; and
• weather.
Factors that influence the supply of containership capacity include, among others:
• the number of newbuilding orders and deliveries;
• the extent of newbuilding vessel deferrals;
• the scrapping rate of containerships;
• newbuilding prices and containership owner access to capital to finance the construction of newbuildings;
• charter rates and the price of steel and other raw materials;
• changes in environmental and other regulations and standards that may limit the useful life of containerships;
• the number of containerships that are slow-steaming or extra slow-steaming to conserve fuel;
• the number of containerships that are off-charter;
• port and canal congestion and closures; and
• demand for fleet renewal.
An oversupply of containership capacity may prolong or further depress the current charter rates and adversely affect our
ability to recharter our existing containerships at profitable rates or at all.
From 2005 through the first quarter of 2010, the size of the containership order-book was at historically high levels. Although order-book
volume dropped during 2011 to relatively low levels compared to previous years, the order-book is still at almost 20% of the existing
fleet and deliveries of vessels ordered will significantly increase the size of the container fleet over the next two years. Additionally, a
24
substantial number of container vessels are currently idle and the potential reactivation of the idle fleet may result in a prolonged period
of lower charter rates or in a reduction of charter rates. An oversupply of newbuilding vessels and/or rechartered or idle containership
capacity entering the market, combined with any future decline in the demand for containerships, may result in a reduction of charter
rates and may decrease our ability to recharter our containerships other than for reduced rates or unprofitable rates, or we may not be able
to recharter our containerships at all.
We are dependent on our charterers fulfilling their obligations under their agreements with us, and their inability or unwill-
ingness to honor these obligations could reduce our revenues and cash flow.
Our seven container carrier vessels are currently under charters with Hyundai Merchant Marine Co. Ltd. (“HMM”) and A.P. Moller-Maersk
A.S (“Maersk Line”). We expect that our containerships will continue to be chartered to customers mainly under multi-year fixed rate time
charters. Many liner companies, including our charterers, finance their activities through cash from operations, the incurrence of debt or the
issuance of equity. Since 2008, there has been a significant decline in the credit markets and the availability of credit, and the equity markets
have been volatile. The combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under
reserve-based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our
charterers to make charter payments to us. If we lose a time charter because the charterer is unable to pay us or for any other reason, we may
be unable to redeploy the related vessel on similarly favorable terms or at all. Also, we will not receive any revenues from such a vessel while
it is unchartered, but we will be required to pay expenses necessary to maintain and insure the vessel and service any indebtedness on it. The
combination of any surplus of containership capacity and the expected increase in the size of the world containership fleet over the next few
years may make it difficult to secure substitute employment for any of our containerships if our counterparties fail to perform their obligations
under the currently arranged time charters, and any new charter arrangements we are able to secure may be at lower rates. Furthermore,
the surplus of containerships available at lower charter rates and lack of demand for our customers’ liner services could negatively affect our
charterers’ willingness to perform their obligations under our time charters, which in many cases provide for charter rates significantly above
current market rates. A failure of HMM or Maersk Line to comply with the terms of its charters, and our inability to replace such charters in
a certain manner may, under certain circumstances, result in an event of default under our credit facilities.
The loss of either of our charterers or vessels, or a decline in payments under our time charters, could have a material adverse effect on
our business, results of operations and financial condition, revenues and cash flow and our ability to pay distributions to our unitholders.
Five of our container vessels are currently chartered at rates that are at a substantial premium to the spot and period market,
and the loss of these charters could result in a significant loss of expected future revenues and cash flows.
The M/V Hyundai Premium, M/V Hyundai Paramount, M/V Hyundai Privilege, M/V Hyundai Platinum and M/V CCNI Angol are each cur-
rently under 12 year time charters to HMM, at a gross charter rate of $29,350 per day, that all commenced in the first half of 2013.
HMM has faced financial difficulties and has incurred losses recently. The loss of this customer could result in a significant loss of revenues,
cash flow and our ability to maintain or improve distributions over the long term. We could lose this customer or the benefits of the charters
entered into with it if, among other things:
• the customer is unable or unwilling to perform its obligations under the charters, including the payment of the agreed rates in a timely
manner;
• the customer continues to face financial difficulties forcing it to declare bankruptcy or to default under the charters;
• the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
• the customer seeks to renegotiate the terms of the charter agreements due to prevailing economic and market conditions or due to
continued poor performance by the charterer;
• the customer exercises certain rights to terminate the charters;
• the customer terminates the charters because we fail to comply with the terms of the charters, the vessels are lost or damaged beyond
repair, there are serious deficiencies in the vessels or prolonged periods of off-hire, or we default under the charters;
• a prolonged force majeure event affecting the customer, including war or political unrest prevents us from performing services for that
customer; or
• the customer terminates the charters because we fail to comply with the safety and regulatory criteria of the charterer or the rules and
regulations of various maritime organizations and bodies.
In the event we lose the benefit of the charters with HMM prior to their respective expiration date, we would have to recharter the vessels
at the then prevailing charter rates. In such event, we may not be able to obtain competitive, or profitable, rates for these vessels and our
earnings and ability to make cash distributions may be adversely affected.
A decrease in the level of China’s export of goods or an increase in trade protectionism could have a material adverse impact
on our charterers’ business and, in turn, could cause a material adverse impact on our results of operations, financial condi-
tion and cash flows.
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China exports considerably more goods than it imports. Our containerships are deployed on routes involving containerized trade in and out
of emerging markets, and our charterers’ container shipping and business revenue may be derived from the shipment of goods from the
Asia Pacific region to various overseas export markets including the United States and Europe. Any reduction in or hindrance to the output
of China-based exporters could have a material adverse effect on the growth rate of China’s exports and on our charterers’ business. For
instance, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-made goods.
This may have the effect of reducing the supply of goods available for export and may, in turn, result in a decrease of demand for container
shipping. Additionally, though in China there is an increasing level of autonomy and a gradual shift in emphasis to a “market economy”
and enterprise reform, many of the reforms, particularly some limited price reforms that result in the prices for certain commodities being
principally determined by market forces, are unprecedented or experimental and may be subject to revision, change or abolition. The level
of imports to and exports from China could be adversely affected by changes to these economic reforms by the Chinese government, as
well as by changes in political, economic and social conditions or other relevant policies of the Chinese government.
Our operations expose us to the risk that increased trade protectionism will adversely affect our business. If the incipient global recovery
is undermined by downside risks and the recent economic downturn is prolonged, governments may turn to trade barriers to protect their
domestic industries against foreign imports, thereby depressing the demand for shipping. Specifically, increasing trade protectionism in the
markets that our charterers serve has caused and may continue to cause an increase in (i) the cost of goods exported from China, (ii) the
length of time required to deliver goods from China and (iii) the risks associated with exporting goods from China, as well as a decrease
in the quantity of goods to be shipped. Any increased trade barriers or restrictions on trade, especially trade with China, would have an
adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely
charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect
on our business, results of operations and financial condition and our ability to pay distributions to our unitholders.
Containership values decreased significantly in 2008 and 2009 and have remained at depressed levels through 2013. Contain-
ership values may decrease further and over time may fluctuate substantially. If these values are low at a time when we are
attempting to dispose of a vessel, we could incur a loss.
Containership values can fluctuate substantially over time due to a number of different factors, including: prevailing economic conditions
in the markets in which containerships operate, reduced demand for containerships, including as a result of a substantial or extended
decline in world trade, increases in the supply of containership capacity, prevailing charter rates and the cost of retrofitting or modifying
existing ships to respond to technological advances in vessel design or equipment, changes in applicable environmental or other regula-
tions or standards, or otherwise.
If the market values of our vessels deteriorate significantly, we may be required to record an impairment charge in our financial statements,
which could adversely affect our results of operations. If a charter expires or is terminated, we may be unable to recharter the vessel at
an acceptable rate and, rather than continue to incur costs to maintain the vessel, may seek to dispose of it. Our inability to dispose of
one or more of the containerships at a reasonable price could result in a loss on its sale and adversely affect our results of operations and
financial condition.
Our growth and our ability to recharter our containerships depends on our ability to expand relationships with existing cus-
tomers and develop relationships with new customers, for which we will face substantial competition.
We will look to recharter our existing containerships following the expiration of their current charters and we will seek charters for any
additional containerships that we acquire. The process of obtaining new long-term time charters on containerships is highly competitive
and generally involves an intensive screening process and competitive bids, and often extends for several months. Containership charters
are awarded based upon a variety of factors relating to the vessel operator, including, among others:
• shipping industry relationships and reputation for customer service and safety;
• container shipping experience and quality of ship operations, including cost effectiveness;
• quality and experience of seafaring crew;
• the ability to finance containerships at competitive rates and the ship owner’s financial stability generally;
• relationships with shipyards and the ability to get suitable berths;
• construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications;
• willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
• competitiveness of the bid in terms of overall price.
Competition for providing new containerships for chartering purposes comes from a number of experienced shipping companies, including
direct competition from other independent charter owners and indirect competition from state-sponsored and other major entities with their
own fleets. Some of our competitors have significantly greater financial resources than we do and can operate larger fleets and may be able
to offer better charter rates. An increasing number of marine transportation companies have entered the containership sector, including
many with strong reputations and extensive resources and experience in the marine transportation industry. This increased competition
26
may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with
existing customers or to develop relationships with new customers on a profitable basis, if at all, which could harm our business, results
of operations, financial condition and ability to make cash distributions.
RISKS RELATING TO OUR BUSINESS AND OPERATIONS
We may not be able to grow or to effectively manage our growth.
Our future growth will depend upon a number of factors, some of which we cannot control. These factors include our ability to:
• capitalize on opportunities in the crude, product tanker, drybulk and container markets by fixing period charters for our vessels at attrac-
tive rates;
• identify businesses engaged in managing, operating or owning vessels for acquisitions or joint ventures;
• identify vessels and/or shipping companies for acquisitions;
• access financing and obtain required financing for existing and new operations, including refinancing of existing indebtedness;
• integrate any acquired businesses or vessels successfully with existing operations;
• hire, train and retain qualified personnel to manage, maintain and operate its growing business and fleet;
• identify additional new markets;
• improve operating and financial systems and controls;
• complete accretive transactions in the future; and
• maintain our commercial and technical management agreements with Capital Maritime or other competent managers.
Our ability to grow is in part dependent on our ability to expand our fleet through acquisitions of suitable vessels. We may not be able
to acquire newbuildings or secondhand vessels on favorable terms, which could impede our growth and negatively impact our financial
condition and ability to pay distributions. We may not be able to contract for newbuildings or locate suitable vessels or negotiate accept-
able construction or purchase contracts with shipyards and owners, or obtain financing for such acquisitions on economically acceptable
terms, or at all.
The failure to effectively identify, purchase, develop, employ and integrate any vessels or businesses could adversely affect our business,
financial condition and results of operations and our ability to make cash distributions.
Fees and cost reimbursements paid by us to Capital Maritime for services provided to us and certain of our subsidiaries are
substantial, fluctuate, cannot be easily predicted and may reduce our cash available for distribution to our unitholders.
We have entered into three separate technical and commercial management agreements with Capital Ship Management for the manage-
ment of our fleet: the fixed fee management agreement, the floating fee management agreement and, with respect to the vessels acquired
as part of the merger with Crude Carriers, the Crude Carriers management agreement. Each vessel in our fleet is managed under the terms
of one of these three agreements. Please read “Item 4B: Business Overview—Our Management Agreements” for a detailed description of
the main terms of our three management agreements.
The expenses incurred under our three management agreements depend upon a variety of factors, many of which are beyond our or our
manager’s control. Some of these costs, primarily relating to crewing, insurance and enhanced security measures have been increasing
and may increase in the future. Increases in any of these costs would decrease our earnings, cash flows and the amount of cash available
for distribution to our unitholders.
We expect that as the fixed fee management agreement expires for vessels currently managed under it, such vessels, and any additional
acquisitions we make in the future, shall be managed under floating fee management agreements, on similar terms to the ones currently
in place. It is possible that the level of our operating costs may materially change following any such renewal. Any increase in the costs
and expenses associated with the provision of these services by our manager in the future, such as the condition and age of our vessels,
costs of crews for our time chartered vessels and insurance, will lead to an increase in the fees we would have to pay to Capital Ship Man-
agement or another third party under any new agreements we enter into.
The payment of fees to Capital Ship Management and compensation for expenses and liabilities incurred on our behalf, as well as the costs
associated with future drydockings and/or intermediate surveys or our vessels, which are expected to be significant, could adversely affect
our business, financial condition and results of operations, including our ability to make cash distributions.
We cannot assure you that we will pay any distributions.
We currently observe a cash dividend and cash distribution policy implemented by our board of directors. The actual declaration of future
cash distributions, and the establishment of record and payment dates, is subject to the terms of the partnership agreement and final deter-
mination by our board of directors each quarter after its review of financial performance. Our ability to pay distributions in any period will
27
depend upon factors including but not limited to financial condition, results of operations, prospects and applicable provisions of Marshall
Islands law. Further, holders of our common units are subject to the prior distribution rights of any holders of our preferred units then
outstanding. As of the date of this Annual Report, there were 18,922,221 Class B Units issued and outstanding, of which 4,048,484 were
owned by Capital Maritime. Under the terms of our partnership agreement, we are prohibited from declaring and paying distributions on our
common units until we declare and pay (or set aside for payment) full distributions on the Class B Units. We may not have sufficient cash
available each quarter to pay the declared quarterly distribution per Class B or per common unit following establishment of cash reserves
and payment of fees and expenses.
The timing and amount of distributions, if any, could be affected by factors affecting cash flows, results of operations, required capital
expenditures, compliance with our loan covenants, or reserves. Maintaining the distribution policy will depend on shipping market devel-
opment and the charter rates we earn when we recharter our vessels, our cash earnings, financial condition and cash requirements and
could be affected by factors, including the loss of a vessel, required capital expenditures, reserves established by our board of directors,
increased or unanticipated expenses, additional borrowings and compliance with our loan covenants as well as our ability to refinance
existing indebtedness, asset valuations or future issuances of securities, which may be beyond our control.
Under Marshall Islands law, a limited partnership shall not make a distribution to a partner to the extent that at the time of the distribution,
after giving effect to the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to specified property of the limited partnership, exceed the fair value of
the assets of the limited partnership, except that the fair value of property that is subject to a liability for which the recourse of creditors is
limited shall be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds that liability.
The amount of cash we generate from our operations may differ materially from our profit or loss for the period, which will be affected by
non-cash items. As a result of this and the other factors mentioned above, we may make cash distributions during periods when we record
losses and may not make cash distributions during periods when we record net income.
Our distribution policy may be changed at any time, and from time to time, by our board of directors.
Our common units are equity securities and are subordinate to our existing and future indebtedness and our preferred units.
Our common units are equity interests in us and do not constitute indebtedness. The common units rank junior to all indebtedness and
other non-equity claims on us with respect to the assets available to satisfy claims, including a liquidation of Capital Product Partners L.P.
(the “Partnership” or “CPLP”). Additionally, holders of the common units are subject to the prior distribution and liquidation rights of any
holders of the Class B Units and any other preferred units we may issue in the future.
As long as our outstanding Class B Units remain outstanding, under our partnership agreement, distribution payments relating to our
common units are prohibited until all accrued and unpaid distributions are paid on the Class B Units.
Our board of directors is authorized to issue additional classes or series of preferred units without the approval or consent of the holders
of our common units. In addition, holders of the Class B Units have the right to convert all or a portion of their Class B Units at any time
into common units. Any such actions could adversely affect the market price of our common units.
If we reduce or eliminate the replacement capital expenditures deducted from our operating surplus, our growth and the future
income generating capacity of our fleet may be significantly affected.
Our partnership agreement requires our board of directors to deduct from operating surplus cash reserves that it determines are necessary
to fund our future operating expenditures. In the past we have made substantial capital expenditures to expand and renew our fleet, which
also reduced the amount of cash available for distribution to our unitholders. Replacement capital expenditures include capital expenditures
associated with an estimation for future acquisitions of new vessels or a replacement of a vessel in our fleet in order to maintain and grow
the income generating capacity of our fleet. These expenditures could increase as a result of changes in:
• the value of the vessels in our fleet;
• the cost of our labor and materials;
• the cost and replacement life of suitable replacement vessels;
• customer/market requirements;
• increases in the size of our fleet;
• the age of the vessels in our fleet;
• charter rates in the market; and
• governmental regulations, industry and maritime self-regulatory organization standards relating to safety, security or the environment.
The amount of estimated capital expenditures deducted from operating surplus is subject to review and change by our board of directors
at least once a year, provided that any change must be approved by the conflicts committee of our board of directors. In years when
estimated capital expenditures are higher than actual capital expenditures, the amount of cash available for distribution to unithold-
ers will be lower than if actual capital expenditures were deducted from operating surplus. If our board of directors underestimates
the appropriate level of estimated replacement capital expenditures, we may have less cash available for distribution in future periods
28
when actual capital expenditures exceed our previous estimates.
Our board of directors has elected not to deduct any replacement capital expenditures from our operating surplus since 2011, which may
affect our ability to acquire new vessels or replace a vessel in our fleet, as well as our future income generating capacity.
We separately account for the maintenance capital expenditures required to maintain the operating quality of our vessels as we incur main-
tenance expenses as part of our operating expenses, including any costs associated with scheduled drydockings. We may have to separately
provide for estimated capital expenditures associated with drydocking and, in addition to estimated replacement capital expenditures, also
deduct these from our operating surplus.
As our vessels come up for their scheduled drydockings the number of off-hire days of our fleet and operating expenses will
increase and our cash available for distribution to our unitholders may decrease.
During 2014, a vessel managed under our fixed fee management agreement is scheduled for its next special or intermediate survey and
associated drydocking. Once any of our vessels is put into drydock, it is automatically considered to be off-hire in connection with such
special or intermediate survey and associated drydocking, which means that for such period of time any such vessel will not be earning
any revenues. In addition, during the drydocking of our vessels, we may incur certain costs, the levels of which are not possible to predict,
are not covered under this management agreement and which we will have to reimburse to our manager. Consequently, as our vessels’
scheduled drydocking approaches, the number of off-hire days of our fleet and operating expenses will increase, which may materially
affect our cash available for distribution to our unitholders.
If our vessels suffer damage due to the inherent operational risks of the shipping industry, we may experience unexpected
drydocking costs and delays or total loss of our vessels, which may adversely affect our business and financial condition.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, business inter-
ruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circum-
stances or events. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. Compared
to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision or
other cause, due to the high flammability and high volume of the oil transported in tankers.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may
be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of earnings while these vessels are
being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In
addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to
find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to
our vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities
may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe
and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent
any such damage, costs or loss that could negatively impact our business, financial condition, results of operations, cash flows and ability
to pay cash distributions.
Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the related off-hire period.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against
a vessel for unsatisfied debts, claims or damages. In certain cases, maritime claimants may be entitled to a maritime lien against a vessel
for unsatisfied debts, claims or damages of its manager. In many jurisdictions, a maritime lienholder may enforce its lien by “arresting” or
“attaching” a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could result in a significant
loss of earnings for the related off-hire period. In addition, in jurisdictions where the “sister ship” theory of liability applies, a claimant may
arrest the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the
same owner. In countries with “sister ship” liability laws, claims might be asserted against us or any of our vessels for liabilities of other
vessels that we own.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government of a vessel’s registry could requisition for title or seize our vessels. Requisition for title occurs when a government takes
control of a vessel and becomes the owner. A government could also requisition our vessels for hire. Requisition for hire occurs when a
government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during
a period of war or emergency. Government requisition of one or more of our vessels could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay cash distributions.
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.
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Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of
Aden off the coast of Somalia. Over the last several years, the frequency of piracy incidents has increased significantly, particularly in the
Gulf of Aden and towards the Mozambique Channel in the North Indian Ocean.
If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones, as the Gulf of Aden
temporarily was in May 2008, or Joint War Committee “war and strikes” listed areas, premiums payable for insurance coverage for our vessels
could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which may be
incurred due to the deployment of onboard security guards, could increase in such circumstances. While the use of security guards is intended
to deter and prevent the hijacking of our vessels, it could also increase our risk of liability for death or injury to persons or damage to personal
property. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition,
detention hijacking as a result of an act of piracy against our vessels, or an increase in cost or unavailability of insurance for our vessels, could
have a material adverse impact on our business, results of operations, cash flows, financial condition and ability to make cash distributions, as
well as result in increased costs and decreased cash flows to our customers impairing their ability to make payments to us under our charters.
Increases in fuel prices could adversely affect our profits.
We are responsible for the cost of fuel in the form of bunkers, which is a significant vessel expense, at any time our vessels are trading in
the spot market, are off-hire or during the drydocking of any of our vessels. In addition, spot charter arrangements generally provide that
the vessel owner, or pool operator where relevant, bear the cost of fuel. Because we do not intend to hedge our fuel costs, an increase in the
price of fuel beyond our expectations may adversely affect our profitability, cash flows and ability to pay cash distributions. The price and
supply of fuel is unpredictable and fluctuates as a result of events outside our control, including geo-political developments, supply and
demand for oil and gas, actions by members of the Organization of the Petroleum Exporting Countries (also known as OPEC) and other oil
and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and
regulations. Changes in the actual price of fuel at the time the charter is to be performed could result in the charter being performed at a
significantly greater or lesser cost than originally anticipated and may result in losses or diminished profits.
Increased competition in technology and innovation could reduce our charter hire income and the value of our vessels.
The charter rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency,
operational flexibility and physical life. Determining a vessel’s efficiency includes considering its speed and fuel economy, while flexibility
considerations include the ability to enter harbors, utilize related docking facilities and pass through canals and straits. A vessel’s physical life
is related to the original design and construction, maintenance and the impact of the stress of its operations. If new ship designs currently
promoted by shipyards as being more fuel efficient perform as promoted, or if new vessels are built in the future that are more efficient
or flexible, or have longer physical lives than our current vessels, competition from these more technologically advanced vessels could
adversely affect our ability to recharter our vessels, the amount of charter-hire payments that we receive for our vessels once their current
charters expire and the resale value of our vessels. This could adversely affect our ability to service our debt or make cash distributions.
RISKS RELATING TO FINANCING ACTIVITIES
If the contraction of the global credit markets and the resulting volatility in the financial markets and limited availability of
funding continues or worsens, it may have a material adverse impact on our results of operations and on our ability to obtain
bank financing and/or to access the capital markets for future debt or equity offerings. The restrictions imposed by our credit
facilities may also limit our ability to access such financing, even if it is available. If we are unable to obtain financing or
access the capital markets, we may be unable to complete any future purchases of vessels from Capital Maritime or from third
parties, or pursue other potential growth opportunities.
S ince 2008, a number of major financial institutions have experienced serious financial difficulties and, in some cases, have entered into
bankruptcy proceedings or are in regulatory enforcement actions. These difficulties have resulted, in part, from declining markets for
assets held by such institutions, particularly the reduction in the value of their mortgage and asset-backed securities portfolios. These
difficulties have been compounded by financial turmoil affecting the world’s debt, credit and capital markets, and the general decline in the
willingness by banks and other financial institutions to extend credit, particularly to the shipping industry due to the historically low vessel
earnings and values, and, in part, due to changes in overall banking regulations (for example, Basel III). Given these conditions, the ability of
banks and credit institutions to finance new projects, including the acquisition of new vessels in the future, is uncertain. In addition, these
difficulties may adversely affect the financial institutions that provide our credit facilities and may impair their ability to continue to perform
under their financing obligations to us, which could have an impact on our ability to fund current and future obligations.
Furthermore, our ability to obtain bank financing or to access the capital markets for future equity or debt offerings may be limited by
our financial condition at the time of any such financing or offering, as well as by the continuing adverse market conditions, including
weakened demand for, and increased supply of, product tankers, drybulk or container vessels, resulting from, among other things, general
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economic conditions, weakness in the financial markets and contingencies and uncertainties that are beyond our control. The restrictions
imposed by our credit facilities, including the obligation to comply with certain collateral maintenance and other requirements, may further
restrict our ability to access available financing. Continued access to the capital markets is not assured. If we are unable to obtain additional
credit or draw down upon borrowing capacity, it may negatively impact our ability to fund current and future obligations. In addition, the
severe deterioration in the banking and credit markets has resulted in potentially higher interest costs and overall limited availability of
liquidity, which may further affect our ability to complete any future purchases of vessels from Capital Maritime or from third parties or
to refinance our debt. Furthermore, banks and financial institutions are faced with ongoing financial difficulties, and increased scrutiny by
credit rating agencies means that there may be no funding available from banks limiting our ability to refinance our debt. Our failure to
obtain the funds for necessary future capital expenditures and for the refinancing of our debt could also have a material adverse impact
on our business, results of operations and financial condition, our ability to grow and make cash distributions and could cause the market
price of our common units to decline.
Disruptions in world financial markets and further governmental action in the United States and in other parts of the world
could have a material adverse impact on our results of operations, financial condition and cash flows, and could cause the
market price of our common units decline.
Since 2008, global financial markets have experienced extraordinary disruption and volatility following adverse changes in the global
credit markets. The credit markets in the United States have experienced significant contraction, deleveraging and reduced liquidity, and
governments around the world have taken highly significant measures in response to such events, including the enactment of the Emer-
gency Economic Stabilization Act of 2008 in the United States, and may implement other significant responses in the future. Securities
and futures markets, and the credit markets, are subject to comprehensive statutes, regulations and other requirements. The SEC, other
regulators, self-regulatory organizations and exchanges have enacted temporary emergency regulations in the past and may take other
extraordinary actions in the event of market emergencies and may affect permanent changes in law or interpretations of existing laws.
Any changes to securities, tax, environmental, or other laws or regulations, could have a material adverse effect on our results of operations,
financial condition or cash flows, and could cause the market price of our common units to decline.
A limited number of financial institutions hold our cash including financial institutions located in Greece.
We maintain our cash with a limited number of financial institutions, including institutions located in Greece. Of these financial institu-
tions located in Greece, some are subsidiaries of international banks and others are Greek financial institutions. These balances may not be
covered by insurance in the event of default by these financial institutions. The ongoing fiscal situation in Greece, including the possibility
of further sovereign credit rating downgrades and the restructuring of Greece’s sovereign debt, as well as a potential exit from the Euro,
may result in an event of default by some or all of these financial institutions. The occurrence of such a default could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
We have incurred significant indebtedness which could adversely affect our ability to further finance our operations, pursue
desirable business opportunities or successfully run our business in the future as well as our ability to make cash distributions.
As of December 31, 2013 our total debt was $583.3 million consisting of: (i) $250.9 million outstanding under the 2007 credit facility;
(ii) $238.4 outstanding under the 2008 credit facility; (iii) $19.0 million outstanding under the 2011 credit facility and (iv) 75.0 million
outstanding under the 2013 credit facility. All facilities are non-amortizing until March 2016.
Our leverage and debt service obligations could have significant additional consequences, including the following:
• If future cash flows are insufficient, we may need to incur further indebtedness in order to make the capital expenditures and other
expenses or investments we have planned.
• If future cash flows are insufficient and we are not able to service our debt or, when the non-amortizing period of our existing credit
facilities expires in March 2016, we are not able to refinance our existing indebtedness with non-amortizing debt with similar terms to
our existing facilities, our obligation to make principal payments under our credit facilities may force us to take actions such as reducing
or eliminating distributions, reducing or delaying business activities, acquisitions, investments or capital expenditures, selling assets,
restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection.
• Our indebtedness will have the general effect of reducing our flexibility to react to changing business and economic conditions insofar
as they affect our financial condition and, therefore, may pose substantial risk to our unitholders.
• In the event that we are liquidated, any of our senior or subordinated creditors and any senior or subordinated creditors of our subsidiar-
ies will be entitled to payment in full prior to any distributions to the holders of our common units.
• Our 2007, 2008, 2011 and 2013 credit facilities mature in 2017, 2018, 2018 and 2020, respectively. Our ability to secure additional
financing prior to or after that time, if needed, may be substantially restricted by the existing level of our indebtedness and the restrictions
contained in our debt instruments. Upon maturity, we will be required to dedicate a substantial portion of our cash flow to the payment
of such debt, which will reduce the amount of funds available for operations, capital expenditures and future business opportunities.
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The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations,
prospects and ability to make distributions and to satisfy our obligations under our credit facilities or any debt securities.
Our credit facilities contain, and we expect that any new or amended credit facilities we may enter into will contain, restrictive
covenants, which may limit our business and financing activities, including our ability to make distributions.
The operating and financial restrictions and covenants in our credit facilities and in any new or amended credit facility we enter into in the
future could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities.
For example, our credit facilities require the consent of our lenders to, or limit our ability to, among other items:
• incur or guarantee indebtedness;
• charge, pledge or encumber our vessels;
• change the flag, class, management or ownership of our vessels;
• change the commercial and technical management of our vessels;
• sell or change the beneficial ownership or control of our vessels; and
• subordinate our obligations thereunder to any general and administrative costs relating to our vessels, including the fixed daily fee pay-
able under the management agreement.
Our credit facilities also require us to comply with the International Safety Management Code and to maintain valid safety management certifi-
cates and documents of compliance at all times. In addition our amended credit facilities require us to comply with certain financial covenants:
• maintain minimum free consolidated liquidity of at least $500,000 per collateralized vessel;
• maintain a ratio of EBITDA (as defined in each credit facility) to net interest expense of at least 2.00 to 1.00 on a trailing four-quarter basis; and
• maintain a ratio of net Total Indebtedness to the aggregate Fair Market Value (as each term is defined in each credit facility) of our total
fleet, current or future, of no more than 0.725 (the “leverage ratio”).
In addition, our credit facilities require that we maintain an aggregate fair market value of the vessels in our fleet of at least 125% of the
aggregate amount outstanding under each credit facility (the “collateral maintenance”).
The interest margin of our credit facilities was amended to 2.0% for our 2007 credit facility and 3.0% for our 2008 credit facility in connection
with the 2012 issuance and sale of our Class B Units. The interest margin for our 2011 and 2013 credit facilities is 3.25% and 3.5%, respectively.
Our ability to comply with the covenants and restrictions contained in our credit facilities may be affected by events beyond our control, includ-
ing prevailing economic, financial and industry conditions, interest rate developments, changes in the funding costs of our banks and changes
in vessel earnings and asset valuations. If market or other economic conditions further deteriorate or fail to improve, our ability to comply with
these covenants may be impaired. If we are in breach of any of the restrictions, covenants, ratios or tests in our credit facilities, especially if
we trigger a cross-default currently contained in our credit facilities, we may be forced to suspend our distributions, a significant portion of our
obligations may become immediately due and payable and our lenders’ commitment to make further loans to us may terminate. We may not
have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, obligations under our credit facilities are secured
by our vessels, and if we are unable to repay debt under the credit facilities, the lenders could seek to foreclose on those assets.
Furthermore, any contemplated vessel acquisitions will have to be at levels that do not impair the required ratios set out above. The recent
global economic downturn has had an adverse effect on vessel values which is likely to persist if the economic slowdown resumes. If the esti-
mated asset values of the vessels in our fleet continue to decrease, such decreases may limit the amounts we can drawdown under our credit
facilities to purchase additional vessels and our ability to expand our fleet. In addition, we may be obligated to prepay part of our outstanding
debt in order to remain in compliance with the relevant covenants in our credit facilities. If funds under our credit facilities become unavail-
able as a result of a breach of our covenants or otherwise, we may not be able to perform our business strategy which could have a material
adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.
If we default under our credit facilities, our ability to make cash distributions may be impaired and we could forfeit our rights
in certain of our vessels and their charters.
We have pledged all of our vessels as security to the lenders under our credit facilities. If not waived or modified, would permit the lenders to
foreclose on the mortgages over the vessels and the related collateral, and we could lose our rights in the vessels and their charters.
When final payment is due under our loan agreements, we must repay any borrowings outstanding, including balloon payments. To the
extent that cash flows are insufficient to repay any of these borrowings or asset cover is inadequate due to a deterioration in vessel values,
we will need to refinance some or all of our loan agreements, replace them with alternate credit arrangements or provide additional security.
We may not be able to refinance or replace our loan agreements or provide additional security at the time they become due.
In the event we default under our credit facilities or we are not able to refinance our existing debt obligations with new debt facilities with
similar terms to the existing facilities, or if our operating results are not sufficient to service current or future indebtedness, or to make
relevant principal repayments if necessary, we may be forced to take actions such as reducing or eliminating distributions, reducing or
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delaying business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing debt, or seeking
additional equity capital or bankruptcy protection. In addition, the terms of any refinancing or alternate credit arrangement may restrict
our financial and operating flexibility and our ability to make cash distributions.
If we are in breach of any of the terms of our credit facilities, as amended, a significant portion of our obligations may become
immediately due and payable and our lenders’ commitments to make further loans to us may terminate. We may also be unable
to execute our business strategy.
Our ability to comply with the covenants and restrictions contained in our credit facilities and any other debt instruments we may enter into in
the future may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If vessel earnings and
valuations, or market or other economic conditions deteriorate further, our ability to comply with these covenants may be impaired. If we are
in breach of any of the restrictions, covenants, ratios or tests in our credit facilities, especially if we trigger a cross-default currently contained in
our credit facilities or any interest rate swap agreements we have entered into pursuant to their terms, a significant portion of our obligations
may become immediately due and payable, and our lenders’ commitment to make further loans to us may terminate. We may not be able to
reach agreement with our lenders to amend the terms of the loan agreements or waive any breaches and we may not have, or be able to obtain,
sufficient funds to make any accelerated payments. In addition, obligations under our credit facilities are secured by our vessels, and if we are
unable to repay debt under the credit facilities, the lenders could seek to foreclose on those assets. Furthermore, if funds under our credit facilities
become unavailable as a result of a breach of our covenants or otherwise, we may not be able to execute our business strategy, which could have
a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.
Restrictions in our debt agreements may prevent us from paying distributions.
Our payment of interest and, following the end of the relevant non-amortizing periods, principal on our debt will reduce cash available for
distribution on our units. In addition, our credit facilities prohibit the payment of distributions if we are not in compliance with certain
financial covenants or upon the occurrence of an event of default or if the fair market value of the vessels in our fleet is less than 125%
of the aggregate amount outstanding under each of our credit facilities.
Events of default under our credit facilities include:
• failure to pay principal or interest when due;
• breach of certain undertakings, negative covenants and financial covenants contained in the credit facility, any related security docu-
ment or guarantee or the interest rate swap agreements, including failure to maintain unencumbered title to any of the vessel owning
subsidiaries or any of the assets of the vessel owning subsidiaries and failure to maintain proper insurance;
• any breach of the credit facility, any related security document or guarantee or the interest rate swap agreements (other than breaches
described in the preceding two bullet points) if, in the opinion of the lenders, such default is capable of remedy and continues unremedied
for 20 days after written notice of the lenders;
• any representation, warranty or statement made by us in the credit facility or any drawdown notice thereunder or related security docu-
ment or guarantee or the interest rate swap agreements is untrue or misleading when made;
• a cross-default of our other indebtedness of $5.0 million or greater, or of the indebtedness of our subsidiaries of $750,000 or greater;
• we become, in the reasonable opinion of the lenders, unable to pay our debts when due;
• any of our or our subsidiaries’ assets are subject to any form of execution, attachment, arrest, sequestration or distress in respect of a
sum of $1.0 million or more that is not discharged within 10 business days;
• an event of insolvency or bankruptcy;
• cessation or suspension of our business or of a material part thereof;
• unlawfulness, non-effectiveness or repudiation of any material provision of our credit facility, of any of the related finance and guarantee
documents or of our interest rate swap agreements;
• failure of effectiveness of security documents or guarantee;
• our common units cease to be listed on the Nasdaq Global Market or on any other recognized securities exchange;
• any breach under any provisions contained in our interest rate swap agreements;
• termination of our interest rate swap agreements or an event of default thereunder that is not remedied within five business days;
• invalidity of a security document in any material respect or if any security document ceases to provide a perfected first priority security interest;
• failure by HMM or Maersk Line to comply with the terms of the their charters and we are unable to replace the charter in a manner
that meets our obligations under the facilities; or
• any other event that occurs or circumstance that arises in light of which the lenders reasonably consider that there is a significant risk that we
will be unable to discharge our liabilities under the credit facility, related security and guarantee documents or interest rate swap agreements.
We anticipate that any subsequent refinancing of our current debt or any new debt could have similar or more onerous restrictions. For
more information regarding our financing arrangements, please read “Item 5A: Management’s Discussion and Analysis of Financial Condi-
tion and Results of Operations” below.
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RISKS INHERENT IN OUR OPERATIONS
We currently derive all of our revenues from a limited number of customers and the loss of any customer or charter or vessel
could result in a significant loss of revenues and cash flow.
W e have derived, and believe that we will continue to derive, all of our revenues and cash flow from a limited number of customers.
For the year ended December 31, 2013, Capital Maritime, BP Shipping Limited, Maersk Line and HMM accounted for 32%, 17%,
14% and 13% of our revenues, respectively. For the year ended December 31, 2012, Capital Maritime and BP Shipping Limited
accounted for 45% and 23% of our revenues, respectively. For the year ended December 31, 2011, Capital Maritime, BP Shipping Limited
and subsidiaries of Overseas Shipholding Group Inc. (“OSG”) accounted for 24%, 32% and 11% of our revenues, respectively. We could lose
a customer, including Capital Maritime, or the benefits of some or all of a charter if:
• the customer faces financial difficulties forcing it to declare bankruptcy or making it impossible for it to perform its obligations under
the charter, including the payment of the agreed rates in a timely manner;
• the customer fails to make charter payments because of its financial inability or its inability to trade our and other vessels profitably or
due to the occurrence of losses due to the weaker charter markets;
• the customer fails to make charter payments due to disagreements with us or otherwise;
• the customer tries to renegotiate the terms of the charter agreement due to prevailing economic and market conditions;
• the customer exercises certain rights to terminate the charter or purchase the vessel;
• the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged
beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter; or
• a prolonged force majeure event affecting the customer, including damage to or destruction of relevant production facilities, war or
political unrest prevents us from performing services for that customer.
A number of our charterers, including Capital Maritime, are private companies and we may have limited access to their financial affairs,
which may result in us having limited information on their financial strength and ability to meet their financial obligations. Please read
“Item 4B: Business Overview —Our Customers” and “—Our Charters” below for further information on our customers.
If we lose a key charter, we may be unable to redeploy the related vessel on terms as favorable to us due to the long-term nature of most
charters. If we are unable to redeploy a vessel for which the charter has been terminated, we will not receive any revenues from that vessel,
but we may be required to pay expenses necessary to maintain the vessel in proper operating condition and may also have to enter into
costly and lengthy legal proceedings in order to reserve our rights. Until such time as the vessel is rechartered, we may have to operate it
in the spot market at charter rates which may not be as favorable to us as our current charter rates. In addition, if a customer exercises its
right to purchase a vessel, we would not receive any further revenue from the vessel and may be unable to obtain a substitute vessel and
charter. This may cause us to receive decreased revenue and cash flows from having fewer vessels operating in our fleet. Any replacement
newbuilding would not generate revenues during its construction, and we may be unable to charter any replacement vessel on terms as
favorable to us as those of the terminated charter. Any compensation under our charters for a purchase of the vessels may not adequately
compensate us for the loss of the vessel and related time charter. The loss of any of our customers, time or bareboat charters or vessels, or
a decline in payments under our charters, could have a material adverse effect on our business, results of operations and financial condi-
tion and our ability to make cash distributions.
One of our largest customers, BP Shipping Limited, has been adversely affected by the oil leak in the Gulf of Mexico. This spill
or future spills by other companies may result in additional or changes to existing regulation that could result in additional
costs to us or expose us to additional liabilities.
One of our largest customers, BP Shipping Limited, is an affiliate of BP p.l.c. (“BP”). BP and its affiliates have been materially adversely
affected by the explosion onboard the semisubmersible drilling rig Deepwater Horizon in the Gulf of Mexico in April 2010 and the resulting
oil leak from a well being operated by an affiliate of BP and in which such affiliate had a majority working interest. As of December 31,
2013, five of our vessels were chartered to BP or its affiliates. BP Shipping Limited accounted for approximately 17%, 23% and 32% of our
revenues for the years ended December 31, 2013, 2012 and 2011, respectively.
Future costs associated with the Gulf of Mexico oil spill could adversely affect BP and could, in turn, have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to meet our obligations and to make cash distributions. Future
significant spills that capture public or regulatory attention could result in stricter regulation.
The United States Oil Pollution Act of 1990 (“OPA 90”) regulations or implementation may become more stringent in application in the
future. Our operations may be subject to more rigorous preparedness requirements and practice demonstrations, more unannounced exercises
and increased penalties for any failure to demonstrate preparedness and additional disaster response planning. Increased requirements
under the OPA 90 or state laws could subject us to increased liabilities in the event of a disaster and increased operating costs.
We depend on Capital Maritime and its affiliates to assist us in operating and expanding our business. If Capital Maritime
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is materially adversely affected by the ongoing market fluctuations, and risks or suffers material damage to its reputation,
it may affect its ability to comply with the terms of its charters with us or provide us with the necessary level of services to
support and expand our business.
As of December 31, 2013, eleven of our 30 vessels were under charter with Capital Maritime. In the future we may enter into additional contracts
with Capital Maritime to charter our vessels as they become available for rechartering. Capital Maritime is subject to the same risks and market
fluctuations as all other charterers. In the event Capital Maritime is affected by the ongoing market downturn and limited availability of financing
it may default under its charters with us, which would materially adversely affect our operations and ability to make cash distributions.
In addition, pursuant to our management and administrative services agreements between us and Capital Ship Management, Capital Ship
Management provides significant commercial and technical management services (including the commercial and technical management of
our vessels, class certifications, vessel maintenance and crewing, purchasing and insurance and shipyard supervision) as well as administrative,
financial and other support services to us. Please read “Item 7B: Related-Party Transactions—Transactions entered into during the year ended
December 31, 2012” and “—Transactions entered into during the year ended December 31, 2011” below for a description of all our manage-
ment agreements. Our operational success and ability to execute our growth strategy will depend significantly upon Capital Ship Management’s
satisfactory performance of these services. In the event Capital Maritime is materially affected by the ongoing market downturn and cannot
support Capital Ship Management and Capital Ship Management fails to perform these services satisfactorily, or cancels or materially amends
either of these agreements, or if Capital Ship Management stops providing these services to us, our business will be materially harmed.
Our ability to enter into new charters and expand our customer relationships will depend largely on our ability to leverage our relationship
with Capital Maritime and its reputation and relationships in the shipping industry, including its ability to qualify for long term business with
certain oil majors. If Capital Maritime suffers material damage to its reputation, justifiably or not, or relationships, it may harm our ability to:
• renew existing charters upon their expiration;
• obtain new charters;
• successfully interact with shipyards during periods of shipyard construction constraints;
• obtain financing on commercially acceptable terms; or
• maintain satisfactory relationships with suppliers and other third parties.
Finally, we may also contract with Capital Maritime for it to have newbuildings constructed on our behalf and to incur the construction-
related financing, and we would purchase the vessels on or after delivery based on an agreed-upon price. If Capital Maritime is unable to
meet the payments under any such contract we enter into, it could have a material adverse effect on our business, results of operations
and financial condition and our ability to make cash distributions.
If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, results of opera-
tions and financial condition and our ability to make cash distributions.
Our growth depends on general trends in the shipping industry that may affect the product tanker, container carrier and dry-
bulk trade, as well as on continued growth in demand for refined products and crude oil and the continued demand for their
seaborne transportation.
Our growth strategy depends on developments in the refined product tanker, crude oil, drybulk and container shipping sectors. In particu-
lar, our growth depends on continued growth in world and regional demand for refined products and crude oil, and the transportation of
refined products and crude oil by sea, as well as drybulk products, commodities and other materials that are transported by container or
drybulk vessels, all of which could be negatively affected by a number of factors, including:
• the economic and financial developments globally, including actual and projected global economic growth;
• fluctuations in the actual or projected price of refined products and crude oil;
• refining capacity and its geographical location;
• increases in the production of oil 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-oil pipelines to oil pipelines in those markets;
• decreases in the consumption of oil due to increases in its price relative to other energy sources, other factors making consumption of
oil less attractive or energy conservation measures; and
• availability of new, alternative energy sources.
Additionally, our growth depends on continued growth in world and regional demand for the transportation of containerized and drybulk
goods, which could be negatively affected by a number of factors, including:
• our ability to operate in new markets, including the container carrier market;
• drybulk and container carrier industry trends;
• the supply and demand of containerized goods;
35
• developments in the market for exports of containerized goods from emerging markets, including China;
• trends in the market for imports of raw materials to emerging markets, such as India and China;
• the relocation of regional and global manufacturing facilities from Asian and emerging markets to developed economies in Europe and
the United States;
• negative or deteriorating global or regional economic or political conditions, particularly in oil consuming regions, which could reduce
energy consumption or its growth;
• the location of consuming regions for containerized and drybulk goods;
• the globalization of production and manufacturing;
• the price of steel and other raw materials;
• seaborne and other transportation patterns, including the distances over which container cargoes are transported and changes in such
patterns and distances;
• the globalization of manufacturing;
• the number of vessels being laid up or scrapped in a particular sector compared to the number of newbuild deliveries; and
• environmental and other regulatory developments.
Continued reduced demand for refined products, crude oil, containerized and dry cargo goods, and the shipping of these, would have a
material adverse effect on our future growth and could harm our business, results of operations, cash flows and financial condition.
Our tanker vessels’ present and future employment could be adversely affected by an inability to clear the oil majors’ risk
assessment process.
Shipping, and especially crude oil, refined product and chemical tankers have been, and will remain, heavily regulated. The so called “oil
majors” companies, together with a number of commodities traders, represent a significant percentage of the production, trading and
shipping logistics (terminals) of crude oil and refined products worldwide. Concerns for the environment have led the oil majors to develop
and implement a strict ongoing due diligence process when selecting their commercial partners. This vetting process has evolved into a
sophisticated and comprehensive risk assessment of both the vessel operator and the vessel, including physical ship inspections, comple-
tion of vessel inspection questionnaires performed by accredited inspectors and the production of comprehensive risk assessment reports.
In the case of term charter relationships, additional factors are considered when awarding such contracts, including:
• office assessments and audits of the vessel operator;
• the operator’s environmental, health and safety record;
• compliance with the standards of the International Maritime Organization (the “IMO”), a United Nations agency that issues international
trade standards for shipping;
• compliance with heightened industry standards that have been set by several oil companies;
• shipping industry relationships, reputation for customer service, technical and operating expertise;
• compliance with oil majors codes of conduct, policies and guidelines, including transparency, anti-bribery and ethical conduct require-
ments and relationships with third parties;
• shipping experience and quality of ship operations, including cost-effectiveness;
• quality, experience and technical capability of crews;
• the ability to finance vessels at competitive rates and overall financial stability;
• relationships with shipyards and the ability to obtain suitable berths;
• construction management experience, including the ability to procure on-time delivery of new vessels according to customer specifications;
• willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
• competitiveness of the bid in terms of overall price.
Should either Capital Maritime or Capital Ship Management not continue to successfully clear the oil majors’ risk assessment processes
on an ongoing basis, our vessels’ present and future employment as well as our relationship with our existing charterers and our ability to
obtain new charterers, whether medium- or long-term, could be adversely affected. Such a situation may lead to the oil majors’ terminat-
ing existing charters and refusing to use our vessels in the future which would adversely affect our results of operations and cash flows.
Please read “Item 4B: Business Overview—Major Oil Company Vetting Process” for more information regarding this process.
If we purchase and operate secondhand vessels, we will be exposed to increased operating costs which could adversely affect
our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profit-
able charters.
Our current business strategy includes additional growth through the acquisition of new and secondhand vessels. While we typically
inspect secondhand vessels prior to purchase, this does not provide us with the same knowledge about their condition that we would have
had if these vessels had been built for and operated solely by us. Generally, we do not receive the benefit of warranties from the builders
36
for the secondhand vessels that we acquire. Our fleet had an average age of approximately 5.8 years as of December 31, 2013. In general
the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel efficient
than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates also increase with the age of a
vessel making older vessels less desirable to charterers.
We may not be able to expand the size of our fleet or replace aging vessels in the future which may affect our ability to pay distributions.
Our ability to expand the size of our fleet or replace aging vessels in the future will be affected by our ability to acquire new vessels on
favorable terms. From time to time, we expect to enter into agreements with Capital Maritime or other third parties to purchase additional
newbuildings or other modern vessels (or interests in vessel owning companies). If Capital Maritime or any third party seller we may con-
tract with in the future for the purchase of newbuildings fails to make construction payments for such vessels, the shipyard may rescind
the purchase contract and we may lose access to such vessels or need to finance such vessels before they begin operating and generating
voyage revenues, which could harm our business and our ability to make cash distributions. In addition, the market value of modern ves-
sels or newbuildings is influenced by the ability of buyers to access debt and bank finance and equity capital and any disruptions to the
market and the possible lack of adequate available finance may negatively affect such market values. The failure to effectively identify,
purchase, develop, employ and integrate any vessels or businesses could adversely affect our business, financial condition and results of
operations and our ability to make cash distributions.
If we finance the purchase of any additional vessels or businesses we acquire in the future through cash from operations, by
increasing our indebtedness or by issuing debt or equity securities, our ability to make cash distributions may be diminished,
our financial leverage could increase or our unitholders could be diluted. In addition, if we expand the size of our fleet by
directly contracting newbuildings in the future, we generally will be required to make significant installment payments for
such acquisitions prior to their delivery and generation of any revenue.
The actual cost of a new vessel varies significantly depending on the market price charged by shipyards, the size and specifications of the
vessel, whether a charter is attached to the vessel and the terms of such charter, governmental regulations and maritime self-regulatory
organization standards. The total delivered cost of a vessel will be higher and include financing, construction supervision, vessel start-up
and other costs.
As of December 31, 2013, our fleet consisted of 30 vessels, only eight of which had been part of our initial fleet at the time of our initial
public offering (“IPO”). We have financed the purchase of the additional vessels with debt, or partly with debt, cash and/or partly by issuing
additional equity securities. We also acquired additional vessels through the acquisition of Crude Carriers in 2011. If we issue additional
common units, Class B Units or other equity securities to finance the acquisition of a vessel or business, your ownership interest in us may
be diluted. Please read “Item 3D: Risk Factors—Risks Inherent in an Investment in Us—We may issue additional equity securities without
your approval, which would dilute your ownership interests.” below.
If we elect to expand our fleet in the future by entering into contracts for newbuildings directly with shipyards, we generally will be required
to make installment payments prior to their delivery. We typically must pay between 5% to 25% of the purchase price of a vessel upon
signing the purchase contract, even though delivery of the completed vessel will not occur until much later (approximately 18-36 months
later for current orders) which could reduce cash available for distributions to unitholders. If we finance these acquisitions by issuing debt
or equity securities, we will increase the aggregate amount of interest payments or quarterly distributions we must make prior to generat-
ing cash from the operation of the newbuilding.
To fund the acquisition price of a business or of any additional vessels we may contract to purchase from Capital Maritime or other third
parties and other related capital expenditures, we will be required to use cash from operations or incur borrowings or raise capital through
the sale of debt or additional equity securities. Use of cash from operations will reduce cash available for distributions to unitholders.
Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash distributions to
unitholders. Incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity
securities may result in significant unitholder dilution and would increase the aggregate amount of cash required to meet our quarterly
distributions to unitholders, which could have a material adverse effect on our ability to make cash distributions.
Political and government instability, terrorist or other attacks, war or international hostilities can affect the tanker industry,
which may adversely affect our business.
We conduct most of our operations outside of the United States. In particular, we derive a portion of our revenues from shipping oil and
oil products from politically unstable regions and our business, results of operations, cash flows, financial condition and ability to make
cash distributions may be adversely affected by the effects of political instability, terrorist or other attacks, war or international hostili-
ties. Terrorist attacks such as the attacks on the United States on September 11, 2001, the bombings in Spain on March 11, 2004 and in
London on July 7, 2005, the recent conflicts in Iraq and Afghanistan and other current and future conflicts, and the continuing response
of the United States to these attacks, as well as the threat of future terrorist attacks, continue to contribute to world economic instabil-
ity and uncertainty in global financial markets. Future terrorist attacks could result in increased volatility of the financial markets in the
37
United States and globally, and could negatively impact the U.S. and world economy, potentially leading to an economic recession. These
uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all.
In the past, political instability has also resulted in attacks on vessels, such as the attack on the M/T Limburg in October 2002, mining of
waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have
also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. In addition, oil facili-
ties, shipyards, vessels, pipelines and oil and gas fields could be targets of future terrorist attacks. Any such attacks could lead to, among
other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs,
and the inability to transport oil and other refined products to or from certain locations. Any of these occurrences or other events beyond
our control that adversely affect the distribution, production or transportation of oil and other refined products to be shipped by us could
entitle our customers to terminate our charter contracts and could have a material adverse impact on our business, financial condition,
results of operations, cash flows and ability to make cash distributions.
Furthermore, our operations may be adversely affected by changing or adverse political and governmental conditions in the countries
where our vessels are flagged or registered and in the regions where we otherwise engage in business. Any disruption caused by these
factors may interfere with the operation of our vessels, which could harm our business, financial condition and results of operations. Our
operations may also be adversely affected by expropriation of vessels, taxes, regulation, tariffs, trade embargoes, economic sanctions or
a disruption of or limit to trading activities, or other adverse events or circumstances in or affecting the countries and regions where we
operate or where we may operate in the future.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and anti-corruption
laws in other applicable jurisdictions.
As an international shipping company, we may operate in countries known to have a reputation for corruption. The U.S. Foreign Corrupt
Practices Act of 1977 (the “FCPA”) and other anti-corruption laws and regulations in applicable jurisdictions generally prohibit companies
registered with the SEC and their intermediaries from making improper payments to government officials for the purpose of obtaining or
retaining business. Under the FCPA, U.S. companies may be held liable for some actions taken by strategic or local partners or representa-
tives. Legislation in other countries includes the U.K. Bribery Act, which became effective on July 1, 2011. The U.K. Bribery Act is broader
in scope than the FCPA because it does not contain an exception for facilitating payments (i.e., payments to secure or expedite the per-
formance of a “routine governmental action”) and covers bribes and payments to private businesses as well as foreign public officials. We
and our customers may be subject to these and similar anti-corruption laws in other applicable jurisdictions. Failure to comply with such
legal requirements could expose us to civil and/or criminal penalties, including fines, prosecution and significant reputational damage, all
of which could materially and adversely affect our business and results of operations, including our relationships with our customers, and
our financial results. Compliance with the FCPA, the U.K. Bribery Act and other applicable anti-corruption laws and related regulations
and policies imposes potentially significant costs and operational burdens. Moreover, the compliance and monitoring mechanisms that
we have in place including our Code of Business Conduct and Ethics, which incorporates our anti-bribery and corruption policy may not
adequately prevent or detect possible violations under applicable anti-bribery and anti-corruption legislation.
Our vessels may call on ports located in countries that are subject to restrictions and sanctions imposed by the United States,
the European Union and other jurisdictions.
Certain countries and persons are targeted by sanctions and embargoes imposed by the United States, the European Union and other
jurisdictions, and Cuba, Iran, Sudan and Syria are identified as state sponsors of terrorism by the U.S. Department of State. Such sanc-
tions and embargo laws and regulations vary in their application. They do not apply to the same covered persons or proscribe the same
activities, and such sanctions and embargo laws and regulations may be strengthened or otherwise amended over time. We generally do
not do business in the targeted jurisdictions and have not entered into agreements or other arrangements with the governments or any
governmental entities of Cuba, Iran, Sudan or Syria and have entertained no direct business contacts with officials or representatives of
any such governments or entities. However, although we have various policies and controls designed to help ensure our compliance with
these sanctions and embargo laws, it is possible that the charterers of our vessels, or their subcharterer, may arrange for vessels in our
fleet to call on ports located in one or more of these countries.
In recent years, one focus of these sanctions, especially with respect to Iran, has been on shipping concerns. For example, in 2010, the
United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act (“CISADA”), which amended and expanded the
scope of the Iran Sanctions Act of 1996 (as amended, the “ISA”). Among other things, after CISADA, the ISA provides that sanctions may be
imposed on any person who provides ships or shipping services to deliver refined petroleum products to Iran, subject to certain conditions.
The Iran Threat Reduction and Syria Human Rights Act of 2012 (the “ITRA”) further adds to and strengthens U.S. sanctions regarding Iran.
In particular, with regard to shipping concerns, the ITRA adds new categories of sanctionable commercial activities, including ownership,
operation or control of a vessel that was used to transport crude oil from Iran to another country, subject to certain conditions and excep-
tions. The ITRA also amended the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), to require that issuers required
to file with the SEC an annual or quarterly report under Section 13(a) of the Exchange Act include in the applicable report disclosure as
to whether such issuer or its affiliates have knowingly engaged in certain activities described in the ISA and CISADA, or in transactions
38
or dealings with certain persons identified in Section 13(r) of the Exchange Act. In December 2012, the United States enacted the “Iran
Freedom and Counter-Proliferation Act of 2012,” as a subtitle of the National Defense Authorization Act for Fiscal Year 2012 (the “IFCPA”),
which, among other things, further targets Iran’s ports, shipping, and ship-building sectors as entities of proliferation concern and author-
izes the designation of persons and entities operating a port in Iran, or who knowingly provide significant financial, material, technological
or other support to, or goods and services in support of any activity or transaction on behalf of or for the benefit of such a port operator,
as a Specially Designated Nationals and Blocked Person (“SDN”) to be listed on the U.S. Office of Foreign Assets Control’s (“OFAC”) list of
Specially Designated Nationals and Blocked Persons (“SDN List”). The IFCPA also allows for sanctions to be imposed on any person who
knowingly sells, supplies or transfers, directly or indirectly, materials to be used in connection with the energy, shipping, or shipbuilding
sectors of Iran, subject to certain conditions and exceptions.
If it is determined that a person has engaged in sanctionable conduct under the ISA, the President of the United States (acting through the
U.S. State Department and/or the U.S. Treasury Department) is required to impose at least five of 12 available sanctions. Sanctions include
denial of export licenses, restrictions or prohibition on extensions of loans or credit, loss of eligibility to be awarded government contracts,
a prohibition on transactions in foreign exchange by the sanctioned company, a prohibition of any transfers of credit or payments between,
by, through or to any financial institution to the extent the interest of a sanctioned company is involved, a ban on investment in the debt or
equity securities of the sanctioned party, exclusion of the sanctioned entity’s corporate officers from the United States, sanctions imposed
directly on the principal executive officers of the sanctioned entity and a requirement to “block” or “freeze” any property of the sanctioned
company that is subject to the jurisdiction of the United States.
In addition to these United States sanctions, the European Union has a variety of restrictive measures in force against Iran and Syria. Those
measures include restrictions on the transportation of goods which could be used for nuclear enrichment related activities. Measures are
also in place restricting the import, purchase and transport of Iranian or Syrian crude oil and the transportation of equipment used in the
production of petroleum. In the case of Iran, those measures extend also to the import, purchase and transport of petrochemical products.
We are mindful of the restrictions discussed above and contained in the other applicable sanctions and embargo laws of the United States,
the European Union and other jurisdictions that limit the ability of companies and persons from doing business or trading with targeted
countries and persons. We believe that we are currently in compliance with all applicable sanctions and embargo laws and regulations.
In order to maintain compliance, among other things, we monitor and review the movement of our vessels, as well as the cargo being
transported by our vessels, on a continuing basis. During 2013, our vessels made approximately 821 total calls on worldwide ports. None
of the vessels in our fleet made any port calls in Cuba or Syria. Of the vessels in our fleet, six made one port call each to Iran representing
approximately 0.7% of our total calls. In addition, a vessel owned by our affiliate, Capital Maritime, made one port call to Iran. As part
of the voyage charter arrangements between our affiliate Capital Maritime and third party charterers, Capital Maritime or its manager
may pay fees and expenses related to the port calls made in Iran through a private third party agent in Iran appointed by the third party
charterer, which in 2013 did not include any payments for refueling or bunkers for the vessels making such port calls. The six port calls
made by CPLP vessels and the one port call made by a Capital Maritime vessel all occurred while the respective vessels were sublet by
their charterer under voyage charters to third parties. To the best of our knowledge, the vessels making these port calls were transport-
ing either vegetable oils or molasses, not crude oil, petroleum, refined petroleum, petrochemical products, uranium or weapons, or other
goods that are specially targeted by various sanctions and embargo laws of the United States, such as the ISA, or the European Union. We
believe all such port calls were made in full compliance with applicable regulations, including those of the United States, the European
Union and other relevant jurisdictions.
Our charter agreements include provisions that, on the one hand, restrict trades of our vessels to countries under sanctions or embargoes
and, on the other, allow any transportation activities involving sanctioned countries to the extent permitted under the applicable sanc-
tion or embargo requirements. Our ordinary chartering policy is to try and include similar provisions in all of our period charters. Prior to
agreeing to waive existing charter party restrictions on carrying cargoes to or from Iranian ports, we ensure that the charterers have proof
of compliance with international and U.S. sanction exemptions. More specifically, our current charters proscribe trades of our vessels to
Cuba and contain provisions to also exclude Iran and Syria in certain situations, including in the event that a boycott or further sanctions
are imposed by a relevant jurisdiction regarding trade with Iran and Syria. Our charters at this time do not impose a blanket prohibition
on port calls in the Sudan.
Should one of our charterers engage in actions that involve us or our vessels and that may, if completed, represent material violations of
sanctions and embargo laws or regulations, we would rely on our monitoring and control systems, including documentation, such as bills
of lading, regular check-ins with the crews of our vessels and electronic tracking systems on our vessels to detect such actions on a prompt
basis and seek to prevent them from occurring.
Notwithstanding the above, it is possible that new sanctions-related legislation that could impact our business may be enacted in the
future. In addition, it is possible that the charterers of our vessels may violate applicable sanctions, laws and regulations, using our
vessels or otherwise, and the applicable authorities may seek to review our activities as the vessel owner. Although we do not believe
that current sanctions and embargoes prevent our vessels from making all calls to ports in these countries, potential investors could
view such port calls negatively, which could adversely affect our reputation and the market for our common units. Moreover, although
we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such
compliance, we may not be in strict and absolute compliance in the future, particularly as the scope of certain laws may be unclear,
may be subject to changing interpretations or may be strengthened or otherwise amended. Any such violation could result in fines or
other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our common
39
units. Additionally, some investors, including U.S. state pension funds, may decide, or be required, to divest their interest, or not to
invest, in our common units simply because we may do business with charterers that do business in sanctioned countries, or because
of port calls of our vessels to ports of sanctioned countries, which could have a negative effect on the price of our common units or our
ability to make distributions on our common units. Moreover, our charterers may violate applicable sanctions and embargo laws and
regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputa-
tion. Investor perception of the value of our common units may also be adversely affected by the consequences of war, the effects of
terrorism, civil unrest and governmental actions in these and surrounding countries. Finally, future expansion of sanctions against these
or other countries could prevent our tankers from making any calls at certain ports, which potentially could have a negative impact on
our business and results of operations.
Marine transportation is inherently risky, and an incident involving significant loss of, or environmental contamination by,
any of our vessels could harm our reputation and business.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as:
• marine disasters;
• bad weather;
• mechanical failures;
• grounding, fire, explosions and collisions;
• piracy;
• human error; and
• war and terrorism.
An accident involving any of our vessels could result in any of the following:
• environmental damage, including liabilities and costs to recover any spilled oil or other petroleum products, and to pay for environmental
damage and ecosystem restoration where the spill occurred;
• death or injury to persons, or loss of property;
• delays in the delivery of cargo;
• loss of revenues from or termination of charter contracts;
• governmental fines, penalties or restrictions on conducting business;
• higher insurance rates; and
• damage to our reputation and customer relationships generally.
Any of these results could have a material adverse effect on our business, financial condition and operating results.
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our
net cash flows and net income.
The hull and machinery of every commercial vessel must be certified as being “in class” by a classification society authorized by its country
of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations
of the country of registry of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may
be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. We expect
our vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also
required to be drydocked every two to three years for inspection of its underwater parts, a cost which is undertaken by our manager under
the terms of our management agreement.
If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports
and will be unemployable, which could have a material adverse effect on our business, results of operations, cash flows, financial condition
and ability to make cash distributions.
Our insurance may be insufficient to cover losses that may occur to our property or result from our commercial operations.
The operation of ocean-going vessels in international trade is inherently risky. Not all risks can be adequately insured against and any
particular claim upon our insurance may not be paid for any number of reasons. We do not currently maintain off-hire insurance, cover-
ing loss of revenue during extended vessel off-hire periods such as may occur whilst a vessel is under repair. Accordingly, even though a
unique cover has been negotiated to mitigate such off-hire losses to a certain extent, any extended vessel off-hire due to an accident or
otherwise, could have a materially adverse effect on our business and our ability to pay distributions to our unitholders. Claims covered
40
by insurance are subject to deductibles and since it is possible that a large number of claims may arise, the aggregate amount of these
deductibles could be material. Certain of our insurance coverage is maintained through mutual protection and indemnity associations,
and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member
claims exceed association reserves. Please read “Item 3D: Risk Factors—Risks Inherent in Our Operations—We will be subject to funding
calls by our protection and indemnity associations, and our associations may not have enough resources to cover claims made against
them, resulting in potential unbudgeted supplementary liability to fund claims made upon us.” below.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent
environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance
against risks of environmental damage or pollution. A catastrophic oil spill or marine disaster could exceed our insurance coverage, which
could harm our business, financial condition and operating results. In addition, certain of our vessels are under bareboat charters with BP
Shipping Limited and subsidiaries of OSG. Under the terms of these charters, the charterer provides for the insurance of the vessel and as
a result these vessels may not be adequately insured and/or in some cases may be self-insured. Any uninsured or underinsured loss could
harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions,
such as our ships failing to maintain certification with applicable maritime self-regulatory organizations.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain.
In addition, the insurance that may be available to us may be significantly more expensive than our existing coverage.
We will be subject to funding calls by our protection and indemnity associations, and our associations may not have enough
resources to cover claims made against them, resulting in potential unbudgeted supplementary liability to fund claims made
upon us.
Cover for legal liabilities incurred in consequence of commercial operations is provided through membership in P&I Associations. P&I
Associations are mutual insurance associations whose members must contribute proportionately to cover losses sustained by all the asso-
ciation’s members who remain subject to calls for additional funds if the aggregate premiums are insufficient to cover claims submitted
to the association. Claims submitted to the Associations include those incurred by its members but also claims submitted by other P&I
Associations under claims pooling agreements. The P&I Associations to which we belong may not remain viable and we may become
subject to additional funding calls which could adversely affect us.
The maritime transportation industry is subject to substantial environmental and other regulations and international stand-
ards, which may significantly limit our operations or increase our expenses.
Our operations are affected by extensive and changing international, national and local environmental protection laws, regulations, trea-
ties, conventions and standards in force in international waters, the jurisdictional waters of the countries in which our vessels operate, as
well as the countries of our vessels’ registration. Many of these requirements are designed to reduce the risk of oil spills, air emissions and
other pollution, and to reduce potential negative environmental effects associated with the maritime industry in general. Our compliance
with these requirements can be costly.
These requirements can affect the resale value or useful lives of our vessels, increase operational costs, require a reduction in cargo capac-
ity, ship modifications or operational changes or restrictions, decrease profitability, lead to decreased availability of insurance coverage for
environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local,
national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obliga-
tions and natural resource damages, in the event that there is a release of petroleum or other hazardous substances from our vessels or
otherwise in connection with our operations. We could also become subject to personal injury and property damage claims and natural
resource damages relating to the release of or exposure to hazardous materials associated with our current or historic operations. Violations
of or liabilities under environmental requirements also can result in substantial penalties, fines and other sanctions, including, in certain
instances, seizure or detention of our vessels.
We could incur significant costs, including cleanup costs, fines, penalties, third-party claims and natural resource damages, as the result
of an oil spill or other liabilities under environmental laws. OPA 90 affects all vessel owners shipping oil or petroleum products to, from or
within United States territorial waters. OPA 90 allows for potentially unlimited cleanup liability without regard to fault of owners, operators
and bareboat charterers of vessels for oil pollution in U.S. waters. Similarly, the International Convention on Civil Liability for Oil Pollution
Damage, 1969, as amended, which has been adopted by most countries outside of the United States, imposes liability for oil pollution in
international waters. OPA 90 expressly permits individual states to impose their own stricter liability regimes with regard to hazardous
materials and oil pollution incidents occurring within their boundaries. Certain coastal states in the United States, especially on the Pacific
coast, have enacted pollution prevention liability and response laws, many providing for strict or unlimited liability.
In addition to complying with existing laws and regulations and those that may be adopted, shipowners may incur significant additional
costs in meeting new maintenance, training and inspection requirements, in developing contingency arrangements for potential spills and
in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can
be expected to become stricter in the future and require us to incur significant capital expenditure on our vessels to keep them in compli-
ance, or even to scrap or sell certain vessels altogether. For example, recent amendments to MARPOL regulations regarding the prevention
41
of air pollution from ships establish a series of progressively stricter standards to further limit the sulfur content in fuel oil, which will be
phased in through 2020, and new tiers of nitrogen oxide (“NOx”) emission standards for new marine diesel engines, depending on their date
of installation. Additionally, more stringent emission standards apply in the coastal areas designated as Emission Control Areas, including
the Baltic Sea, the North Sea, and the United States and Canadian coastal areas.
Further legislation, or amendments to existing legislation, applicable to international and national maritime trade is expected over the
coming years relating to environmental matters, such as ship recycling, sewage systems, emission control (including emissions of green-
house gases), cold-ironing while docked and ballast treatment and handling.
For example, legislation and regulations that will require more stringent controls of air emissions from ocean-going vessels are pending or
have been approved at the federal and state level in the United States. The relevant standards are consistent with the 2008 Amendments
to Annex VI of MARPOL. Such legislation or regulations may require significant additional capital expenditures (such as additional costs
required for the installation of control equipment on each vessel) or operating expenses (such as increased costs for low-sulfur fuel) in
order for us to maintain our vessels’ compliance with international and/or national regulations and standards.
In addition, various jurisdictions and organizations, including the IMO and the United States government, have proposed or implemented
requirements governing the management of ballast water to prevent the introduction of non-indigenous invasive species. To meet this chal-
lenge, the IMO has developed the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM
Convention”), to regulate discharges of ballast water and reduce the risk of introducing non-native species from ships’ ballast water. The BWM
Convention will enter into force 12 months after ratification by 30 states, representing 35% of world’s merchant shipping tonnage. As of
December 2013, 38 states, representing approximately 30.38% of the world’s merchant shipping tonnage, have ratified the BWM Convention.
We may incur additional costs to install the relevant control equipment on our vessels in order to comply with the new standards.
In the United States, ballast water management legislation has been enacted in several states, and federal legislation is currently pending
in the U.S. Congress. In addition, the U.S. Environmental Protection Agency has also adopted a rule which requires commercial vessels to
obtain a “Vessel General Permit” from the U.S. Coast Guard in compliance with the Federal Water Pollution Control Act (the “Clean Water
Act”) regulating, among other things, the discharge of ballast water and other discharges into U.S. waters. Permit holders must comply
with U.S. Coast Guard regulations that phase in new ballast water management system standards and requirements for new built and
existing ships beginning in 2013 and through 2016. Significant expenditures for the installation of additional equipment or new systems
on board our vessels may be required in order to comply with existing or future regulations regarding ballast water management in these
other jurisdictions, along with the potential for increased port disposal costs.
Other requirements may also come into force regarding the protection of endangered species, which could lead to changes in the routes
our vessels follow or in trading patterns generally, and thus to additional operating expenditures. Additionally, new environmental regula-
tions with respect to greenhouse gas emissions and preservation of biodiversity amongst others, may arise out of commitments made at
international conferences such as periodic G8 and G20 summits through international environmental agreements and United Nations
Climate Change Conferences or through other multilateral or bilateral agreements.
Furthermore, as a result of marine accidents we believe that regulation of the shipping industry will continue to become more stringent
and more expensive for us and our competitors. In recent years, the IMO and EU have both accelerated their existing non-double-hull
phase-out schedules in response to highly publicized oil spills and other shipping incidents involving companies unrelated to us. Future
incidents may result in the adoption of even stricter laws and regulations, which could limit our operations or our ability to do business
and which could have a material adverse effect on our business and financial results.
Please read “Item 4B: Business Overview—Regulation” below for a more detailed discussion of the regulations applicable to our vessels.
The crew employment agreements that manning agents enter into on behalf of Capital Maritime or any of its affiliates, including
Capital Ship Management, our manager, may not prevent labor interruptions and the failure to renegotiate these agreements
successfully in the future may disrupt our operations and adversely affect our cash flows.
The crew employment agreements that manning agents enter into on behalf of Capital Maritime or any of its affiliates, including Capital
Ship Management, our manager, may not prevent labor interruptions and are subject to renegotiation in the future. Any labor interrup-
tions, including due to a failure to renegotiate employment agreements with our crew members successfully could disrupt our operations
and could adversely affect our business, results of operations, cash flows and financial condition.
If a more active short-term or spot containership market develops, we may have more difficulty entering into medium- to long-
term, fixed-rate time charters and our existing customers may begin to pressure us to reduce our charter rates.
One of our principal strategies is to enter into medium- to long-term, fixed-rate time charters. As more containerships become available for the
short-term or spot market, we may have difficulty entering into additional medium- to long-term, fixed-rate time charters for our vessels due
to the increased supply of vessels and possibly lower rates in the spot market. As a result, our cash flow may be subject to instability in the long
term. A more active short-term or spot containership market may require us to enter into charters based on changing market prices, as opposed
to contracts based on a fixed rate, which could result in a decrease in our cash flow in periods when the market price for vessels is depressed
or insufficient funds are available to cover our financing costs for related vessels. In addition, the development of an active short-term or spot
containership market could affect rates under our existing time charters as our current customers may begin to pressure us to reduce our rates.
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RISKS INHERENT IN AN INVESTMENT IN US
Capital Maritime and its affiliates may engage in competition with us.
P ursuant to the omnibus agreement that we and Capital Maritime have entered into, as amended and restated, Capital Maritime and its
controlled affiliates (other than us, our general partner and our subsidiaries) have agreed not to acquire, own or operate product or crude
oil tankers with carrying capacity over 30,000 dwt under time or bareboat charters with a remaining duration, excluding any extension
options, of at least 12 months at the earliest of the following dates: (a) the date the tanker to which such time or bareboat charter is attached
is first acquired by Capital Maritime and its controlled affiliates and (b) the date on which a tanker owned by Capital Maritime or its controlled
affiliates is put under such time or bareboat charter without the consent of our general partner or first offering such tanker vessel to us. Similarly,
we may not acquire, own or operate product or crude oil tankers with carrying capacity under 30,000 dwt, other than vessels we had owned prior
to the date of such restatement without first offering such tanker vessel first to Capital Maritime. In addition, both we and Capital Maritime have
granted the other party a right of first offer on the transfer or rechartering of any vessels with carrying capacity over 30,000 dwt. The omnibus
agreement, however, contains significant exceptions that may allow Capital Maritime or any of its controlled affiliates to compete with us, which
could harm our business. Please read “Item 7B: Related-Party Transactions—Transactions entered into during the year ended December 31, 2011”.
Capital Maritime is a privately held company and there is little publicly available information about it.
Capital Maritime is our largest customer, with eleven of our 30 vessels chartered to it as of December 31, 2013. In addition, our manager
is a subsidiary of Capital Maritime. The ability of Capital Maritime to continue providing services for our benefit will depend in part on its
own financial strength and reputation in the industry.
Circumstances beyond our control could impair its financial strength and also affect its relationships and reputations within the industry,
and because it is a privately held company, little or no information about its financial strength is publicly available. As a result, an inves-
tor in our common units might have little advance warning of problems Capital Maritime may experience, even though these problems
could have a material adverse effect on us.
Unitholders have limited voting rights and our partnership agreement restricts the voting rights of unitholders owning 5%
or more of our units.
Holders of common units have only limited voting rights on matters affecting our business. We hold a meeting of the limited partners
every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the
meeting. Common unitholders (excluding Capital Maritime and its affiliates) elect five of the eight members of our board of directors. We
do not currently have any outstanding subordinated units. The elected directors are elected on a staggered basis and serve for three-year
terms. Our general partner in its sole discretion has the right to appoint the remaining three directors, who also serve for three-year terms.
The partnership agreement also contains provisions limiting the ability of common unitholders to call meetings or to acquire information
about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.
Unitholders have no right to elect our general partner and our general partner may not be removed except by a vote of the holders of at
least 66 2 / 3 % of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single
class and a majority vote of our board of directors. Currently, 67,237,409 common units are owned by non-affiliated public unitholders,
representing 76.0% of our common units and a 61.6% common unitholder interest in us overall.
Our partnership agreement further restricts unitholders’ voting rights by providing that if any person or group, other than our general partner,
its affiliates, their transferees and persons who acquired such units with the prior approval of our board of directors, owns beneficially 5%
or more of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any
matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, except
for purposes of nominating a person for election to our board, determining the presence of a quorum or for other similar purposes, unless
required by law. The voting rights of any such unitholders in excess of 4.9% will be redistributed pro rata among the other unitholders
holding less than 4.9% of the voting power of all classes of units entitled to vote. As affiliates of our general partner, Capital Maritime and
Crude Carriers Investments Corp. (“Crude Carriers Investments”) are not subject to this limitation.
As of December 31, 2013, the Marinakis family, including Evangelos M. Marinakis, our chairman, may be deemed to beneficially own a
27.3% interest in us through its beneficial ownership, amongst others, of Capital Maritime, which owned a 21.5% interest in us, including
17,692,891 common units, 4,048,484 Class B Units and a 1.6% interest in us through its ownership of our general partner, and of Crude
Carriers Investments, which owned a 3.0% interest in us.
Our general partner and its other affiliates own a significant interest in us and have conflicts of interest and limited fiduciary
and contractual duties, which may permit them to favor their own interests to your detriment.
Our general partner is in charge of our day-to-day affairs consistent with policies and procedures adopted by and subject to the direction
of our board of directors. Our general partner and its affiliates and our directors have a fiduciary duty to manage us in a manner beneficial
43
to us and our unitholders. The common units owned by affiliates of our general partner have the same rights as our other outstanding
common units. However, the officers of our general partner have a fiduciary duty to manage our general partner in a manner beneficial
to Capital Maritime. Furthermore, all of the officers of our general partner and certain of our directors are directors or officers of Capital
Maritime and its affiliates, and as such they have fiduciary duties to Capital Maritime that may cause them to pursue business strategies
that disproportionately benefit Capital Maritime or which otherwise are not in the best interests of us or our unitholders. Conflicts of inter-
est may arise between Capital Maritime and its affiliates, including our general partner and its officers, on the one hand, and us and our
unitholders, on the other hand. As a result of these conflicts, our general partner and its affiliates may favor their own interests over the
interests of our unitholders. Please read “Item 3D: Risk Factors—Risks Inherent in an Investment in Us—Our partnership agreement limits
our general partner’s and our directors’ fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions
taken by our general partner or our directors.” below. These conflicts include, among others, the following situations:
• neither our partnership agreement nor any other agreement requires our general partner or Capital Maritime or its affiliates to pursue
a business strategy that favors us or utilizes our assets, and Capital Maritime’s officers and directors have a fiduciary duty to make deci-
sions in the best interests of the unitholders of Capital Maritime, which may be contrary to our interests;
• the executive officers of our general partner and three of our directors also serve as executive officers and/or directors of Capital Maritime;
• our general partner and our board of directors are allowed to take into account the interests of parties other than us, such as Capital
Maritime, in resolving conflicts of interest, which has the effect of limiting their fiduciary duties to our unitholders;
• our general partner and our directors have limited their liabilities and reduced their fiduciary duties under the laws of The Marshall
Islands, while also restricting the remedies available to our unitholders, and, as a result of purchasing our units, unitholders are treated
as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner and our
directors, all as set forth in the partnership agreement;
• our general partner and our board of directors will be involved in determining the amount and timing of our asset purchases and sales,
capital expenditures, borrowings, and issuances of additional partnership securities and reserves, each of which can affect the amount
of cash that is available for distribution to our unitholders;
• our general partner may have substantial influence over our board of directors’ decision to cause us to borrow funds in order to permit
the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on any subordinated units or
to make incentive distributions;
• our general partner is entitled to reimbursement of all reasonable costs incurred by it and its affiliates for our benefit;
• our partnership agreement does not restrict us from paying our general partner or its 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; and
• our general partner may exercise its right to call and purchase our outstanding units if it and its affiliates own more than 90% of our
common units.
Although a majority of our directors are elected by common unitholders, our general partner has a substantial influence on decisions made
by our board of directors. Please read “Item 7B: Related-Party Transactions” below.
The vote of a majority of our common unitholders generally is required to amend the terms of our partnership agreement,
including votes cast by affiliates of our general partner. As of December 31, 2013, a 27.3% interest in us may be deemed to be
owned by affiliates of our general partner which can significantly impact any vote under the terms of our partnership agree-
ment and may significantly affect your rights under the partnership agreement. In addition, affiliates of our general partner
are not subject to the limitations on voting rights imposed on our other limited partners and may favor their own interests
in any vote by our unitholders.
Under the terms of our partnership agreement the affirmative vote of a majority of common units (or in certain cases a higher percent-
age), generally is required in order to amend the terms of the partnership agreement or to reach certain decisions or actions, including:
• amendments to the definition of available cash, operating surplus and adjusted operating surplus;
• changes in our cash distribution policy;
• elimination of the obligation to pay the minimum quarterly distribution;
• elimination of the obligation to hold an annual general meeting;
• removal of any appointed director for cause;
• transfer of the general partner interest;
• transfer of the incentive distribution rights;
• the ability of the board to sell, exchange or otherwise dispose of all or substantially all of our assets;
• resolution of conflicts of interest;
• withdrawal of the general partner;
• removal of the general partner;
• dissolution of the partnership;
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• change to the quorum requirements;
• approval of merger or consolidation; and
• any other amendment to the partnership agreement, except for certain amendments related to the day-to-day management of the Part-
nership and amendments necessary or appropriate to carrying on our business consistent with historical practice, including a change
that our board of directors determines to be necessary or appropriate to qualify or continue our qualification as a limited partnership or a
partnership in which our limited partners maintain limited liability under the laws of The Marshall Islands or any other jurisdiction, and
an amendment that our board of directors, and, if required, our general partner, determines to be necessary or appropriate in connection
with the authorization and issuance of any class or series of our securities.
Capital Maritime, our largest unitholder, may propose amendments to the partnership agreement that may favor its interests over yours and
which may change or limit your rights under the partnership agreement. Following the conversion of our subordinated units into common
units in February 2009, the risk of any shortfall in the payment of the quarterly distribution is now borne by our common unitholders,
including Capital Maritime and Crude Carriers Investments, equally.
Furthermore, our partnership agreement provides that any changes to the rights of the Class B unitholders, whose rights rank senior to
those of our common unitholders in many respects, must be approved by at least 75% of the holders of such units, excluding units held
by Capital Maritime and its affiliates.
Please also read “Item 3D: Risk Factors—Risks Inherent in an Investment in Us—Unitholders have limited voting rights and our partnership
agreement restricts the voting rights of unitholders owning 5% or more of our units.” above for more information on additional restrictions
imposed by our partnership agreement.
We currently do not have any officers and rely, and expect to continue to rely, solely on officers of our general partner, who face
conflicts in the allocation of their time to our business.
Our board of directors has not exercised its power to appoint officers of CPLP to date, and as a result, we rely, and expect to continue to rely,
solely on the officers of our general partner, who are not required to work full-time on our affairs and who also work for affiliates of our
general partner, including Capital Maritime. For example, our general partner’s Chief Executive Officer and Chief Financial Officer is also
an executive officer of Capital Maritime. The affiliates of our general partner conduct substantial businesses and activities of their own in
which we have no economic interest. As a result, there could be material competition for the time and effort of the officers of our general
partner who also provide services to our general partner’s affiliates, which could have a material adverse effect on our business, results
of operations and financial condition.
Our partnership agreement limits our general partner’s and our directors’ fiduciary duties to our unitholders and restricts the
remedies available to unitholders for actions taken by our general partner or our directors.
Our partnership agreement contains provisions that reduce the standards to which our general partner and directors would otherwise be
held by Marshall Islands law. For example, our partnership agreement:
• permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner.
Where our partnership agreement permits, our general partner may consider only the interests and factors that it desires, and in such
cases 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 in its individual capacity will be made by its sole owner, Capital Maritime. Specifically, pursuant
to our partnership agreement, our general partner will be considered to be acting in its individual capacity if it exercises its call right,
preemptive rights or registration rights, consents or withholds consent to any merger or consolidation of the partnership, appoints any
directors or votes for the election of any director, votes or refrains from voting on amendments to our partnership agreement that require
a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our partnership
agreement) or refrains from transferring its units, general partner interest or incentive distribution rights, or votes upon the dissolution
of the partnership;
• provides that our general partner and our directors are entitled to make other decisions in “good faith” if 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 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 and its officers nor our directors will be liable for monetary damages to us, our limited part-
ners 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 or directors or its officers or directors or those other persons engaged in actual fraud
or willful misconduct.
45
In order to become a limited partner of our partnership, a unitholder is required to agree to be bound by the provisions in the partnership
agreement, including the provisions discussed above.
Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting
to remove our current management or our general partner, and even if public unitholders are dissatisfied, they will be unable
to remove our general partner without Capital Maritime’s consent unless Capital Maritime’s ownership share in us is below a
specified threshold, all of which could diminish the trading price of our units.
Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our
current management or our general partner:
• The unitholders will be unable to remove our general partner without its consent so long as our general partner and its affiliates own
sufficient units to be able to prevent such removal. The vote of the holders of at least 66 2/3% of all outstanding units voting together
as a single class and a majority vote of our board of directors is required to remove the general partner. As of December 31, 2013, the
Marinakis family, including Evangelos M. Marinakis, our chairman, may be deemed to beneficially own a 27.3% interest in us through
its beneficial ownership, amongst others, of Capital Maritime and of Crude Carriers Investments.
• Common unitholders elect five of the eight members of our board of directors. Our general partner in its sole discretion has the right to
appoint the remaining three directors.
• Election of the five directors elected by common unitholders is staggered, meaning that the members of only one of three classes of our
elected directors are selected each year. In addition, the directors appointed by our general partner will serve for terms determined by
our 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 provision providing that if any person or group, other than
our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of our board of directors,
owns beneficially 5% or more of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may
not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating
required votes, except for purposes of nominating a person for election to our board, determining the presence of a quorum or for other
similar purposes, unless required by law. The voting rights of any such unitholders in excess of 4.9% will be redistributed pro rata among
the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote.
• We have substantial latitude in issuing equity securities without unitholder approval.
One effect of these provisions may be to diminish the price at which our units will trade.
The control of our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets
without the consent of the unitholders. In addition, our partnership agreement does not restrict the ability of the members of our general
partner from transferring their respective membership interests in our general partner to a third party. Any such change in control of our
general partner may affect the way we and our operations are managed which could have a material adverse effect on our business, results
of operations or financial condition and our ability to make cash distributions.
Future sales of our common units, or the issuance of additional preferred units, debt securities or warrants, could cause the
market price of our common units to decline.
The market price of our common units could decline due to sales of a large number of units, or the issuance of debt securities or warrants,
in the market, including sales of units by our large unitholders or under our three registration statements on Form F-3 filed with the SEC
during 2011, 2012 and 2013, or the perception that these sales could occur. These sales could also make it more difficult or impossible for
us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of common
units. Please see “Item 4A: History and Development of the Partnership” for a more detailed description of our three registration state-
ments on Form F-3 filed with the SEC.
In addition, pursuant to the terms of our partnership agreement, holders of our Class B Units may convert all or a portion of their Class B
Units into common units at any time, and from time to time, at a ratio of one-for-one, such conversion ratio to be adjusted in the event
that, among other certain anti-dilution protection provisions, the distribution rate on our common units is increased. As of December 31,
2013, certain Class B unitholders have converted 5,733,333 Class B Units into 5,733,333 common units. For a more thorough description
of the rights and privileges of our Class B unitholders under our partnership agreement, including voting rights, please refer to our part-
nership agreement, as amended, filed as Exhibit I to our Current Report on Form 6-K dated February 22, 2010, as Exhibit I to our Current
46
Report on Form 6-K dated September 30, 2011, as Exhibit II to the our Current Report on Form 6-K/A dated May 23, 2012 and as Exhibit
II to our Current Report on Form 6-K dated March 21, 2013.
We may issue additional equity securities without your approval, which would dilute your ownership interests.
We may, without the approval of our unitholders, issue an unlimited number of additional units or other equity securities, including securi-
ties to Capital Maritime. To date, we have issued and outstanding 18,922,221 Class B units to certain investors which are convertible on
a one-for-one basis into common units under certain circumstances, and have also issued 24,967,240 common units to holders of Crude
Carriers’ shares, in a unit-for-share transaction consummated in September 2011 whereby Crude Carriers became a wholly owned subsidiary
of ours. We have also issued common units in connection with the acquisition of certain of our vessels, either directly to Capital Maritime
or through public offerings, including an issuance in August 2013 of 279,286 common units under our 2011 Form F-3 filed with the SEC.
We may make additional such issuances in the future. In addition, in August 2010, we issued a total of 795,200 restricted common units
under our Omnibus Incentive Compensation Plan adopted in April 2008, as amended (the “Plan”). The issuance by us of additional units
or other equity securities of equal or senior rank will have the following effects:
• our unitholders’ proportionate ownership interest in us will decrease;
• the amount of cash available for distribution on each unit may decrease;
• the relative voting strength of each previously outstanding unit may be diminished; and
• the market price of the units may decline.
Our general partner has a limited call right that may require you to sell your units at an undesirable time or price.
If at any time our general partner and its affiliates own more than 90% of the common units, our general partner will have the right,
which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units or
subordinated units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required
to sell your common units or subordinated units at an undesirable time or price and may not receive any return on your investment. You
may also incur a tax liability upon a sale of your units.
You may not have limited liability if a court finds that unitholder action constitutes control of our business.
As a limited partner in a partnership organized under the laws of The Marshall Islands, you could be held liable for our obligations to the
same extent as a general partner if you participate in the “control” of our business (and the person who transacts business with us reasonably
believes, based on the limited partner’s conduct, that the limited partner is a general partner). Our general partner generally has unlimited
liability for the obligations of the partnership, such as its debts and environmental liabilities, except for those contractual obligations of
the partnership that are expressly made without recourse to our general partner. In addition, the limitations on the liability of holders of
limited partner interests for the obligations of a limited partnership have not been clearly established in some jurisdictions in which we
do business. Please read “The Partnership Agreement—Limited Liability” in our Registration Statement on Form F-1 filed with the SEC on
March 19, 2007, for a more detailed discussion of the implications of the limitations on liability to a unitholder.
We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.
Our partnership agreement allows us to make working capital borrowings to pay distributions. Accordingly, we can make distributions on
all our units even though cash generated by our operations may not be sufficient to pay such distributions. Any working capital borrow-
ings by us to make distributions will reduce the amount of working capital borrowings we can make for operating our business. For more
information, please read “Item 5B: Liquidity and Capital Resources—Borrowings”.
Increases in interest rates may cause the market price of our common units to decline.
An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular for yield
based equity investments such as our common units. Any such increase in interest rates or reduction in demand for our common units
resulting from other relatively more attractive investment opportunities may cause the trading price of our common units to decline.
Unitholders may have liability to repay distributions.
Under some circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under the Marshall Islands
Limited Partnership Act (the “MILPA”), we may not make a distribution if the distribution would cause our liabilities (other than liabilities
to partners on account of their partnership interest and liabilities for which the recourse of creditors is limited to specified property of
ours) to exceed the fair value of our assets, except that the fair value of property that is subject to a liability for which the recourse of
47
creditors is limited shall be included in our assets only to the extent that the fair value of that property exceeds that liability. The MILPA
provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and
who knew at the time of the distribution that it violated the MILPA will be liable to the limited partnership for the distribution amount.
Assignees who become substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership
that are known to the assignee at the time it became a limited partner and for unknown obligations if the liabilities could be determined
from the partnership agreement.
We have incurred, and may continue to incur significant costs in complying with the requirements of the U.S. Sarbanes-Oxley
Act of 2002. If management is unable to continue to provide reports as to the effectiveness of our internal control over financial
reporting or our independent registered public accounting firm is unable to continue to provide us with unqualified attestation
reports as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability
of our financial statements, which could result in a decrease in the value of our common units.
We completed our IPO on the Nasdaq Global Market on April 3, 2007. As a publicly traded limited partnership, we are required to comply
with the SEC’s reporting requirements and with corporate governance and related requirements of the U.S. Sarbanes-Oxley Act of 2002,
the SEC and the Nasdaq Global Market, on which our common units are listed. Section 404 of the U.S. Sarbanes-Oxley Act of 2002 (“SOX
404”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting on an annual basis and
include in our reports filed with the SEC our management’s assessment of the effectiveness of our internal control over financial reporting
and a related attestation of our independent registered public accounting firm. As our manager, Capital Maritime provides substantially
all of our financial reporting and we depend on the procedures they have in place. If, in such future annual reports on Form 20-F, our
management cannot provide a report as to the effectiveness of our internal control over financial reporting or our independent registered
public accounting firm is unable to provide us with an unqualified attestation report as to the effectiveness of our internal control over
financial reporting as required by SOX 404, investors could lose confidence in the reliability of our financial statements, which could result
in a decrease in the value of our common units.
We have and expect we will continue to have to dedicate a significant amount of time and resources to ensure compliance with the regula-
tory requirements of SOX 404. We will continue to work with our legal, accounting and financial advisors to identify any areas in which
changes should be made to our financial and management control systems to manage our growth and our obligations as a public company.
However, these and other measures we may take may not be sufficient to allow us to satisfy our obligations as a public company on a
timely and reliable basis. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a
timely basis and our financial statements may be materially misstated. We have incurred and will continue to incur legal, accounting and
other expenses in complying with these and other applicable regulations. We anticipate that our incremental general and administrative
expenses as a publicly traded limited partnership taxed as a corporation for U.S. federal income tax purposes will include costs associated
with annual reports to unitholders, tax returns, investor relations, registrar and transfer agent’s fees, incremental director and officer liability
insurance costs and director compensation.
Our organization as a limited partnership under the laws of the Republic of The Marshall Islands may limit the ability of our
unitholders to protect their interests.
Our affairs are governed by our partnership agreement and the MILPA. The provisions of the MILPA resemble provisions of the limited partner-
ship laws of a number of states in the United States, most notably Delaware. The MILPA also provides that it is to be applied and construed
to make it uniform with the Delaware Revised Uniform Partnership Act and, so long as it does not conflict with the MILPA or decisions of the
Marshall Islands courts, interpreted according to the non-statutory law (or case law) of the State of Delaware. However, there have been few, if
any, judicial cases in the Republic of The Marshall Islands interpreting the MILPA. For example, the rights and fiduciary responsibilities of direc-
tors under the laws of the Republic of The Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors
under statutes or judicial precedent in existence in certain U.S. jurisdictions. Although the MILPA does specifically incorporate the non-statutory
law, or judicial case law, of the State of Delaware, our public unitholders may have more difficulty in protecting their interests in the face of
actions by management, directors or controlling unitholders than would shareholders of a limited partnership organized in a U.S. jurisdiction.
It may not be possible for investors to enforce U.S. judgments against us.
We are organized under the laws of the Republic of The Marshall Islands, as is our general partner and most of our subsidiaries. Most of our
directors and the directors and officers of our general partner and those of our subsidiaries are residents of countries other than the United
States. Substantially all of our assets and those of our subsidiaries are located outside the United States. As a result, it may be difficult or
impossible for U.S. investors to serve process within the United States upon us or to enforce judgment upon us for civil liabilities in U.S.
courts. In addition, you should not assume that courts in the countries in which we or our subsidiaries are incorporated or organized or
where our assets or the assets of our subsidiaries are located (1) would enforce judgments of U.S. courts obtained in actions against us or
our subsidiaries based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would impose, in original
actions, liabilities against us or our subsidiaries based upon these laws.
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TAX RISKS
I n addition to the following risk factors, you should also read “Item 10E: Taxation” below for a more complete discussion of
the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition
of our units.
U.S. tax authorities could treat us as a “passive foreign investment company”, which could have adverse U.S. federal income
tax consequences to U.S. unitholders.
A foreign entity taxed as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company” (a
“PFIC”) for U.S. federal income tax purposes if (x) at least 75% of its gross income for any taxable year consists of certain types of “passive
income”, or (y) at least 50% of the average value of the entity’s assets produce or are held for the production of those types of “passive
income”. For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property,
and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a
trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income”. U.S.
persons who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by
the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares
in the PFIC.
Based on our current and projected method of operation, we believe that we are not currently a PFIC and we do not expect to become a PFIC
in the future. We intend to treat our income from spot and time chartering activities as non-passive income, and the vessels engaged in
those activities as non-passive assets, for PFIC purposes. However, no assurance can be given that the Internal Revenue Service (the “IRS”)
or a United States court will accept this position, and there is accordingly a risk that the IRS or a United States court could determine that
we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be
changes in our assets, income or operations. See “Item 10E: Taxation—Material United States Federal Income Tax Considerations—PFIC
Status and Significant Tax Consequences”.
We may have to pay tax on United States source income, which would reduce our earnings.
Under the Internal Revenue Code of 1986, as amended (the “Code”), 50% of the gross shipping income of a vessel owning or charter-
ing corporation that is attributable to transportation that either begins or ends, but that does not both begin and end, in the U.S. is
characterized as U.S. source shipping income and such income generally is subject to a 4% U.S. federal income tax without allowance
for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code. We believe that we and each of
our subsidiaries will qualify for this statutory tax exemption, and we will take this position for U.S. federal income tax return reporting
purposes. See “Item 10E: Taxation—Material United States Federal Income Tax Considerations—The Section 883 Exemption”. However,
there are factual circumstances, including some that may be beyond our control, which could cause us to lose the benefit of this tax
exemption. In addition, our conclusion that we currently qualify for this exemption is based upon legal authorities that do not expressly
contemplate an organizational structure such as ours. Although we have elected to be treated as a corporation for U.S. federal income
tax purposes, for corporate law purposes we are organized as a limited partnership under Marshall Islands law. Our general partner will
be responsible for managing our business and affairs and has been granted certain veto rights over decisions of our board of directors.
Therefore, we can give no assurances that the IRS will not take a different position regarding our qualification, or the qualification of
any of our subsidiaries, for this tax exemption.
If we or our subsidiaries are not entitled to this exemption under Section 883 of the Code for any taxable year, we or our subsidiaries
generally would be subject for those years to a 4% U.S. federal gross income tax on our U.S. source shipping income. The imposition
of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our
unitholders.
You may be subject to income tax in one or more non-U.S. countries, including Greece, as a result of owning our units if, under
the laws of any such country, we are considered to be carrying on business there. Such laws may require you to file a tax return
with and pay taxes to those countries.
We intend that our affairs and the business of each of our subsidiaries will be conducted and operated in a manner that minimizes income
taxes imposed upon us and these subsidiaries or which may be imposed upon you as a result of owning our units. However, because we are
organized as a partnership, there is a risk in some jurisdictions that our activities and the activities of our subsidiaries may be attributed
to our unitholders for tax purposes and, thus, that you will be subject to tax in one or more non-U.S. countries, including Greece, as a result
of owning our units if, under the laws of any such country, we are considered to be carrying on business there. If you are subject to tax in
any such country, you may be required to file a tax return with and pay tax in that country based on your allocable share of our income.
We may be required to reduce distributions to you on account of any withholding obligations imposed upon us by that country in respect
of such allocation to you. The United States may not allow a tax credit for any foreign income taxes that you directly or indirectly incur.
49
We believe we can conduct our activities in a manner so that our unitholders should not be considered to be carrying on business in Greece
solely as a consequence of acquiring, holding, disposing of or participating in the redemption of our units. However, the question of whether
either we or any of our subsidiaries will be treated as carrying on business in any country, including Greece, will largely be a question of
fact determined through an analysis of contractual arrangements, including the management and the administrative services agreements
we have entered into with Capital Ship Management, and the way we conduct business or operations, all of which may change over time.
The laws of Greece or any other foreign country may also change, which could cause the country’s taxing authorities to determine that
we are carrying on business in such country and are subject to its taxation laws. Any foreign taxes imposed on us or any subsidiaries will
reduce our cash available for distribution.
PART I Item 4. Information on the Partnership.
A. HISTORY AND DEVELOPMENT OF THE PARTNERSHIP
W e are a master limited partnership formed as Capital Product Partners L.P. under the laws of The Marshall Islands on January 16,
2007. We completed our IPO in April 2007 at which time our fleet consisted of eight vessels as compared to the 30 currently
in our fleet. We maintain our principal executive headquarters at 3 Iassonos Street, Piraeus, 18537 Greece and our telephone
number is +30 210 4584 950. Our registered address in the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island,
Majuro, Marshall Islands MH96960. The name of our registered agent at such address is The Trust Company of the Marshall Islands, Inc.
On February 23, 2010, we announced the issuance of 5,800,000 common units at a public offering price of $8.85 per common unit under
our Registration Statement on Form F-3 dated August 29, 2008, as amended (the “2008 Form F-3”). An additional 481,578 common units
were subsequently sold on the same terms following the partial exercise of the over-allotment option granted to the underwriters for the
offering. Capital GP L.L.C., our general partner, participated in both the offering and the exercise of the over-allotment option and purchased
an additional 128,195 units at the public offering price, thereby maintaining its 2% interest us. Aggregate proceeds, net of commissions
but before expenses relating to the offering, were approximately $54.0 million. The net proceeds from the offering were used to acquire
one MR tanker at an acquisition price of $43.0 million and for general partnership purposes.
On July 22, 2010, we held our annual general meeting of unitholders, at which time the two initial directors appointed by Capital Maritime
and designated as Class III elected directors were reelected by a majority of our common unitholders (excluding common units held by
Capital Maritime). As of this annual meeting, a majority of our board has been elected by our common unitholders, rather than appointed
by our general partner.
On August 9, 2010, we announced the issuance of 5,500,000 common units at a public offering price of $8.63 per common unit under
our 2008 Form F-3. An additional 552,254 common units were subsequently sold on the same terms following the partial exercise of
the over-allotment option granted to the underwriters. Capital GP L.L.C., our general partner, participated in both the offering and the
exercise of the over-allotment option and purchased an additional 123,515 units at the public offering price, thereby maintaining its
2% interest in us.
Aggregate proceeds, net of commissions but before expenses relating to the offering, were approximately $50.8 million. The net proceeds
from the offering were used to acquire one MR tanker at an acquisition price of $43.5 million and for general partnership purposes.
On May 5, 2011, we entered into a definitive agreement to merge with Crude Carriers in a unit-for-share transaction whereby Crude Carri-
ers would become a wholly owned subsidiary of ours. The exchange ratio was 1.56 of our units for each Crude Carriers share. In September
2011, we completed the merger with Crude Carriers, which was approved by 60.3% of Crude Carriers’ unaffiliated shareholders voting as a
separate class, representing approximately 97.9% of the total votes cast, at a special shareholders’ meeting. In connection with the merger,
we issued an additional 24,967,240 common units to holders of Crude Carriers’ shares, which include 3,284,210 common units resulting
from the conversion of Crude Carriers’ Class B Shares owned by Crude Carriers Investments and 623,064 common units resulting from the
conversion of common shares issued under the Crude Carriers Equity Incentive Plan (the “Crude Plan”). We also approved the election of
Dimitris Christacopoulos, an independent member of the Crude Carriers board, to our board of directors. Concurrently with the completion
of the merger, and in order for our general partner to maintain its 2% interest in us, 499,346 common units owned by Capital Maritime
were converted into general partner units. For additional information regarding the merger with Crude Carriers please see our Registration
Statement on Form F-4 filed with the SEC and declared effective on August 12, 2011 (our “Form F-4”) and Note 3 (Acquisitions) to our
Financial Statements included herein.
In June 2011, we completed the acquisition of the vessel owning company of the M/V Cape Agamemnon and the attached charter from
Capital Maritime. The vessel is under a charter to Cosco, which was amended in November 2011, for a ten-year period which commenced
in July 2010. The acquisition was funded through $1.5 million from available cash and the incurrence of $25.0 million of debt under our
2011 credit facility and the remainder through the issuance of 6,958,000 common units to Capital Maritime. The acquisition was approved
by our board of directors following approval by the conflicts committee.
In June 2011, we entered into a new $25.0 million credit facility with Credit Agricole Emporiki Bank which, as subsequently amended, is
non-amortizing until March 2016 and is priced at LIBOR plus 3.25%. We used the full amount available under this facility in connection
with the acquisition of the M/V Cape Agamemnon. Following certain prepayments, as of the date of this Annual Report $19.0 million was
outstanding under the 2011 credit facility.
50
In September 2011, we completed the refinancing of Crude Carriers’ outstanding debt of $134.6 million using our 2008 credit facility. The
refinanced amount is non-amortizing until March 2016.
In September 2011, pursuant to the terms of our merger agreement with Crude Carriers, we amended and restated the omnibus agree-
ment we had entered into at the time of our IPO with Capital Maritime. Under the terms of the amended and restated omnibus agreement
Capital Maritime and its controlled affiliates (other than us, our general partner and our subsidiaries) have agreed not to acquire, own or
operate product or crude oil tankers with carrying capacity over 30,000 dwt under time or bareboat charters with a remaining duration,
excluding any extension options, of at least 12 months at the earliest of the following dates: (a) the date the tanker to which such time or
bareboat charter is attached is first acquired by Capital Maritime and its controlled affiliates and (b) the date on which a tanker owned by
Capital Maritime or its controlled affiliates is put under such time or bareboat charter without the consent of our general partner or first
offering such tanker vessel to us. Similarly, we may not acquire, own or operate product or crude oil tankers with carrying capacity under
30,000 dwt, other than vessels we had owned prior to the date of such restatement without first offering such tanker vessel first to Capital
Maritime. In addition, both we and Capital Maritime have granted the other party a right of first offer on the transfer or rechartering of
any vessels with carrying capacity over 30,000 dwt.
On December 9, 2011, our Registration Statement on Form F-3 filed with the SEC during 2011 using a “shelf” registration process, as
amended, was declared effective (the “2011 Form F-3”). Under this 2011 Form F-3, we may sell, in one or more offerings, up to $500.0
million in total aggregate offering price of common units, preferred units, debt securities, including debt securities convertible into or
exchangeable for common units or other securities, and warrants.
In May 2012 we announced an agreement to issue $140.0 million of Class B Units to a group of investors including amongst others Kayne
Anderson Capital Advisors, L.P., Swank Capital LLC, Salient Partners, Spring Creek Capital LLC, Mason Street Advisors LLC and our sponsor
Capital Maritime (the “Purchasers”). As of June 6, 2012, we had completed the issuance and sale of 15,555,554 Class B Units to the Purchas-
ers pursuant to the Class B Convertible Preferred Unit Subscription Agreements dated May 11, 2012 and June 6, 2012, respectively (the
“Subscription Agreements”), entered into with the Purchasers. The Class B Units were priced at $9.00 per unit and are convertible at any
time into common units of the Partnership on a one-for-one basis. The Class B Units pay a fixed quarterly distribution of $0.21375 per unit
representing an annualized distribution yield of 9.5%. The net proceeds of the transaction, together with part of our cash balances, were
used to prepay debt of $149.6 million across our three credit facilities. The transaction was unanimously approved by our board of directors.
In connection with the issuance and sale of the Class B Units, we adopted the Second Amendment, dated as of May 22, 2012 (the “Second
Amendment to the Partnership Agreement”), to our partnership agreement, which established and set forth the rights, preferences, privi-
leges, duties and obligations of the Class B Units. The issued Class B Units have certain rights that are senior to the rights of the holders of
common units, such as the right to distributions and rights upon liquidation of the Partnership. Furthermore, we entered into the certain
Registration Rights Agreements, dated as of May 22, 2012 and June 6, 2012, respectively (“Registration Rights Agreements”), with certain
Purchasers, relating to the registered resale of common units issuable upon the conversion of the Class B Units purchased pursuant to
the Subscription Agreements. The Class B Units have not been registered under the Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent a registration statement or exemption from registration.
In addition, we also entered into amendments to our three credit facilities which provide for a deferral of scheduled amortization payments
under each of our three credit facilities until March 31, 2016, the conversion of the 2007 credit facility to a term loan and cancellation of
the undrawn tranche of $52.5 million of our 2008 facility. In addition, the interest margin of our 2007 and 2008 facilities was increased
to 2.0% and 3.0%, respectively. All other terms in these credit facilities remained unchanged.
For additional information regarding the issuance and sale of the Class B Units, the Registration Rights Agreements, the Subscription
Agreements and the Second Amendment to the Partnership Agreement please see our Current Reports on Form 6-K furnished to the SEC
on May 23, 2012 and June 6, 2012 and Note 13 (Partners’ Capital) to our Financial Statements included herein.
2013 DEVELOPMENTS ISSUANCE AND SALE OF CLASS B UNITS
I n March 2013 we announced an agreement to issue 9.1 million Class B Units to funds managed by Kayne Anderson Capital Advisors,
L.P. and Oaktree Capital Management, L.P. as well as to our sponsor Capital Maritime (the “2013 Purchasers”) and completed the issuance
and sale of such 9.1 million Class B Units to the 2013 Purchasers pursuant to the Class B Convertible Preferred Unit Subscription Agree-
ment dated March 15, 2013 (the “2013 Subscription Agreement”) entered into with the 2013 Purchasers. The Class B Units were priced
at $8.25 per unit. In connection with the issuance and sale of the Class B Units, we adopted the Third Amendment, dated as of March 19,
2013 (the “Third Amendment to the Partnership Agreement”), to our partnership agreement, which amends some of the rights, preferences
and privileges of the Class B Units. As described above and in further detail in the Second Amendment to the Partnership Agreement,
filed as Exhibit II to the our Current Report on Form 6-K/A dated May 23, 2012, the Class B Units have certain rights that are senior to
the rights of the holders of our common units, such as the right to distributions and rights upon liquidation of the Partnership. The Third
Amendment to the Partnership Agreement amends certain terms of the Class B Units, including an adjustment to the distribution rate
for the Class B Units in the event the distribution rate on our common units is increased, and providing for the payment of distributions
to holders of Class B Units in common units in the event distributions are not paid in cash. The Class B Units remain convertible at any
time into common units of the Partnership on a one-for-one basis and continue to pay a fixed quarterly distribution of $0.21375 per unit
representing an annualized distribution yield of 9.5%.
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The net proceeds of the transaction, together with approximately $54.0 million from our existing credit facilities and part of our cash bal-
ances, were used for the acquisition of two 5,023 TEU container vessels, the M/V ‘Hyundai Premium’ and M/V ‘Hyundai Paramount’, for a
total consideration of $130.0 million. Both the M/V ‘Hyundai Premium’ and M/V ‘Hyundai Paramount’ are 2013 built at Hyundai Heavy
Industries Co. Ltd.. The vessels were originally ordered by Capital Maritime and have secured a 12 year time charter employment (+/- 60
days) to HMM at a gross rate of $29,350 per day.
OSG BANKRUPTCY AND ASSIGNMENT OF CLAIMS
O n November 14, 2012, OSG and certain of its subsidiaries made a voluntary filing for relief under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). As of December 31, 2013, we had three IMO
II/III Chemical/Product tankers (M/T Alexandros II, M/T Aristotelis II and M/T Aris II, all built in 2008 by STX Offshore & Shipbuilding
Co. Ltd.) on long term bareboat charter to subsidiaries of OSG. These charters were scheduled to terminate, approximately, in November
2017, April and June of 2018, respectively, and were at rates that were substantially above then current market rates. OSG requested that
we reduce the charter rates for their remaining terms to substantially lower rates.
After discussions with OSG, we agreed to enter into new charters with OSG on substantially the same terms as the prior charters, but at
a bareboat rate of $6,250 per day. The new charters were approved by the Bankruptcy Court on March 21, 2013, and were effective as of
March 1, 2013. On the same date, the Bankruptcy Court also rejected the prior charters as of March 1, 2013. Rejection of each prior charter
constitutes a material breach of such charter.
On May 24, 2013, we filed six claims (the “Claims”) for a total of $54.1 million against each of the three charterers and their respective
three guarantors for damages resulting from the rejection of each of the prior charters, including, among other things, for the difference
between the bareboat rate of the new charters and the bareboat rate under each of the rejected prior charters.
We transferred to Deutsche Bank Securities Inc. (“Deutsche Bank”) all of our rights, title, interest, claims and causes of action in and to, or arising
under or in connection with, the Claims pursuant to three separate Assignment of Claim Agreements, dated as of June 24, 2013, and effective as
of June 26, 2013 (collectively, as may be amended or supplemented from time to time, the “Assignment Agreements”). In connection with the
Assignment Agreements, on July 2, 2013, Deutsche Bank filed with the Bankruptcy Court six separate Evidences of Transfer of Claim in connec-
tion with each of the six Claims. The total proceeds received by the Partnership from the sale of claims to Deutsche Bank were dependent on the
actual claim amount allowed by the Bankruptcy Court—we may have been required to refund a portion of the purchase price (up to a maximum
of $9 million) or may have received an additional payment from Deutsche Bank. On December 18, 2013, we entered into a Settlement Notice
and Refund Modification with Deutsche Bank pursuant to which, among other things, we agreed that if the Claims are allowed in an aggregate
amount less than $43.25 million, the maximum aggregate amount that we are obligated to refund to Deutsche Bank is $0.6 million.
On January 6, 2014, OSG and certain of its affiliates filed a motion (the “Settlement Motion”) with the Bankruptcy Court seeking approval
of a settlement (the “Settlement”) with Deutsche Bank in connection with the Claims. Among other things, the Settlement provides that
the Claims will be allowed as general unsecured non-priority claims in the aggregate reduced amount of $43 million. The Bankruptcy
Court approved the Settlement Motion on February 3, 2014. Pursuant to the terms of the Assignment Agreements, because the Claims are
allowed in an aggregate amount of $43 million, we are obligated to refund $0.6 million Deutsche Bank.
ISSUANCE AND SALE OF COMMON UNITS
O n August 5, 2013, we announced the issuance of 11,900,000 common units at a public offering price of $9.25 per common unit under our
2011 Form F-3. An additional 1,785,000 common units were subsequently sold on the same terms following the full exercise of the over-
allotment option granted to the underwriters. Capital GP L.L.C., our general partner, participated in both the offering and the exercise of the
over-allotment option and purchased 279,286 units at the public offering price. Subsequent to the completion of the equity issuance, our general
partner converted 349,700 common units into general partner units to maintain its 2% interest in us. Net proceeds, before expenses, relating to the
offering were approximately $120.7 million. The net proceeds from the offering, together with $75.0 million from our 2013 credit facility and part
of our cash balances, were used to acquire three 5,023 TEU container vessels, the M/V CCNI Angol (ex Hyundai Prestige), the M/V Hyundai Privilege
and the M/V Hyundai Platinum, from our sponsor Capital Maritime for an aggregate purchase price of $195.0 million. Each of these vessels was built
in 2013 at Hyundai Heavy Industries. Co. Ltd. and each such vessel is employed under a 12 year time charter employment (+/- 60 days) to HMM at
a gross rate of $29,350 per day. The charters commenced shortly after the delivery of the vessels to Capital Maritime during the first half of 2013.
OTHER DEVELOPMENTS
On July 22, 2013, we held our annual general meeting of unitholders, at which time both Keith Forman and Evangelos Bairactaris were
reelected to act as Class III Directors until our 2016 annual general meeting. No other actions were taken at the meeting.
In July, August, October and December 2013, certain holders of our Class B Units converted 5,733,333 Class B Units into common units
in accordance with the terms of the partnership agreement.
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On September 6, 2013, and as amended on December 27, 2013, we entered into the 2013 credit facility. The 2013 credit facility is non-amortizing
until March 2016, with a final maturity date in December 2020, and is priced at LIBOR plus 3.50% and a commitment fee of 1.00%. The facility
will be available for the funding of up to 50% of the charter free value of modern product tankers and post-panamax container vessels.
On November 5, 2013, we sold the M/T Agamemnon II (51,238 dwt IMO II/III Chemical Product Tanker built 2008, STX Shipbuilding &
Offshore, S. Korea) to unaffiliated third parties.
On November 28, 2013, we acquired an eco-type MR product tanker to be renamed M/T Aristotelis (51,604 dwt IMO II/III Chemical Product
Tanker built 2013, Hyundai Mipo Dockyard Ltd, S. Korea). The acquisition of M/T Aristotelis was funded with proceeds from the sale of
M/T Agamemnon II and approximately $6.3 million from our cash balances.
Our fleet consists of 30 high specification vessels. We currently have no capital commitments to purchase or build additional vessels. We
intend to continue to evaluate potential acquisitions of vessels or businesses and to take advantage of our relationship with Capital Mari-
time in a prudent manner that is accretive to our unitholders and to long-term distribution growth.
Please see “Item 4B: Business Overview—Our Fleet” below for more information regarding our vessels, their charters, charter rates and
expirations, operating expenses and other information, “Item 5A: Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Overview—Accounting for Acquisition and Disposal of Vessels and Merger with Crude Carriers” and “Item 5B: Liquidity
and Capital Resources—Net Cash Provided by/(Used in) Investing Activities” for more information regarding any acquisitions and “Item
7B: Related-Party Transactions” for a description of the terms of certain transactions.
B. BUSINESS OVERVIEW
W e are an international owner of modern tanker, container and drybulk vessels. Our fleet of 30 modern high specification vessels
2.1 million dwt) with an average age of approximately 5.8 years as of December 31, 2013, consists of four Suezmax crude oil tankers,
18 modern MR tankers all of which are classed as IMO II/III vessels, seven post-panamax container carrier vessels and one Capesize
bulk carrier. Our vessels are capable of carrying a wide range of cargoes, including crude oil, refined oil products, such as gasoline, diesel, fuel
oil and jet fuel, edible oils and certain chemicals such as ethanol, as well as dry cargo and containerized goods. As of December 31, 2013, all
our vessels were chartered under medium- to long-term time and bareboat charters (with an average remaining term of approximately 8.8
years) to large charterers such as BP Shipping Limited, HMM, Capital Maritime, Cosco, Maersk Line, Bluemarine Cargo, S.A. de C.V. (“Bluemarine
Cargo”), Subtec S.A. de C.V. (“Subtec”) and subsidiaries of OSG. All our time and bareboat charters provide for the receipt of a fixed base rate for
the life of the charter, and in the case of 12 of our 17 time charters, also provide for profit sharing arrangements in excess of the base rate.
Please see “Item 4B: Business Overview—Our Charters—Profit Sharing Arrangements” below for a detailed description of how profit sharing
is calculated. As of December 31, 2013, the Marinakis family, including Evangelos M. Marinakis, our chairman, may be deemed to beneficially
own a 27.3% interest in us through its beneficial ownership, amongst others, of Capital Maritime, and of Crude Carriers Investments.
BUSINESS STRATEGIES
Our primary business objective is to pay a sustainable quarterly distribution on our common units and Class B Units and to increase our
distributions on our common units over time by executing the following business strategies:
• Maintain medium- to long-term fixed charters. We believe that the medium- to long-term, fixed-rate nature of our charters, our profit
sharing arrangements, and our cost-efficient ship management operations under our agreements with Capital Ship Management provide visibility
of revenues and cash flows in the medium- to long-term. As of December 31, 2013, all our vessels were chartered under medium- to long-term
time and bareboat charters with an average remaining term of approximately 8.8 years. As our vessels come up for rechartering we will seek to
redeploy them under period contracts that reflect our expectations of the market conditions prevailing at the time. We believe that the young
age and diversified profile of our fleet, the high specifications of our vessels and our manager’s ability to meet the rigorous vetting requirements
of some of the world’s most selective major international oil companies and major charterers position us well to recharter our vessels.
• Expand our fleet through accretive acquisitions. Our fleet consists of 30 vessels, compared to eight vessels at the time of our IPO in 2007. We
intend to continue to evaluate potential acquisitions of both newbuildings and second-hand vessels from Capital Maritime and unaffiliated third
parties and to take advantage of our unique relationship with Capital Maritime to make strategic acquisitions in the medium- to long-term in a
prudent manner that is accretive to our unitholders and to long-term distribution growth. We have approximately $150 million available under
a new credit facility that may be used for further vessel acquisitions. Please refer to “Item 5B: Liquidity and Capital Resources—Borrowings—Our
Credit Facilities” for more information. In addition, we may pursue opportunities for acquisitions of, or combinations with, other shipping businesses.
• Capitalize on our relationship with Capital Maritime and expand our relationships with our existing and new charterers. We
believe that we can leverage our relationship with Capital Maritime and its ability to meet the rigorous vetting and selection processes of
leading oil companies, as well as those of other charterers in the tanker, drybulk and container sectors, in order to attract new customers for
53
the 30 vessels in our fleet. We may increase the number of vessels we charter to our existing charterers, including Capital Maritime, in order
to expand our relationship with them and satisfy their diverse trading requirements. In addition, we plan to enter into charter agreements
with new customers in order to maintain a portfolio of charters that is diverse from a customer, geography and maturity perspective.
• Maintain and build on our ability to meet rigorous industry and regulatory safety standards. We believe that in order for us to be
successful in growing our business in the future, we will need to maintain our excellent vessel safety record and maintain and build on our high
level of customer service and support. Capital Ship Management has an excellent vessel safety record, is capable of complying with rigorous health,
safety and environmental protection standards, and is committed to providing our customers with a high level of customer service and support.
COMPETITIVE STRENGTHS
We believe that we are well-positioned to execute our business strategies and our future prospects for success are enhanced because of
the following competitive strengths:
• Well-established relationships with our counterparties and with Capital Maritime. We believe our strong relationships with
our counterparties, many of which have chartered vessels since our IPO, and with Capital Maritime and its affiliates, provide numerous
benefits which are essential to our long-term growth and success. Capital Maritime has a well-established reputation and safety and
environmental track record within the shipping industry, a substantial newbuilding orderbook and strong relationships with many of the
world’s leading oil companies, commodity traders, container operators and shipping companies. We also benefit from Capital Maritime’s
expertise in technical fleet management and its ability to meet the rigorous vetting requirements of some of the world’s most selective
major international oil companies and other charterers in the drybulk and container sectors.
• Diversified fleet with long-term charters. We benefit from the diverse trading requirements of our charterers, as well as the diversity of our
fleet, which allow us to expand our chartering relationships and enter into agreements with additional counterparties, including in the drybulk
and container markets. We further enjoy a long remaining duration on our charters, as a number of our vessels are chartered under long-term
contracts, providing cash flow visibility into the future. Our average remaining charter duration stood at 8.8 years, as of December 31, 2013.
• Modern, high specification product tanker fleet. The 18 medium range tankers that form part of our fleet of 30 modern high speci-
fication vessels are all classed as IMO II/III vessels, which, in addition to the Ice Class 1A classification notation of many of our vessels,
the wide range in size and geographic flexibility of our fleet and compliance with existing regulatory standards, are attractive to our
charterers, providing them with a high degree of flexibility in the types of cargoes and variety in the trade routes they may choose as
they employ our fleet. In addition, we believe that these characteristics of our fleet position us well to take advantage of the positive
demand fundamentals in the product tanker business as our vessels become available for rechartering.
• Financial strength and flexibility. We believe we enjoy a strong balance sheet and that our financial strength positions us to grow our busi-
ness in the future, as well as to be a strong counterparty to our charterers as they seek financially sound counterparties with which to enter
into long-term contracts. We believe that our equity raisings of approximately $195.8 million completed in 2013 and the terms of our credit
facilities enhance our financial flexibility to pay attractive distributions and to realize potential new vessel acquisitions from Capital Maritime
and third parties. In addition, the new senior secured credit facility we entered into in 2013 will further facilitate our growth ahead. Please
refer to “Item 5B: Liquidity and Capital Resources—Borrowings—Our Credit Facilities” for more information regarding the 2013 credit facility.
OUR CUSTOMERS
We provide marine transportation services under medium to long-term time charters or bareboat charters with counterparties that we
believe are creditworthy:
• BP Shipping Limited, the shipping affiliate of BP, one of the world’s largest producers of crude oil and natural gas. BP has exploration
and production interests in over 20 countries. BP Shipping Limited provides all logistics for the marketing of BP’s oil and gas cargoes.
• Overseas Shipholding Group Inc., one of the largest independent shipping companies in the world operating crude and product tankers
with a fleet of over 100 owned and operated vessels.
• Bluemarine Cargo S.A. de C.V. , is a Mexican company specializing in the supply and operation of vessels for the offshore oil and gas industry.
• Capital Maritime & Trading Corp. , an established shipping company with activities in the sea transportation of wet (crude oil,
oil products, chemicals), container and dry cargoes worldwide with a long history of operating and investing in the shipping markets.
54
• SUBTEC S.A. de C.V. , is a Mexican company specializing in the supply and operation of vessels for the offshore oil and gas industry.
• Cosco Bulk Carrier Co. Ltd., is an affiliate of the COSCO Group which is one of the largest drybulk charterers globally. The COSCO Group,
listed on the Hong Kong Stock Exchange is believed to be China’s largest group specializing in global shipping, modern logistics and ship
building and repairing. COSCO Group currently owns and controls over 800 modern merchant vessels with a total tonnage of 56 million
dwt and an annual carrying capacity of 400 million tons.
• Maersk Line, is the global containerized division of A.P.Møller-Mærsk – Maersk Group, which is presently the world’s largest liner com-
pany with a fleet of more than 600 owned and operated vessels.
• Hyundai Merchant Marine Co. Ltd., is an integrated logistics company, operating around 160 state-of-the-art vessels. HMM boasts
worldwide global service networks, diverse logistics facilities, leading IT shipping related systems, a professional highly trained staff and
a continual effort to provide premiere transportation services.
For the year ended December 31, 2013, Capital Maritime, BP Shipping Limited, Maersk Line and HMM accounted for 32%, 17%, 14% and
13% of our revenues, respectively. For the year ended December 31, 2012, Capital Maritime and BP Shipping Limited accounted for 45%
and 23% of our revenues, respectively. For the year ended December 31, 2011, Capital Maritime, BP Shipping Limited and subsidiaries of
OSG accounted for 24%, 32% and 11% of our revenues, respectively.
The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could harm our
business, financial condition and results of operations.
OUR MANAGEMENT AGREEMENTS
W e have entered into three separate technical and commercial management agreements with Capital Ship Management, a sub-
sidiary of Capital Maritime, for the management of our fleet. Each vessel in our fleet is managed under the terms of one of the
following three agreements:
• Fixed fee management agreement: At the time of our IPO we entered into an agreement with our manager, according to which our manager
provides us with certain commercial and technical management services for a fixed daily fee per managed vessel which covers the commercial
and technical management services, the respective vessel’s operating costs such as crewing, repairs and maintenance, insurance, stores, spares,
and lubricants as well as the cost of the first special survey or next scheduled drydocking, of each vessel. In addition to the fixed daily fees pay-
able under the management agreement, Capital Ship Management is entitled to supplementary compensation for Extraordinary Fees and Costs
(as defined in the agreement) of any additional direct and indirect expenses it reasonably incurs in providing these services, which may vary
from time to time. We also pay a fixed daily fee per bareboat chartered vessel in our fleet, mainly to cover compliance and commercial costs,
which include those costs incurred by our manager to remain in compliance with the oil majors’ requirements, including vetting requirements.
• Floating fee management agreement: In June 2011, we entered into an agreement with our manager based on actual expenses
with an initial term of five years per managed vessel. Under the terms of this agreement we compensate our manager for expenses and
liabilities incurred on our behalf while providing the agreed services to us, including, but not limited to, crew, repairs and maintenance,
insurance, stores, spares, lubricants and other operating costs. Costs and expenses associated with a managed vessel’s next scheduled
drydocking are borne by us and not by our manager. We also pay our manager a daily technical management fee per managed vessel
that is revised annually based on the United States Consumer Price Index.
• Crude Carriers management agreement: In September 2011, we completed our merger with Crude Carriers. The five crude tanker ves-
sels we acquired as part of the merger continue to be managed under a management agreement entered into in March 2010, as amended,
with Capital Ship Management whose initial term expires on December 31, 2020. Under the terms of this agreement we compensate our
manager for all of its expenses and liabilities incurred on our behalf while providing the agreed services to us, including, but not limited to,
crew, repairs and maintenance, insurance, stores, spares, lubricants and other operating and administrative costs. We also pay our manager
the following fees: (a) a daily technical management fee per managed vessel that is revised annually based on the United States Consumer
Price Index; (b) a sale & purchase fee equal to 1% of the gross purchase or sale price upon the consummation of any purchase or sale of a
vessel acquired by Crude Carriers and (c) a commercial services fee equal to 1.25% of all gross charter revenues generated by each vessel
for commercial services rendered. The manager has the right to terminate the Crude Carriers management agreement and, under certain
circumstances, could receive substantial sums in connection with such termination; however, even if our board of directors or our unithold-
ers are dissatisfied with the manager, there are limited circumstances under which we can terminate this management agreement. This
termination fee was initially set at $9.0 million in March 2010 and increases on each one-year anniversary during which the management
agreement remains in effect (on a compounding basis) in accordance with the total percentage increase, if any, in the Consumer Price Index
over the immediately preceding 12 months. As of March 2013, this termination fee had been adjusted to $9.7 million.
55
We expect that as the fixed fee management agreement expires for certain of our vessels, such vessels, and any additional acquisitions we
make in the future, shall be managed under the floating fee management agreement. Under the terms of all three agreements, Capital
Ship Management may provide these services to us directly or it may subcontract for certain of these services with other entities, includ-
ing other Capital Maritime subsidiaries.
The table below sets out, as of December 31, 2013 the management agreement under which each vessel in our fleet is managed.
VESSEL NAME
M/T Atlantas (M/T British Ensign)
M/T Assos (M/T Insurgentes)
M/T Aktoras (M/T British Envoy)
M/T Agisilaos
M/T Arionas
M/T Avax
M/T Aiolos (M/T British Emissary)
M/T Axios
M/T Atrotos (M/T El Pipila)
M/T Akeraios
M/T Apostolos
M/T Anemos I
M/T Alexandros II (M/T Overseas Serifos)
M/T Amore Mio II
M/T Aristotelis II (M/T Overseas Sifnos)
M/T Aris II (M/T Overseas Kimolos)
M/T Agamemnon II (sold on 11.5.2013)
M/T Ayrton II
M/T Alkiviadis
M/V Cape Agamemnon
M/T Miltiadis M II
M/T Amoureux
M/T Aias
M/V Agamemnon
M/V Archimidis
M/V Hyundai Prestige (M/V CCNI Angol)
M/V Hyundai Premium
M/V Hyundai Paramount
M/V Hyundai Privilege
M/V Hyundai Platinum
M/T Aristotelis
OUR FLEET
MANAGEMENT AGREEMENT
FIXED FEE
X
X
X
until Dec 4, 2011
until Aug 3, 2011
until Apr 17, 2012
X
until Jun 12, 2012
X
until Aug 25, 2012
until Sept 14, 2012
until Dec 23, 2012
until Jan 21, 2013 & since May 9, 2013
X
X
X
until Nov 5, 2013
X
X
-
-
-
-
-
-
-
-
-
-
-
-
FLOATING FEE
-
-
-
as of Dec 5, 2011
as of Aug 4, 2011
as of Apr 18, 2012
-
as of Jun 13, 2012
-
as of Aug 26, 2012
as of Sep 15, 2012
as of Dec 24, 2012
from Jan 22, 2013 up to May 8, 2013
-
-
-
-
-
-
as of Jun 10, 2011
-
-
-
as of Dec 22, 2012
as of Dec 22, 2012
as of Sep 11, 2013
as of March 20, 2013
as of March 27, 2013
as of Sep 11, 2013
as of Sep 11, 2013
as of Nov 28, 2013
CRUDE
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
as of Sep 30, 2011
as of Sep 30, 2011
as of Sep 30, 2011
-
-
-
-
-
-
-
-
A t the time of our IPO on April 3, 2007, our fleet consisted of eight vessels. Since that date, the size of our fleet has greatly
increased in terms of both number of vessels and carrying capacity and currently consists of 30 vessels of various sizes with
an average age of approximately 5.8 years and average remaining term under our charters of approximately 8.8 years (as of
December 31, 2013).
We intend to continue to take advantage of our unique relationship with Capital Maritime and, subject to prevailing shipping, char-
ter and financial market conditions and the approval of our board of directors, make strategic acquisitions in the medium to long
term in a prudent manner that is accretive to our unitholders and to long-term distribution growth. In addition, we may pursue
opportunities for acquisitions of, or combinations with, other shipping businesses. Pursuant to the amended and restated omnibus
agreement we have entered into with Capital Maritime pursuant to our merger with Crude Carriers, Capital Maritime has granted us
a right of first offer for any product tanker in its fleet with carrying capacity over 30,000 dwt under time or bareboat charter with
56
a remaining duration of at least twelve months. Capital Maritime is, however, under no obligation to fix any of these vessels under
charters of longer than twelve months. Please read “Item 7B: Related-Party Transactions” for a detailed description of our amended
and restated omnibus agreement with Capital Maritime.
The table below provides summary information as of December 31, 2013 about the vessels in our fleet, as well as their delivery date or expected
delivery date to us and their employment, including earliest possible redelivery dates of the vessels and relevant charter rates. The table also includes
the daily management fee and approximate expected termination date of the respective management agreement with Capital Ship Management
with respect to each vessel. Sister vessels, which are vessels of similar specifications and size typically built at the same shipyard, are denoted by
the same letter in the table. We believe that sister vessels provide a number of efficiency advantages in the management of our fleet.
All of the vessels in our fleet are or were designed, constructed, inspected and tested in accordance with the rules and regulations of Det
Norske Veritas (“DNV”), Lloyd’s Register of Shipping (“Lloyd’s”), Bureau Veritas (“BV”) or the American Bureau of Shipping (“ABS”) and were
under time or bareboat charters from the time of their delivery.
SISTER
VES-
SELS
(1)
YEAR
BUILT
DWT
MANAGEMENT
AGREEMENT
EXPIRATION
CHARTER
DURA-
TION
/TYPE
(3)
EXPIRY
OF
CHAR-
TER
(4)
DAILY
CHAR-
TER RATE
IN $
(NET)
PROFIT
SHARE
(5)
CHAR-
TERER
(6)
DESCRIP-
TION
VESSEL NAME
Atlantas (7)
Aktoras (7)
Aiolos (7)
Agisilaos
Arionas
Axios
Avax 14
Akeraios
Anemos I
Apostolos
Alexandros II (8)
Aristotelis II (8)
Aris II (8)
Ayrton II (9)
Aristotelis
Atrotos (9, 10)
Alkiviadis
Assos (9, 10)
Amoureux
Aias
Amore Mio II
Miltiadis M II (12)
Cape Agamemnon
Archimidis (13)
Agamemnon (13)
Hyundai Prestige (CCNI
Angol)
Hyundai Premium
Hyundai Paramount
Hyundai Privilege
Hyundai Platinum
Total fleet DWT: 2,136,307
A
A
A
A
A
B
B
B
B
B
C
C
C
C
B
B
A
B
D
D
E
F
G
H
H
I
I
I
I
I
OPEX
IN $
PER
DAY
(2)
500
500
500
Floating
Floating
Floating
Floating
Floating
Floating
Floating
250
250
250
6,500
Floating
500
7,000
500
Crude
Crude
8,500
2006
2006
2007
2006
2006
2007
2007
2007
2007
2007
2008
2008
2008
2009
2013
2007
2006
2006
2008
2008
2001
36,760
36,759
36,725
36,760
36,725
47,872
47,834
47,781
47,782
47,782
51,258
51,226
51,218
51,260
51,604
47,786
36,721
47,872
149,993
150,393
159,982
PRODUCT TANKERS
Mar 2016
Mar 2016
Jan 2017
Dec 2016
Aug 2016
Jun 2017
Apr 2017
Aug 2017
Dec 2017
Sep 2017
8-yr BC
8-yr BC
8-yr BC
1-yr TC
1-yr TC
1-yr TC
1-yr TC
Mar 2014
Jun 2014
Feb 2015
Aug 2014
Oct 2014
May 2014
Sep 2014
1.5-yr TC
Dec 2014
1.2-yr TC
Feb 2015
1.2-yr TC
Dec 2014
Dec 2017-Mar 2018
10-yr BC
Nov 2017
Mar-Jun 2018
10-yr BC
Apr. 2018
May-Aug 2018
10-yr BC
Jun 2018
2-yr TC
Mar 2014
1.5-yr TC
Jun 2015
Apr 2014
Jun 2014
Apr 2014
Mar 2014
Nov 2018
Mar 2014
Jun 2015
Mar 2014
CRUDE TANKERS
Dec 2020
Dec 2020
Feb 2014
5-yr BC
1-yr TC
5-yr BC
1-yr TC
1-yr TC
1-yr TC
13,433
13,433
13,433
14,072
14,072
14,566
14,516
14,763
14,664
14,664
6,250
6,250
6,250
15,000
16,787
16,825
14,072
16,825
Dec 2014 23,700 (11)
Nov 2014 23,700 (11)
Nov 2014
16,788
2006
162,397
Crude
Dec 2020
2-yr TC
Sep 2014
22,895
DRYBULK VESSEL
2010
179,221
Floating
Jun 2016
10-yr TC
Jun 2020
40,090
CONTAINER CARRIER VESSEL
2006
2007
103,773
Floating
103,773
Floating
Dec 2017
Dec 2017
3-yr TC
Oct 2015
3.2-yr TC
July 2015
33,150
33,150
2013
63,010
Floating
Aug-Sep 2018
12-yr TC
Dec 2024
28,616
2013
2013
2013
2013
63,010
63,010
63,010
63,010
Floating
Floating
Floating
Floating
Mar-April 2018
12-yr TC
Jan 2025
Mar-April 2018
12-yr TC
Feb 2025
Aug-Sep 2018
12-yr TC Mar 2025
Aug-Sep 2018
12-yr TC
Apr 2025
28,616
28,616
28,616
28,616
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
BP
BP
BP
CMTC
CMTC
CMTC
BP
CMTC
CMTC
CMTC
OSG
OSG
OSG
BP
CMTC
BLM
CMTC
BLM
CMTC
CMTC
CMTC
SUBT
Ice Class 1A
IMO II/III
Chemical/
Product
IMO II/III
Chem./Prod.
Ice Class 1A
IMO II/III
Chem./Prod.
Suezmax
Ice Class 1A
Suezmax
COSCO Ice Class 1A
Suezmax
MAERSK
MAERSK
HMM
HMM
HMM
HMM
HMM
Post
Panamax
57
(01) Sister vessels are denoted in the tables by the same letter
as follows: (A), (B): these vessels were built by Hyundai MIPO
Dockyard Co., Ltd., South Korea, (C): these vessels were built by
STX Shipbuilding Co., Ltd., South Korea, (D): these vessels were
built by Universal Shipbuilding Corp., Ariake, Japan (E),(F), (H):
these vessels were built by Daewoo Shipbuilding and Marine
Engineering Co., Ltd., South Korea. (G) this vessel was built by
Sungdong Shipbuilding & Marine Engineering Co., Ltd., South
Korea. (I): these vessels were built by Hyundai Heavy Industries
Co. Ltd, South Korea.
ter at a bareboat rate $7,250 per day for the optional periods, if
declared or as a time charter at a time charter rate of $14,250 per
day, if declared. The M/T British Emissary will continue its bare-
boat charter with BP Shipping after the completion of its current
charter for an additional 24 months at a bareboat rate of $7,000
per day. BP Shipping has the option to extend the duration of the
charter for up to a further 12 months either as bareboat charter
at a bareboat rate of $7,250 per day for the optional periods if
declared or on a time charter basis during all optional periods at a
time charter rate of $14,250 per day if declared.
(02) Floating: These vessels are managed under the floating fee
management agreement entered into with our manager. Crude:
These vessels managed under the Crude management agreement
entered into between Crude and our manager. The remaining
vessels are managed under the fixed fee management agreement
entered into with our manager. For additional details regard-
ing our management agreements please see “Item 4B: Business
Overview—Our Management Agreements” above.
(08) For the duration of the BC these vessels have been renamed:
Overseas Serifos, Overseas Sifnos and Overseas Kimolos. OSG has
an option to purchase each vessel at the end of the eighth, ninth
or tenth year of its charter for $38.0 million, $35.5 million and
$33.0 million, respectively, which option is exercisable six months
before the date of completion of the relevant year of the charter.
The expiration date above may therefore change depending on
whether the charterer exercises its purchase option.
(03) TC: Time Charter, BC: Bareboat Charter
(04) Earliest possible redelivery date. For product tankers the
redelivery date is +/-30 days at the charterer’s option. For crude
tankers under charter with Maersk Line, the expiry of the charter
assumes the exercise by Maersk Line of its option to extend the
charter (+/- 30 days) at revised rates (See Footnote 13 below for
additional information).
(05) Product Tankers: 50/50 profit share element for all vessels
applies only to voyages that breach Institute Warranty Limits
(“IWL”). The amounts received under these profit-sharing arrange-
ments are subject to the same commissions payable on the gross
charter rates, if any. Crude Tankers 50/50 profit share on actual
earnings settled every 6 months for the first 12 months of the TC.
(06) BP: BP Shipping Limited, or, in the case of the M/T Amore Mio
II, BP Singapore Pte Ltd. OSG: certain subsidiaries of OSG. CMTC:
Capital Maritime & Trading Corp. (our Sponsor). BLM: Blue Marine
Cargo S.A. de C.V. ex Arrendadora Ocean Mexicana, S.A. de C.V.
SUBT: Subtec S.A. de C.V. COSCO: Cosco Bulk Carrier Co. Ltd., an
affiliate of the COSCO Group. MAERSK: A.P. Moller-Maersk A.S.
HMM: Hyundai Merchant Marine Co. Ltd.
(07) For the duration of the BC these vessels have been renamed
British Ensign, British Envoy and British Emissary, respec-
tively. The M/T British Ensign will continue its bareboat charter
with BP Shipping after the completion of its current charter for
an additional 24 months at a bareboat rate of $6,750 per day. BP
Shipping has the option to extend the duration of the charter for up
to a further 12 months either as bareboat charter at a bareboat rate
of $7,250 per day for the optional periods if declared or on time
charter basis during the optional periods at a time charter rate of
$14,250 per day, if declared. The M/T British Envoy will continue
its bareboat charter with BP Shipping after the completion of the
current charter for an additional 18 months at a bareboat rate of
$7,000 per day. BP Shipping has the option to extend the charter
duration for up to a further 12 months either as a bareboat char-
(09) The Agamemnon II and the M/T Ayrton II were acquired in
exchange for the M/T Assos (which was part of our fleet at the
time of the IPO) and the M/T Atrotos (which was acquired from
Capital Maritime in May 2007) on April 7 and April 13, 2009,
respectively. We subsequently reacquired the M/T Atrotos and the
M/T Assos from Capital Maritime in February and August 2010,
respectively. Capital Maritime had granted us an offer to acquire
all four vessels under the terms of the omnibus agreement.
(10) For the duration of the BC these vessels have been renamed M/T
El Pipila and M/T Insurgentes. BLM has subsequently chartered
these vessels to the state-owned Mexican petroleum company
Petroleos Mexicanos (“Pemex”).
(11) The vessel owning companies of the M/T Amoureux and the
M/T Aias have entered into a one year time charter with Capital
Maritime at a net rate of $23,700 per day for each vessel, with
profit share on actual earnings settled every six months. The
charters were commenced in January 2014 and December 2013,
respectively.
(12) SUBT has subsequently delivered this vessel to PEMEX.
(13) Maersk Line has the option to extend the charter for an addi-
tional four years at a net day rate of $30,712 and $29,737 per
day, respectively, for the fourth and fifth year and $31,200 per
day for the final two years. If all options were to be exercised,
the employment of the vessels would extend to December 2019
for the M/V Archimidis and July 2019 for the M/V Agamemnon.
(14) The vessel’s actual net earnings under the BP Shipping charter is
$14,566 per day until May 2014 and $14,615 per day between
May and October 2014, as the new daily charter rate includes
compensation that Capital Maritime will pay to the Partnership
for the vessel’s early redelivery in accordance with the terms of
the charter party agreement with Capital Maritime. BP Shipping
has the option to extend the charter for one year at a net daily
rate of $15,405.
58
COMPARISON OF POSSIBLE EXCESS OF CARRYING VALUE OVER ESTIMATED CHARTER-FREE
MARKET VALUE OF CERTAIN VESSELS
I n “Critical Accounting Policies —Vessel Lives and Impairment” in Item 5 below, we discuss our policy for impairing the carrying values of our
vessels. During the past few years, the market values of vessels have experienced particular volatility, with substantial declines in many vessel
classes. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below those vessels’ car-
rying value, even though we would not impair those vessels’ carrying value under our accounting impairment policy, due to our belief that future
undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels’ carrying amounts.
The table set forth below indicates (i) the carrying value of each of our vessels as of December 31, 2013; (ii) which of our vessels we believe
has a basic market value below its carrying value and (iii) the aggregate difference between carrying value and market value represented by
such vessels. This aggregate difference represents the approximate analysis of the amount by which we believe we would have to reduce our
net income if we sold all of such vessels in the current environment, on industry standard terms, in cash transactions, and to a willing buyer
where we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy. For purposes of this calculation, we
have assumed that the vessels would be sold at a price that reflects our estimate of their current basic market values.
Our estimates of basic market value assume that our vessels are all in good and seaworthy condition without need for repair and, if inspected,
would be certified in class without notations of any kind. Our estimates are based on the average of two estimated market values for our vessels
received from third party independent shipbrokers approved by our banks. In addition, vessel values are highly volatile; as such, our estimates
may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
VESSELS
M/T Atlantas
M/T Assos
M/T Aktoras
M/T Agisilaos
M/T Arionas
M/T Avax
M/T Aiolos
M/T Axios
M/T Atrotos
M/T Akeraios
M/T Apostolos
M/T Anemos I
M/T Alexandros II
M/T Amore Mio II
M/T Aristotelis II
M/T Aris II
M/T Agamemnon II
M/T Ayrton II
M/T Alkiviadis
M/V Cape Agamemnon
M/T Miltiadis M II
M/T Amoureux
M/T Aias
M/V Archimidis
M/V Agamemnon
M/V Hyundai Prestige (M/V CCNI Angol)
M/V Hyundai Premium
M/V Hyundai Paramount
M/V Hyundai Privilege
M/V Hyundai Platinum
M/T Aristotelis
Total
DATE ACQUIRED
BY US
04/04/2007
04/04/2007 & 08/16/2010
04/04/2007
04/04/2007
04/04/2007
04/04/2007
04/04/2007
04/04/2007
05/08/2007 & 03/01/2010
07/13/2007
09/20/2007
09/28/2007
01/29/2008
03/27/2008
06/17/2008
08/20/2008
04/07/2009
04/13/2009
06/30/2010
06/09/2011
09/30/2011
09/30/2011
09/30/2011
12/22/2012
12/22/2012
09/11/2013
03/20/2013
03/27/2013
09/11/2013
09/11/2013
11/28/2013
CARRYING VALUE
AS AT 12.31.13
(in millions of US $)
CARRYING VALUE
AS AT 12.31.2012
(in millions of US $)
23.1
29.2*
23.4
24
24.2
27.1
24.2
27.4
28.0
28.0
31.2*
31.1*
36.3*
60.0*
36.8*
37.0*
-
38.3*
25.8*
46.5
47.7*
49.0*
49.0*
61.7
64.7
53.4*
52.4
52.5
53.4*
53.4*
38.0
24.3*
30.8*
24.7*
25.3*
25.5*
28.5*
25.5*
28.9*
29.4*
29.4*
32.7*
32.7*
38.1*
64.5*
38.6*
38.8*
40.5*
40.1*
27.2*
48.5*
50.2*
51.3*
51.3*
64.9
67.9
-
-
-
-
-
-
1,176.8
959.6
* Indicates vessels, for which
we believe, as of Decem-
ber 31, 2013 and 2012, the
basic charter-free market
value is lower than the
vessel’s carrying value as
of December 31, 2013 and
2012. We believe that the
aggregate carrying value
of these vessels, assessed
separately, exceeds their
aggregate basic charter-free
market value by approxi-
mately $77.5 and $173.5
million as of December 31,
2013 and 2012, respectively.
This decrease of $96.0 mil-
lion in 2013 as compared to
2012 is due to the increase
of asset values in bulk carri-
ers and tankers as a conse-
quence of an improvement
in the expectations of future
shipping market prospects.
As discussed in “Critical
Accounting Policies—Vessel
lives and impairment” below,
we believe that the carry-
ing values of our vessels as
of December 31, 2013 and
2012 were recoverable as
the undiscounted projected
net operating cash flows of
these vessels exceeded their
carrying value by a signifi-
cant amount.
59
OUR CHARTERS
A s of December 31, 2013, all the vessels in our fleet were under medium to long-term time or bareboat charters with an average
remaining term under our charters of approximately 8.8 years. Under certain circumstances, we may operate our vessels in the spot
market until they are fixed under appropriate medium to long-term charters. As our vessels come up for rechartering, depending on
the prevailing market rates, we may not be able to recharter them at levels similar to their current charters which may affect our future cash
flows from operations. Please read “Item 4B: Business Overview—Our Fleet” above, including the chart and accompanying notes, for more
information on our time and bareboat charters, including counterparties, expected expiration dates of the charters and daily charter rates.
TIME CHARTERS
A time charter is a contract for the use of a vessel for a fixed period of time at a specified daily rate. Under a time charter, the vessel’s
owner provides crewing and other services related to the vessel’s operation, the cost of which is included in the daily rate and the
charterer is responsible for substantially all vessel voyage costs except for commissions which are assumed by the owner. The basic
hire rate payable under the charters is a previously agreed daily rate, as specified in the charter, payable at the beginning of the month in
U.S. Dollars. We currently have 22 vessels under time charter agreements of which 12 contain profit-sharing provisions that allow us to
realize at a predetermined percentage additional revenues when spot rates or actual charter rates are higher than the base rates incorpo-
rated in our charters or, in some instances, through greater utilization of our vessels by our charterers.
PROFIT SHARING ARRANGEMENTS
T he profit sharing arrangements for our product tanker vessels under time charter with BP Shipping Limited and Capital Maritime
are based on the calculation of the time charter equivalent (“TCE”) according to the “last to next” principle and are only applicable to
voyages during which Institute Warranty Limits (“IWL”) have been breached. In such event, we receive the basic net hire rate plus
50% of the excess over the gross hire rate. This means that actual voyage revenues earned and received, actual expenses incurred and
actual time taken to perform the voyage are used for the purpose of the calculation. The charterer is obliged to provide us with a copy of
each fixture note and all reasonable documentation with respect to items of cost and earnings referring to each voyage during which IWL
have been breached. If the average daily TCE is less than or equal to the basic gross hire rate, then we receive the basic net hire rate only.
If the average daily TCE for any voyage where IWL have been breached exceeds the basic gross hire rate, then we receive the basic net
hire rate plus 50% of the excess over the gross hire rate. The profit share with both Capital Maritime and BP Shipping Limited, if any, is
calculated and settled the next calendar month following the completion of the voyage.
The profit sharing arrangements for our two crude tanker vessels under time charter with Capital Maritime are based on the calculation of the
vessels’ actual earnings and are settled every 6 months. In the event actual TCE over that period is higher than the agreed daily charter rate of the
vessel, we receive the basic net hire rate plus 50% of the excess over the gross daily charter rate. This means that actual voyage revenues earned
and received, actual expenses incurred and actual time taken to perform the voyages during that period are used for the purpose of the calculation.
The charterer is obliged to provide us with a copy of each fixture note and all reasonable documentation with respect to items of cost and earnings.
The amounts received under these profit-sharing arrangements are subject to the same commissions payable on the gross charter rates.
Please read “Item 4B: Business Overview—Our Fleet” above, including the chart and accompanying notes, for additional information.
TCE rate is a shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with
daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed
in per day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts. TCE is expressed as per
ship per day rate and is calculated as voyage and time charter revenues less voyage expenses during a period divided by the number of
operating days during the period, which is consistent with industry standards.
BAREBOAT CHARTERS
A bareboat charter is a contract pursuant to which the vessel owner provides the vessel to the customer for a fixed period of time at a specified
daily rate, and the customer provides for all of the vessel’s expenses (including any commissions) and generally assumes all risk of opera-
tion. In the case of the vessels under bareboat charter to BP Shipping Limited, we are responsible for the payment of any commissions. The
customer undertakes to maintain the vessel in a good state of repair and efficient operating condition and drydock the vessel during this period at
its cost and as per the classification society requirements. The basic rate hire is payable to us monthly in advance in U.S. Dollars.
As of December 31, 2013 we had eight vessels under bareboat charter, three with BP Shipping Limited, three with subsidiaries of OSG and
two with Bluemarine Cargo. The charters entered into with subsidiaries of OSG are fully and unconditionally guaranteed by OSG and include
options for the charterer to purchase each vessel for $38.0 million, $35.5 million or $33.0 million at the end of the eighth, ninth or tenth year
of the charter, respectively. In each case, the option to purchase the vessel must be exercised six months prior to the end of the charter year.
60
SPOT CHARTERS
A spot charter generally refers to a voyage charter or a trip charter or a short term time charter.
VOYAGE / TRIP CHARTER
A voyage charter involves the carriage of a specific amount and type of cargo on a load port-to-discharge port basis, subject to various
cargo handling terms. Under a typical voyage charter, the shipowner is paid on the basis of moving cargo from a loading port to a
discharge port. In voyage charters the shipowner generally is responsible for paying both vessel operating costs and voyage expenses,
and the charterer generally is responsible for any delay at the loading or discharging ports. Under a typical trip charter or short term time
charter, the shipowner is paid on the basis of moving cargo from a loading port to a discharge port at a set daily rate. The charterer is
responsible for paying for bunkers and other voyage expenses, while the shipowner is responsible for paying vessel operating expenses.
SEASONALITY
Our vessels operate under medium- to long-term charters and are not generally subject to the effect of seasonable variations in demand.
MANAGEMENT OF SHIP OPERATIONS, ADMINISTRATION AND SAFETY
C apital Maritime, through its subsidiary Capital Ship Management, provides expertise in various functions critical to our operations.
This enables a safe, efficient and cost-effective operation and, pursuant to the management and administrative services agreements
we have entered into with Capital Ship Management, grants us access to human resources, financial and other administrative services,
including bookkeeping, audit and accounting services, administrative and clerical services, banking and financial services, client, investor
relations, information technology and technical management services, including commercial management of the vessels, vessel mainte-
nance and crewing (not required for vessels subject to bareboat charters), purchasing, insurance and shipyard supervision.
We have entered into three separate technical and commercial management agreements with Capital Ship Management for the manage-
ment of our fleet: the fixed fee management agreement, the floating fee management agreement and, with respect to the vessels acquired
as part of the merger with Crude Carriers, the Crude Carriers management agreement. Each vessel in our fleet is managed under the terms
of one of these three agreements. The aggregate management fees paid to Capital Ship Management for the year ended December 31,
2013, were $17.0 million as compared to $23.6 million for the year ended December 31, 2012.
For a more detailed description of the three management agreements and administrative services agreements we have entered into with
Capital Ship Management please read “Item 4B: Business Overview -Our Management Agreements” above, and “Item 7B: Related-Party
Transactions—Transactions entered into during the year ended December 31, 2012” and “- Transactions entered into during the year ended
December 31, 2011” below.
Capital Ship Management operates under a safety management system in compliance with the IMO’s ISM Code and certified by Lloyd’s
Register. Capital Ship Management’s management systems also comply with the Quality Standard ISO 9001, the Environmental Man-
agement Standard ISO 14001, the Occupational Health & Safety Management System (“OHSAS”) 18001 and the Energy Management
Standard 50001, all of which are certified by Lloyd’s Register of Shipping. Capital Ship Management recently implemented an “Integrated
Management System Certification” approved by the Lloyd’s Register Group and also adopted “Business Continuity Management” principles
in cooperation with Lloyd’s Register Group. Capital Ship Management, recognizing sustainable transport as one of the biggest challenges of
the 21st century, has adopted and implemented main strategies for a regime of Responsible, Safe and Clean Shipping through a Corporate
Social Responsible approach.
As a result, our vessels’ operations are conducted in a manner intended to protect the safety and health of Capital Ship Management’s
employees, as applicable, the general public and the environment. Capital Ship Management’s technical management team actively man-
ages the risks inherent in our business and is committed to eliminating incidents that threaten safety, such as groundings, fires, collisions
and petroleum spills, as well as reducing emissions and waste generation.
MAJOR OIL COMPANY VETTING PROCESS
S hipping in general, and crude oil, refined product and chemical tankers, in particular, have been, and will remain, heavily regulated.
Many international and national rules, regulations and other requirements – whether imposed by the classification societies, interna-
tional statutes (IMO, SOLAS (defined below), MARPOL, etc.), national and local administrations or industry – must be complied with
in order to enable a shipping company to operate and a vessel to trade.
Traditionally there have been relatively few large players in the oil trading business and the industry is continuously consolidating. The
61
so-called “oil majors companies”, such as BP, Chevron Corporation, Philips66 Inc., ExxonMobil Corporation, Royal Dutch Shell plc, Statoil
ASA, and Total S.A., together with a few smaller companies, represent a significant percentage of the production, trading and, especially,
shipping logistics (terminals) of crude and refined products worldwide. Concerns for the environment, health and safety have led the oil
majors to develop and implement a strict due diligence process when selecting their commercial partners. This vetting process has evolved
into a sophisticated and comprehensive risk assessment of both the vessel operator and the vessel.
While a plethora of parameters are considered and evaluated prior to a commercial decision, the oil majors, through their association, the
Oil Companies International Marine Forum (“OCIMF”), have developed and are implementing two basic tools: (i) a Ship Inspection Report
Programme (“SIRE”) and (ii) the Tanker Management & Self Assessment (“TMSA”) Program. The former is a physical ship inspection based
upon a thorough Vessel Inspection Questionnaire (“VIQ”), and performed by accredited OCIMF inspectors, resulting in a report being logged
on SIRE, while the latter is a recent addition to the risk assessment tools used by the oil majors.
Based upon commercial needs, there are three levels of risk assessment used by the oil majors: (i) terminal use, which will clear a vessel
to call at one of the oil major’s terminals; (ii) voyage charter, which will clear the vessel for a single voyage and (iii) term charter, which
will clear the vessel for use for an extended period of time. The depth, complexity and difficulty of each of these levels of assessment vary.
While for the terminal use and voyage charter relationships a ship inspection and the operator’s TMSA will be sufficient for the assessment
to be undertaken, a term charter relationship also requires a thorough office assessment. In addition to the commercial interest on the
part of the oil major, an excellent safety and environmental protection record is necessary to ensure an office assessment is undertaken.
We believe Capital Maritime and Capital Ship Management are among a small number of ship management companies to have undergone
and successfully completed audits by seven major international oil companies in the last few years (i.e., BP, Chevron Corporation, Philips66
Inc., ExxonMobil Corporation, Royal Dutch Shell plc, Statoil ASA and Total S.A.).
CREWING AND STAFF
C apital Ship Management, an affiliate of Capital Maritime, through a subsidiary in Romania and crewing offices in Romania, Russia and
the Philippines recruits senior officers and crews for our vessels. Capital Ship Management also maintains a presence in the Philip-
pines and Russia and has entered into an agreement for the training of officers under ice conditions at a specialized training center
in St. Petersburg. Capital Maritime’s vessels are currently manned primarily by Romanian, Russian and Filipino crew members. Having
employed these crew configurations for Capital Maritime for a number of years, Capital Ship Management has considerable experience
in operating vessels in this configuration and has a pool of certified and experienced crew members which we can access to recruit crew
members for our vessels.
CLASSIFICATION, INSPECTION AND MAINTENANCE
E very oceangoing vessel must be “classed” and certified by a classification society. The classification society is responsible for verifying
that the vessel has been built and maintained in accordance with the rules and regulations of the classification society and ship’s
country of registry, as well as the international conventions of which that country has accepted and signed. In addition, where surveys
are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake
them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state
or port authority. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
For the maintenance of the class certificate, regular and extraordinary surveys of hull and machinery, including the electrical plant, and
any special equipment classed are required to be performed as follows:
Annual Surveys, which are conducted for the hull and the machinery at intervals of 12 months from the date of commencement of the
class period indicated on the certificate.
Intermediate Surveys, which are extended annual surveys and are typically conducted two and one-half years after commissioning and after
each class renewal survey. In the case of newbuildings, the requirements of the intermediate survey can be met through an underwater
inspection in lieu of drydocking the vessel. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
Class Renewal Surveys (also known as special surveys ), which are carried out at the intervals indicated by the classification for the hull
(usually at five-year intervals). During the special survey, the vessel is thoroughly examined, including Non-Destructive Inspections (“NDIs”)
to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification
society will order steel renewals. The classification society may grant a one-year grace period for completion of the special survey. Substan-
tial amounts of funds may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear.
In lieu of the special survey every five years, depending on whether a grace period is granted, a ship-owner or manager has the option of
arranging with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the
vessel would be surveyed within a five-year cycle. At an owner’s application, the surveys required for class renewal may be split according
to an agreed schedule to extend over the entire period of class. This process is referred to as ESP (Enhanced Survey Program) and CSM
(Continuous Machinery Survey).
62
Occasional Surveys , which are carried out as a result of unexpected events, e.g., an accident or other circumstances requiring unscheduled
attendance by the classification society for reconfirming that the vessel maintains its class, following such an unexpected event.
All areas subject to survey, as defined by the classification society, are required to be surveyed at least once per class period, unless
shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not
exceed five years.
Most vessels are also drydocked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections. If any
defects are found, the classification surveyor will issue a “recommendation” which must be rectified by the ship-owner within prescribed
time limits. Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classifica-
tion society which is a member of the International Association of Classification Societies. All of our vessels are certified as being “in class”
by Lloyd’s, ABS, BV and DNV. All new and secondhand vessels that we may purchase must be certified prior to their delivery under our
standard agreements. If any vessel we contract to purchase is not certified as “in class” on the date of closing, under our standard purchase
agreements, we will have no obligation to take delivery of such vessel.
RISK MANAGEMENT AND INSURANCE
T he operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters, death or personal injury and property
losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or
events. The occurrence of any of these events may result in loss of revenues or increased costs or, in the case of marine disasters,
catastrophic liabilities. Although we believe our current insurance program is comprehensive, we cannot insure against all risks, and we
cannot be certain that all covered risks are adequately insured against or that we will be able to achieve or maintain similar levels of cov-
erage throughout a vessel’s useful life. Furthermore, there can be no guarantee that any specific claim will be paid by the insurer or that
it will always be possible to obtain insurance coverage at reasonable rates. More stringent environmental regulations at times in the past
have resulted in increased costs for, and may result in the lack of availability of, insurance against the risks of environmental damage or
pollution. Moreover, under the terms of our bareboat charters, the charterer provides for the insurance of the vessel, and as a result, these
vessels may not be adequately insured and/or in some cases may be self-insured. Any uninsured or under-insured loss could harm our
business and financial condition or could materially impair or end our ability to trade or operate.
We believe our current insurance program is prudent. We currently carry the traditional range of marine and liability insurance
coverage for each of our vessels to protect against most of the accident-related risks involved in the conduct of our business. Specifi-
cally we carry:
• Hull and machinery insurance covers loss of or damage to a vessel due to marine perils such as collisions, grounding and weather and
the coverage is usually to an agreed “insured value” which, as a matter of policy, is never less than the particular vessel’s fair market
value. Cover is subject to policy deductibles which are always subject to change.
• Increased value insurance augments hull and machinery insurance cover by providing a low-cost means of increasing the insured value
of the vessels in the event of a total loss casualty.
• Protection and indemnity insurance is the principal coverage for third party liabilities and indemnifies against such liabilities incurred
while operating vessels, including injury to the crew, third parties, cargo or third party property loss (including oil pollution) for which
the shipowner is responsible. We carry the current maximum available amount of coverage for oil pollution risks, $1.0 billion per vessel
per incident.
• War Risks insurance covers such items as piracy and terrorism.
• Freight, Demurrage & Defense cover is a form of legal costs insurance which responds as appropriate to the costs of prosecuting or
defending commercial (usually uninsured operating) claims.
Not all risks are insured and not all risks are insurable. The principal insurable risks which nevertheless remain uninsured across the fleet
are “loss of hire” and “strikes”. We do not insure these risks because the costs are regarded as disproportionate to the benefit.
The following table sets forth certain information regarding our insurance coverage as of December 31, 2013.
TYPE
Hull and Machinery
AGGREGATE SUM INSURED FOR ALL VESSELS IN OUR EXISTING FLEET*
$1.4 billion (increased value insurance (including excess liabilities) provides additional coverage).
Increased Value (including Excess Liabilities)
Up to $370 million additional coverage in total.
Protection and Indemnity (P&I)
War Risk
Pollution liability claims: limited to $1.0 billion per vessel per incident.
$1.77 billion
*Certain of our bareboat charterers are responsible for the insurance on the vessels. The values attributed to those vessels are in line with the
values agreed in the relevant charters as augmented by separate insurances.
63
THE INTERNATIONAL SHIPPING INDUSTRY
T he seaborne transportation industry is a vital link in international trade, with ocean-going vessels representing the most efficient and
often the only method of transporting large volumes of basic commodities and finished products. Demand for oil tankers is dictated
by world oil demand and trade, which is influenced by many factors, including international economic activity; geographic changes
in oil production, processing, and consumption; oil price levels; inventory policies of the major oil and oil trading companies; and strategic
inventory policies of countries such as the United States, China and India. The drybulk trade is influenced by the underlying demand for
the drybulk commodities, which, in turn, is influenced by the level of worldwide economic activity. Generally, growth in gross domestic
product, or GDP, and industrial production correlate with peaks in demand for marine drybulk transportation services. A wide range of
cargoes are transported by container but most notably container transportation is responsible for the shipment of a diverse selection of
manufactured and consumer goods in unitized form. These cargoes are transported by container to end users in all regions of the world,
and in particular from key producing and manufacturing regions to end users in the world’s largest consumer economies. Growth in global
container trade is being driven by growth in world merchandise trade, and the growing share in the containerized part thereof, along with
the expansion in “containerization” of new commodities and the trend towards globalization.
Shipping demand, measured in tonne-miles, is a product of (a) the amount of cargo transported in ocean-going vessels, multiplied by
(b) the distance over which this cargo is transported. The distance is the more variable element of the tonne-mile demand equation
and is determined by seaborne trading patterns, which are principally influenced by the locations of production and consumption.
Seaborne trading patterns are also periodically influenced by geo-political events that divert vessels from normal trading patterns, as
well as by inter-regional trading activity created by commodity supply and demand imbalances. Tonnage of oil shipped is primarily a
function of global oil consumption, which is driven by economic activity as well as the long-term impact of oil prices on the location
and related volume of oil production. Tonnage of oil shipped is also influenced by transportation alternatives (such as pipelines) and
the output of refineries.
Demand for tankers and tonnage of oil shipped is primarily a function of global oil consumption, which is driven by economic activ-
ity as well as the long-term impact of oil prices on the location and related volume of oil production. Global oil demand returned to
limited growth in 2010 and has since been expanding at a modest pace, as a steady rise in Asia has outweighed decreasing demand
in Europe and in the United States. Organization for Economic Cooperation and Development demand stabilized in 2012 and 2013 at
approximately 46 million barrels per day (“mb/day”) after contracting for several years. The crude tanker market experienced on aver-
age a more limited improvement, as the supply of crude tankers remained at historically high levels. According to the IEA, global oil
product demand for 2013 has been revised as of January 2014 to 91.2 mb/day compared to 90.0 mb/day during 2012. The IEA expects
2014 oil demand to grow by 1.3 mb/day to 92.5 mb/day.
Tonnage of oil shipped is also influenced by transportation alternatives (such as pipelines) and the output of refineries. In 2012, it is esti-
mated that ten refineries, predominantly in Europe and North America, with combined throughput of approximately 1.9 mb/day ceased
operations as a result of weak margins. Total refinery capacity additions for the same period were approximately 513 kb/day in these two
regions. The net effect was a reduction of approximately 1.3 mb/day in North America and Europe. Following the significant reduction in
refinery capacity in both regions during 2012, a few refinery closures occurred in 2013. However, as refinery margins have dropped, the
IEA forecasts more plant closures in 2014. Overall, it is estimated that global refinery capacity increased by approximately 1.7 mb/day in
2013, with such increase primarily driven by the estimated 1.0 mb/day addition to refinery capacity in Asia. In 2014, a notable number of
additional refineries are expected to start operations in Asia and in the Middle East. These new so-called super-refineries are expected to
partly offset the lost refining capacity in the Atlantic basin through long haul exports, which could potentially have a positive impact on
tonne-mile demand for product tankers as cargoes will be transported across longer distances.
COMPETITION
We operate in a highly fragmented, highly diversified global market with many charterers, owners and operators of vessels.
C ompetition for charters in all the trades our vessels trade in, tankers, drybulk and container, can be intense and the ability to obtain
favorable charters depends, in addition to price, on a variety of other factors, including the location, size, age, condition and accept-
ability of the vessel and its operator to the charterer and is frequently tied to having an available vessel which has met the strict
operational and financial standards established by the oil major companies to pre-qualify or vet tanker operators prior to entering into
charters with them. Although we believe that at the present time no single company has a dominant position in the markets in which we
compete, that could change and we may face substantial competition for medium- to long-term charters from a number of experienced
companies who may have greater resources or experience than we do when we try to recharter our vessels, especially as a large number
of our vessels will come off charter during 2014. However, Capital Maritime is amongst a small number of ship management companies
in the tanker sector that has undergone and successfully completed office assessments by seven major international oil companies in the
last few years, including audits with BP, Chevron Corporation, Philips66 Inc., ExxonMobil Corporation, Royal Dutch Shell plc, Statoil ASA
and Total S.A. We believe our ability to comply with the rigorous standards of major oil companies, relative to less qualified or experienced
operators, allows us to effectively compete for new charters.
64
REGULATION
GENERAL
O ur operations and our status as an operator and manager of ships are extensively regulated by international conventions, Class require-
ments, U.S. federal, state and local as well as non-U.S. health, safety and environmental protection laws and regulations, including
OPA 90, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the U.S. Port and Tanker Safety
Act, the Act to Prevent Pollution from Ships, the U.S. Clean Air Act (“Clean Air Act”), The Clean Water Act, as well as regulations adopted
by the IMO and the European Union, various volatile organic compound and other air emission requirements, IMO/U.S. Coast Guard pollu-
tion regulations and various Safety of Life at Sea (“SOLAS”) amendments, as well as other regulations described below. In addition, various
jurisdictions either have or are considering regulating the management of ballast water to prevent the introduction of non-indigenous
species considered to be invasive. Compliance with these laws, regulations and other requirements could entail additional expense, includ-
ing vessel modifications and implementation of additional operating procedures.
We are also required by various other governmental and quasi-governmental agencies and international organizations to obtain permits,
licenses and certificates for our vessels, depending upon such factors as the country of registry, the cargo transported, the trading area, the
nationality of the vessel’s crew, the age and size of the vessel and our status as owner or charterer. Failure to maintain necessary permits,
licenses or certificates could require us to incur substantial costs or temporarily suspend operations of one or more of our vessels.
We believe that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will in the future
impose greater inspection, training and safety requirements on all types of vessels in the shipping industry. In addition to inspections by
us, our vessels are subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which
may have unique requirements. These entities include the local port authorities (such as U.S. Coast Guard, harbor master or equivalent),
classification societies, flag state administration P&I Clubs, charterers, and particularly terminal operators and major oil companies which
conduct frequent vessel inspections.
It is our policy to operate our vessels in full compliance with applicable environmental laws and regulations. However, regulatory programs
are complex and because such laws and regulations frequently change and may impose increasingly strict requirements, we cannot predict
the ultimate cost of complying with these and any future requirements or their impact on the resale value or useful life of our vessels.
UNITED STATES REQUIREMENTS
T he United States regulates the tanker industry with an extensive regulatory and liability regime for environmental protection and
the cleanup of oil spills, primarily through OPA 90, CERCLA and certain coastal state laws.
OPA 90 affects all vessel owners and operators transporting crude oil or petroleum products to, from, or within U.S. waters. The law phases
out the use of tankers having single-hulls and can effectively impose unlimited liability on vessel owners and operators in the event of an oil
spill. Under OPA 90, vessel owners, operators and bareboat charterers are liable, without regard to fault, for all containment and clean-up costs
and other damages, including natural resource damages, and for certain economic losses, arising from oil spills and pollution from their vessels.
Effective July 31, 2009, the U.S. Coast Guard adopted interim regulations that adjust the limits of OPA liability for environmental damages for
double-hull vessels to the greater of $2,000 per gross ton or $17,088,000 million per tanker that is over 3,000 gross tons (subject to possible
adjustment for inflation), unless the incident is caused by gross negligence, willful misconduct, or a violation of certain regulations, in which
case liability is unlimited. In addition, OPA 90 does not preempt state law and permits individual states to impose their own stricter liability
regimes with regard to oil pollution incidents occurring within their boundaries. Coastal states have enacted pollution prevention, liability
and response laws, many providing for unlimited liability. As a result of the Deepwater Horizon oil spill in the Gulf of Mexico, bills have been
introduced periodically in the U.S. Congress to increase the limits of OPA liability for all vessels, including tanker vessels.
CERCLA applies to the discharges of hazardous substances (other than oil) whether on land or at sea, and contains a liability regime that
provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0
million for vessels carrying any hazardous substances as cargo, or $0.5 million for any other vessel, per release of or incident involving
hazardous substances. These limits of liability do not apply if the incident is caused by gross negligence, willful misconduct, or a violation
of certain regulations, in which case liability is unlimited.
The financial responsibility regulations for tankers issued under OPA 90 also require owners and operators of vessels entering U.S. waters
to obtain, and maintain with the U.S. Coast Guard, Certificates of Financial Responsibility, or COFRs, in the amount sufficient to meet the
maximum aggregate liability under OPA 90 and CERCLA. All of our vessels that need COFRs have them.
We insure each of our tankers with pollution liability insurance in the maximum commercially available amount of $1.0 billion per incident.
A catastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on our business.
OPA 90 requires that tankers over 5,000 gross ton calling at U.S. ports have double hulls. All of the vessels in our fleet have double hulls.
We believe that we are in compliance with OPA 90, CERCLA and all applicable state regulations in U.S. ports where our vessels call.
OPA 90 also amended the Clean Water Act to require owners and operators of vessels to adopt contingency plans for reporting and responding
to oil spill scenarios up to a “worst case” scenario and to identify and ensure, through contracts or other approved means, the availability of
necessary private response resources to respond to a “worst case discharge”. In addition, periodic training programs, drills for shore and response
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personnel, and for vessels and their crews are required. Our vessel response plans have been approved by the U.S. Coast Guard. The Clean
Water Act prohibits the discharge of oil or hazardous substances in U.S. navigable waters and imposes strict liability in the form of penalties
for unauthorized discharges. The Clean Water Act also imposes substantial liability for the costs of removal, remediation and damages and
complements the remedies available under OPA 90 and CERCLA, discussed herein. U.S. Environmental Protection Agency (“EPA”) regulations
govern the discharge into U.S. waters of ballast water and other substances incidental to the normal operation of vessels. Under EPA regula-
tions, commercial vessels greater than 79 feet in length are required to obtain coverage under the Vessel General Permit, or VGP, by submitting
a Notice of Intent. The VGP incorporates current U.S. Coast Guard requirements for ballast water management as well as supplemental ballast
water requirements and includes technology-based and water-quality based limits for other discharges, such as deck runoff, bilge water and
gray water. U.S. Coast Guard regulations phase in stricter VGP ballast management requirements in the future. Administrative obligations, such
as monitoring, recordkeeping and reporting requirements also apply. We have submitted NOIs for our vessels operating in U.S. waters and will
likely incur costs to meet the requirements of the VGP. In addition, various states, such as Michigan and California, have also enacted, or proposed,
legislation restricting ballast water discharges and the introduction of non-indigenous invasive species. These and any similar requirements in
the future could include ballast water treatment obligations that increase the cost of operating in the United States, such as the installation
of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or
procedures. These could impose substantial costs or restrict our vessels from entering certain U.S. waters.
The Clean Air Act requires the EPA to promulgate standards applicable to emissions of volatile organic compounds, hazardous air pollutants and
other air contaminants. The Clean Air Act also requires states to draft State Implementation Plans (“SIPs”) designed to attain national health-based
air quality standards, which have significant regulatory impacts in major metropolitan and/or industrial areas. Several SIPs regulate emissions
resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. Individual states, including
California, also regulate vessel emissions within state waters. California also has adopted fuel content regulations that will apply to all vessels
sailing within 24 miles of the California coastline or whose itineraries call for them to enter any California ports, terminal facilities, or internal or
estuarine waters. In addition, on March 26, 2010, IMO designated the area extending 200 miles from the U.S. territorial sea baseline adjacent to
the Atlantic/Gulf and Pacific coasts and the eight main Hawaiian Islands as Emission Control Areas under recent amendments to the Annex VI
of MARPOL (discussed below). In addition, regulatory initiatives to require cold-ironing (shore-based power while docked) are under consideration
in a number of jurisdictions to reduce air emissions from docked ships. If these or other new or more stringent requirements relating to emissions
from marine diesel engines or port operations by vessels are adopted by the EPA, the states or local jurisdictions where we operate, compliance
with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
INTERNATIONAL REQUIREMENTS
T he IMO has also negotiated international conventions that impose liability for oil pollution in international waters and a signatory’s ter-
ritorial waters. In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships
to address air pollution from ships. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits
deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of
fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. The MEPC adopted amendments to
Annex VI to the MARPOL, which entered into force on July 1, 2010, regarding particulate matter, nitrogen oxide and sulfur oxide emissions. The
revised Annex VI reduces air pollution from vessels by, among other things (i) implementing a progressive reduction of sulfur oxide emissions
from ships, with the global sulfur cap reduced initially to 3.50% (from the current cap of 4.50%), effective from January 1, 2012, then progres-
sively to 0.50%, effective January 1, 2020 (subject to a feasibility review to be completed no later than 2018) and (ii) establishing new tiers
of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. Additionally, more stringent
emission standards could apply in coastal areas designated as Emission Control Areas. We may incur additional costs to comply with these
revised standards. A failure to comply with Annex VI requirements could result in a vessel not being able to operate. All of our vessels are
subject to Annex VI regulations. We believe that our existing vessels meet relevant Annex VI requirements and that our undelivered product
tankers will be fitted with these emission control systems prior to their delivery.
The ISM Code, promulgated by the IMO, also requires the party with operational control of a vessel to develop an extensive safety manage-
ment system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and
procedures for operating its vessels safely and describing procedures for responding to emergencies. The ISM Code requires that vessel operators
obtain a safety management certificate for each vessel they operate. No vessel can obtain a certificate unless its manager has been awarded
a document of compliance, issued by each flag state, under the ISM Code. All of our ocean-going vessels are ISM certified.
Noncompliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may
lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.
For example, the U.S. Coast Guard and EU authorities have indicated that vessels not in compliance with the ISM Code will be prohibited
from trading in U.S. and EU ports.
Many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for
Oil Pollution Damage of 1969 (the “CLC”) (the United States, with its separate OPA 90 regime, is not a party to the CLC). Under this convention
and depending on whether the country in which the damage results is a party to the 1992 Protocol to the International Convention on Civil
Liability for Oil Pollution Damage, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a con-
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tracting state by discharge of persistent oil, subject to certain defenses. Under the Protocol for vessels of 5,000 to 140,000 gross tons, liability
is limited to approximately $7.1 million plus $989.2 for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability
is limited to approximately $140.7 million. As the convention calculates liability in terms of a basket of currencies, these figures are based on
currency exchange rates on December 31, 2010. The right to limit liability is forfeited under the International Convention on Civil Liability for
Oil Pollution Damage where the spill is caused by the owner’s actual fault and under the 1992 Protocol where the spill is caused by the owner’s
intentional or reckless conduct. Vessels trading to states that are parties to these conventions must provide evidence of insurance covering the
liability of the owner. In jurisdictions where the International Convention on Civil Liability for Oil Pollution Damage has not been adopted,
various legislative schemes or common law regimes govern, and liability is imposed either on the basis of fault or in a manner similar to that
convention. We believe that our P&I insurance will cover the liability required under the plan adopted by the IMO.
In 2001, the IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, which
imposes strict liability on ship owners for pollution damage caused by discharges of bunker oil in jurisdictional waters of ratifying states.
The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance for pollution damage in an amount
equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated
in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). Our fleet has been issued with a
certificate attesting that insurance is in force in accordance with the insurance provisions of the convention.
IMO regulations also require owners and operators of vessels to adopt Shipboard Marine Pollution Emergency Plans (“SMPEPs”). Periodic
training and drills for response personnel and for vessels and their crews are required. The SMPEPs required for our vessels are in place.
In addition, our operations are subject to compliance with the International Bulk Chemical (“IBC”) Code, as required by MARPOL and SOLAS for
chemical tankers built after July 1, 1986, which provides ship design, construction and equipment requirements and other standards for the
bulk transport of certain liquid chemicals. Under October 2004 amendments to the IBC Code (implemented to meet recent revisions to SOLAS
and Annex II to MARPOL), some previously unrestricted vegetable oils, including animal fats and marine oils, must be transported in chemical
tankers meeting certain double-hull construction requirements. Our vessels may transport such cargoes but are restricted as to the volume they
are able to transport per cargo tank. This restriction does not apply to edible oils. In addition, those amendments require re-evaluation of the
categorization of certain products with respect to their properties as marine pollutants, as well as related ship type and carriage requirements.
Where necessary pollution data is not supplied for those products, bulk carriage of such products could be prohibited.
The International Convention on the Control of Harmful Anti-fouling Systems on Ships (the “Anti-fouling Convention”) prohibits the use of
organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. The Anti-fouling Convention
applies to vessels constructed prior to January 1, 2003 that have not been in drydock since September 17, 2008. Vessels of over 400 gross
tons engaged in international voyages must obtain an International Anti-fouling System Certificate and must undergo a survey before the
vessel is put into service or when the anti-fouling systems are altered or replaced. We have obtained Anti-Fouling System Certificates for
all of our vessels that are subject to the Anti-Fouling Convention and do not believe that maintaining such certificates will have a material
adverse financial impact on the operation of our vessels.
CLIMATE CHANGE AND GREENHOUSE GAS REGULATION
I ncreasing concerns about climate change have resulted in a number of international, national and regional measures to limit greenhouse
gas emissions and additional stricter measures can be expected in the future. In February 2005, the Kyoto Protocol to the United Nations
Framework Convention on Climate Change, or Kyoto Protocol, entered into force. Pursuant to the Kyoto Protocol, adopting countries
are required to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are
suspected to contribute to global warming. Currently, the emissions of greenhouse gases from international shipping are not subject to the
Kyoto Protocol. However, a new treaty may be adopted in the future that includes restrictions on shipping emissions. The European Union
also has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions
of greenhouse gases from vessels. In the United States, the EPA is considering a petition from the California Attorney General to regulate
greenhouse gas emissions from ocean-going vessels. In addition, the EPA has begun regulating greenhouse gas emissions under the Clean
Air Act and climate change initiatives are being considered in the U.S. Congress. Any passage of climate control legislation or other regula-
tory initiatives by the IMO, European Union, the U.S. or other countries where we operate that restrict emissions of greenhouse gases could
have a financial impact on our operations that we cannot predict with certainty at this time. In addition, scientific studies have indicated
that increasing concentrations of greenhouse gases in the atmosphere may produce climate changes with significant physical effects, such
as increased frequency and severity of storms, floods and other severe weather events that could affect our operations.
VESSEL SECURITY REGULATIONS
S ince the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On
November 25, 2002, the Maritime Transportation Security Act of 2002 (“MTSA”) came into effect. To implement certain portions of
the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard
vessels operating in waters subject to the jurisdiction of the United States.
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Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security.
The new chapter went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of
which are contained in the newly created International Ship and Port Facilities Security (“ISPS”) Code. Among the various requirements are:
• on-board installation of automatic identification systems to enhance vessel-to-vessel and vessel-to-shore communications;
• on-board installation of ship security alert systems;
• the development of vessel security plans; and
• compliance with flag state security certification requirements.
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempted non-U.S. vessels from MTSA
vessel security measures provided such vessels had on board, by July 1, 2004, a valid International Ship Security Certificate that attests
to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures
addressed by the MTSA, SOLAS and the ISPS Code and have ensured that our vessels are compliant with all applicable security requirements.
C. ORGANIZATIONAL STRUCTURE PERCENTAGES AND UNITS OWNED TO BE AMENDED
100% Membership Interest
CAPITAL GP L.L.C.
(GENERAL PARTNER)
1,765,457 GP Units
CAPITAL MARITIME & TRADING CORP.
(SPONSOR)
17,692,891 Common Units
4,048,484 Class B Units
19.9% Limited Partner Interest
PUBLIC UNITHOLDERS*
70,747,819 Common Units
14,873,737 Class B Units
1.6% General Partner Interest
78.5% Limited Partner Interest
CAPITAL PRODUCT PARTNERS L.P.
100% Membership Interest
100% Equity Interest
CAPITAL PRODUCT OPERATING L.L.C.
CRUDE CARRIERS CORP.
OPERATING SUBSIDIARIES
CRUDE CARRIERS OPERATING CORP.
OPERATING SUBSIDIARIES
*Includes common units held by our chairman Evangelos M. Marinakis and common units issued upon conversation of the Crude Carriers
shares upon completion of the merger with Crude Carriers, including common units resulting from the conversion of the Crude Carriers Class
B shares owned by Crude Carriers Investments and common units resulting from the conversion of Crude Carriers common shares issued
under the Crude Plan as well as common units issued under our Plan.
Please also see Note 1 (Basis of Presentation and General Information) to our Financial Statements included herein and Exhibit 8.1 to this
Annual Report for a list of our significant subsidiaries as of December 31, 2013.
D. PROPERTY, PLANTS AND EQUIPMENT
Other than our vessels, we do not have any material property. Our obligations under our credit facilities are secured by all our vessels. For
further details regarding our credit facilities, please read “Item 5B: Liquidity and Capital Resources—Borrowings—Our Credit Facilities”.
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PART I Item 4A. Unresolved Staff Comments (None) Item 5. Operating and Financial Review and Prospects.
You should read the following discussion of our financial condition and results of operations in conjunction with our audited
consolidated Financial Statements for the years ended December 31, 2013, 2012 and 2011 and related notes included elsewhere
in this Annual Report. Among other things, the Financial Statements include more detailed information regarding the basis of
presentation for the following information. The Financial Statements have been prepared in accordance with U.S. GAAP and
are presented in thousands of U.S. Dollars.
A. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
W e are an international shipping company formed in January 2007 by Capital Maritime, an international shipping company with
a long history of operating and investing in the shipping market. Our fleet currently consists of 30 modern high specification
vessels with an average age of approximately 5.8 years as of December 31, 2013.
During 2013 we completed the issuance and sale of 9.1 million Class B Units, including 615,151 to Capital Maritime, which are convert-
ible into common units on a one-for-one basis. The Class B Units pay a fixed quarterly distribution of $0.21375 per unit representing an
annualized distribution yield of 9.5%. The issued Class B Units have certain rights that are senior to the rights of the holders of common
units, such as the right to distributions and rights upon liquidation of the Partnership reflected in the Second Amendment to the Partner-
ship Agreement and the Third Amendment to the Partnership Agreement. Furthermore, pursuant to the terms of the Third Amendment
to the Partnership Agreement, an upward adjustment to the distribution rate for the Class B Units occurs in the event the distribution rate
on our common units is increased. In connection with the issuance and sale of the Class B Units, and together with approximately $54.0
million from our existing credit facilities and part of our cash balances, we paid for the acquisition of two 5,023 TEU Container Vessels for
a total consideration of $130.0 million. Please see Exhibit I to our Current Report on Form 6-K furnished to the SEC on March 18, 2013
and Exhibits I, II, III and IV to our Current Report on Form 6-K furnished to the SEC on March 21, 2013, and Note 13 (Partners’ Capital) to
our Financial Statements included herein for more information.
In July, August, October and December 2013, certain holders of our Class B Units converted 5,733,333 Class B Units into common units
in accordance with the terms of the partnership agreement.
Additionally, following the filing for protection under Chapter 11 of the U.S. Bankruptcy Code by one of our charterers, OSG, we agreed
to enter into three new charters with OSG on substantially the same terms as the prior three charters, but at a bareboat rate of $6,250
per day. The new charters were approved by the Bankruptcy Court on March 21, 2013, and were effective as of March 1, 2013. On the
same date, the Bankruptcy Court also rejected the prior charters as of March 1, 2013. We filed claims for a total of $54.1 million against
each of the charterers and their respective guarantors for damages resulting from the rejection of each of the prior charters, including,
among other things, for the difference between the bareboat rate of the new charters and the bareboat rate under each of the rejected
prior charters. We transferred to Deutsche Bank all of our rights, title, interest, claims and causes of action in and to, or arising under or in
connection with, the Claims and, as a result, we received $31.4 million (subject to increase or decrease depending on the actual allowed
amount of the Claims). On December 18, 2013 the Partnership and Deutsche Bank entered into a Settlement Notice and Refund Modifica-
tion pursuant to which, among other things, we agreed that if the Claims are allowed in an aggregate amount less than $43.25 million,
the maximum aggregate amount that we are obligated to refund to Deutsche Bank is $0.6 million. The Claims have been settled with OSG
and are allowed as general unsecured claims in the aggregate amount of $43 million. As a result of this allowance, we are obligated to
refund $0.6 million to Deutsche Bank.
We also completed the issuance and sale of 13,685,000 common units representing limited partnership interests at a public offering price
of $9.25 per unit, which included 1,785,000 common units sold as a result of the full exercise of the over-allotment option granted to the
underwriters of the public offering. Capital GP L.L.C., our general partner, participated in both the offering and the exercise of the over-
allotment option and purchased 279,286 units at the public offering price, subsequently converting 349,700 common units into general
partner units to maintain its 2% interest in us.
Further, we entered into a new senior secured credit facility of up to $200.0 million, which was amended on December 27, 2013 to increase
its size to up to $225.0 million, led by ING Bank N.V. We used the net proceeds from the issuance of the 13,685,000 common units together
with approximately $75.0 million from our 2013 credit facility and part of our cash balances to acquire the three 5,023 TEU container
vessels from our sponsor Capital Maritime for an aggregate purchase price of $195.0 million.
We sold the M/T Agamemnon II (51,238 dwt IMO II/III Chemical Product Tanker built 2008, STX Shipbuilding & Offshore, S. Korea) to
unaffiliated third parties and acquired an eco-type MR product tanker to be renamed M/T Aristotelis (51,604 dwt IMO II/III Chemical
Product Tanker built 2013, Hyundai Mipo Dockyard Ltd, S. Korea). The acquisition of M/T Aristotelis was funded with proceeds from the
sale of M/T Agamemnon II and approximately $6.2 million from our cash balances.
During 2012 we completed the issuance and sale of 15,555,554 Class B Units, including 3,433,333 Class B Units to Capital Maritime, which
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are convertible at any time into common units on a one-for-one basis. With the exception of the first quarterly distribution which was
set at $0.26736 per unit, the Class B Units pay a fixed quarterly distribution of $0.21375 per unit representing an annualized distribution
yield of 9.5%. The issued Class B Units have certain rights that are senior to the rights of the holders of common units, such as the right
to distributions and rights upon liquidation of the Partnership reflected in the Second Amendment to the Partnership Agreement. In con-
nection with the issuance and sale of the Class B Units we also entered into amendments to our three credit facilities, providing amongst
others for the deferral of scheduled amortization payments under each of our three credit facilities until March 2016, and prepaid debt of
$149.6 million. Please see our Current Reports on Form 6-K furnished to the SEC on May 23, 2012 and June 6, 2012 and Note 7 (Long Term
Debt) and Note 13 (Partners’ Capital) to our Financial Statements included herein for more information. In addition, during 2012 we sold
the two small tankers in our fleet to unrelated third parties and acquired all of Capital Maritime’s interest in its wholly owned subsidiaries
that owned the two 7,943 TEU container carrier vessels M/V Archimidis and M/V Agamemnon, both built at Daewoo Shipbuilding in South
Korea and under medium term time charters with Maersk Line in exchange for all of our interest in our wholly owned subsidiaries that
owned the two VLCCs M/T Alexander the Great and M/T Achilleas (the “2012 Vessel Sale”). We received a total net consideration of $0.3
million in connection with this transaction and Capital Maritime has waived any compensation for the early termination of the charters
of the M/T Alexander the Great and M/T Achilleas. In view of this transaction, we repaid $5.2 million in debt.
Please see “Item 4B: Business Overview—Our Management Agreements” above for a detailed description of the management agreements we
have entered into with Capital Ship Management.
Please see “Item 4B: Business Overview—Our Fleet” and “—Our Charters” above for a detailed description of the vessels in our fleet, and their
employment, including earliest possible redelivery dates of the vessels and relevant charter rates and operating expenses.
As of December 31, 2013, the Marinakis family, including Evangelos M. Marinakis, our chairman, may be deemed to beneficially own a
27.3% interest in us through its beneficial ownership, amongst others, of Capital Maritime and of Crude Carriers Investments.
Notwithstanding the ongoing challenges to the global economy and historically low charter rates, our primary business objective is to pay
a sustainable quarterly distribution per unit and to increase our distributions over time, subject to shipping, charter and financial market
developments and our financing requirements. Our strategy focuses on maintaining and growing our cash flows while maintaining and
building on our ability to meet rigorous industry and regulatory safety standards.
We believe that the medium- to long-term, fixed-rate nature of our charters, our profit sharing arrangements, and our cost-efficient ship
management operations under our agreements with Capital Ship Management and the fact that we currently have no capital commitments
to purchase or build further vessels provide visibility of revenues, earnings and distributions in the medium- to long-term. As our vessels
come up for rechartering we will seek to redeploy them at contracts that reflect our expectations of the market conditions prevailing at
the time. We intend to continue to evaluate potential opportunities to acquire both newbuildings and second-hand vessels from Capital
Maritime and from third parties (including, potentially, through the acquisition of, or combination with, other shipping businesses) and
leverage the expertise and reputation of Capital Maritime in a prudent manner that is accretive to our unitholders and to long-term dis-
tribution growth, subject to approval of our board of directors and overall market conditions. In connection with evaluating and pursuing
these opportunities, and as we seek to optimize our capital structure, we may also seek to evaluate and pursue financing opportunities
from external financing sources, including bank borrowings and the issuance of debt and equity securities.
Please see “Item 5A: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our Future
Results of Operations” below.
Please also see “Item 4B: Business Overview” above, for a description of the historical development of our company and a description of the
significant acquisitions and financial events to date, including a more detailed description of the issuance and sale of the Class B Units, “Item
5A: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Accounting for Acquisition and
Disposal of Vessels and Merger with Crude Carriers” and “Item 5B: Liquidity and Capital Resources—Net Cash Provided by/(Used in) Investing
Activities” and “Item 7B: Related-Party Transactions” for a description of the terms of certain transactions.
OUR CHARTERS
W e generate revenues by charging our customers for the use of our vessels to transport their products. Historically, we have provided
services to our customers under time or bareboat charter agreements. As of December 31, 2013, all of the 30 vessels in our fleet
were trading in the period market.
Our vessels are currently under contracts with BP Shipping Limited, Capital Maritime, Bluemarine Cargo, Subtec, Cosco, HMM, Maersk Line
and OSG. For the year ended December 31, 2013, Capital Maritime, BP Shipping Limited, Maersk Line and HMM accounted for 32%, 17%,
14% and 13% of our revenues, respectively. For the year ended December 31, 2012, Capital Maritime and BP Shipping Limited accounted
for 45% and 23% of our revenues, respectively. For the year ended December 31, 2011, Capital Maritime, BP Shipping Limited and OSG
accounted for 24%, 32% and 11% of our revenues, respectively. The loss of any significant customer or a substantial decline in the amount
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of services requested by a significant customer could harm our business, financial condition and results of operations. In the future, as our
fleet expands, we also expect to enter into charters with new charterers in order to maintain a portfolio that is diverse from a customer,
geographic and maturity perspective.
Please read “Item 4B: Business Overview—Our Fleet”, “—Our Charters” and “—Profit Sharing Arrangements” for additional details regarding
these types of contractual relationships as well as a detailed description of the length and daily charter rate of our charters and information
regarding the calculation of our profit share arrangements.
ACCOUNTING FOR ACQUISITION AND DISPOSAL OF VESSELS AND MERGER WITH CRUDE CARRIERS
D uring 2013, we acquired all of the interest in five of Capital Maritime’s wholly owned subsidiaries that each owned a container carrier
vessel, the M/V Hyundai Prestige renamed to M/V CCNI Angol, the M/V Hyundai Premium, the M/V Hyundai Paramount, the M/V Hyun-
dai Privilege and the M/V Hyundai Platinum, each of which was under a long term time charter, at an aggregate price of $325.0 million.
According to the Accounting Standard Codification (“ASC”) 805 “Business Combinations”, and the three elements that are defined in ASC 805-10-
55-4 through 805-10-55-9 we have determined that the acquisition of each of the five above mentioned vessels constitutes an acquisition of a
business. In our case, the fair value of net assets acquired of $367.3 million exceeded the purchase consideration of $325.0 million and therefore
a gain from bargain purchase of $42.3 million was recognized in our consolidated statements of comprehensive income.
M/T Aristotelis, which was acquired during 2013 by an unaffiliated third party, has been treated as an acquisition of an asset. The results
of operations, cash flows and financial position of the M/T Agamemnon II that was disposed during of 2013 are included in our Financial
Statements up to the date of her disposal.
On December 22, 2012, we acquired all of the interest in two of Capital Maritime’s wholly owned subsidiaries that each owned a container
carrier vessel, the M/V Archimidis and the M/V Agamemnon, each of which was under a medium term time charter, in exchange for all of
our interest in two of our wholly owned subsidiaries that each owned a VLCC, the M/T Alexander the Great and the M/T Achilleas. According
to the Accounting Standard Codification (“ASC”) 805 “Business Combinations”, and the three elements that are defined in ASC 805-10-55-4
through 805-10-55-9 we have determined that the acquisition of each of the M/V Archimidis and the M/V Agamemnon constitutes an acqui-
sition of a business. In our case, the fair value of net assets acquired of $70.3 million in the case of the acquisition of the M/V Agamemnon
and the fair value of net assets acquired of $67.3 million in the case of the acquisition of the M/V Archimidis are both equal to the purchase
consideration, therefore no goodwill or gain from bargain purchase was recognized for both transactions.
On September 30, 2011, the merger between us and Crude Carriers was successfully completed. We have accounted for the acquisition of Crude
Carriers using the acquisition method of accounting. According to the ASC 805-30 “Business Combination” all assets acquired and liabilities
assumed must be recorded at fair value. In our case the fair value of net assets acquired of $223.0 million exceeded the purchase consideration
of $157.1 million and therefore a gain from bargain purchase of $65.9 million was recognized in our consolidated statements of comprehensive
income. The acquisition of Crude Carriers was funded by the issuance of 24,967,240 common units to the holders of Crude Carriers’ shares.
Our partnership agreement provides that our board of directors has the power to oversee, direct the operation, and determine our strate-
gies and policies. It also sets out the extent of the power that the general partner has regarding our management, operations and affairs.
Following our annual general meeting of common unitholders on July 22, 2010, and the elections of two Class III directors, the majority of
our board has been elected by non-Capital Maritime controlled unitholders. As a result, we are not considered to be under common control
with Capital Maritime. As a consequence, starting with July 22, 2010, we no longer account for vessel acquisitions from Capital Maritime
as transfer of equity interest between entities under common control.
Prior to July 22, 2010, when we and Capital Maritime were under common control, all the vessel owning companies we acquired from
Capital Maritime were recorded by us at net book value reflected by Capital Maritime and accounted for as a combination of entities under
common control or a transfer of equity interest between entities under common control. For a combination between entities under com-
mon control, the purchase cost provisions (as they relate to purchase business combinations involving unrelated entities) explicitly do not
apply; instead the method of accounting prescribed by accounting standards for such transfers is similar to pooling-of-interests method
of accounting. Under this method, the carrying amount of assets and liabilities recognized in the balance sheets of each combining entity
are carried forward to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the combina-
tion. Purchase premium or discount representing the difference between the cash consideration paid and the book value of the net assets
acquired was recorded as increase or decrease to the Partners’ capital.
Vessel owning companies that had an operating history as part of Capital Maritime’s fleet, prior to their acquisition by us have been treated
as acquisitions of business as such vessels were acquired from an entity under common control with existing time charters, strategic
management and operational resource management processes. As a result, transfers of equity interests between entities under common
control were accounted for as if the transfer occurred at the beginning of the period, and prior years were retroactively adjusted to furnish
comparative information similar to the pooling-of-interest method. Vessels that had no operating history and were delivered to us from
the shipyards through Capital Maritime have been treated as an acquisition of assets from an entity under common control.
For additional information on how we have accounted for the transfers of vessels please see Note 3 (Acquisitions) to our Financial Statements
included herein.
71
FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS
W e are primarily exposed to the tanker market as (a) the majority of vessels in our fleet are either crude or product tankers and (b) most
of the charters that have expired over the previous 12 months or are expected to expire in the coming 12 months are for our product
or crude tanker vessels. We believe the principal factors that will affect our future results of operations are the economic, regulatory,
financial, credit, political and governmental conditions that affect the shipping industry generally and that affect conditions in countries and
markets in which our vessels engage in business. The world economy has been experiencing significant economic and political challenges since
2008 as well as a severe deterioration in the banking and credit markets which have had, and continue to have, a negative impact on world trade
and which may affect our ability to obtain financing as well as further impact the values of our vessels and the charters we are able to obtain
for our vessels. The pace of recovery of the world economy and demand for the seaborne transportation of goods, including oil and oil products
and for dry and containerized goods, and the deliveries of newbuilding vessels will affect the shipping industry in general and our future results.
Other key factors that will be fundamental to our business, future financial condition and results of operations include:
• the demand for seaborne transportation services;
• levels of oil product demand and inventories;
• demand for raw materials, dry cargo and containerized goods;
• charter hire levels and our ability to recharter our vessels as their current charters expire;
• our ability to service our debt and, when the non-amortizing period expires in March 2016, to refinance our existing indebtedness with similar
terms to our existing loans or, in the event such indebtedness is not refinanced, our obligation to make principal payments under our credit facilities;
• supply of vessels, and specifically the number of newbuildings entering the world tanker, container and dry cargo fleets each year;
• the ability to increase the size of our fleet and make additional acquisitions that are accretive to our unitholders;
• the ability of Capital Maritime’s commercial and chartering operations to successfully employ our vessels at economically attractive rates,
particularly as our fleet expands and our charters expire;
• the continuing demand for goods from China, India, Brazil and Russia and other emerging markets;
• our ability to comply with and benefit from new maritime regulations and the more restrictive regulations for the transport of certain
products and cargoes;
• our ability to comply with the covenants in our credit facilities, including covenants relating to the maintenance of vessel value ratios;
• the increased costs associated with the renewal of our technical management agreement and transition to a floating fee based on actual
expenses for certain of our vessels;
• the effective and efficient technical management of our vessels;
• the costs associated with upcoming drydocking of our vessels which are not covered by our management agreements;
• Capital Maritime’s ability to obtain and maintain major international oil company approvals and to satisfy their technical, health, safety
and compliance standards; and
• the strength of and growth in the number of our customer relationships, especially with major international oil companies and major
commodity traders.
In addition to the factors discussed above, we believe certain specific factors have impacted, and will continue to impact, our results of
operations. These factors include:
• the charter hire earned by our vessels under time charters and bareboat charters;
• our ability to recharter our vessels on medium to long term charters at competitive rates;
• our ability to comply with the covenants in our credit facilities, including covenants relating to the maintenance of vessel value ratios,
as the recent decline in vessel values and charter rates may limit our ability to pursue our business strategy;
• the prevailing spot market rates and the number of our vessels which we may operate on the spot market;
• our access to debt and equity, and the cost of such capital, required to acquire additional vessels and/or to implement our business strategy;
• our ability to acquire and sell vessels at prices we deem satisfactory;
• our level of debt and the related interest expense and amortization of principal; and
• the level of any distribution on our common units.
Please read “Item 3D: Risk Factors” above for a discussion of certain risks inherent in our business.
FACTORS TO CONSIDER WHEN EVALUATING OUR RESULTS
We believe it is important to consider the following factors when evaluating our results of operations:
• Financial Statements. Our Financial Statements include the results of operations of different numbers of vessels in each year. Please
read “Item 5A: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Accounting for
72
Acquisition and Disposal of Vessels and Merger with Crude Carriers” above for a description of the financial treatment of vessel acquisi-
tions and dispositions.
• Vessel Acquisitions and Disposals. Vessels that have been acquired or delivered to us prior to July 22, 2010, are included in our
results of operations, cash flows and financial position from the date of incorporation of the relevant vessel owning company or, in
the case of the seven vessels we contracted to acquire at the time of our IPO which were delivered during 2007 and 2008, as of their
delivery date from the shipyard to Capital Maritime and us. Results of operations, cash flows and financial position of vessels that have
been disposed of are included in our Financial Statements up to the date of their disposal. As a result of this accounting treatment,
our Financial Statements may include results of operations of more vessels than actually comprised our fleet during the relevant year.
Please read “Item 5A: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Account-
ing for Acquisition and Disposal of Vessels and Merger with Crude Carriers” above for a description of the financial treatment of vessel
acquisitions. The table below shows the periods for which the results of operations and cash flows for each vessel owning company
are included in our Financial Statements.
VESSELS INCLUDED IN OUR FINANCIAL STATEMENTS AND ACQUISITION DATA
VESSEL
M/T Atlantas (1)
M/T Assos (1- 2)
M/T Aktoras (1)
M/T Agisilaos (1)
M/T Arionas (1)
M/T Avax (1)
M/T Aiolos (1)
M/T Axios (1)
M/T Atrotos (3 - 4)
M/T Akeraios (3)
M/T Apostolos (3)
M/T Anemos I (3)
M/T Attikos (5) (9)
M/T Alexandros II (3)
M/T Amore Mio II (5)
M/T Aristofanis (5) (9)
M/T Aristotelis II (3)
M/T Aris II (3)
M/T Agamemnon II (2) (5) (11)
M/T Ayrton II (4 - 5)
M/T Alkiviadis (5)
M/V Cape Agamemnon (6)
M/T Alexander the Great (7 - 8)
M/T Achilleas (7 - 8)
M/T Miltiadis M II (7)
M/T Amoureux (7)
M/T Aias (7)
M/V Agamemnon (8)
M/V Archimidis (8)
M/V Hyundai Prestige (CCNI Angol) (10)
M/V Hyundai Premium (CCNI Shanghai) (10)
M/V Hyundai Paramount (10)
M/V Hyundai Privilege (10)
M/V Hyundai Platinum (10)
M/T Aristotelis (12)
INCORPORATION
DATE
OF VOC*
DATE ACQUIRED
BY CAPITAL
MARITIME
09/16/2003
03/18/2004
08/27/2003
10/10/2003
11/10/2003
02/10/2004
09/12/2003
02/10/2004
02/11/2004
02/03/2004
05/26/2004
07/08/2004
12/29/2003
02/07/2006
05/29/2007
02/03/2004
02/07/2006
01/24/2006
07/14/2006
07/14/2006
06/22/2004
06/17/2008
01/26/2010
01/26/2010
04/06/2006
04/14/2010
04/14/2010
04/19/2012
04/19/2012
04/08/2011
04/08/2011
04/08/2011
04/08/2011
07/19/2011
10/16/2013
04/26/2006
05/17/2006
07/12/2006
08/16/2006
11/02/2006
01/12/2007
03/02/2007
02/28/2007
05/08/2007
07/13/2007
09/20/2007
09/28/2007
01/20/2005
01/29/2008
07/31/2007
06/02/2005
06/17/2008
08/20/2008
11/24/2008
04/10/2009
03/29/2006
01/25/2011
-
-
04/26/2006
-
-
6/28/2012
6/22/2012
02/19/2013
03/11/2013
03/27/2013
05/31/2013
06/14/2013
-
DATE
ACQUIRED
BY US
04/04/2007
04/04/07 & 08/16/10
04/04/2007
04/04/2007
04/04/2007
04/04/2007
04/04/2007
04/04/2007
05/08/07 & 03/01/10
07/13/2007
09/20/2007
09/28/2007
09/24/2007
01/29/2008
03/27/2008
04/30/2008
06/17/2008
08/20/2008
04/07/2009
04/13/2009
06/30/2010
06/09/2011
09/30/2011
09/30/2011
09/30/2011
09/30/2011
09/30/2011
12/22/2012
12/22/2012
09/11/2013
03/20/2013
03/27/2013
09/11/2013
09/11/2013
11/28/2013
Vessels Included in Consolidated Finan-
cial Statements for the years ended Dec. 31
2013
2012
2011
X
X
X
X
X
X
X
X
X
X
X
X
-
X
X
-
X
X
Up to Nov 4
X
X
X
-
-
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Up to Feb 14
X
X
Up to Apr 4
X
X
X
X
X
X
Up to Dec 21
Up to Dec 21
X
X
X
Since Dec 22
Since Dec 22
Since Sep 11
Since Mar 20
Since Mar 27
Since Sep 11
Since Sep 11
Since Nov 28
-
-
-
-
-
-
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
-
-
-
-
-
-
-
-
73
( * ) VOC: Vessel Owning Company
the M/T Alexander the Great and the M/T Achilleas, respectively.
(01) Initial Vessels. The Financial Statements have been retroac-
tively adjusted to reflect their results of operations as of the
incorporation date of the respective vessel owning companies.
(02) On April 7, 2009 the M/T Assos (which was part of our fleet at
the time of the IPO) was exchanged for the M/T Agamemnon
II. We subsequently re-acquired the M/T Assos from Capital
Maritime on August 16, 2010.
(03) Committed Vessels. These vessels are newbuildings which
were delivered directly to us from Capital Maritime on their
delivery dates from the shipyards and had no prior operating
history. As such, there is no information to retroactively restate
that should be considered and the results of operations are
presented in the Financial Statements since their delivery dates.
(04) On April 13, 2009 the M/T Atrotos (which was acquired from
Capital Maritime in May 2007) was exchanged for the M/T
Ayrton II. We subsequently re-acquired the M/T Atrotos from
Capital Maritime on March 1, 2010.
(05) Non-Contracted Vessels. The Financial Statements have been
retroactively adjusted to reflect their results of operations as
of the incorporation date of the respective vessel owning com-
panies (with the exception of M/T Assos for the period from
April 17, 2009 to August 15, 2010).
(06) Our Financial Statements include the results of operations of
the vessel owning of the M/V Cape Agamemnon and cash flows
since the date of its acquisition by us on June 9, 2011.
(07) Our Financial Statements include: (a) results of operations
and cash flows of Crude Carriers and its subsidiaries since the
completion of the merger on September 30, 2011 in a unit-for-
share transaction following which Crude Carriers became a wholly
owned subsidiary of ours; and (b) the statement of financial posi-
tion of Crude Carriers and its subsidiaries as of the date of the
completion of the merger after giving effect to Accounting Stand-
ard Codification (“ASC”) 805-30 “Business Combination” where all
assets acquired and liabilities assumed (of Crude Carriers Corp.
and its subsidiaries) were recorded at fair value.
(08) On December 22, 2012, we acquired the vessel owning compa-
nies of the M/V Archimidis and the M/V Agamemnon from Capi-
tal Maritime in exchange for the vessel owning companies of
(09) During the first half of 2012 we sold the M/T Attikos and the
M/T Aristofanis, to unrelated third parties.
(10) During 2013 we acquired from Capital Maritime the vessel
owning companies of five post-panamax container carrier ves-
sels: the M/V CCNI Angol, the M/V Hyundai Premium, the M/V
Hyundai Paramount, the M/V Hyundai Privilege and the M/V
Hyundai Platinum.
(11) In November 2013 we sold the M/T Agamemnon II to unaffili-
ated third parties.
(12) In November 2013 we acquired the M/T Aristotelis from an
unrelated third party.
• Different Structure of Operating Expenses. We have entered
into three separate technical and commercial management agree-
ments with Capital Ship Management for the management of our
fleet and each vessel in our fleet is managed under the terms of
one of these three agreements. Each agreement has a different
structure of operating expenses. We expect that as the fixed fee
management agreement expires for certain of our vessels, such
vessels, and any additional acquisitions we make in the future, shall
be managed under these floating fee management agreements. For
a detailed description of the management agreements and the fees
we pay our manager please read “Item 4: Business Overview - Our
Management Agreements” above.
• The Size of our Fleet Continues to Change. As of the date of
this Annual Report our fleet consisted of 30 vessels. At the time of
our IPO in 2007, our fleet consisted of eight vessels and in January
2011 it had increased to 21 vessels. During 2011 we acquired a
cape size vessel from Capital Maritime and also incorporated the
five crude tanker vessels that were part of the Crude Carriers fleet
prior to its merger with us in September 2011 into our fleet. Dur-
ing 2012 we exchanged two VLCCs we had acquired as part of the
merger with Crude Carriers for two post-panamax container carrier
vessels owned by Capital Maritime and sold the two small tankers
in our fleet. During 2013 we acquired five post-panamax container
carrier vessels owned by Capital Maritime. During 2013 we also
acquired one 2013 built medium range product tanker and sold one
2008 built medium range product tanker, both to unaffiliated third
parties. We intend to continue to evaluate potential acquisitions
of vessels or other shipping businesses in a prudent manner that
is accretive to our distributable cash flow per unit.
RESULTS OF OPERATIONS
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Results of operations for the years ended December 31, 2013 and December 31, 2012 differ primarily due to the increased size of our fleet
following the acquisition of a number of container vessels, gains from bargain purchases in the acquisition of a number of container ves-
sels from Capital Maritime, gains from the sale of the claim in OSG, losses related to the sale of one vessel to third parties, the increased
indebtedness to partially finance the acquisition of a number of vessels, the close out of certain interest rate swap agreements and the
larger number of vessels managed under our floating fee management agreement.
74
TOTAL REVENUES
Time, voyage and bareboat charter revenues amounted to approximately $171.5 million for the year ended December 31, 2013, as compared
to $154.0 million for the year ended December 31, 2013. The increase of $17.5 million is primarily attributable to the increased number of
vessels in our fleet. For the year ended December 31, 2013, $55.0 million of total revenues represented charter hire received from Capital
Maritime as compared to $69.9 million of total revenues for the year ended December 31, 2012. The decrease of $14.9 million in charter
hire received from Capital Maritime is mainly attributable to the 2012 Vessel Sale, where the two VLCCs that were sold to Capital Maritime
were under time charter with Capital Maritime from January 1, 2012 until the date of their sale on December 21, 2012.
Time, voyage and bareboat charter revenues are mainly comprised of the charter hire received from unaffiliated third-party customers and
Capital Maritime and are affected by the number of days our vessels operate, the average number of vessels in our fleet and the charter
rates. Please read “Item 4B: Business Overview—Our Fleet” and “—Our Charters” for information about the charters on our vessels, includ-
ing daily charter rates.
VOYAGE EXPENSES
Voyage expenses amounted to $6.1 million for the year ended December 31, 2013, as compared to $5.7 million for the year ended Decem-
ber 31, 2012, primarily due to the higher number of vessels in our fleet.
Voyage expenses are direct expenses to voyage revenues and primarily consist of commissions, port expenses, canal dues and bunkers. Voyage costs,
except for commissions, are paid for by the charterer under time and bareboat charters. Voyage costs under voyage charters are paid for by the owner.
VESSEL OPERATING EXPENSES
For the year ended December 31, 2013, our vessel operating expenses amounted to approximately $55.3 million, of which $17.0 million
was incurred under our management agreements with our manager and include $0.6 million in additional fees and costs relating to certain
costs associated with the vetting of our vessels, repairs related to unforeseen extraordinary events (as defined in our fixed fee management
agreement) and insurance deductibles.
For the year ended December 31, 2012, our vessel operating expenses amounted to approximately $45.8 million, of which $23.6 million
was incurred under our management agreements with our manager and include $1.9 million in additional fees and costs relating to certain
costs associated with the vetting of our vessels, repairs related to unforeseen extraordinary events (as defined in our fixed fee management
agreement) and insurance deductibles.
Increases to vessel operating expenses are primarily attributable to increased costs due to the higher number of vessels in our fleet and
the increased number of vessels managed under our floating fee management agreement.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses amounted to $9.5 million for the year ended December 31, 2013, as compared to $9.2 million for
the year ended December 31, 2012. General and administrative expenses, which includes a non-cash item, related to our Omnibus Incen-
tive Compensation Plan amounted to $3.5 million for the year ended December 31, 2013, as compared to $3.8 million for the year ended
December 31, 2012, resulting from our Omnibus Incentive Compensation Plan becoming fully vested in August 2013. As of December 31,
2013, there were no incentive awards outstanding under the Plan. General and administrative expenses include board of directors’ fees
and expenses, audit fees, and other fees related to the expenses of the publicly traded partnership.
GAIN ON SALE OF VESSELS TO THIRD PARTIES
During the year ended December 31, 2013, we sold the M/T Agamemnon II to unaffiliated third parties recognizing a loss on sale of
vessel of $7.1 million. This loss reflects the difference between the carrying value of the vessels and the net selling proceeds at the
time of the sale.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of fixed assets amounted to $52.2 million for the year ended December 31, 2013, as compared to $48.2
million for the year ended December 31, 2012, primarily due to the higher number of vessels in our fleet as a result of the acquisition of
the five post-panamax container vessels. Depreciation is expected to increase if the number of vessels in our fleet increases.
75
VESSELS’ IMPAIRMENT CHARGE
Vessels’ impairment charge amounted to $0.0 million for the year ended December 31, 2013, as compared to $43.2 million for the year
ended December 31, 2012, primarily due to the difference between the carrying and the fair market value of the M/T Alexander the Great
and the M/T Achilleas on the date they were exchanged for the M/V Archimidis and the M/V Agamemnon, respectively.
Please see Note 5 (Vessels) to our Financial Statements included herein for more information on the vessels’ impairment charge.
GAIN ON SALE OF CLAIM
Gain on sale of claim amounted to $31.4 million, attributable to the sale of our claim with OSG. Please read “Item 4A: History and Devel-
opment of the Partnership—2013 Developments—OSG Bankruptcy and Assignment of Claims” and Note 16 (Gain on sale of claim) to our
Financial Statements included herein for additional information.
GAIN FROM BARGAIN PURCHASE
Gain from bargain purchase is attributable to the acquisition of the M/V Hyundai Premium, the M/V Hyundai Paramount, the M/V Hyun-
dai Prestige (renamed to “CCNI Angol”), the M/V Hyundai Privilege and the M/V Hyundai Platinum, as the net identifiable assets acquired
exceeded the purchase consideration paid by $42.3 million.
TOTAL OTHER EXPENSE, NET
Total other expense, net for the year ended December 31, 2013, was approximately $15.5 million as compared to $24.4 million for the
year ended December 31, 2012.
The 2013 amount includes interest expense, amortization of financing charges, commitment fees and bank charges of $16.0 million, which
was lower by $10.7 million than the respective 2012 amount mainly due to the expiration and close out of our remaining interest rate swap
agreements. In addition the year ended December 31, 2012, reflects a gain of the 12 ineffective interest rate swap agreements of $1.5 million.
Interest and other income amounted to $0.5 million as compared to $0.8 million for the year ended December 31, 2012.
NET INCOME/(LOSS)
Net income for the year ended December 31, 2013, amounted to $99.5 million as compared to net loss of $21.2 million for the year ended
December 31, 2012. For a list of factors which we believe are important to consider when evaluating our results, please refer to the discus-
sion under “Item 5A: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors to Consider When
Evaluating Our Results” and “—Results of Operations” above.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Results of operations for the years ended December 31, 2012 and December 31, 2011 differ primarily due to the full year results of operations of
Crude Carriers into our Financial Statements, the repayment of debt of $175.2 million mainly through the proceeds from the issuance of our Class
B units and the sale of our two small tankers, the expiration and the close out of certain interest rate swap agreements and the larger number of
vessels managed under our floating fee management agreement as well as the impairment charge in relation to the disposal of two our vessels.
TOTAL REVENUES
Time, voyage and bareboat charter revenues amounted to approximately $154.0 million for the year ended December 31, 2012, as compared
to $130.3 million for the year ended December 31, 2011. The increase of $23.7 million is primarily attributable to the increased number
of vessels in our fleet following the full year consolidation of Crude Carriers’ vessels in 2012 as compared to the year ended December 31,
2011 when the Crude Carriers vessels were operated only during the last three months of the year. For the year ended December 31, 2012,
$69.9 million of total revenues represented charter hire received from Capital Maritime as compared to $31.8 million of total revenues
for the year ended December 31, 2011. The increase of $38.1 million in charter hire received from Capital Maritime is attributable to the
increased number of vessels in our fleet chartered with Capital Maritime for the period. Time, voyage and bareboat charter revenues are
mainly comprised of the charter hire received from unaffiliated third-party customers and Capital Maritime and are affected by the number
76
of days our vessels operate, the average number of vessels in our fleet and the charter rates. Please read “Item 4B: Business Overview—Our
Fleet” and “—Our Charters” for information about the charters on our vessels, including daily charter rates.
VOYAGE EXPENSES
Voyage expenses amounted to $5.7 million for the year ended December 31, 2012, as compared to $11.7 million for the year ended December 31,
2011. The lower voyage expenses for 2012 were primarily attributable to the decreased number of voyage charters compared to 2011.
Voyage expenses are direct expenses to voyage revenues and primarily consist of commissions, port expenses, canal dues and bunkers.
Voyage costs, except for commissions, are paid for by the charterer under time and bareboat charters. Voyage costs under voyage charters
are paid for by the owner.
VESSEL OPERATING EXPENSES
For the year ended December 31, 2012, our vessel operating expenses amounted to approximately $45.8 million, of which $23.6 million
was incurred under our management agreements with our manager and include $1.9 million in additional fees and costs relating to certain
costs associated with the vetting of our vessels, repairs related to unforeseen extraordinary events (as defined in our fixed fee management
agreement) and insurance deductibles.
For the year ended December 31, 2011, our vessel operating expenses amounted to approximately $35.5 million, of which $30.5 million
was incurred under our management agreements with our manager and include $1.2 million in additional fees and costs relating to certain
costs associated with the vetting of our vessels, repairs related to unforeseen extraordinary events (as defined in our fixed fee management
agreement) and insurance deductibles.
Increases to vessel operating expenses are primarily attributable to increased costs due to the higher number of vessels in our fleet and
the increased number of vessels managed under our floating fee management agreement.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses amounted to $9.2 million for the year ended December 31, 2012, as compared to $10.6 million for
the year ended December 31, 2011. For the year ended December 31, 2012, without considering the expenses of $4.6 million incurred in
connection with the preparation and execution of our acquisition of Crude Carriers during 2011 and the acquisition of the vessel owning
company of the M/V Cape Agamemnon during 2011, we have recognized higher general and administrative expenses of $3.2 million mainly
due to the full year results of operations of Crude Carriers’ expenses, including its equity compensation plan. General and administrative
expenses include board of directors’ fees and expenses, audit fees, and other fees related to the expenses of the publicly traded partnership.
GAIN ON SALE OF VESSELS TO THIRD PARTIES
During the year ended December 31, 2012 we sold the M/T Attikos and the M/T Aristofanis, the two small tankers in our fleet, to unrelated
third parties recognizing a gain on sale of vessels of $1.3 million. This gain reflects the difference between the carrying value of the vessels
and the net selling proceeds at the time of the sale.
DEPRECIATION
Depreciation of fixed assets amounted to $48.2 million for the year ended December 31, 2012, as compared to $37.2 million for the year
ended December 31, 2011, primarily due to the full year consolidation of Crude Carriers’ vessels in our fleet. Depreciation is expected to
increase if the number of vessels in our fleet increases.
VESSELS’ IMPAIRMENT CHARGE
Vessels’ impairment charge amounted to $43.2 million for the year ended December 31, 2012 and represents the difference between the
carrying and the fair market value of the M/T Alexander the Great and the M/T Achilleas on the date they were exchanged for the M/V
Archimidis and the M/V Agamemnon, respectively. There was no vessel impairment charge during the year ended December 31, 2011.
Please see Note 5 (Vessels) to our Financial Statements included herein for more information on the vessels’ impairment charge.
77
TOTAL OTHER EXPENSE, NET
Total other expense, net for the year ended December 31, 2012, was approximately $24.4 million as compared to $30.6 million for the
year ended December 31, 2011.
The 2012 amount includes interest expense, amortization of financing charges, commitment fees and bank charges of $26.7 million, which
was lower by $7.1 million than the respective 2011 amount due to the prepayment of $175.2 million of debt and the expiration and close
out of eleven interest rate swap agreements. In addition the year ended December 31, 2012, reflects a gain of the twelve ineffective inter-
est rate swap agreements of $1.5 million as compared to $2.3 million for the year ended December 31, 2011. Interest and other income
amounted to $0.8 million as compared to $0.9 million for the year ended December 31, 2011.
NET (LOSS)/INCOME
Net loss for the year ended December 31, 2012, amounted to $21.2 million as compared to net income of $87.1 million for the year ended
December 31, 2011. For a list of factors which we believe are important to consider when evaluating our results, please refer to the discus-
sion under “Item 5A: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors to Consider When
Evaluating Our Results” and “—Results of Operations” above.
B. LIQUIDITY AND CAPITAL RESOURCES
A s at December 31, 2013, total cash and cash equivalents were $64.0 million, restricted cash was $15.0 million, and total
liquidity including cash and undrawn long-term borrowings was $229.0 million As at December 31, 2012, total cash and cash
equivalents were $43.6 million, restricted cash was $10.5 million, and total liquidity including cash and undrawn long-term
borrowings was $109.5 million.
We anticipate that our primary sources of funds for our liquidity needs will be cash flows from operations. As our vessels come up
for rechartering, depending on the prevailing market rates, we may not be able to recharter them at levels similar to their current
charters which may affect our future cash flows from operations. Generally, our long-term sources of funds will be from cash from
operations, long-term bank borrowings and other debt or equity financings. Because we distribute all of our available cash, we
expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securi-
ties, to fund acquisitions and expansion and investment capital expenditures, including opportunities we may pursue under the
amended and restated omnibus agreement with Capital Maritime or acquisitions from third parties. We currently have no capital
commitments to purchase or build additional vessels. However, as discussed above, we expect to continue to evaluate opportunities
to acquire vessels and businesses and expect that the size and composition of our fleet will change over time. In connection with
evaluating and pursuing these opportunities and as we seek to optimize our capital structure, we may also evaluate and pursue
financing opportunities.
As at December 31, 2013, we had $150.0 million in undrawn amounts under our credit facilities as compared to $55.4 million in undrawn
amounts as at December 31, 2012.
Total Partners’ Capital as of December 31, 2013, amounted to $781.4 million, which reflects an increase of $207.6 million from the year
ended December 31, 2012. This change consisted of:
• an increase of $119.8 and $72.6 million from the net proceeds from the issuance of the 13,685,000 common units and 9,100,000 Class
B Units respectively;
• an increase of $3.5 million from our equity compensation plan;
• an increase of $0.4 million attributable to unrealized gain on derivative instruments;
• a decrease of $88.2 million attributable to our distributions to our unit holders; and
• an increase of $99.5 million reflecting our net income for the year ended December 31, 2013.
Notwithstanding the recent global economic downturn and subject to shipping, charter and financial market developments, we believe
that our working capital will be sufficient to meet our existing liquidity needs for at least the next 12 months.
CASH FLOWS
The following table summarizes our cash and cash equivalents provided by / (used in) operating, financing and investing activities for the
years presented in millions:
78
Net Cash Provided by Operating Activities
Net Cash (Used in) / Provided by Investing Activities
Net Cash Provided by / (Used in) by Financing Activities
129.6
(335.3)
226.2
84.8
15.9
(110.6)
56.5
(16.7)
(19.0)
2013 (in US $)
2012 (in US $)
2011 (in US $)
NET CASH PROVIDED BY OPERATING ACTIVITIES
N et cash provided by operating activities increased to $129.6 million for the year ended December 31, 2013 from $84.8 million for the
year ended December 31, 2012, mainly due to the proceeds of $32.0 million we received from the sale of OSG claim, the increased
size of our fleet and the reduced interest costs due to the expiration of our remaining interest rate swap contracts. Net cash provided
by operating activities increased to $84.8 million for the year ended December 31, 2012 from $56.5 million for the year ended December 31,
2011 due to the full year consolidation of Crude Carriers’ vessels and the reduced interest costs due to the repayment of debt and the expira-
tion of certain interest rate swap contracts. For an explanation of why our historical net cash provided by operating activities is not indicative
of net cash provided by operating activities to be expected in future periods, please read “Item 5A: Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Factors to Consider when Evaluating our Results” and “—Results of Operations” above.
NET CASH (USED IN) / PROVIDED BY INVESTING ACTIVITIES
C ash is used primarily for vessel acquisitions and changes in net cash used in investing activities are primarily due to the number of
vessels acquired in the relevant period. We expect to rely primarily upon external financing sources, including bank borrowings and
the issuance of debt and equity securities as well as cash in order to fund any future vessels acquisitions or expansion and investment
capital expenditures. For the year ended December 31, 2013, net cash used in investing activities was $335.3 million and was comprised of:
• $363.0 million for the acquisition of the M/V Hyundai Premium, the M/V Hyundai Paramount, the M/V Hyundai Prestige (renamed to
“CCNI Angol”), the M/V Hyundai Privilege, the M/V Hyundai Platinum and the M/T Aristotelis;
• $4.5 million, representing the increase to our restricted cash following the conversion of the 2008 credit facility to a term loan and the
acquisition of five vessels. Restricted cash is the minimum amount of free cash we were required to maintain under our credit facilities
for the period; and
• $32.2 million, representing the net proceeds from the sale of the M/T Agamemnon II.
For the year ended December 31, 2012, net cash provided by investing activities was $15.9 million and was comprised of:
• $21.3 million, of which $19.7 million represent the net proceeds from the sale of the M/T Attikos and the M/T Aristofanis to unrelated
third parties and $1.6 million represent proceeds received in connection with the exchange of the M/T Alexander the Great for the M/V
Archimidis;
• $3.8 million, representing the increase to our restricted cash following the conversion of the 2007 credit facility to a term loan. Restricted
cash is the minimum amount of free cash we were required to maintain under our credit facilities for the period;
• $1.4 million, representing the cash consideration in connection with the exchange of the M/T Achilleas for the M/V Agamemnon; and
• $0.2 million, representing the amounts paid for upgrading certain vessels.
For the year ended December 31, 2011, net cash used in investing activities was $16.7 million and was comprised of:
• $27.0 million, primarily representing the amount we paid to Capital Maritime for the acquisition of the vessel owning company of the
M/V Cape Agamemnon;
• $11.8 million, representing the cash and cash equivalents acquired in the acquisition of Crude Carriers at the time of the closing of the
merger; and
• $1.5 million, representing the increase to our restricted cash which is the minimum amount of free cash we were required to maintain
under our credit facilities for the period, due to the acquisitions of the M/V Cape Agamemnon and the five crude tankers of Crude Carriers.
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES
N et cash provided by financing activities amounted to $226.2 million for the year ended December 31, 2013, as compared to net
cash used in financing activities of $110.6 million for the year ended December 31, 2012. For the year ended December 31, 2011,
net cash used in financing activities amounted to $19.0 million.
79
For the year ended December 31, 2013, we used net proceeds of $72.5 million from the sale and issuance of 9,100,000 Class B Units,
combined with a drawdown of $54.0 million from our 2008 credit facility and part of our cash balances to finance the acquisition of the
two 5,023 TEU container vessels from Capital Maritime for a total consideration of $130.0 million. We also used net proceeds of $119.9
million from the sale and issuance of 13,685,000 common units together with approximately $75.0 million from our 2013 credit facil-
ity, as amended, and part of our cash balances to acquire the three additional 5,023 TEU container vessels from Capital Maritime for an
aggregate purchase price of $195.0 million.
For the year ended December 31, 2012, proceeds from the sale and issuance of our Class B Units amounted to $140.0 million. Total expenses
paid in connection with the sale and issuance of Class B Units were $1.7 million. For the year ended December 31, 2011, proceeds from
issuance of our units amounted to $1.5 million. This amount represents the cash contribution that our general partner made to us in order
to maintain its 2% interest in us following the acquisition of the vessel owning company of the M/V Cape Agamemnon.
For the year ended December 31, 2013, total proceeds of long term debt amounted to $129.0 million and we repaid debt from our 2008
credit facility of $4.1 million. For the year ended December 31, 2012, there were no proceeds from the issuance of long term debt. During
2012 we pre-paid $175.2 million in debt in connection with the issuance and sale of the Class B Units, the sale of the M/T Attikos and the
M/T Aristofanis, and the 2012 Vessel Sale. For the year ended December 31, 2011, proceeds from issuance of long term debt amounted to
$159.6 million. This amount represents the draw downs of $134.6 and $25.0 million we made under the 2008 credit facility and 2011 credit
facility, respectively. We used the $134.6 million to repay Crude Carriers’ outstanding loan at the time of the completion of the acquisition
and the $25.0 million for the partial finance of the acquisition of the shares of the vessel owning company of the M/V Cape Agamemnon.
There were no payments of related party-debt/financing for the year ended December 31, 2013, 2012 and 2011.
For each of the years ended December 31, 2013, 2012 and 2011 loan issuance costs amounted to $2.9, $0.3 and $0.3 million, respectively.
During the year ended December 31, 2013, we made distributions, including to our Class B unitholders and to Capital Maritime, of $88.2
million. During the year ended December 31, 2012, we made distributions, including to our Class B unitholders and to Capital Maritime,
of $73.3 million. During the year ended December 31, 2011, we made distributions of $45.1 million to our common unitholders, including
Capital Maritime.
BORROWINGS
Our long-term third party borrowings are reflected in our balance sheet as “Long-term debt” and as current liabilities in “Current portion
of long-term debt.” As of December 31, 2013, total borrowings was $583.3 million consisting of: (i) $250.9 million outstanding under the
2007 credit facility; (ii) $238.4 outstanding under the 2008 credit facility; (iii) $19.0 million outstanding under the 2011 credit facility and
(iv) $75.0 million under the 2013 credit facility. As of December 31, 2012, total borrowings were $458.4 million consisting of: (i) $250.9
million outstanding under the 2007 credit facility; (ii) $188.5 outstanding under the 2008 credit facility and (iii) $19.0 million outstanding
under the 2011 credit facility. As of December 31, 2013 long term debt was $577.9 million as compared to $458.4 million as of December 31,
2012. The current portion of long term debt as of December 31, 2013 was $5.4 million as compared to $0 million as of December 31, 2012.
OUR CREDIT FACILITIES
We have entered into four non-amortizing credit facilities.
In March 2007, we entered into a loan agreement with a syndicate of financial institutions including HSH Nordbank AG for a revolving
credit facility, of up to $370.0 million for the financing of the acquisition cost, or part thereof, of up to 15 MR product tankers. Follow-
ing the sale of the M/T Attikos and the M/T Aristofanis during the first half of 2012 we repaid $20.5 million under this credit facility. In
connection with the issuance and sale of our Class B Units, we prepaid $95.2 million and entered into an amendment which provides for
the conversion of the 2007 credit facility into a term loan, the deferral of scheduled amortization payments until March 2016 and the
repayment of the facility in six equal consecutive quarterly installments commencing in March 2016 plus a balloon payment due in June,
2017. The interest margin of this facility, as amended, is 2.0%.
In March 2008, we entered into a loan agreement with a syndicate of financial institutions including HSH Nordbank AG for a non-amortizing
credit facility of up to $350.0 million for the partial financing of vessel acquisitions by us. In September 2011, following the acquisition of
Crude Carriers, we completed the refinancing of Crude Carrier’s outstanding debt of $134.6 million using this facility. In connection with
the refinancing, the M/T Alexander the Great, the M/T Achilleas, the M/T Miltiadis M II, and the M/T Aias were added as collateral to the
facility. In connection with the issuance and sale of our Class B Units, we prepaid $48.4 million and entered into an amendment which
provides for the deferral of scheduled amortization payments until March 2016 and the repayment of the facility in nine equal consecu-
tive quarterly installments commencing in March 2016 plus a balloon payment due in March 2018. In addition, an undrawn tranche of
$52.5 million under the 2008 facility was cancelled. Following the 2012 Vessel Sale we prepaid an additional $5.2 million and the M/V
Archimidis and the M/V Agamemnon replaced the M/T Alexander the Great and the M/T Achilleas as collateral under the facility. The
interest margin of this facility, as amended, is 3.0%. Loan commitment fees are calculated at 0.325% per annum on any undrawn amount
and are paid quarterly.
80
In June 2011, we entered into a loan agreement with Credit Agricole Emporiki Bank for a credit facility of $25.0 million to partially finance
the acquisition of vessel owning company of the M/V Cape Agamemnon from Capital Maritime. In connection with the issuance and sale
of our Class B Units, we prepaid $6.0 million and entered into an amendment which provides for the deferral of scheduled amortization
payments until March 2016 and the repayment of the facility in nine equal consecutive quarterly installments commencing in March
2016 and a balloon payment due in March 2018.
On September 6, 2013, we entered into a new senior secured credit facility of up to $200.0 million led by ING Bank N.V. The facility is
non-amortizing until March 2016, with a final maturity date in December 2020. The interest margin of this facility is 3.50%, with a com-
mitment fee of 1.00%. The facility will be available for the funding of up to 50% of the charter free value of modern product tankers and
post-panamax container vessels. Also in September 2013, we drew $75 million for the partial financing of three post-panamax container
vessels. On December 27, 2013, the 2013 credit facility was amended to increase its size to up to $225.0 million. None of the other mate-
rial terms of the credit facility were amended.
All our credit facilities contain customary ship finance covenants, including restrictions as to: changes in management and ownership of
the mortgaged vessels, the incurrence of additional indebtedness, the mortgaging of vessels, the ratio of EBITDA to net interest expenses,
which shall be no less than 2:1, a minimum cash requirement of $500,000 per vessel of which 50% may be constituted by undrawn com-
mitments under the applicable credit facility, as well as the ratio of net total indebtedness to the aggregate market value of the total fleet,
which shall not exceed 0.725:1. Our credit facilities also contain a collateral maintenance requirement according to which the aggregate
average fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding amount under these facilities.
Furthermore, the vessel owning companies may pay dividends or make distributions when no event of default has occurred and the pay-
ment of such dividend or distribution has not resulted in a breach of any of the financial covenants. The credit facilities have a general
assignment of the earnings, insurances and requisition compensation of the respective vessel or vessels. Each also requires additional
security, including: pledge and charge on current account, corporate guarantee from each of the twenty-five vessel owning companies and
mortgage interest insurance.
Our obligations under our credit facilities are secured by first-priority mortgages covering our vessels and are guaranteed by each vessel owning
company. Our credit facilities contain a “Market Disruption Clause” requiring us to compensate the banks for any increases to their funding costs
caused by disruptions to the market which the banks may unilaterally trigger. For the years ended December 31, 2013, 2012 and 2011 we incurred
an additional interest expense in the amount of $0.0, $0.4 and $1.3 million, respectively, due to the “Market Disruption Clause”.
As at December 31, 2013, the amounts drawn down under our four credit facilities were as follows:
VESSEL / ENTITY
M/T Akeraios
M/T Apostolos
M/T Anemos I
M/T Alexandros II
M/T Amore Mio II
M/T Aristofanis
M/T Aristotelis II
M/T Aris II
M/V Cape Agamemnon
M/V Hyundai Premium
M/V Hyundai Paramount
M/V Hyundai Prestige, M/V Hyundai Privi-
lege & M/V Hyundai Platinum
DATE
07/13/2007
09/20/2007
09/28/2007
01/29/2008
03/27/2008
04/30/2008
06/17/2008
08/20/2008
06/09/2011
03/20/2013
03/27/2013
09/06/2013
Crude Carriers Corp. and its subsidiaries
09/30/2011
TOTAL
CREDIT FACILITY EXPRESSED IN US $
370,000
350,000
25,000
225,000
46,850
56,000
56,000
48,000
-
-
20,000
24,000
-
-
-
-
-
250,850
-
-
-
-
46,000
11,500
-
1,584
-
24,975
24,975
-
129,431
238,465
-
-
-
-
-
-
-
-
19,000
-
-
-
-
19,000
-
-
-
-
-
-
-
-
-
-
-
75,000
-
75,000
As at December 31, 2013, we had $150 million in undrawn amounts under our credit facilities and were in compliance with all financial
debt covenants. Our ability to comply with the covenants and restrictions contained in our credit facilities and any other debt instruments
we may enter into in the future may be affected by events beyond our control, including prevailing economic, financial and industry con-
ditions, including interest rate developments, changes in the funding costs of our banks and changes in vessel earnings and vessel asset
valuations. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we are in
breach of any of the restrictions, covenants, ratios or tests in our credit facilities, we are unlikely to be able to make any distributions to
81
our unitholders, a significant portion of our obligations may become immediately due and payable and our lenders’ commitment to make
further loans to us may terminate. We may not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition,
obligations under our credit facilities are secured by our vessels, and if we are unable to repay debt under the credit facilities, the lenders
could seek to foreclose on those assets.
Furthermore, any contemplated vessel acquisitions will have to be at levels that do not impair the required ratios set out above. The
recent global economic downturn has had an adverse effect on vessel values which is likely to persist if the economic slowdown
resumes. If the estimated asset values of the vessels in our fleet continue to decrease, such decreases may limit the amounts we can
draw down under our credit facilities to purchase additional vessels and our ability to expand our fleet. In addition, we may be obligated
to prepay part of our outstanding debt in order to remain in compliance with the relevant covenants in our credit facilities. A decline
in the market value of our vessels could also lead to a default under any prospective credit facility to which we become a party, affect
our ability to refinance our credit facilities and/or limit our ability to obtain additional financing. An increase/decrease of 10% of the
aggregate fair market values of our vessels would not cause any violation of the total indebtedness to aggregate market value covenant
contained in our credit facilities.
C. OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Annual Report, we have not entered into any off-balance sheet arrangements.
D. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The following table summarizes our long-term contractual obligations as of December 31, 2013 (in thousands of U.S. Dollars).
Long-term Debt Obligations
Interest Obligations (1)
Management fee (2)
Commercial services fee (3)
TOTAL
PAYMENT DUE (IN US $) BY PERIOD (IN YEARS)
TOTAL
583,315
99,670
36,295
285
719,565
LESS THAN 1
5,400
17,699
10,983
285
34,367
1-3
103,888
45,915
15,469
-
165,272
3-5
416,334
27,742
7,687
-
451,763
MORE THAN 5
57,693
8,314
2,156
-
68,163
(1) For our 2007, 2008, 2011 and 2013 credit facilities, calculations for interest obligations have been based on Bloomberg forward rates
plus a margin of 2%, 3%, 3.25% and 3.5%, respectively, which reflects our best estimates.
(2) The fees payable to Capital Ship Management represent fees for the provision of commercial and technical services such as crewing,
repairs and maintenance, insurance, stores, spares and lubricants, provided pursuant to our management agreements. Management
fees under the floating fee and Crude Carriers management agreements have been increased annually based on the United States
Consumer Price Index for November 2013.
(3) Represents commercial services fee equal to 1.25% on gross time charter revenues to be generated by the vessels managed under the
Crude Carriers management agreement which were under long term time charters as of December 31, 2013.
CRITICAL ACCOUNTING POLICIES
T he discussion and analysis of our financial condition and results of operations is based upon our Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation
of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results
may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results
under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve
82
a higher degree of judgment and the methods of their application. For a description of all of our significant accounting policies, see Note 2
(Significant Accounting Policies) to our Financial Statements included herein for more information.
VESSEL LIVES AND IMPAIRMENT
T he carrying value of each of our vessels represents its original cost (contract price plus initial expenditures) at the time of delivery
or purchase less accumulated depreciation or impairment charges. The carrying values of our vessels may not represent their fair
market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates
and the cost of newbuildings. However, in recent years, market conditions have changed significantly as a result of the credit crisis and
resulting slowdown in world trade. Charter rates for vessels have decreased and vessel values have been affected. We consider these market
developments as indicators of potential impairment of the carrying amount of our assets. We performed undiscounted cash flow tests as
of December 31, 2013 and 2012, as an impairment analysis, in which we made estimates and assumptions relating to determining the
projected undiscounted net operating cash flows by considering the following:
• the charter revenues from existing time charters for the fixed fleet days (our remaining charter agreement rates);
• vessel operating expenses;
• drydocking expenditures;
• an estimated gross daily time charter equivalent for the unfixed days (based on the 10-year average historical one year Time Charter
Equivalent) over the remaining economic life of each vessel, excluding days of scheduled off-hires;
• residual value of vessels;
• fixed commercial and technical management fees, assuming an annual increase of 2%;
• a utilization rate of 98.6% based on the fleet’s historical performance; and
• the remaining estimated life of our vessels.
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are
highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or
whether they will improve by any significant degree. Charter rates may remain at depressed levels for some time which could adversely
affect our revenue and profitability, and future assessments of vessel impairment.
Our assumptions consider historical trends and our accounting policies are as follows:
• in accordance with the prevailing industry standard, depreciation is calculated using an estimated useful life of 25 years for our vessels,
commencing at the date the vessel was originally delivered from the shipyard;
• estimated useful life of vessels takes into account design life, commercial considerations and regulatory restrictions based on our fleet’s
historical performance;
• estimated charter rates are based on rates under existing vessel contracts and thereafter at market rates at which we expect we can
recharter our vessels based on market trends;
• estimates of vessel utilization, including estimated off-hire time and the estimated amount of time our vessels may spend operating on
the spot market, based on the historical experience of our fleet;
• estimates of operating expenses and drydocking expenditures are based on historical operating and drydocking costs based on the histori-
cal experience of our fleet and our expectations of future inflation and operating requirements;
• vessel residual values are a product of a vessel’s lightweight tonnage and an estimated scrap rate of $180; and
• the remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in our deprecia-
tion calculations.
The impairment test that we conduct is most sensitive to variances in future time charter rates. Based on the sensitivity analysis performed
for December 31, 2013, we would begin recording impairment on the first vessel that will incur impairment by vessel type for time charter
declines from their 10 year historical averages as follows:
Vessel
Product tankers
Suezmax vessels
Cape vessel
Container vessels (5,000 TEU)
PERCENTAGE DECLINE FROM WHICH IMPAIRMENT WOULD BE RECORDED
YEAR ENDED DECEMBER 31, 2013
YEAR ENDED DECEMBER 31, 2012
21.2%
28.3%
-
37.8%
28.2%
30.2%
70.2%
-
83
As of December 31, 2013 and February 18, 2014, our current rates for time charters on average were below their 10 year historical aver-
ages as follows:
Vessel
Product tankers
Suezmax vessels
Container vessels (5,000 TEU)
TIME CHARTER RATES AS COMPARED WITH 10-YEAR HISTORICAL AVERAGE
AS PERCENTAGE ABOVE / (BELOW)
AS OF DECEMBER 31, 2013
AS OF FEBRUARY 18, 2014
(14.3%)
(32.7%)
39.8%
(14.2%)
(32.5%)
39.8%
Based on the above assumptions we determined that the undiscounted cash flows support the vessels’ carrying amounts as of December 31,
2013 and 2012. The impairment of $43.2 million we recorded for the year ended December 31, 2012 was the result of the 2012 Vessel Sale.
Please also read “Item 4B: Business Overview — Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free
Market Value of Certain Vessels” above for additional information.
INTEREST RATE SWAP AGREEMENTS
W e designate our derivatives based upon the criteria established by the FASB in its accounting guidance for derivatives and hedging
activities. The accounting guidance for derivatives requires that an entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair value. The accounting for the changes in the fair
value of the derivative depends on the intended use of the derivative and the resulting designation. For a derivative that does not qualify
as a cash flow hedge, the change in fair value is recognized at the end of each accounting period in the income statement. For a derivative
that qualifies as a cash flow hedge, the change in fair value is recognized at the end of each reporting period in accumulated other com-
prehensive income / (loss) (effective portion) until the hedged item is recognized in income. The ineffective portion of a derivative’s change
in fair value is immediately recognized in the income statement.
We discontinue cash flow hedge accounting if the hedging instrument expires, is sold, terminated or exercised, the hedge no longer meets
the criteria for hedge accounting or we revoke the designation. At that point in time, any cumulative gain or loss on the hedging instru-
ment recognized in equity is kept in Partners’ capital until the forecasted transaction occurs. When the forecasted transaction occurs, any
cumulative gain or loss on the hedging instrument is recognized in profit or loss. If a hedged transaction is no longer expected to occur, the
net cumulative gain or loss recognized in Partners’ capital is transferred to net profit or loss for the year as financial income or expense.
We have not had any active interest rate swaps as of December 31, 2013.
Please see Note 2 (Significant Accounting Policies) and Note 8 (Financial Instruments) to our Financial Statements included
herein for more detailed information.
INTANGIBLE ASSETS
W e record all identified tangible and intangible assets or any liabilities associated with the acquisition of a business at fair value. When a
business is acquired that owns a vessel with an existing charter agreement, we determine the present value of the difference between:
(i) the contractual charter rate and (ii) the prevailing market rate for a charter of equivalent duration. When determining present
value we use Weighted Average Cost of Capital which includes judgments such as size and risks premiums and is appropriate in relation to
the business, industry and environment in which we operate. The resulting above-market (assets) and below-market (liabilities) charters are
amortized using straight line method as a reduction and increase, respectively, to revenues over the remaining term of the charters. In accord-
ance with the guidance related to Accounting for the Impairment or Disposal of Long-Lived Assets, we evaluate the potential impairment of
the identified acquired intangible assets when there are indicators of impairment. The identified intangibles are tested for impairment when-
ever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable based on estimates of future
undiscounted cash flows. In the event of impairment, the asset is written down to its fair value. An impairment loss, if any, is measured as
the amount by which the carrying amount of the asset exceeds its fair value. No impairment loss was recognized during any period presented.
RECENT ACCOUNTING PRONOUNCEMENTS
Please see Note 2(v) (Significant Accounting Policies—Recent Accounting Pronouncements) to our Financial Statements included herein.
84
PART I Item 6. Directors, Senior Management and Employees.
MANAGEMENT OF CAPITAL PRODUCT PARTNERS L.P.
P ursuant to our partnership agreement, our general partner has delegated to our board of directors the authority to oversee and direct
our operations, management and policies on an exclusive basis, and such delegation is binding on any successor general partner of
the partnership. Our general partner, Capital GP L.L.C., a Marshall Islands limited liability company wholly owned by Capital Maritime,
manages our day-to-day activities consistent with the policies and procedures adopted by our board of directors.
Our board of directors initially consisted of seven persons, three persons who were designated by our general partner in its sole discretion
and four who were elected by the common unitholders. Following the completion of our merger with Crude Carriers in September 2011,
the size of our board has been increased to eight persons, with five to be elected by our common unitholders going forward. Following
completion of the merger, Dimitris P. Christacopoulos was elected to our board of directors. Directors appointed by our general partner
serve as directors for terms determined by our general partner and directors elected by our common unitholders are divided into three
classes serving staggered three-year terms. The initial four directors appointed by Capital Maritime at the time of our IPO were designated
as Class I, Class II and Class III elected directors. As of the 2010 annual meeting of unitholders, a majority of our board is now elected by
our common unitholders (excluding common units held by Capital Maritime) rather than appointed by Capital Maritime. At each annual
meeting of unitholders, directors are elected to succeed the class of directors whose terms have expired by a plurality of the votes of the
common unitholders (excluding common units held by Capital Maritime and its affiliates). Directors elected by our common unitholders
may be nominated by the board of directors or by any limited partner or group of limited partners that holds at least 10% of the outstand-
ing common units.
Our general partner intends to cause its officers to devote as much time to the management of our business and affairs as is necessary
for the proper conduct of our business and affairs. Our general partner’s Chief Executive Officer and Chief Financial Officer, Ioannis E.
Lazaridis, allocates his time between managing our business and affairs and the business and affairs of Capital Maritime. The amount of
time Mr. Lazaridis allocates between our business and the businesses of Capital Maritime varies from time to time depending on various
circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses.
Our general partner owes a fiduciary duty to our unitholders and is liable, as general partner, for all of our debts (to the extent not paid
from our assets), except for indebtedness or other obligations that are expressly non-recourse to it. Whenever possible, the partnership
agreement directs that we should incur indebtedness or other obligations that are non-recourse to our general partner. Officers of our
general partner and other individuals providing services to us or our subsidiaries may face a conflict regarding the allocation of their time
between our business and the other business interests of Capital Maritime. Our partnership agreement limits our general partner’s and our
directors’ fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner
or our directors. Please read “Item 3D: Risk Factors—Our partnership agreement limits our general partner’s and our directors’ fiduciary
duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner or our directors.” for
a more detailed description of such limitations.
A. DIRECTORS AND SENIOR MANAGEMENT
Set forth below are the names, ages and positions of our directors and director nominees and our general partner’s executive officers as of
January 31, 2014.
NAME
Evangelos M. Marinakis (1)
Ioannis E. Lazaridis (1)
Nikolaos Syntychakis (1)
Pierre de Demandolx-Dedons (2)
Abel Rasterhoff (3)
Evangelos G. Bairactaris (4)
Keith Forman (4)
Dimitris P. Christacopoulos (3)
AGE
46
46
51
73
73
42
55
43
POSITION
Director and Chairman of the Board
Director and Chief Executive Officer and Chief Financial Officer of our general partner
Director
Director (5)
Director (5)
Director and Secretary
Director (5)
Director (5)
(1) Appointed by our general partner (term expires in 2016) (2) Class I director (term expires in 2014) (3) Class II director (term expires in
2015) (4) Class III director (term expires in 2016) (5) Member of our audit committee and our conflicts committee.
85
Biographical information with respect to each of our directors, our director nominees and our general partner’s executive officers is set forth
below. The business address for our directors and executive officers is 3 Iassonos Street Piraeus, 18537 Greece.
EVANGELOS M. MARINAKIS DIRECTOR AND CHAIRMAN OF THE BOARD
Mr. Marinakis joined our board of directors on March 13, 2007 and serves as the Chairman of the Board. Mr. Marinakis has served as Capital
Maritime’s President and Chief Executive Officer and as a director since its incorporation in March 2005. Mr. Marinakis served as Chairman
and Chief Executive Officer of New York Stock Exchange (“NYSE”) listed Crude Carriers Corp., an affiliate of Capital Maritime, since March
2010 until its merger with us in September 2011. From 1992 to 2005, Mr. Marinakis was the Commercial Manager of Capital Ship Man-
agement and oversaw the businesses of the group of companies that currently form Capital Maritime. For the past 20 years, Mr. Marinakis
has also been active in various other family businesses, all related to the shipping industry. Mr. Marinakis holds a B.A. in International
Business Administration and an M.Sc in International Relations.
IOANNIS E. LAZARIDIS DIRECTOR AND CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER
Mr. Lazaridis has served as the Chief Executive and Chief Financial Officer of our general partner since its formation in January 2007 and
joined our board of directors on March 13, 2007. Mr. Lazaridis served as President of NYSE-listed Crude Carriers Corp., an affiliate of Capital
Maritime, since March 2010 until its merger with us in September 2011, and has also served as Capital Maritime’s Chief Financial Officer and
as a director since its incorporation in March 2005. From 2004 to March 2005, Mr. Lazaridis was employed by our predecessor companies.
From 1996 to 2004, Mr. Lazaridis was employed by Credit Agricole Indosuez Cheuvreux in London, where he worked in the equity depart-
ment. From 1993 to 1996, Mr. Lazaridis was employed by Kleinwort Benson in equity sales and from 1990 to 1993 was employed by Norwich
Union Investment Management. Mr. Lazaridis holds a B.A. degree in economics from the University of Thessaloniki in Greece and an M.A. in
Finance from the University of Reading in the UK. He is also an Associate for the Institute of Investment Management and Research in the UK.
EVANGELOS G. BAIRACTARIS DIRECTOR AND SECRETARY
Mr. Bairactaris joined our board of directors on March 13, 2007 and has served as our Secretary since our formation in January 2007.
Mr. Bairactaris is a Greek attorney at law and a member of the Piraeus Bar Association. Mr. Bairactaris has been a partner in G.E. Bairactaris &
Partners since 2000 and has acted as managing partner since 2003. He has regularly provided his professional services to our predecessor
companies and many Greek and international shipping companies and banks. Mr. Bairactaris is currently a director of Hellenic Seaways
Maritime S.A., one of the largest coastal passenger and cargo transportation services companies operating in Greece and Italy. The law
firm of G.E. Bairactaris & Partners has provided, and may continue to provide, legal services to us and to Capital Maritime and its affiliates.
NIKOLAOS SYNTYCHAKIS DIRECTOR
Mr. Syntychakis joined our board of directors on April 3, 2007. Mr. Syntychakis, Managing Director of Capital Ship Management, joined
Capital Ship Management in January 2001 where he has served as Vetting Manager, Crew Manager and Operations Manager. From 2000
to 2001, Mr. Syntychakis served as Fleet Operator of Delfi S.A. in Piraeus, Greece and from 1988 to 1999 he worked as the Chief Officer
and DPA of Sougerka Maritime also in Piraeus, Greece. Mr. Syntychakis has been involved in the shipping industry in various capacities
for over 25 years and has also been closely involved with vetting matters, serving on Intertanko’s Vetting Committee for several years.
ABEL RASTERHOFF DIRECTOR
Mr. Rasterhoff joined our board of directors on April 3, 2007. He serves on our conflicts committee and has been designated as the audit
committee’s financial expert. Mr. Rasterhoff joined Shell International Petroleum Maatschappij in 1967, and worked for various entities of
the Shell group of companies until his retirement from Shell in 1997. From 1981 to 1984, Mr. Rasterhoff was Managing Director of Shell
Tankers B.V., Vice Chairman and Chairman-elect of the Dutch Council of Shipping and a Member of the Dutch Government Advisory Com-
mittee on the North Sea. From 1991 to 1997, Mr. Rasterhoff was Director and Vice President Finance and Planning for Shell International
Trading and Shipping Company Limited. During this period he also served as a Board Member of the Securities and Futures Authority (SFA)
in London. From February 1998 to 2004, Mr. Rasterhoff has served as a member of the executive board and as Chief Financial Officer of
TUI Nederland, the largest Dutch tour operator. From February 2001 to September 2001, Mr. Rasterhoff served as a member of the execu-
tive board and as Chief Financial Officer of Connexxion, the government owned public transport company. Mr. Rasterhoff was also on the
Supervisory Board of SGR and served as an advisor to the trustees of the TUI Nederland Pension Fund. Mr. Rasterhoff served on the Capital
86
Maritime Board from May 2005 until his resignation in February 2007 as the chairman of the audit committee. Mr. Rasterhoff also served
as a director and audit committee member of Aegean Marine Petroleum Network Inc., a company listed on the NYSE from December 2006
to May 2012. Mr. Rasterhoff holds a graduate business degree in economics from Groningen State University.
KEITH FORMAN DIRECTOR
Mr. Forman joined our board of directors on April 3, 2007 and serves on our conflicts committee and our audit committee. Mr. Forman was,
until March 31, 2010, a Partner and served as Chief Financial Officer of Crestwood Midstream Partners. Crestwood Midstream was a private
investment partnership focused on making equity investments in the midstream energy market. Crestwood’s other partners included the
Blackstone Group, Kayne Anderson and GSO Capital. From January 2004 to July 2005, he was Senior Vice President, Finance for El Paso
Corporation, a leading provider of natural gas services. Mr. Forman, who joined El Paso in 1998 upon their acquisition of the general partner
of the Leviathan Gas Pipeline Partners, also served as Vice President from 2001 to 2003, of El Paso Field Services and from 1992 to 2003
he served as Chief Financial Officer of GulfTerra Energy Partners L.P., a publicly traded master limited partnership. Mr. Forman has served
as a Senior Advisor to Industry Funds Management, an Australian based fund manager that invests in infrastructure projects worldwide,
since May 2012. Since November 2011, Mr. Forman has served as an independent director of NYSE-listed Rentech Nitrogen Partners, a
publicly traded master limited partnership engaged in the manufacture of fertilizer products, where he serves on both the audit and con-
flict committees. Mr. Forman was appointed to the board of directors of Applied Consultants, Inc., a privately owned energy engineering
consulting firm based in Longview, Texas in November 2013.
PIERRE DE DEMANDOLX-DEDONS DIRECTOR
Mr. de Demandolx-Dedons joined our board of directors on November 15, 2011 and served on our conflicts committee and our audit com-
mittee. Mr. de Demandolx-Dedons has been involved in the shipping industry in various capacities for over forty years and since 1997 has
been primarily a shipping consultant. From 1984 to 1997, Mr. de Demandolx-Dedons was employed by Groupe WORMS & Cie, a French
financial, insurance and transportation company, where he held several positions in the organization, including Deputy General Manager of
Cie Navale Worms (which became Compagnie Nationale De Navigation in 1986) and General Manager in charge of Finance—Tankers and
Offshore, a position he held from 1991 to 1996. From 1986 to 2004, Mr. de Demandolx-Dedons was a member of the board of directors of
UK P&I Clubs. Prior to this involvement, from 1975 to 1984, Mr. de Demandolx-Dedons was active in the French Shipowners’ Association
in Paris, serving as its Deputy General Manager from 1975 to 1977 and as its General Manager from 1977 to 1984. During this time he
was active on the boards of ICS and ISF. From 1965 to 1975 he was a civil servant in the French Ports Authorities. He currently sits on a
number of boards of directors both in Europe and the United States, including Seacor Holdings Inc., a company listed on the NYSE. Prior
to joining our board of directors, Mr. de Demandolx-Dedons served as a director of Crude Carriers and Capital Maritime.
DIMITRIS P. CHRISTACOPOULOS DIRECTOR
Mr. Christacopoulos, joined our board of directors on September 30, 2011, following our merger with NYSE-listed Crude Carriers, where he
had served as a director since 2010. Mr. Christacopoulos currently serves as a Partner at Octane Management Consultants. He started his
professional career as an analyst in the R&D Department of a major food producer in Greece in 1992 before joining Booz Allen & Hamilton
Consulting in 1995 in New York in their Operations Management Group. He subsequently joined Barclays Capital as the Associate Director
for Strategic Planning in London from 1999 to 2002 at which time he became Director of Corporate Finance & Strategy at Aspis Group
of Companies in Athens where he participated in the Group’s Management and Investment Committees. In 2005, he joined Fortis Bank
NV/SA as a Director in the Energy, Commodities and Transportation Group and until 2010 acted as the Deputy Country Head for Greece,
setting up the bank’s Greek branch and expanding its presence in ship and energy finance in the region. Mr. Christacopoulos has a diploma
in chemical engineering from the National Technical University of Athens and an MBA from Columbia Business School in New York.
B. COMPENSATION
REIMBURSEMENT OF EXPENSES OF OUR GENERAL PARTNER
Our general partner does not receive any management fee or other compensation for managing us. Our general partner and its other affili-
ates are reimbursed for expenses incurred on our behalf. These expenses include all expenses necessary or appropriate for the conduct of
our business and allocable to us, as determined by our general partner. Our general partner did not incur any such expenses prior to our
IPO in April 2007.
87
EXECUTIVE COMPENSATION
W e and our general partner were formed in January 2007. Neither we nor our general partner paid any compensation to our direc-
tors or our general partner’s officers nor accrued any obligations with respect to management incentive or retirement benefits for
our directors or our general partner’s officers prior to April 3, 2007. Because our Chief Executive Officer and Chief Financial Officer,
Mr. Lazaridis, is an employee of Capital Maritime, his compensation is set and paid by Capital Maritime, and we reimburse Capital Maritime
for the cost of the provided services. We do not have a retirement plan for our executive officers or directors. Officers and employees of our
general partner or its affiliates may participate in employee benefit plans and arrangements sponsored by Capital Maritime, our general
partner or their affiliates, including plans that may be established in the future.
COMPENSATION OF DIRECTORS
O fficers of our general partner or Capital Maritime who also serve as our directors do not receive additional compensation for their
service as directors. Our directors receive compensation for attending meetings of our board of directors or committee meetings as
well as for serving in the role of committee chair and have also received restricted units. Please also read “Item 6E: Share Owner-
ship—Omnibus Incentive Compensation Plan” below for additional information. For the year ended December 31, 2013, our directors,
including our chairman, received an aggregate amount of $530,000. In lieu of any other compensation, our chairman receives an annual
fee for acting as a director and as the chairman of our board of directors. In addition, each director is reimbursed for out–of–pocket expenses
in connection with attending meetings of the board of directors or committees and is fully indemnified by us for actions associated with
being a director to the extent permitted under Marshall Islands law.
SERVICES AGREEMENT
Under a services agreement entered into between our general partner and Mr. Lazaridis, if a change in control occurs, Mr. Lazaridis may
resign within six months of such change in control.
C. BOARD PRACTICES
O ur general partner, Capital GP L.L.C., manages our day-to-day activities consistent with the policies and procedures adopted by our
board of directors which currently consists of eight members, three of which are appointed by our general partner. Unitholders are
not entitled to elect the directors of our general partner or directly or indirectly participate in our management or operation. There
are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.
Although the Nasdaq Global Market does not require a listed limited partnership like us to have a majority of independent directors on
our board of directors or to establish a compensation committee or a nominating/corporate governance committee our board of directors
has established an audit committee and a conflicts committee comprised solely of independent directors. Each of the committees operates
under a written charter adopted by our board of directors which is available under “Corporate Governance” in the Investor Relations tab of
our web site at www.capitalpplp.com. The membership and main functions of each committee are described below.
Audit Committee. The audit committee of our board of directors is composed of three or more independent directors, each of whom
must meet the independence standards of the Nasdaq Global Market, the SEC and any other applicable laws and regulations governing
independence from time to time. The audit committee is currently comprised of directors Abel Rasterhoff (chair), Pierre de Demandolx-
Dedons, Keith Forman and Dimitris Christacopoulos. All members of the committee are financially literate and our board of directors has
determined that Mr. Rasterhoff qualifies as an “audit committee financial expert” for purposes of the U.S. Sarbanes-Oxley Act of 2002. The
audit committee, among other things, reviews our external financial reporting, engages our external auditors and oversees our internal
audit activities and procedures and the adequacy of our internal accounting controls.
Conflicts Committee. The conflicts committee of our board of directors is composed of the same directors constituting the audit commit-
tee, being Keith Forman (chair), Abel Rasterhoff, Pierre de Demandolx-Dedons and Dimitris Christacopoulos. The members of our conflicts
committee may not be officers or employees of our general partner or directors, officers or employees of its affiliates, and must meet the
independence standards established by the Nasdaq Global Market to serve on an audit committee of a board of directors and certain other
requirements. The conflicts committee reviews specific matters that the board believes may involve conflicts of interest and determines if
the resolution of the conflict of interest is fair and reasonable to us. Any matters approved by the conflicts committee will be conclusively
deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our directors, our general partner or its affili-
ates of any duties any of them may owe us or our unitholders.
88
D. EMPLOYEES
We currently do not have our own executive officers or employees and expect to rely on the officers of our general partner to manage our
day-to-day activities consistent with the policies and procedures adopted by our board of directors. All of the executive officers of our
general partner and three of our directors also are executive officers, directors or affiliates of Capital Maritime.
E. SHARE OWNERSHIP
As of December 31, 2013:
• 795,200 restricted common units had been issued under our Plan (described below);
• 623,064 common units resulting from the conversion of Crude Carriers common shares had been issued under the Crude Plan at the
time of our merger with Crude Carriers, including shares issued under the Crude Plan to our director Dimitris Christacopoulos when he
was a member of the board of directors of Crude Carriers;
• Our director Keith Forman has owned a small number of common units since the date of our IPO. In addition, restricted common units
were also issued to all members of our board of directors in August 2010 under the terms of our Plan (described below) which they may
be deemed to beneficially own, or to have beneficially owned. The shares issued to our newly elected director Dimitris Christacopoulos
when he was a member of the board of directors of Crude Carriers converted to common units in us in the same manner as all shares
converted under the terms of our merger agreement. No member of our board of directors owns common or restricted units in a number
representing more than 1.0% of our outstanding common units; and
• The Marinakis family, including our chairman Mr. Marinakis, through its beneficial ownership of Capital Maritime and Crude Carriers
Investments, may be deemed to beneficially own, or to have beneficially owned, all of the units held by Capital Maritime and Crude
Carriers Investments.
OMNIBUS INCENTIVE COMPENSATION PLAN
O n April 29, 2008, our board of directors adopted the Plan according to which we may issue a limited number of awards, not to exceed
500,000 units initially, to our employees, consultants, officers, directors or affiliates, including the employees, consultants, officers or direc-
tors of our general partner, our manager, Capital Maritime and certain key affiliates and other eligible persons. Awards may be made in
the form of incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, unrestricted
stock, restricted stock units and performance shares. The Plan is administered by our general partner as authorized by our board of directors.
On July 22, 2010, our board of directors amended the Plan to increase the aggregate number of restricted units issuable under the Plan
to 800,000 from 500,000.
On August 31, 2010, we, either directly or through our general partner, issued 795,200 (or 2% of our total units outstanding as of Decem-
ber 31, 2010) of the 800,000 units authorized under the Plan. Awards were issued to all members of our board of directors, to officers of
our general partner, our manager, Capital Maritime and to employees of certain key affiliates and other eligible persons, with the majority
vesting three years from the date of issuance, except for awards issued to certain members of our board of directors which vest in equal
annual installments over a three-year period.
On March 1, 2010, the board of directors of Crude Carriers adopted the Crude Plan according to which Crude Carriers may issue shares, not
to exceed 400,000, to its employees, consultants, officers, directors or affiliates, amongst others and on August 31, 2010, 399,400 shares
were issued. Except for awards issued to certain members of the Crude Carriers board at the time which vest in equal annual installments
over a three-year period, the majority of the shares issued vest three years from the date of issuance.
At the time of the completion of our merger with Crude Carriers all common shares of Crude Carriers which had been previously issued
under the Crude Plan converted to common units in us at an exchange ratio of 1.56, with the exception of common shares issued to the
four independent members of the Crude board of directors who did not continue as members of our board of directors which vested imme-
diately. Concurrently, we adopted the terms of the Crude Plan which governs such converted shares, the terms and conditions of which are
substantially similar to the terms and conditions of our Plan and remained unchanged after the completion of the merger.
On August 31, 2013, the units previously issued pursuant to the Plan fully vested and as of December 31, 2013, there were no incentive
awards outstanding under the Plan.
All awards issued under our Plan and the Crude Plan are conditional upon the grantee’s continued service until the applicable vesting date
and all awards accrue distributions payable upon vesting. Please read Note 14 (Omnibus Incentive Compensation Plan) to our Financial
Statements included herein for more information.
89
PART I Item 7. Major Unitholders and Related-Party Transactions.
As of December 31, 2013, our partners’ capital consisted of 88,440,710 common units, of which 67,237,409 are owned by non-affiliated
public unitholders, 18,922,221 Class B Units, no subordinated units and 1,765,457 general partner units. The Marinakis family, including
Evangelos M. Marinakis, our chairman, may be deemed to beneficially own a 27.3% interest in us through its beneficial ownership, amongst
others, of Capital Maritime, which owned a 21.5% interest in us, which includes 17,692,891 common units, 4,048,484 Class B Units and
a 1.6% interest in us through its ownership of our general partner, and of Crude Carriers Investments, which owned a 3.0% interest in us.
A. MAJOR UNITHOLDERS
T he following table sets forth as of January 31, 2014, the beneficial ownership of our common units by each person we know ben-
eficially owns more than 5.0% or more of our common units, and all of our directors, director nominees and the executive officers
of our general partner as a group. The number of units beneficially owned by each person is determined under SEC rules and the
information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a person beneficially owns any
units as to which the person has or shares voting or investment power.
NAME OF BENEFICIAL OWNER
Capital Maritime (1)(2)
Crude Carriers Investments (2)
All executive officers and directors as a group (8 persons) (2)(3)
Kayne Anderson Capital Advisors, L.P. (4)
Oaktree Capital Group Holdings GP, LLC and certain affiliated funds (5)
Swank Capital, L.L.C. (6)
COMMON UNITS OWNED
TOTAL COMMON UNITS (%)
21,741,375
3,284,210
-
9,172,441
5,049,924
4,698,947
23.5%
3.6%
-
10.8%
6.9%
5.4%
(1) Excludes the 1.6% general partner interest held by our general
partner, a wholly owned subsidiary of Capital Maritime.
(2) The Marinakis family, including our chairman Mr. Marinakis,
through its ownership of Capital Maritime and Crude Carriers
Investments, amongst others, may be deemed to beneficially
own, or to have beneficially owned, all of the units held by Capital
Maritime and Crude Carriers Investments.
(3) Our director Keith Forman has owned a small number of com-
mon units since the date of our IPO. In addition, restricted
common units were also issued to all members of our board of
directors in August 2010 under the terms of our Plan which
they may be deemed to beneficially own, or to have benefi-
cially owned. Our director Dimitris Christacopoulos owns a
number of restricted common units in us, which resulted from
the conversion of restricted shares in Crude Carriers into our
common units at the time of our merger with Crude Carriers.
Our chairman Mr. Marinakis and our Chief Executive and Chief
Financial Officer Mr. Lazaridis own certain common units in us
which resulted from the conversion of shares in Crude Carriers
into our common units at the time of our merger with Crude
Carriers. No member of our board of directors owns common
or restricted units in a number representing more than 1% of
our outstanding common units.
(4) This information is based on the Schedule 13G/A filed on Feb-
ruary 10, 2014, by Kayne Anderson Capital Advisors, L.P. and
Richard A. Kayne.
(5) This information is based on the Schedule 13G/A filed on Febru-
ary 7, 2014, by Oaktree Value Opportunities Fund, L.P., Oaktree
Value Opportunities Fund Holdings, L.P., Oaktree Value Oppor-
tunities Fund GP, L.P., Oaktree Value Opportunities Fund GP
Ltd., Oaktree FF Investment Fund, L.P., Oaktree FF Investment
Fund GP, L.P., Oaktree FF Investment Fund GP Ltd., Oaktree
Fund GP I, L.P., which, in its capacity as the sole shareholder of
each of Oaktree Value Opportunities Fund GP Ltd. and Oaktree
FF Investment Fund GP Ltd., itself reported beneficially own-
ing 4,359,015 common units, representing 5.9% of our total
common units, Oaktree Capital I, L.P., which, in its capacity as
the general partner of Oaktree Fund GP I, L.P., itself reported
beneficially owning 4,359,015 common units, representing 5.9%
of our total common units, OCM Holdings I, LLC, which, in its
capacity as the general partner of Oaktree Capital I, L.P., itself
reported beneficially owning 4,359,015 common units, rep-
resenting 5.9% of our total common units, Oaktree Holdings,
LLC, which, in its capacity as the managing member of OCM
Holdings I, LLC, itself reported beneficially owning 4,359,015
common units, representing 5.9% of our total common units,
Oaktree-TCDRS Strategic Credit, LLC, Oaktree Capital Manage-
ment, L.P., which, in its capacity as the duly appointed manager
of Oaktree-TCDRS Strategic Credit, LLC and as the sole director
of each of Oaktree Value Opportunities Fund GP Ltd. and Oaktree
FF Investment Fund GP Ltd., itself reported beneficially own-
ing 5,049,924 common units, representing 6.9% of our total
common units, Oaktree Holdings, Inc., which, in its capacity
as the general partner of Oaktree Capital Management, L.P.,
itself reported beneficially owning 5,049,924 common units,
90
representing 6.9% of our total common units, Oaktree Capital
Group, LLC, which, in its capacity as the managing member of
Oaktree Holdings, LLC and as the sole shareholder of Oaktree
Holdings, Inc., itself reported beneficially owning 5,049,924
common units, representing 6.9% of our total common units,
and Oaktree Capital Group Holdings GP, LLC.
(6) This information is based on the Schedule 13G filed on Febru-
ary 14, 2014, by Swank Capital, L.L.C., Cushing MLP Asset Man-
agement, LP and Jerry V. Swank.
Our majority unitholders have the same voting rights as our other unitholders except that if at any time, any person or group, other than
our general partner, its affiliates, including Capital Maritime, their transferees, and persons who acquired such units with the prior approval
of our board of directors, owns beneficially 5% or more of any class of units then outstanding, any such units owned by that person or
group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting
of unitholders, calculating required votes, except for purposes of nominating a person for election to our board, determining the presence
of a quorum or for other similar purposes under our partnership agreement, unless otherwise required by law. The voting rights of any
such unitholders in excess of 4.9% will be redistributed pro rata among the other common unitholders holding less than 4.9% of the vot-
ing power of all classes of units entitled to vote. We are not aware of any arrangements, the operation of which may at a subsequent date
result in a change in control of the Partnership.
B. RELATED-PARTY TRANSACTIONS
C apital Maritime’s ability, as sole member of our general partner, to control the appointment of three of the eight members of our board
of directors and to approve certain significant actions we may take as well as its ownership of 20.0% of our common units which it
can vote in their totality on all matters that arise under the partnership agreement, means that Capital Maritime, together with its
affiliates, will have the ability to exercise significant influence regarding our management and may be able to propose amendments to the
partnership agreement that are in its best interest.
TRANSACTIONS ENTERED INTO DURING THE YEAR ENDED DECEMBER 31, 2013
01. Amended and Restated Management Agreements. On May 9, 2013, and November 30, 2013, we amended and restated the fixed
fee management agreement with Capital Ship Management in its entirety to reflect, among other things, the vessels covered by such
agreement. Please read “Item 4B: Business Overview—Our Management Agreements” above for a detailed description of the terms of
this management agreement.
02. Equity Offering. On August 5, 2013, we announced the issuance of 11,900,000 common units at a public offering price of $9.25 per
common unit under our 2011 Form F-3. An additional 1,785,000 common units were subsequently sold on the same terms following
the full exercise of the over-allotment option granted to the underwriters for the offering. Capital GP L.L.C., our general partner, par-
ticipated in both the offering and the exercise of the over-allotment option and purchased 279,286 units at the public offering price,
subsequently converting 349,700 common units into general partner units to maintain its 2% interest in us. Net proceeds, before
expenses, relating to the offering were approximately $120.7 million.
03. Acquisition of the M/V CCNI Angol (ex Hyundai Prestige), the M/V Hyundai Privilege and the M/V Hyundai Platinum
from Capital Maritime. The net proceeds from our common units offering in August 2013 were used toward acquiring three 5,023
TEU container vessels, the M/V CCNI Angol (ex Hyundai Prestige), the M/V Hyundai Privilege and the M/V Hyundai Platinum, from
our sponsor Capital Maritime for an aggregate purchase price of $195.0 million. Each of these vessels was built in 2013 at Hyundai
Heavy Industries. Co. Ltd. and each such vessel is employed under a 12 year time charter employment (+/- 60 days) to HMM at a gross
rate of $29,350 per day. The charters commenced shortly after the delivery of the vessels to Capital Maritime during the first half of
2013. The transaction was approved by our board of directors following approval by the conflicts committee of independent directors.
04. Share Purchase Agreements for the acquisition of the vessel owning companies of each of the M/V Hyundai Premium
and M/V Hyundai Paramount. On March 20, and March 27, 2013, we entered into two share purchase agreements with Capital
Maritime pursuant to which we acquired all of Capital Maritime’s interests in the vessel owning companies that own each of the M/V
Hyundai Premium and M/V Hyundai Paramount, respectively. The acquisition was funded by the net proceeds received from our issu-
ance of Class B Units together with approximately $54 million from our existing credit facilities and part of our cash balances. Both the
M/V Hyundai Premium and M/V Hyundai Paramount are 2013 built at Hyundai Heavy Industries Co. Ltd. The vessels were originally
ordered by Capital Maritime and have secured a 12 year time charter employment (+/- 60 days) to HMM at a gross rate of $29,350
per day. The transaction was approved by our board of directors following approval by the conflicts committee of independent direc-
tors. Please see “Item 5B: Liquidity and Capital Resources—Net Cash (Used in) / Provided by Investing Activities” and Note 1 (Basis of
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Presentation and General Information) to our Financial Statements included herein for more information regarding this acquisition,
including a detailed explanation of how it was accounted for.
05. Subscription Agreement for Class B Units. On March 15, 2013, we entered into a subscription agreement for the sale and issuance
of 9.1 million of our Class B Units with certain investors, including Capital Maritime. The transaction was approved by our board of
directors following approval by the conflicts committee of independent directors of our board of directors. Pursuant to the terms of the
subscription agreement, Capital Maritime was issued 615,151 Class B Units, which are convertible at any time into our common units
on a one-for-one basis. Please see “Item 4A: History and Development of the Partnership—2013 Developments” above for a detailed
description of the issuance and sale of these Class B Units.
06. Charter Party Agreements with Capital Maritime. During 2013 each of the M/T Avax, M/T Axios, M/T Alkiviadis, M/T Akeraios,
M/T Apostolos, M/T Agisilaos, M/T Anemos I, M/T Aristotelis, M/T Arionas, M/T Amoureux, M/T Aias and M/T Amore Mio entered into
new or extended existing charter party agreements with Capital Maritime. Each of these charters were subject to 50/50 profit sharing
arrangements for breaching IWL. In the case of the M/T Amoureux and M/T Aias, profit share arrangements are applicable on actual
earnings settled every six months. These new charters/extensions were unanimously approved by the conflicts committee of independ-
ent directors of our board of directors. Please see “Item 4B: Business Overview —Our Fleet” and “—Our Charters” above for a detailed
description of these charters, including earliest possible redelivery dates of the vessels and relevant charter rates.
07. Investor Relations Services Agreement. On January 1, 2013, we renewed our Investor Relations Agreement with Capital Ship
Management to clarify the provisions under which certain investor relations and corporate support services to assist us in our com-
munications with holders of units representing limited partnership interests in us shall be provided to us further to the provisions of
the Administrative Services Agreement entered into with Capital Ship Management and subject to its terms. Under the terms of the
agreement we pay Capital Ship Management a fixed monthly fee of $15,000 plus reimbursement of reasonable expenses. The agree-
ment will be renewed annually on its terms unless we elect not to renew amendments to management agreements.
TRANSACTIONS ENTERED INTO DURING THE YEAR ENDED DECEMBER 31, 2012
01. Share Purchase Agreement – Exchange of M/T Alexander the Great with M/V Archimidis. On December 22, 2012, the 2010
built M/T Alexander the Great was exchanged for the M/V Archimidis, a 7,943 TEU container carrier vessel built in 2006 at Daewoo
Shipbuilding in South Korea and owned by Capital Maritime. Under the terms of the share purchase agreement all assets and liabili-
ties of the vessel owning company of the M/V Archimidis, except the vessel, necessary permits and time charter agreement, were
retained by Capital Maritime. Capital Maritime paid us $1,625,000, to reflect the value and longer duration of the charter attached
to the vessel. Capital Maritime received all the shares of the vessel owning company of the M/T Alexander the Great and waived
any compensation for the early termination of the vessel’s charter. All assets and liabilities of the vessel owning company of the
M/T Alexander the Great, except the vessel and necessary permits were retained by us. The vessel is managed under the floating
fee management agreement. The transaction was approved by our board of directors following approval by the conflicts committee
of independent directors of our board of directors.
02. Share Purchase Agreement – Exchange of M/T Achilleas with M/V Agamemnon. On December 22, 2012, the 2010 built M/T
Achilleas was exchanged for the M/V Agamemnon, a 7,943 TEU container carrier vessel built in 2007 at Daewoo Shipbuilding in South
Korea and owned by Capital Maritime. Under the terms of the share purchase agreement all assets and liabilities of the vessel owning
company of the M/V Agamemnon, except the vessel, necessary permits and time charter agreement, were retained by Capital Maritime.
We paid Capital Maritime $1,375,000, to reflect the value and longer duration of the charter attached to the vessel. Capital Maritime
received all the shares of the vessel owning company of the M/T Achilleas and waived any compensation for the early termination
of the vessel’s charter. All assets and liabilities of the vessel owning company of the M/T Achilleas, except the vessel and necessary
permits were retained by us. The vessel is managed under the floating fee management agreement. The transaction was approved by
our board of directors following approval by the conflicts committee of independent directors of our board of directors.
03. Subscription Agreements for Class B Units . On May 11, 2012 and June 6, 2012, we entered into subscription agreements for the
sale and issuance of our Class B Units with certain investors, including Capital Maritime. The transaction was approved by our board
of directors following approval by the conflicts committee of independent directors of our board of directors. Pursuant to the terms of
the subscription agreements, Capital Maritime was issued 3,433,333 Class B Units, which are convertible at any time into our common
units on a one-for-one basis. Please see “Item 4A: History and Development of the Partnership” above for a detailed description of the
issuance and sale of our Class B Units in 2012.
04. Charter Party Agreements with Capital Maritime. During 2012 each of the M/T Arionas, M/T Avax, M/T Axios, M/T Akeraios,
M/T Agisilaos, M/T Apostolos, M/T Alkiviadis, M/T Miltiadis MII, M/T Aias and M/T Amoureux entered into new or extended existing
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charter party agreements with Capital Maritime. With the exception of the charter for the M/T Miltiadis MII, each of these charters
were subject to 50/50 profit sharing arrangements for breaching IWL and were unanimously approved by the conflicts committee of
independent directors of our board of directors. Please see “Item 4B: Business Overview—Our Fleet” and “—Our Charters” above for a
detailed description of these charters, including earliest possible redelivery dates of the vessels and relevant charter rates.
05. Amended and Restated Management Agreement. On January 1, 2012, we amended and restated the fixed fee management agree-
ment with Capital Ship Management in its entirety to reflect, amongst others, the vessels covered by such agreement. Please read “Item
4B: Business Overview—Our Management Agreements” above for a detailed description of the terms of this management agreement.
06. Investor Relations Services Agreement. On January 1, 2012, we entered into an Investor Relations Agreement with Capital Ship
Management to clarify the provisions under which certain investor relations and corporate support services to assist us in our com-
munications with holders of units representing limited partnership interests in us shall be provided to us further to the provisions of
the Administrative Services Agreement entered into with Capital Ship Management and subject to its terms. Under the terms of the
agreement we pay Capital Ship Management a fixed monthly fee of $15,000 plus reimbursement of reasonable expenses. The agree-
ment will be renewed annually on its terms unless we elect not to renew.
TRANSACTIONS ENTERED INTO DURING THE YEAR ENDED DECEMBER 31, 2011
01. M/T Amore Mio II – Charter Party Agreement with Capital Maritime. On December 18, 2011, the M/T Amore Mio II commenced
its charter with Capital Maritime at a net daily charter rate of $18,022 per day for an 11-14 month period (+/- 30 days) with earliest
redelivery expected in October 2012. The transaction was approved by our board of directors following approval by the conflicts com-
mittee of independent directors.
02. M/T Achilleas – Charter Party Agreement with Capital Maritime. On November 20, 2011, we chartered the M/T Achilleas with
Capital Maritime at a gross daily charter rate of $28,000 per day plus 50/50 profit share on actual earnings settled every 6 months for
the first 12 months of its time charter to Capital Maritime. Capital Maritime has the option to extend the time charter employment for
a second year at $34,000 per day and for a third year at $38,000 per day with the same profit share arrangements. The M/T Achilleas
was delivered to Capital Maritime in January 2012. The transaction was approved by our board of directors following approval by the
conflicts committee of independent directors.
03. M/T Alexander The Great – Charter Party Agreement with Capital Maritime. On October 27, 2011, we chartered the M/T
Alexander the Great with Capital Maritime at a gross daily charter rate of $28,000 per day plus 50/50 profit share on actual earnings
settled every 6 months for the first 12 months of its time charter to Capital Maritime. Capital Maritime has the option to extend the
time charter employment for a second year at $34,000 per day and for a third year at $38,000 per day with the same profit share
arrangements. The M/T Alexander The Great was delivered to Capital Maritime in November 2011. The transaction was approved by
our board of directors following approval by the conflicts committee of independent directors.
04. M/T Amoureux and M/T Aias – Charter Party Agreements with Capital Maritime. On October 27, 2011, we chartered the M/T
Amoureux and the M/T Aias with Capital Maritime at a gross daily charter rate of $20,000 per day plus 50/50 profit share on actual
earnings settled every six months for the first 12 months of their time charter to Capital Maritime. Capital Maritime has the option to
extend the time charter employment for a second year at $24,000 per day and for a third year at $28,000 per day with the same profit
share arrangements. Both vessels were delivered to Capital Maritime during October and November 2011, respectively. The transaction
was approved by our board of directors following approval by the conflicts committee of independent directors.
05. Amendment to Omnibus Agreement with Capital Maritime. On September 30, 2011, we amended and restated the Omnibus
Agreement with Capital Maritime, Capital GP L.L.C and Capital Product Operating L.L.C in connection with the Agreement and Plan
of Merger dated as of May 5, 2011 which governs the manner in which certain future tanker business opportunities will be offered
by Capital Maritime to us. Under the terms of the amended and restated omnibus agreement Capital Maritime and its controlled
affiliates (other than us, our general partner and our subsidiaries) have agreed not to acquire, own or operate product or crude oil
tankers with carrying capacity over 30,000 dwt under time or bareboat charters with a remaining duration, excluding any extension
options, of at least 12 months at the earliest of the following dates: (a) the date the tanker to which such time or bareboat charter
is attached is first acquired by Capital Maritime and its controlled affiliates and (b) the date on which a tanker owned by Capital
Maritime or its controlled affiliates is put under such time or bareboat charter without the consent of our general partner or first
offering such tanker vessel to us. Similarly, we may not acquire, own or operate product or crude oil tankers with carrying capacity
under 30,000 dwt, other than vessels we had owned prior to the date of such amendment without first offering such tanker vessel
to Capital Maritime. In addition, each of Capital Maritime and we have granted the other party a right of first offer on the transfer
or rechartering of any vessels with carrying capacity over 30,000 dwt.
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06. M/T Agisilaos – Extension of Charter Party Agreement with Capital Maritime. On July 25, 2011, we extended the charter of
the M/T Agisilaos with Capital Maritime. The 12 month extension is fixed at a gross daily charter rate of $13,500 ($13,331 net) and
the charter is subject to a profit sharing arrangement which allows each party to share, at a 50/50 percentage, additional revenues
earned for breaching the Institute Warranty Limits. The earliest expected redelivery is June 2012.
07. M/T Arionas – Extension of Charter Party Agreement with Capital Maritime. On July 25, 2011, we extended the charter of
the MT Arionas with Capital Maritime. The 12 month extension is fixed at a gross daily charter rate of $13,800 ($13,628 net) and the
charter is subject to a profit sharing arrangement which allows each party to share, at a 50/50 percentage, additional revenues earned
for breaching the Institute Warranty Limits. The earliest expected redelivery is September 2012.
08. Share Purchase Agreement for the acquisition of the vessel owning company of the M/V Cape Agamemnon. On June 9,
2011, we entered into a share purchase agreement with Capital Maritime pursuant to which we acquired all of Capital Maritime’s
interests in the vessel owning company that owns the M/V Cape Agamemnon. The acquisition was funded through $1.5 million from
available cash and the incurrence of $25.0 million of debt under our 2011 credit facility and the remainder through the issuance of
6,958,000 common units to Capital Maritime. The M/V Cape Agamemnon, a 179,221 dwt, 2010 built dry cargo vessel built at Sungdong
Shipbuilding & Marine Engineering Co., Ltd., South Korea is chartered to Cosco under a charter with an earliest scheduled expiration
date of June 2020, as amended. The transaction was approved by our board of directors following approval by the conflicts committee
of independent directors. Please see “Item 5B: Liquidity and Capital Resources—Net Cash (Used in) / Provided by Investing Activities”
and Note 1 (Basis of Presentation and General Information) to our Financial Statements included herein for more information regard-
ing this acquisition, including a detailed explanation of how it was accounted for.
09. Floating Rate Management Agreement with Capital Maritime. On June 9, 2011, we entered into a floating fee management
agreement with Capital Ship Management Corp. based on actual expenses with an initial term of five years. According to this agreement
Capital Ship Management provides us commercial and technical services for a daily fee that is revised annually based on the United
States Consumer Price Index. We also reimburse our manager for all of its direct and indirect costs, expenses and liabilities incurred
in providing the above services, including, but not limited to, crew, repairs and maintenance, insurance, stores, spares, lubricants and
other operating costs. Under the terms of this management agreement the costs and expenses associated with a vessel’s next scheduled
drydocking are borne by us and not by our manager.
10. Agreement and Plan of Merger Agreement with Crude Carriers. On May 5, 2011, we entered into a definitive agreement to
merge with Crude Carriers Corp. in a unit-for-share transaction whereby Crude would become a wholly owned subsidiary of ours. The
exchange ratio was 1.56 CPLP units for each Crude Carriers share. Both we and Crude established Special Committees, consisting
entirely of independent directors, to negotiate the terms of the merger agreement, and each of the Special Committees approved the
transaction and recommended it to their respective boards of directors, which unanimously approved the transaction. In September
2011, we completed the merger with Crude, which was approved by 60.3%, of Crude’s unaffiliated shareholders voting as a separate
class, representing approximately 97.9% of the total votes cast, at a special shareholders’ meeting. In connection with the merger, we
issued an additional 24,967,240 common units to holders of Crude Carriers’ shares, which includes 3,284,210 common units resulting
from the conversion of Crude Carriers’ Class B Shares owned by Crude Carriers Investments and 623,064 common units resulting from
the conversion of common shares issued under the Crude Plan. We also approved the election of Dimitris Christacopoulos to our board
of directors as a Class II Director. The conflicts committee retained independent legal and financial advisors to assist in evaluating the
proposed transaction and the purchase price.
11. Crude Carriers Corp . Management Agreement with Capital Ship Management. On September 30, 2011, we completed our
merger with Crude Carriers, whereby it became a wholly owned subsidiary of ours. The five crude tanker vessels we acquired as part of
our merger with Crude Carriers are managed under a management agreement entered into in March 2010, as amended, with Capital
Ship Management whose initial term will expire on December 31, 2020 and shall be automatically renewed for five-year periods if no
notice of termination is given in the fourth quarter of the year immediately preceding the end of the initial term or any of its exten-
sions. Under the terms of this management agreement we reimburse our manager for all of its direct and indirect costs, expenses
and liabilities incurred in providing the above services, including, but not limited to, crew, repairs and maintenance, insurance, stores,
spares, lubricants and other operating and administrative costs. In addition we pay our manager management fees based on the fol-
lowing components:
a. Technical management fee at a per day daily fee to be updated on each anniversary following the Consumer Price Index;
b. Sale & purchase fee equal to 1% of the gross purchase or sale price upon the consummation of any purchase or sale of a vessel by
Crude Carriers; and
c. Commercial services fee equal to 1.25% of all gross charter revenues generated by each vessel for commercial services rendered.
In addition, the manager has the right to terminate the management agreement and, under certain circumstances, could receive sub-
stantial sums in connection with such termination; however, even if our board of directors or our unitholders are dissatisfied with the
94
manager, there are limited circumstances under which we can terminate such management agreement. If the manager elects to termi-
nate the management agreement, in accordance with the terms of the agreement a termination payment, which could be substantial,
will be payable to the manager. This termination payment was initially set at $9.0 million and increases on each one-year anniversary
during which the management agreement remains in effect (on a compounding basis) in accordance with the total percentage increase,
if any, in the Consumer Price Index over the immediately preceding 12 months.
12. M/T Avax – Charter Party Agreement with Capital Maritime. On May 3, 2011, we chartered the M/T Avax with Capital Maritime at
a gross daily charter rate of $14,000 for 12 months (+/-30 days). The charter is subject to a profit sharing arrangement which allows each
party to share, at a 50/50 percentage, additional revenues earned for breaching the Institute Warranty Limits. The charter commenced
in May upon redelivery of the vessel from the previous charterer, and the earliest expected redelivery under the new charter is April
2012. The transaction was approved by our board of directors following approval by the conflicts committee of independent directors.
13. M/T Akeraios – Charter Party Agreement with Capital Maritime. On May 3, 2011, we chartered the M/T Akeraios with Capital
Maritime at a gross daily charter rate of $14,000 for 12 months (+/-30 days). The charter is subject to a profit sharing arrangement
which allows each party to share, at a 50/50 percentage, additional revenues earned for breaching the International Warranty Limits. The
charter commenced in July upon redelivery from the previous charterer, and the earliest expected redelivery under the charter is June
2012. The transaction was approved by our board of directors following approval by the conflicts committee of independent directors.
14. M/T Amore Mio II – Charter Party Agreement with Capital Maritime. On January 7, 2011, we rechartered the M/T Amore Mio
II with Capital Maritime at a net daily charter rate of $25,000 ($25,316.45 gross). The charter commenced directly upon the vessel’s
redelivery from its previous charter with BP Shipping Limited on January 9, 2011, and has an earliest scheduled expiration date of
December 2011. The transaction was approved by our board of directors following approval by the conflicts committee of independent
directors.
15. Investor Relations Services Agreement. On January 1, 2011, we entered into a one-year Investor Relations Agreement with Capital
Ship Management to clarify the provisions under which certain investor relations and corporate support services to assist us in our
communications with holders of units representing limited partnership interests in us shall be provided to us further to the provisions
of the Administrative Services Agreement entered into with Capital Ship Management and subject to its terms. Under the terms of the
agreement we pay Capital Ship Management a fixed monthly fee of $15,000 plus reimbursement of reasonable expenses.
C. INTERESTS OF EXPERTS AND COUNSEL Not applicable.
PART I Item 8. Financial Information.
See Item 18 for additional information required to be disclosed under this Item 8.
LEGAL PROCEEDINGS
A lthough we or our subsidiaries may, from time to time, be involved in litigation and claims arising out of our operations in the normal
course of business, we are not at present party to any legal proceedings and are not aware of any proceedings against us, or contemplated
to be brought against us. We maintain insurance policies with insurers in amounts and with coverage and deductibles as our board of
directors believes are reasonable and prudent. We expect that these claims would be covered by insurance, subject to customary deductibles.
Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources and regardless of the final
outcome of any such proceedings could lead to significant reputational damage which could materially affect our business and operations.
CASH DISTRIBUTION POLICY
1. RATIONALE FOR OUR CASH DISTRIBUTION POLICY
Our cash distribution policy reflects a basic judgment that our unitholders will be better served by our distributing our cash available (after
deducting expenses, including estimated maintenance and replacement capital expenditures and reserves) rather than retaining it. Because
we believe we will generally finance any expansion capital expenditures from external financing sources, we believe that our investors are
best served by our distributing all of our available cash. Our cash distribution policy is consistent with the terms of our partnership agree-
95
ment, which requires that we distribute all of our available cash quarterly (after deducting expenses, including estimated maintenance and
replacement capital expenditures and reserves and subject to the prior distribution rights of any holders of the Class B Units).
2. LIMITATIONS ON CASH DISTRIBUTIONS & ABILITY TO CHANGE CASH DISTRIBUTION POLICY
There is no guarantee that unitholders will receive quarterly distributions from us. In particular you should carefully consider the relevant
risks included in “Item 3D: Risk Factors” included herein. Our distribution policy is subject to certain restrictions and may be changed at
any time, including:
• 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.
• While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including provisions requir-
ing us to make cash distributions contained therein, may be amended. The partnership agreement can be amended with the approval
of a majority of the outstanding common units, of which the Marinakis family, including Evangelos M. Marinakis, may be deemed to
beneficially own 27.3% through its beneficial ownership of Capital Maritime and Crude Carriers Investments.
• 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 and the establishment of any reserves for the prudent conduct of our business.
• Under Section 51 of the MILPA, we may not make a distribution if the distribution would cause our liabilities (other than liabilities to
partners on account of their partnership interest and liabilities for which the recourse of creditors is limited to specified property of ours)
to exceed the fair value of our assets, except that the fair value of property that is subject to a liability for which the recourse of creditors
is limited shall be included in our assets only to the extent that the fair value of that property exceeds that liability.
• Our common units are subject to the prior distribution rights of any holders of its preferred units then outstanding. As of the date of
this Annual Report, there were 18,922,221 Class B Units issued and outstanding. Under the terms of our partnership agreement, we are
prohibited from declaring and paying distributions on our common units until we declare and pay (or set aside for payment) full distri-
butions on the Class B Units. Furthermore, pursuant to the terms of the Third Amendment to the Partnership Agreement, an upward
adjustment to the distribution rate for the Class B Units occurs in the event the distribution rate on our common units is increased.
• We may lack sufficient cash to pay distributions on our common units due to decreases in net revenues or increases in operating expenses,
principal and interest payments on outstanding debt, tax expenses, working capital requirements maintenance and replacement capital
expenditures, anticipated cash needs or the payment of distributions on the Class B Units, which our partnership agreement requires us
to pay prior to distributions on our common units.
• Our distribution policy will be affected by restrictions on distributions under our revolving credit facilities which contain material finan-
cial tests and covenants that must be satisfied. Should we be unable to satisfy these terms, covenants and restrictions included in our
credit facilities or if we are otherwise in default under the credit agreements, our ability to make cash distributions to our unitholders,
notwithstanding our stated cash distribution policy, would be materially adversely affected.
• If we make distributions out of capital surplus, as opposed to operating surplus, such distributions will constitute a return of capital and
will result in a reduction in the quarterly distribution and the target distribution levels. We do not anticipate that we will make any
distributions from capital surplus.
• If the ability of our subsidiaries to make any distribution to us is restricted by, among other things, the provisions of existing and future
indebtedness, applicable partnership and limited liability company laws or any other laws and regulations, our ability to make distribu-
tions to our unitholders may be restricted.
3. QUARTERLY COMMON DISTRIBUTIONS
Our common unitholders are entitled under our partnership agreement to receive a quarterly distribution to the extent we have sufficient
cash on hand to pay the distribution after we establish cash reserves, pay fees and expenses and make distributions to Class B unitholders,
which our partnership agreement requires us to pay prior to distributions on our common units. Although we intend to continue to make
strategic acquisitions and to take advantage of our unique relationship with Capital Maritime in a prudent manner that is accretive to our
unitholders and to long-term distribution growth, there is no guarantee that we will pay a quarterly distribution on the common units in any
quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to
make any distribution is determined by our board of directors, taking into consideration the terms of our partnership agreement and other
factors. We will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default is
existing, under the terms of our credit facilities. We have generally declared distributions in January, April, July and October of each year
and paid those distributions in the subsequent month. In January 2010, we introduced an annual distribution guidance of $0.90 per unit
per annum, which was revised in July 2010 upwards to $0.93 per unit per annum, or $0.2325 per quarter. We made distributions on our
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common units in accordance with our guidance in November 2010, February 2011, May 2011, August 2011, November 2011, February
2012, May 2012, August 2012, November 2012, February 2013, May 2013, August 2013, November 2013 and February 2014.
4. INCENTIVE DISTRIBUTION RIGHTS
Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from operat-
ing surplus (as defined in our partnership agreement) after the minimum quarterly distribution and the target distribution levels have been
achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner
interest, subject to restrictions in the partnership agreement. Except for transfers of incentive distribution rights to an affiliate or another entity
as part of our general partner’s merger or consolidation with or into, or sale of substantially all of its assets to such entity, the approval of a
majority of our common units (excluding common units held by our general partner and its affiliates), voting separately as a class, generally
is required for a transfer of the incentive distribution rights to a third party prior to March 31, 2017. Any transfer by our general partner of
the incentive distribution rights would not change the percentage allocations of quarterly distributions with respect to such rights.
5. PERCENTAGE ALLOCATIONS OF AVAILABLE CASH FROM OPERATING SURPLUS
The following table illustrates the percentage allocations of the additional available cash from operating surplus, which is subject to the
distribution rights of the holders of our Class B Units under our partnership agreement, among the unitholders and our general partner
up to the various target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percent-
age interests of the unitholders and our general partner in any available cash from operating surplus we distribute up to and including
the corresponding amount in the column “Total Quarterly Distribution Target Amount”, until available cash from operating surplus we
distribute reaches the next target distribution level, if any. The percentage interests shown for the unitholders and our general partner
for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly
distribution. The percentage interests shown for our general partner assume that our general partner maintains its 2% general partner
interest and assume our general partner has not transferred the incentive distribution rights.
TOTAL QUARTERLY (in US $)
MARGINAL PERCENTAGE INTEREST IN DISTRIBUTIONS (in %)
DISTRIBUTION TARGET AMOUNT
UNITHOLDERS
GENERAL PARTNER
Minimum Quarterly Distribution
First Target Distribution
Second Target Distribution
Third Target Distribution
Thereafter
0.3750
up to 0.4313
above 0.4313 up to 0.4688
above 0.4688 up to 0.5625
above 0.5625
98%
98%
85%
75%
50%
2%
2%
15%
25%
50%
B. SIGNIFICANT CHANGES
No significant changes have occurred since the date of our Financial Statements included herein except for those set out below:
On January 22, 2014, we declared a cash distribution of $0.2325 per common unit for the fourth quarter of 2013 which was paid on Febru-
ary 14, 2014 to unitholders of record on February 7, 2014.
On January 22, 2014, we declared a cash distribution of $0.21375 per Class B Unit for the fourth quarter of 2013, in line with our part-
nership agreement. The fourth quarter Class B Unit cash distribution was paid on February 10, 2014, to Class B unitholders of record on
February 3, 2014.
PART I Item 9. The Offer and Listing.
C. MARKETS
Our common units started trading on the Nasdaq Global Market under the symbol “CPLP” on March 30, 2007. The following table sets
forth the high and low closing sales prices in U.S. Dollars for our common units for each of the periods indicated.
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YEAR ENDED DECEMBER 31
HIGH (in US $)
LOW (in US $)
2013
2012
2011
2010
2009
QUARTER ENDED
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013
December 31, 2012
September 30, 2012
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011
MONTH ENDED
January 31, 2014
December 31, 2013
November 30, 2013
October 31, 2013
September 30, 2013
August 31, 2013
10.57
8.74
11.32
10.01
11.21
10.57
9.97
9.48
8.28
8.21
8.21
8.74
8.12
7.13
9.30
11.32
10.61
10.54
10.57
9.21
9.36
9.09
9.69
6.81
6.21
4.89
6.88
5.23
8.24
8.61
8.13
6.81
6.21
7.55
6.45
6.42
5.71
4.89
7.88
9.35
10.00
8.82
8.40
8.24
8.72
8.61
PART I Item 10. Additional Information.
A. SHARE CAPITAL Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
T he information required to be disclosed under this Item 10B is incorporated by reference to the following sections of the prospectus
included in our Registration Statement on Form F-1 filed with the SEC on March 19, 2007: “The Partnership Agreement”, “Description of
the Common Units — The Units”, “Conflicts of Interest and Fiduciary Duties” and “Our Cash Distribution Policy and Restrictions on Distri-
butions” and our Current Reports on Form 6-K and relevant Exhibits furnished to the SEC on May 23, 2012, June 6, 2012 and March 21, 2013.
C. MATERIAL CONTRACTS
T he following is a summary of each material contract, other than contracts entered into in the ordinary course of business, to which
we or any of our subsidiaries are a party, for the two years immediately preceding the date of this Annual Report, each of which is
included in the list of exhibits in Item 19.
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Please read “Item 7B: Related-Party Transactions” above for transactions entered into with related parties as well as further
details on certain of the transactions described below.
• Settlement Notice and Refund Modification dated December 18, 2013, with Deutsche Bank to provide, among other things, that if the six
claims we filed against OSG and certain of its subsidiaries are allowed in an aggregate amount less than $43.25 million, the maximum
aggregate amount that we are obligated to refund to Deutsche Bank is $643,750.
• Memorandum of Agreement dated October 17, 2013, with Orix Shipping Company Limited to sell the M/T Agamemnon II.
• Memorandum of Agreement dated October 16, 2013, with Goldilocks Maritime S.A. to acquire the M/T Aristarchos (renamed to “M/T
Aristotelis”). The acquisition was funded with proceeds from the sale of the M/T Agamemnon II and approximately $6.2 million from our
cash balances. The M/T Aristotelis is employed on a period time charter for $17,000 gross per day for 18-24 months with Capital Maritime.
• Loan Agreement with ING Bank N.V., HSH Nordbank AG, National Bank of Greece S.A. and Skandinaviska Enskilda Banken AB (publ). On Septem-
ber 6, 2013, we entered into a new senior secured credit facility of up to $200.0 million led by ING Bank N.V., which was amended and restated
on December 27, 2013, to increase its size to up to $225.0 million. The facility is non-amortizing until March 2016, with a final maturity date
in December 2020, and is priced at LIBOR plus 3.50%, with a commitment fee of 1.00%.
• Share Purchase Agreement dated August 9, 2013, with Capital Maritime to acquire all of its interest in the vessel owning company of the
M/V CCNI Angol (ex Hyundai Prestige). The acquisition was funded partly through the issuance and sale of 13,685,000 common units.
The M/V CCNI Angol (ex Hyundai Prestige) is employed under a 12 year time charter employment (+/- 60 days) to HMM at a gross rate
of $29,350 per day, which commenced shortly after the delivery during the first half of 2013.
• Share Purchase Agreement dated August 9, 2013, with Capital Maritime to acquire all of its interest in the vessel owning company of
the M/V Hyundai Privilege. The acquisition was funded partly through the issuance and sale of 13,685,000 common units. The M/V
Hyundai Privilege is employed under a 12 year time charter employment (+/- 60 days) to HMM at a gross rate of $29,350 per day, which
commenced shortly after the delivery during the first half of 2013.
• Share Purchase Agreement dated August 9, 2013, with Capital Maritime to acquire all of its interest in the vessel owning company of
the M/V Hyundai Platinum. The acquisition was funded partly through the issuance and sale of 13,685,000 common units. The M/V
Hyundai Platinum is employed under a 12 year time charter employment (+/- 60 days) to HMM at a gross rate of $29,350 per day, which
commenced shortly after the delivery during the first half of 2013.
• Assignment of Claim Agreement dated June 24, 2013, with Deutsche Bank to transfer to Deutsche Bank all of our rights, title, interest,
claims and causes of action in and to, or arising under or in connection with, our claims against Sifnos Tanker Corporation and OSG.
• Assignment of Claim Agreement dated June 24, 2013, with Deutsche Bank to transfer to Deutsche Bank all of our rights, title, interest,
claims and causes of action in and to, or arising under or in connection with, our claims against Kimolos Tanker Corporation and OSG.
• Assignment of Claim Agreement dated June 24, 2013, with Deutsche Bank to transfer to Deutsche Bank all of our rights, title, interest,
claims and causes of action in and to, or arising under or in connection with, our claims against Serifos Tanker Corporation and OSG.
• Share Purchase Agreement dated March 20, 2013, with Capital Maritime to acquire all of its interest in the vessel owning company of
the M/V Hyundai Premium. The acquisition was funded partly through the issuance and sale of the Class B units together with approxi-
mately $27.0 million from our existing credit facilities and part of our cash balances. The M/V Hyundai Premium is chartered to HMM
under a 12 year time charter employment (+/- 60 days) at a gross rate of $29,350 per day.
• Share Purchase Agreement dated March 27, 2013, with Capital Maritime to acquire all of its interest in the vessel owning company
of the M/V Hyundai Paramount. The acquisition was funded partly through the issuance and sale of the Class B units together with
approximately $27.0 million from our existing credit facilities and part of our cash balances. The M/V Hyundai Paramount is chartered
to HMM under a 12 year time charter employment (+/- 60 days) at a gross rate of $29,350 per day.
• Amendment to Partnership Agreement dated March 19, 2013, in connection with the issuance and sale of our Class B Units, which
amended the rights, preferences, privileges, duties and obligations of the Class B Units.
• Registration Rights Agreement dated March 19, 2013, between us and the purchasers named therein in connection with the issuance
and sale of the Class B Units.
• Subscription Agreement dated March 15, 2013, between us and the purchasers named therein in connection with the issuance and sale
of the Class B Units.
• Amendment to the 2008 credit facility replacing the M/T Alexander the Great and the M/T Achilleas as collateral under the facility with
the M/V Agamemnon and the M/V Archimidis.
• Share Purchase Agreement dated December 22, 2012, with Capital Maritime to acquire all of its interest in the vessel owning company
of the M/V Archimidis in exchange for the interest in the vessel owning company of the M/T Alexander the Great. Capital Maritime also
paid us $1,625,000, to reflect the value and longer duration of the charter attached to the vessel and waived any compensation for the
early termination of the vessel’s charter.
• Share Purchase Agreement dated December 22, 2012, with Capital Maritime to acquire all of its interest in the vessel owning company
of the M/V Agamemnon in exchange for the interest in the vessel owning company of the M/T Achilleas. We paid Capital Maritime
$1,375,000, to reflect the value and longer duration of the charter attached to the vessel and Capital Maritime waived any compensation
for the early termination of the vessel’s charter.
• Subscription Agreement dated June 6, 2012, between us and the purchasers named therein in connection with the issuance and sale of
the Class B Units.
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• Registration Rights Agreement dated June 6, 2012, between us and Salient Midstream & MLP Fund in connection with the issuance and
sale of the Class B Units.
• Registration Rights Agreement dated May 22, 2012, among us and the purchasers named therein in connection with the issuance and
sale of the Class B Units.
• Amendment to Partnership Agreement dated May 22, 2012, in connection with the issuance and sale of our Class B Units, which estab-
lished and sets forth the rights, preferences, privileges, duties and obligations of the Class B Units.
• Amendment to the 2011 credit facility dated May 21, 2012 in connection with the issuance and sale of our Class B Units, providing for
a deferral of scheduled amortization payments until March 31, 2016.
• Amendment to 2008 credit facility dated May 21, 2012 in connection with the issuance and sale of our Class B Units, providing for a
deferral of scheduled amortization payments until March 31, 2016, amending the interest margin and cancelling an undrawn tranche
under the facility.
• Amendment to 2007 credit facility dated May 21, 2012 in connection with the issuance and sale of our Class B Units, providing for a
deferral of scheduled amortization payment until March 31, 2016, the conversion of the facility into a term loan and amending the
interest margin.
• Subscription Agreement dated May 11, 2012, between us and the purchasers named therein in connection with the issuance and sale
of the Class B Units.
• Amendment to Partnership Agreement dated September 30, 2011, in connection with the Agreement and Plan of Merger dated as of
May 5, 2011. The Amendment increases the size of our board of directors by one, from seven to eight, and includes certain other changes
being made pursuant to the Merger Agreement.
• Amendment and Restatement of Omnibus Agreement. On September 30, 2011, we amended and restated the Omnibus Agreement
between us and Capital Maritime, in connection with the Agreement and Plan of Merger dated as of May 5, 2011. The amendment limits
our ability to acquire, own or operate certain product or crude oil tankers based on carrying capacity and the remaining duration of their
charters, and includes certain other changes being made pursuant to the Merger Agreement.
• Loan Agreement with Credit Agricole Emporiki Bank. On June 9, 2011, we entered into a new $25.0 million credit facility provided by
Credit Agricole Emporiki Bank in connection with the acquisition of the vessel owning company of the M/V Cape Agamemnon from
Capital Maritime. The full amount available under the facility was drawn down to finance part of the acquisition cost of the vessel. The
new facility is non-amortizing until March 2013 and is priced at LIBOR plus 3.25%.
• Share Purchase Agreement dated June 9, 2011, with Capital Maritime to acquire all of its interest in the vessel owning company of the
M/V Cape Agamemnon. The acquisition was funded partly through the issuance of 6,958,000 common units to Capital Maritime and the
remainder through the incurrence of $25.0 million of debt under our 2011 credit facility. We also paid $1.5 million to Capital Maritime as
part of the consideration for the acquisition which was contributed by our general partner to us in exchange for 142,000 general partner
units in order for it to maintain its 2% interest in us. The M/V Cape Agamemnon is chartered to Cosco under a charter, as amended, with
an earliest scheduled expiration date of June 2020.
• Agreement and Plan of Merger dated May 5, 2011, with Crude Carriers Corp, amongst others, to merge with Crude Carriers in a unit-for-
share transaction whereby Crude Carriers would become a wholly owned subsidiary of ours. The exchange ratio was 1.56 CPLP units for
each Crude Carriers share, which equated to a value of $17.58 per Crude share based on CPLP’s closing unit price of $11.27 on May 4,
2011. The transaction was approved by a special meeting of shareholders of Crude Carriers and consummated in September 2011.
D. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING UNITHOLDERS
W e are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in the Republic of The
Marshall Islands that restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments
to non-resident holders of our securities. We are not aware of any limitations on the right of non-resident or foreign owners to
hold or vote our securities imposed by the laws of the Republic of The Marshall Islands or our partnership agreement.
E. TAXATION
MARSHALL ISLANDS TAXATION
T he following is a discussion of the material Marshall Islands tax consequences of our activities to unitholders who do not reside in,
maintain offices in or engage in business in The Marshall Islands (“non-resident holders”). Because we, our operating subsidiary and
our controlled affiliates do not, and we do not expect that we, our operating subsidiary and our controlled affiliates will, conduct busi-
ness or operations in The Marshall Islands, under current Marshall Islands law non-resident holders of our securities will not be subject
to Marshall Islands taxation or withholding on distributions, including upon a return of capital, we make to such non-resident holders. In
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addition, non-resident holders will not be subject to Marshall Islands stamp, capital gains or other taxes on the purchase, ownership or
disposition of our securities, and will not be required by the Republic of The Marshall Islands to file a tax return relating to such securities.
TAXATION OF THE PARTNERSHIP
Because we, our operating subsidiary and our controlled affiliates do not, and we do not expect that we, our operating subsidiary and our
controlled affiliates will conduct business or operations in The Marshall Islands, under current Marshall Islands law neither we nor our
controlled affiliates will be subject to income, capital gains, profits or other taxation. As a result, distributions by our operating subsidiary
and our controlled affiliates to us will not be subject to Marshall Islands taxation.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
T he following is a discussion of the material U.S. federal income tax considerations that may be relevant to current and prospective
common unitholders. This discussion is based upon provisions of the Code, Treasury Regulations, and current administrative rulings
and court decisions, all as currently in effect or existence on the date of this Annual Report and all of which are subject to change,
possibly with retroactive effect. Changes in these authorities may cause the tax consequences to vary substantially from the consequences
described below.
The following discussion applies only to beneficial owners of our common units that own such units as “capital assets” (generally, for investment
purposes) and does not comment on all aspects of U.S. federal income taxation which may be important to particular common unitholders
in light of their individual circumstances, such as unitholders subject to special tax rules (e.g., financial institutions, insurance companies,
broker-dealers, tax-exempt organizations, or former citizens or long-term residents of the United States), persons that will hold the common
units as part of a straddle, hedge, conversion, constructive sale, wash sale or other integrated transaction for U.S. federal income tax purposes,
persons that own (actually or constructively) 10.0% or more of the total combined voting power of all classes of our units entitled to vote, or
U.S. Holders (as defined below) that have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ
significantly from those summarized below. If a partnership or other entity classified as a partnership for U.S. federal income tax purposes holds
our common units, the tax treatment of a partner thereof will generally depend upon the status of the partner and upon the tax treatment of
the partnership. If you are a partner in a partnership holding our common units, you should consult your tax advisor.
No ruling has been or will be requested from the IRS regarding any matter affecting us or our common unitholders. The statements made
here may not be sustained by a court if contested by the IRS.
This discussion does not contain information regarding any U.S. state or local, estate or alternative minimum tax considerations concerning
the ownership or disposition of our common units. Each common unitholder is urged to consult its tax advisor regarding the U.S. federal,
state, local and other tax consequences of the ownership or disposition of our common units.
ELECTION TO BE TAXED AS A CORPORATION
We have elected to be taxed as a corporation for U.S. federal income tax purposes. As such, among other consequences, U.S. Holders (as
defined below) will, subject to the discussion of certain rules relating to PFICs below (please see “Item 10E: Taxation—Material United
States Federal Income Tax Considerations—PFIC Status and Significant Tax Consequences”), generally not directly be subject to U.S. federal
income tax on our income, but rather will be subject to U.S. federal income tax on distributions received from us and dispositions of common
units, as described below. As a corporation, we may be subject to U.S. federal income tax on our income as discussed below. Additionally,
distributions from us to common unitholders will generally be reported on Internal Revenue Service Form 1099-DIV.
TAXATION OF OPERATING INCOME
We expect that substantially all of our gross income will continue to be attributable to the transportation of crude oil and related oil prod-
ucts as well as dry cargo and containerized goods. For this purpose, gross income attributable to transportation (or “Transportation Income”)
includes income derived from, or in connection with, the use (or hiring or leasing for use) of a vessel to transport cargo, or the performance of
services directly related to the use of any vessel to transport cargo, and thus includes spot charter, time charter and bareboat charter income.
Transportation Income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States
(or “U.S. Source International Transportation Income”) will be considered to be 50% derived from sources within the United States. Trans-
portation Income attributable to transportation that both begins and ends in the United States (or “U.S. Source Domestic Transportation
Income”) will be considered to be 100% derived from sources within the United States. Transportation Income attributable to transportation
exclusively between non-U.S. destinations will be considered to be 100% derived from sources outside the United States. Transportation
Income derived from sources outside the United States generally will not be subject to U.S. federal income tax.
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Based on our current operations, we do not expect to have U.S. Source Domestic Transportation Income. However, certain of our activities give
rise to U.S. Source International Transportation Income, and future expansion of our operations could result in an increase in the amount of U.S.
Source International Transportation Income, as well as give rise to U.S. Source Domestic Transportation Income, all of which could be subject to
U.S. federal income taxation unless exempt from U.S. taxation under Section 883 of the Code (or the “Section 883 Exemption”), as discussed below.
THE SECTION 883 EXEMPTION
In general, the Section 883 Exemption provides that if a non-U.S. corporation satisfies the requirements of Section 883 of the Code and
the Treasury Regulations thereunder (the “Section 883 Regulations”), it will not be subject to the net basis and branch profits taxes or the
4% gross basis tax described below on its U.S. Source International Transportation Income. The Section 883 Exemption applies to U.S.
Source International Transportation Income and other forms of related income, such as gain from the sale of a vessel. As discussed below,
we believe that under our current ownership structure, the Section 883 Exemption will apply and we will not be taxed on our U.S. Source
International Transportation Income. The Section 883 Exemption does not apply to U.S. Source Domestic Transportation Income.
We will qualify for the Section 883 Exemption if, among other matters, we meet the following three requirements:
• We are organized in a jurisdiction outside the United States that grants an equivalent exemption from tax to corporations organized in
the United States (an “Equivalent Exemption”);
• We satisfy the “Publicly Traded Test” (as described below); and
• We meet certain substantiation, reporting and other requirements.
The Publicly Traded Test requires that the stock of a non-U.S. corporation be “primarily and regularly traded” on an established securities market
either in the United States or in a jurisdiction outside the United States that grants an Equivalent Exemption. The Section 883 Regulations
provide, in pertinent part, that equity interests in a non-U.S. corporation will be considered to be “primarily traded” on an established securities
market in a given country if the number of units of each class of equity relied upon to meet the “regularly traded” test that are traded during
any taxable year on all established securities markets in that country exceeds the number of units in each such class that are traded during
that year on established securities markets in any other single country. Equity of a non-U.S. corporation will be considered to be “regularly
traded” on an established securities market under the Section 883 Regulations if one or more classes of equity of the corporation that, in
the aggregate, represent more than 50% of the total combined voting power and value of the non-U.S. corporation are listed on such market
and certain trading volume requirements are met or deemed met as described below. For this purpose, if one or more “5% unitholders” (i.e.,
a unitholder holding, actually or constructively, at least 5% of the vote and value of a class of equity) own in the aggregate 50% or more of
the vote and value of a class of equity (the “Closely Held Block”), such class of equity will not be counted towards meeting the “primarily and
regularly traded” test (the “Closely Held Block Exception”).
We are organized under the laws of the Republic of The Marshall Islands. The U.S. Treasury Department has recognized the Republic of The
Marshall Islands as a jurisdiction that grants an Equivalent Exemption. Consequently, our U.S. Source International Transportation Income
(including, for this purpose, (i) any such income earned by our subsidiaries that have properly elected to be treated as partnerships or disregarded
as entities separate from us for U.S. federal income tax purposes and (ii) any such income earned by subsidiaries that are corporations for U.S.
federal income tax purposes, are organized in a jurisdiction that grants an Equivalent Exemption and whose outstanding stock is owned 50%
or more by value by us) will be exempt from U.S. federal income taxation provided we meet the Publicly Traded Test. In addition, since our
common units are only traded on the Nasdaq Global Market, which is considered to be an established securities market, our common units
will be deemed to be “primarily traded” on an established securities market.
We believe we meet the trading volume requirements of the Section 883 Exemption because the pertinent regulations provide that trading
volume requirements will be deemed to be met with respect to a class of equity traded on an established securities market in the United States
where, as will be the case for our common units, the units are regularly quoted by dealers who regularly and actively make offers, purchases
and sales of such units to unrelated persons in the ordinary course of business. Additionally, the pertinent regulations also provide that a
class of equity will be considered to be “regularly traded” on an established securities market if (i) such class of stock is listed on such market;
(ii) such class of stock is traded on such market, other than in minimal quantities, on at least 60 days during the taxable year or one sixth
of the days in a short taxable year and (iii) the aggregate number of shares of such class of stock traded on such market during the taxable
year is at least 10% of the average number of shares of such class of stock outstanding during such year, or as appropriately adjusted in the
case of a short taxable year. We believe that trading of our common units has satisfied these conditions in the past, and we expect that such
conditions will continue to be satisfied. Finally, we believe that our common units represent more than 50% of our voting power and value
and accordingly we believe that our units should be considered to be “regularly traded” on an established securities market.
These conclusions, however, are based upon legal authorities that do not expressly contemplate an organizational structure such as ours. In
particular, although we have elected to be treated as a corporation for U.S. federal income tax purposes, for corporate law purposes we are
organized as a limited partnership under Marshall Islands law and our general partner is responsible for managing our business and affairs
and has been granted certain veto rights over decisions of our board of directors. Accordingly, it is possible that the IRS could assert that our
units do not meet the “regularly traded” test.
We expect that our units will not lose eligibility for the Section 883 Exemption as a result of the Closely Held Block Exception, because our
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partnership agreement provides that the voting rights of any 5% unitholders (other than our general partner and its affiliates, their transfer-
ees and persons who acquired such units with the approval of our board of directors) are limited to a 4.9% voting interest in us regardless of
how many common units are held by that 5% unitholder. (The voting rights of any such unitholders in excess of 4.9% will be redistributed
pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote). If Capital
Maritime and our general partner own 50% or more of our common units, they will provide the necessary documents to establish an excep-
tion to the application of the Closely Held Block Exception. This exception is available when shareholders residing in a jurisdiction granting an
Equivalent Exemption and meeting certain other requirements own sufficient shares in the Closely Held Block to preclude shareholders who
have not met such requirements from owning 50% or more of the outstanding class of equity relied upon to satisfy the Publicly Traded Test.
Thus, although the matter is not free from doubt, we believe that we will satisfy the Publicly Traded Test. Should any of the facts described
above cease to be correct, our ability to satisfy the test will be compromised.
TAXATION OF OPERATING INCOME IN THE ABSENCE OF THE SECTION 883 EXEMPTION
If we earn U.S. Source International Transportation Income and the Section 883 Exemption does not apply, the U.S. source portion of such
income may be treated as effectively connected with the conduct of a trade or business in the United States (or “Effectively Connected Income”)
if we have a fixed place of business in the United States and substantially all of our U.S. Source International Transportation Income is attribut-
able to regularly scheduled transportation or, in the case of bareboat charter income, is attributable to a fixed place of business in the United
States. Based on our current operations, none of our potential U.S. Source International Transportation Income is attributable to regularly sched-
uled transportation or is received pursuant to bareboat charters attributable to a fixed place of business in the United States. As a result, we do
not anticipate that any of our U.S. Source International Transportation Income will be treated as Effectively Connected Income. However, there
is no assurance that we will not earn income pursuant to regularly scheduled transportation or bareboat charters attributable to a fixed place
of business in the United States in the future, which would result in such income being treated as Effectively Connected Income. In addition,
any U.S. Source Domestic Transportation Income generally will be treated as Effectively Connected Income.
Any income we earn that is treated as Effectively Connected Income would be subject to U.S. federal corporate income tax (the highest
statutory rate is currently 35%). In addition, a 30% branch profits tax imposed under Section 884 of the Code also would apply to such
income, and a branch interest tax could be imposed on certain interest paid or deemed paid by us.
TAXATION OF GAIN ON THE SALE OF A VESSEL
Provided we qualify for the Section 883 Exemption, gain from the sale of a vessel should be exempt from tax under Section 883. If, however,
we do not qualify for the Section 883 Exemption, then such gain could be treated as effectively connected income (determined under rules
different from those discussed above) and subject to the net income and branch profits tax regime described above.
THE 4% GROSS BASIS TAX
If the Section 883 Exemption does not apply and the net basis tax does not apply, we would be subject to a 4% U.S. federal income tax on
the U.S. source portion of our U.S. Source International Transportation Income, without the benefit of deductions.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
As used herein, the term U.S. Holder means a beneficial owner of our common units that is an individual U.S. citizen or resident (as deter-
mined for U.S. federal income tax purposes), a corporation or other entity organized under the laws of the United States or its political
subdivisions and classified as a corporation for U.S. federal income tax purposes, an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the
administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
DISTRIBUTIONS
Subject to the discussion of the rules applicable to PFICs below, any distributions made by us with respect to our common units to a U.S.
Holder generally will constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more detail
below, to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. Distribu-
tions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in
its common units on a dollar-for-dollar basis and thereafter as capital gain. U.S. Holders that are corporations generally will not be entitled
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to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common
units generally will be treated as “passive” income from sources outside the United States for purposes of computing allowable foreign tax
credits for U.S. federal income tax purposes.
Dividends paid on our common units to a U.S. Holder who is an individual, trust or estate (or a U.S. Individual Holder) will be treated as
qualified dividend income that is taxable to such U.S. Individual Holder at preferential rates applicable to long-term capital gain provided
that: (i) our common units are readily tradable on an established securities market in the United States (such as the Nasdaq Global Market
on which our common units are traded); (ii) we are not a PFIC (which we do not believe we are, have been or will be, as discussed below);
(iii) the U.S. Individual Holder has owned the common units for more than 60 days in the 121-day period beginning 60 days before the date
on which the common units become ex-dividend (and has not entered into certain risk limiting transactions with respect to such units)
and (iv) the U.S. Individual Holder is not under an obligation to make related payments with respect to positions in substantially similar
or related property. There is no assurance that any dividends paid on our common units will be eligible for these preferential rates in the
hands of a U.S. Individual Holder, and any dividends paid on our common units that are not eligible for these preferential rates will be
taxed as ordinary income to a U.S. Individual Holder. Special rules may apply to any “extraordinary dividend” paid by us. An extraordinary
dividend is, generally, a dividend with respect to a unit if the amount of the dividend is equal to or in excess of 10 percent of a unitholder’s
adjusted basis (or fair market value in certain circumstances) in such unit. If we pay an “extraordinary dividend” on our common units that
is treated as “qualified dividend income”, then any loss derived by a U.S. Individual Holder from the sale or exchange of such units will be
treated as long-term capital loss to the extent of the amount of such dividend.
SALE, EXCHANGE OR OTHER DISPOSITION OF COMMON UNITS
Subject to the discussion of PFICs below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition
of our common units in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other
disposition and the U.S. Holder’s tax basis in such units. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s
holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated
as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to
certain limitations. Long-term capital gain of a U.S. Individual Holder is generally subject to tax at preferential rates.
PFIC STATUS AND SIGNIFICANT TAX CONSEQUENCES
Special and adverse U.S. federal income tax rules apply to a U.S. Holder that owns an equity interest in a non-U.S. entity taxed as a corpo-
ration and classified as a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if,
for any taxable year in which such holder held our common units, either:
• 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.
Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast,
rental income would generally constitute “passive income” unless we were treated under specific rules as deriving our rental income in
the active conduct of a trade or business. Based on our current and projected methods of operation, we believe that we are not currently
a PFIC, nor do we expect to become a PFIC. Although there is no legal authority directly on point, and we are not obtaining a ruling from
the IRS on this issue, we will take the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are
deemed to derive from the time and spot chartering activities of our wholly owned subsidiaries constitutes services income, rather than
rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly owned subsidiaries
own and operate in connection with the production of such income, in particular, the vessels we or our subsidiaries own that are subject
to time charters, should not constitute passive assets for purposes of determining whether we were a PFIC.
As noted above, there is, however, no direct legal authority under the PFIC rules addressing our method of operation. Moreover, in a case not
specifically interpreting the PFIC rules, Tidewater Inc. v. United States , 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit held that the vessel
time charters at issue generated predominantly rental income rather than services income. However, the court’s ruling was contrary to
the position of the IRS that the time charter income should have been treated as services income. Additionally, the IRS later affirmed its
position in Tidewater , adding further that the time charters at issue would be treated as giving rise to services income under the PFIC rules.
No assurance, however, can be given that the IRS, or a court of law will accept our position, and there is a risk that the IRS or a court of law
could determine we are or were a PFIC. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible,
being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the
future, or that we can avoid PFIC status in the future.
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As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation
rules depending on whether the U.S. Holder makes an election to treat us as a “Qualified Electing Fund”, which election we refer to as a
“QEF election”. As an alternative to making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect
to our common units, as discussed below.
TAXATION OF U.S. HOLDERS MAKING A TIMELY QEF ELECTION
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an “Electing Holder”, the Electing Holder must report each year for
U.S. federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or
within the taxable year of the Electing Holder, regardless of whether or not distributions were received from us by the Electing Holder. The Electing
Holder’s adjusted tax basis in the common units will be increased to reflect taxed but undistributed income. Distributions of earnings and profits that
had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common units and will not be taxed again once
distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common units. A U.S.
Holder would make a QEF election with respect to any year that we are a PFIC by filing one copy of IRS Form 8621 with his U.S. federal income tax
return and a second copy in accordance with the instructions to such form. If contrary to our expectations, we determine that we are treated as a PFIC
for any taxable year, we will attempt to provide each U.S. Holder with all necessary information in order to make the QEF election described above.
TAXATION OF U.S. HOLDERS MAKING A “MARK-TO-MARKET” ELECTION
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our common units were treated as “marketable stock”, a
U.S. Holder would be allowed to make a “mark-to-market” election with respect to our common units, provided the U.S. Holder completes and files
IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder generally
would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common units at the end of the taxable
year over such holder’s adjusted tax basis in the common units. The U.S. Holder would also be permitted an ordinary loss in respect of the excess,
if any, of the U.S. Holder’s adjusted tax basis in the common units over the fair market value thereof at the end of the taxable year, but only to
the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in his common
units would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common units
would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common units would be treated as
ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.
TAXATION OF U.S. HOLDERS NOT MAKING A TIMELY QEF OR MARK-TO-MARKET ELECTION
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market”
election for that year, whom we refer to as a “Non-Electing Holder”, would be subject to special rules with respect to (1) any excess distribution
(i.e., the portion of any distributions received by the Non-Electing Holder on our common units in a taxable year in excess of 125% of the average
annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding
period for the common units), and (2) any gain realized on the sale, exchange or other disposition of our common units. Under these special rules:
• 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 year prior to the 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 taxpayer 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.
These penalties would not apply to a qualified pension, profit sharing or other retirement trust or other tax-exempt organization that did
not borrow money or otherwise utilize leverage in connection with its acquisition of our common units. If we were treated as a PFIC for
any taxable year and a Non-Electing Holder who is an individual dies while owning our common units, such holder’s successor generally
would not receive a step-up in tax basis with respect to such units.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
A beneficial owner of our common units (other than a partnership, including any entity or arrangement treated as a partnership for U.S.
federal income tax purposes) that is not a U.S. Holder is a Non-U.S. Holder.
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DISTRIBUTIONS
Distributions we pay to a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax if the Non-U.S. Holder is not
engaged in a U.S. trade or business. If the Non-U.S. Holder is engaged in a U.S. trade or business, distributions we pay may be subject to
U.S. federal income tax to the extent those distributions constitute income effectively connected with that Non-U.S. Holder’s U.S. trade or
business. However, distributions paid to a Non-U.S. Holder who is engaged in a trade or business may be exempt from taxation under an
income tax treaty if the income represented thereby is not attributable to a U.S. permanent establishment maintained by the Non-U.S. Holder.
DISPOSITION OF COMMON UNITS
The U.S. federal income taxation of Non-U.S. Holders on any gain resulting from the disposition of our common units is generally the same
as described above regarding distributions. However, individual Non-U.S. Holders may be subject to tax on gain resulting from the disposi-
tion of our common units if they are present in the United States for 183 days or more during the taxable year in which those shares are
disposed and meet certain other requirements.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, payments of distributions on our common units or the proceeds of a disposition of our common units to a U.S. Individual Holder
will be subject to information reporting requirements. These payments also may be subject to backup withholding, if the U.S. Individual Holder:
• fails to provide an accurate taxpayer identification number;
• is notified by the IRS that he has failed to report all interest or corporate distributions required to be shown on its U.S. federal income
tax returns; or
• in certain circumstances, fails to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding on payments within
the United States by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable. Backup withholding is not an additional
tax. Rather, a common unitholder generally may obtain a credit for any amount withheld against his liability for U.S. federal income tax
(and a refund of any amounts withheld in excess of such liability) by filing a return with the IRS.
F. DIVIDENDS AND PAYING AGENTS Not applicable.
G. STATEMENTS BY EXPERTS Not applicable.
H. DOCUMENTS ON DISPLAY
W e have filed with the SEC a registration statement on Form F-1, a registration statement on Form F-4 and three registration statements
on Form F-3 regarding our common units. This Annual Report does not contain all of the information found in these registration
statements. For further information regarding us and our common units, you may wish to review the full registration statements,
including their exhibits. The registration statements, including the exhibits, may be inspected and copied at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of this material can also be obtained upon written request from
the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or from the SEC’s web site on the
Internet at http://www.sec.gov free of charge. Please call the SEC at 1-800-SEC-0330 for further information on public reference room. Our reg-
istration statement can also be inspected and copied at the offices of the Nasdaq Global Market, One Liberty Plaza, New York, New York 10006.
I. SUBSIDIARY INFORMATION
Please see Exhibit 8.1 to this Annual Report for a list of our significant subsidiaries as of December 31, 2013.
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PART I Item 11. Quantitative and Qualitative Disclosures About Market Risk.
OUR RISK MANAGEMENT POLICY
Our policy is to continuously monitor our exposure to business risks, including the impact of changes in interest rates and currency rates
as well as inflation on earnings and cash flows. We intend to assess these risks and, when appropriate, take measures to minimize our
exposure to the risks.
FOREIGN EXCHANGE RISK
We do not have a material currency exposure risk. We generate all of our revenues in U.S. Dollars and incur less than 12% of our
expenses in currencies other than U.S. Dollars. For accounting purposes, expenses incurred in currencies other than the U.S. Dollar are
translated into U.S. Dollars at the exchange rate prevailing on the date of each transaction. As of December 31, 2013, less than 5% of
liabilities were denominated in currencies other than U.S. Dollars (mainly in Euros). These liabilities were translated into U.S. Dollars
at the exchange rate prevailing on December 31, 2013. We have not hedged currency exchange risks and our operating results could
be adversely affected as a result.
INTEREST RATE RISK
The international tanker industry is capital intensive, requiring significant amounts of investment, a significant portion of which is provided
in the form of long-term debt. Our current debt contains interest rates that fluctuate with LIBOR. Our 2007 credit facility and 2008 credit
facility each bear an interest margin of 2% and 3% per annum over US$ LIBOR, respectively. Our 2011 credit facility bears an interest
margin of 3.25% per annum over US$ LIBOR. Our 2013 credit facility bears an interest margin of 3.50% per annum over US$ LIBOR.
Therefore, we are exposed to the risk that our interest expense may increase if interest rates rise.
Currently we have no interest rate swap agreements outstanding. During 2013 three interest rate swap agreements expired. As a result
of a possible market disruption in determining the cost of funds for our banks, any increases by the banks to their “funding costs” under
our agreements will lead to proportional increases in the relevant interest amounts interest payable under our agreement on a quarterly
basis. As an indication of the extent of our sensitivity to interest rate changes based upon our debt level, an increase of 100 basis points
in LIBOR would have resulted in an increase in our interest expense by approximately $5.3 million for the year ended December 31, 2013,
assuming all other variables had remained constant. Please refer to “Item 5B: Liquidity and Capital Resources—Borrowings—Our Credit
Facilities” for more information on the specific rates we have entered into under each swap agreement.
Please read Note 2 (Significant Accounting Policies), Note 7 (Long-Term Debt) and Note 8 (Financial Instruments) to our Financial
Statements included herein, which provide additional information with respect to our derivative financial instruments and existing
debt agreements.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject us to significant concentrations of credit risk consist principally of cash and cash equiva-
lents, interest rate swap agreements, and trade accounts receivable. We place our cash and cash equivalents, consisting mostly of deposits,
and enter into interest rate swap agreements with creditworthy financial institutions as rated by qualified rating agencies. For the years
ended December 31, 2013, 2012, and 2011, 49%, 68% and 56% of our revenues, respectively, were derived from two charterers. We do
not obtain rights to collateral to reduce our credit risk. Please refer to “Item 5B: Liquidity and Capital Resources—Borrowings—Our Credit
Facilities” for more information on our interest rate swap agreements.
INFLATION
Inflation has had a minimal impact on vessel operating expenses, drydocking expenses and general and administrative expenses to date. Our
management does not consider inflation to be a significant risk to direct expenses in the current and foreseeable economic environment.
However, in the event that inflation becomes a significant factor in the global economy, inflationary pressures would result in increased
operating, voyage and financing costs.
PART I Item 12. Description of Securities Other than Equity Securities. Not Applicable.
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PART II
PART II Item 13. Defaults, Dividend, Arrearages and Delinquencies (None)
PART II Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds (No material modifications to the
rights of security holders)
PART II Item 15. Controls and Procedures.
A. DISCLOSURE CONTROLS AND PROCEDURES
A s of December 31, 2013, our management (with the participation of the chief executive officer and chief financial officer of our
general partner) conducted an evaluation pursuant to Rule 13a-15(b) and 15d-15 promulgated under the U.S. Securities Exchange
Act of 1934, as amended (the “Exchange Act”), of the effectiveness of the design and operation of our disclosure controls and pro-
cedures. Our management, including the chief executive and chief financial officer of our general partner, recognize that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the partnership have been detected. Further, in the design
and evaluation of our disclosure controls and procedures our management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
However, based on this evaluation, the chief executive officer and chief financial officer of our general partner concluded that as of Decem-
ber 31, 2013, our disclosure controls and procedures, which include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated
to the management, including the chief executive officer and chief financial officer of our general partner, as appropriate to allow timely
decisions regarding required disclosure, were effective to provide reasonable assurance that information required to be disclosed by us in
reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
108
B. MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
O ur management (with the management of our general partner) is responsible for establishing and maintaining adequate internal
controls over financial reporting. Our internal controls were designed to provide reasonable assurance as to the reliability of our
financial reporting and the preparation and presentation of our Financial Statements for external purposes in accordance with
accounting principles generally accepted in the United States.
Our internal controls over financial reporting includes those policies and procedures that 1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; 2) provide reasonable assurance that trans-
actions are recorded as necessary to permit preparation of our Financial Statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made in accordance with authorizations of management and the directors of
our general partnership and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the our assets that could have a material effect on the financial statements.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the 1992 frame-
work in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating
effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management believes that our internal control over
financial reporting was effective as of December 31, 2013.
However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements even when
determined to be effective and can only provide reasonable assurance with respect to financial statement preparation and presentation. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Deloitte Hadjipavlou, Sofianos & Cambanis S.A. (“Deloitte”), our independent registered public accounting firm, has audited the Financial
Statements included herein and our internal control over financial reporting and has issued an attestation report on the effectiveness of
our internal control over financial reporting which is reproduced in its entirety in Item 15(c) below.
C. ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM.
To the Board of Directors and Unitholders of Capital Product Partners L.P., Majuro, Republic of the Marshall Islands.
W e have audited the internal control over financial reporting of Capital Product Partners L.P. (the “Partnership”) as of December 31,
2013, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Partnership’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying “Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on
the Partnership’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those stand-
ards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial report-
ing, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive
and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of
109
any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31,
2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organi-
zations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements as of and for the year ended December 31, 2013 of the Partnership and our report dated February 18, 2014 expressed
an unqualified opinion on those financial statements.
/s/ Deloitte Hadjipavlou, Sofianos, & Cambanis S.A.
Athens, Greece, February 18, 2014
D. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting during the year covered by this Annual Report that have
materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II Item 16A. Audit Committee Financial Expert.
O ur board of directors has determined that director Abel Rasterhoff, the chairman of our audit committee, qualifies as an audit com-
mittee financial expert for purposes of the U.S. Sarbanes-Oxley Act of 2002 and is independent under applicable Nasdaq Global
Market and SEC standards.
PART II Item 16B. Code of Ethics.
I n May 2013, our board of directors adopted an amended Code of Business Conduct and Ethics that includes a Code of Ethics (the “Code”)
that applies to the Partnership and all of its employees, directors and officers, including its chief executive officer, chief financial officer,
chief accounting officer or controller, its agents and persons performing similar functions, including for the avoidance of doubt any
employees, officers or directors of Capital Ship Management, wherever located, as well as to all of the Partnership’s subsidiaries and other
business entities controlled by it worldwide. This amendment incorporates updated terms and conditions consistent with the FCPA and
U.K. Bribery Act, and includes a new Gifts and Entertainment policy.
This document is available under “Corporate Governance” in the Investor Relations area of our web site (www.capitalpplp.com). We will
also provide a hard copy of our Code free of charge upon written request. We intend to disclose, under “Corporate Governance” in the Inves-
tor Relations area of our web site, any waivers to or amendments of the Code for the benefit of any of our directors and executive officers
within five business days of such waiver or amendment.
PART II Item 16C. Principal Accountant Fees and Services.
Our principal accountant for 2013 and 2012 was Deloitte. The following table shows the fees we paid or accrued for audit services provided
by Deloitte for these periods (in thousands of U.S. Dollars).
FEES
Audit Fees (1)
Audit-Related Fees
Tax Fees (2)
TOTAL
2013 (in US $)
2012 (in US $)
477.3
–
25.0
502.3
478.6
–
30.1
508.7
(1) Audit fees represent fees for professional services provided in
connection with the audit of our Financial Statements included
herein, review of our quarterly consolidated financial statements,
audit services provided in connection with other regulatory fil-
ings, issuance of consents and assistance with and review of
documents filed with the SEC.
(2) Tax fees represent fees for professional services provided in con-
nection with various U.S. income tax compliance and information
reporting matters.
110
The audit committee of our board of directors has the authority to pre-approve permissible audit-related and non-audit services not prohib-
ited by law to be performed by our independent auditors and associated fees. Engagements for proposed services either may be separately
pre-approved by the audit committee or entered into pursuant to detailed pre-approval policies and procedures established by the audit
committee, as long as the audit committee is informed on a timely basis of any engagement entered into on that basis. The audit com-
mittee separately pre-approved all engagements and fees paid to our principal accountant in 2013 and 2012.
PART II Item 16D. Exemptions from the Listing Standards for Audit Committees (None)
PART II Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
I n May 2012 we announced an agreement to issue $140.0 million of Class B Units and in March 2013 we announced an agreement
to issue 9.1 million Class B Units to groups of investors including amongst others, Capital Maritime. As of March 26, 2013, there were
24,655,554 Class B Units issued and outstanding, of which 4,048,484 were owned by Capital Maritime. In July, August, October and
December 2013, certain holders of our Class B Units, not including Capital Maritime, converted 5,733,333 Class B Units into common
units in accordance with the terms of the partnership agreement. As a result, there were 18,922,221 Class B Units issued and outstand-
ing, of which 4,048,484 remained owned by Capital Maritime as of the date of this Annual Report. On August 9, 2013, we issued 279,286
common units to Capital GP L.L.C., our general partner, at a price of $9.25 per common unit—the public offering price (not subject to
any underwriting discount), such public offering closing that same day. On August 19, 2013, we issued 349,700 general partner units to
Capital GP L.L.C, our general partner, in exchange for a capital contribution of 349,700 common units, in order for it to maintain its 2%
interest in us. Following these transactions, Capital Maritime owned 17,692,891 common units and 4,048,484 Class B Units, representing
a 21.5% limited partner interest in us. As of December 31, 2013, the Marinakis family, including Evangelos M. Marinakis, our chairman,
may be deemed to beneficially own a 27.3% interest in us through its beneficial ownership, amongst others, of Capital Maritime and of
Crude Carriers Investments.
PART II Item 16F. Change in Registrant’s Certifying Accountant (Not applicable)
PART II Item 16G. Corporate Governance.
T he Nasdaq Global Market requires limited partnerships with listed units to comply with its corporate governance standards. As a
foreign private issuer, we are not required to comply with all of the rules that apply to listed U.S. limited partnerships. However,
we have generally chosen to comply with most of the Nasdaq Global Market’s corporate governance rules as though we were a U.S.
limited partnership. Although we are not required to have a majority of independent directors on our board of directors or to establish a
compensation committee or a nominating/corporate governance committee our board of directors has established an audit committee
and a conflicts committee comprised solely of independent directors. Accordingly, we do not believe there are any significant differences
between our corporate governance practices and those that would typically apply to a U.S. domestic issuer that is a limited partnership
under the corporate governance standards of the Nasdaq Global Market. Please see “Item 6C: Board Practices” and “Item 10B: Memorandum
and Articles of Association” for more detail regarding our corporate governance practices.
111
PART III
PART III Item 17. Financial Statements (Not Applicable)
PART III Item 18. Financial Statements
INDEX TO FINANCIAL STATEMENTS CAPITAL PRODUCT PARTNERS L.P.
F-1 Report of Independent Registered Public Accounting Firm
F-2 Consolidated Balance Sheets as of December 31, 2013 and 2012
F-3 Consolidated Statements of Comprehensive (Loss)/ Income for the years ended December 31, 2013, 2012 and 2011
F-4 Consolidated Statement of Changes in Partners’ Capital for the years ended December 31, 2013, 2012 and 2011
F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
F-8 Notes to the Consolidated Financial Statements
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PART III Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
EXHIBIT DESCRIPTION
1.1
1.2
Certificate of Limited Partnership of Capital Product Partners L.P. (1)
First Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P. (2)
1.3 Amendment to Capital Product Partners Amended and Restated Agreement of Limited Partnership (7)
1.4 Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P. dated February 22, 2010 (8)
1.5 Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P. dated
September 30, 2011 (9)
1.6 Second Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P.
dated September 30, 2011 (15)
1.7 Third Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P.
dated September 30, 2011 (17)
1.8 Certificate of Formation of Capital GP L.L.C. (1)
1.9 Limited Liability Company Agreement of Capital GP L.L.C. (1)
1.10 Certificate of Formation of Capital Product Operating GP L.L.C. (1)
4.1 Revolving $370.0 Million Credit Facility dated March 22, 2007 (1)
4.2 First Supplemental Agreement to Revolving $370.0 million Credit Facility dated September 19, 2007 (3)
4.3 Second Supplemental Agreement to Revolving $370.0 Million Credit Facility dated June 11, 2008 (4)
4.4 Third Supplemental Agreement to Revolving $370.0 Million Credit Facility dated April 7, 2009 (7)
4.5 Fourth Supplemental Agreement to Revolving $370.0 Million Credit Facility dated April 8, 2009 (7)
4.6 Fifth Supplemental Agreement to Revolving $370.0 Million Credit Facility dated October 2, 2009 (7)
4.7 Sixth Supplemental Agreement to Revolving $370.0 Million Credit Facility dated June 30, 2010 (10)
4.8 Seventh Supplemental Agreement to Revolving $370.0 Million Credit Facility dated November 30, 2010 (10)
4.9 Eighth Supplemental Agreement to Revolving $370.0 Million Credit Facility dated December 23, 2011 (14)
4.10 Ninth Supplemental Agreement to Revolving $370.0 Million Credit Facility dated May 21, 2012 (15)
4.11 Revolving $350.0 Million Credit Facility dated March 19, 2008 (3)
4.12 First Supplemental Agreement to Revolving $350.0 million Credit Facility dated October 2, 2009 (7)
4.13 Second Supplemental Agreement to Revolving $350.0 million Credit Facility dated June 30, 2010 (10)
4.14 Third Supplemental Agreement to Revolving $350.0 million Credit Facility dated May 21, 2012 (15)
4.15 Fourth Supplemental Agreement to Revolving $350.0 million Credit Facility dated December 21, 2012 (18)
4.16 Loan Agreement with Emporiki Bank Of Greece S.A. dated June 9, 2011 (14)
4.17 Supplemental Letter to Loan Agreement with Emporiki Bank of Greece S.A. dated May 21, 2012 (15)
4.18 Amended and Restated Loan Agreement with ING Bank N.V., HSH Nordbank AG, National Bank of Greece S.A.
and Skandinaviska Enskilda Banken AB (publ) dated December 27, 2013
4.19 Omnibus Agreement (1)
4.20 Amended and Restated Omnibus Agreement dated September 30, 2011(9)
113
EXHIBIT DESCRIPTION
4.21 Management Agreement with Capital Ship Management (1)
4.22 Amendment 1 to Management Agreement with Capital Ship Management dated September 24, 2007 (3)
4.23 Amendment 2 to Management Agreement with Capital Ship Management dated March 27, 2008 (3)
4.24 Amendment 3 to Management Agreement with Capital Ship Management dated April 30, 2008 (4)
4.25 Amendment 4 to Management Agreement with Capital Ship Management dated April 7, 2009 (7)
4.26 Amendment 5 to Management Agreement with Capital Ship Management dated April 13, 2009 (7)
4.27 Amendment 6 to Management Agreement with Capital Ship Management dated April 30, 2009 (7)
4.28 Amendment 7 to Management Agreement with Capital Ship Management dated March 1, 2010 (10)
4.29 Amendment 8 to Management Agreement with Capital Ship Management dated June 30, 2010 (10)
4.30 Amendment 9 to Management Agreement with Capital Ship Management dated August 13, 2010 (10)
4.31 Amended and Restated Management Agreement with Capital Ship Management dated January 1, 2012 (14)
4.32 Amended and Restated Management Agreement with Capital Ship Management dated May 9, 2013
4.33 Amended and Restated Management Agreement with Capital Ship Management dated November 30, 2013
4.34
Floating Rate Management Agreement with Capital Ship Management Corp. dated June 9, 2011(14)
4.35 Amendment 1 to Floating Rate Management Agreement with Capital Ship Management Corp. dated August 4, 2011 (14)
4.36 Amendment 2 to Floating Rate Management Agreement with Capital Ship Management Corp. dated December 5, 2011 (14)
4.37 Amendment 3 to Floating Rate Management Agreement with Capital Ship Management Corp. dated April 18, 2012 (18)
4.38 Amendment 4 to Floating Rate Management Agreement with Capital Ship Management Corp. dated June 13, 2012 (18)
4.39 Amendment 5 to Floating Rate Management Agreement with Capital Ship Management Corp. dated August 26, 2012 (18)
4.40 Amendment 6 to Floating Rate Management Agreement with Capital Ship Management Corp. dated September 15, 2012 (18)
4.41 Amendment 7 to Floating Rate Management Agreement with Capital Ship Management Corp. dated December 22, 2012 (18)
4.42 Amendment 8 to Floating Rate Management Agreement with Capital Ship Management Corp. dated December 24, 2012 (18)
4.43 Amendment 9 to Floating Rate Management Agreement with Capital Ship Management Corp. dated January 22, 2013
4.44 Amendment 10 to Floating Rate Management Agreement with Capital Ship Management Corp. dated March 20, 2013
4.45 Amendment 11 to Floating Rate Management Agreement with Capital Ship Management Corp. dated September 11, 2013
4.46 Amendment 12 to Floating Rate Management Agreement with Capital Ship Management Corp. dated November 28, 2013
4.47 Administrative Services Agreement with Capital Ship Management (1)
4.48 Amendment 1 to Administrative Services Agreement with Capital Ship Management Corp. dated April 2, 2012 (18)
4.49
Contribution and Conveyance Agreement for Initial Fleet (1)
4.50
Share Purchase Agreement for 2007 and 2008 Vessels (1)
4.51
Share Purchase Agreement for M/T Attikos dated September 24, 2007 (3)
4.52
Share Purchase Agreement for M/T Amore Mio II dated March 27, 2008 (3)
4.53
Share Purchase Agreement for M/T Aristofanis dated April 30, 2008 (4)
114
EXHIBIT DESCRIPTION
4.54
Share Purchase Agreement for M/T Agamemnon II dated April 3, 2009 (7)
4.55
Share Purchase Agreement for M/T Ayrton II dated April 12, 2009 (7)
4.56
Share Purchase Agreement for M/T Atrotos (El Pipila) dated February 22, 2010 (10)
4.57
Share Purchase Agreement for M/T Alkiviadis dated June 30, 2010 (10)
4.58
Share Purchase Agreement for M/T Assos (Insurgentes) dated August 13, 2010 (10)
4.59
Share Purchase Agreement for M/V Cape Agamemnon dated June 9, 2011 (14)
4.60
Share Purchase Agreement for M/T Archimidis dated December 22, 2012 (18)
4.61
Share Purchase Agreement for M/T Agamemnon dated December 22, 2012 (18)
4.62
Share Purchase Agreement for M/V Hyundai Premium dated March 20, 2013 (17)
4.63
Share Purchase Agreement for M/V Hyundai Paramount dated March 27, 2013
4.64
Share Purchase Agreement for M/V CCNI Angol (ex Hyundai Prestige) dated August 9, 2013
4.65
Share Purchase Agreement for M/V Hyundai Platinum dated August 9, 2013
4.66
Share Purchase Agreement for M/V Hyundai Privilege dated August 9, 2013
4.67
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan dated April 29, 2008 (5)
4.68
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan amended July 22, 2010 (10)
4.69
Crude Carriers Corp. Equity Incentive Plan dated March 1, 2010 (11)
4.70
Form of Management Agreement between Crude Carriers Corp. and Capital Ship Management Corp. (11)
4.71 Amendment No. 1 to Crude Carriers Management Agreement dated August 5, 2010 (12)
4.72 Amendment No. 2 to Crude Carriers Management Agreement dated August 6, 2010 (12)
4.73
Form of Share Purchase Agreement between Crude Carriers Corp. and Capital Maritime & Trading Corp. for Cooper Con-
sultants Co. (11)
4.74
Form of Share Purchase Agreement between Crude Carriers Corp. and Capital Maritime & Trading Corp. for Alexander the
Great Carriers Corp. (11)
4.75
Form of Share Purchase Agreement between Crude Carriers Corp. and Capital Maritime & Trading Corp. for Achilleas Car-
riers Corp. (11)
4.76 Memorandum of Agreement for acquisition of M/T Amoureux dated April 19, 2010 (12)
4.77 Memorandum of Agreement for acquisition of M/T Aias dated April 19, 2010 (12)
4.78 Memorandum of Agreement for acquisition of M/T Aristotelis (ex M/T Aristarchos) dated October 16, 2013
4.79 Memorandum of Agreement for disposition of M/T Agamemnon II dated October 17, 2013
4.80
Form Restricted Unit Award of Capital Product Partners L.P. (10)
4.81 Agreement between Capital Product Partners and Capital GP L.L.C. dated January 30, 2009 (6)
4.82 Agreement and Plan of Merger by and among Capital Product Partners L.P., Capital GP L.L.C., Poseidon Project Corp. and
Crude Carriers Corp., dated as of May 5, 2011. (13)
4.83
Subscription Agreement dated May 11, 2012 (15)
115
EXHIBIT DESCRIPTION
4.84 Registration Rights Agreement dated May 22, 2012 (15)
4.85
Subscription Agreement dated June 6, 2012 (16)
4.86 Registration Rights Agreement dated June 6, 2012 (16)
4.87
Subscription Agreement dated March 15, 2013 (17)
4.88 Registration Rights Agreement dated March 19, 2013 (17)
4.89 Assignment of Claim Agreement dated June 24, 2013
4.90 Assignment of Claim Agreement dated June 24, 2013
4.91 Assignment of Claim Agreement dated June 24, 2013
4.92
Settlement Notice and Refund Modification dated December 18, 2013
8.1
List of Subsidiaries of Capital Product Partners L.P.
12.1 Rule 13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief Executive Officer
12.2 Rule 13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief Financial Officer
13.1
13.2
Capital Product Partners L.P. Certification of Ioannis E. Lazaridis, Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002*
Capital Product Partners L.P. Certification of Ioannis E. Lazaridis, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002*
15.1
Consent of Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
15.2
Consent of Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(01) Previously filed as an exhibit to Capital Product Partners L.P.’s
Registration Statement on Form F-1 (File No. 333-141422), filed
with the SEC on March 19, 2007 and hereby incorporated by
reference to such Registration Statement.
(04) Previously filed as an exhibit to the registrant’s Registration
Statement on Form F-3 filed with the SEC on August 29, 2008.
(05) Filed as a Current Report on Form 6-K with the SEC on April 30, 2008.
(02) Previously filed as Appendix A to the Partnership’s Rule 424(b)
(4) Prospectus filed with the SEC on March 30, 2007, and hereby
incorporated by reference to this Annual Report.
(06) Previously filed as an exhibit to the registrant’s Annual Report
on Form 20-F for the year ended December 31, 2008 and filed
with the SEC on March 27, 2009.
(03) Previously filed as an exhibit to the registrant’s Annual Report
on Form 20-F for the year ended December 31, 2007 and filed
with the SEC on April 4, 2008.
(07) Previously filed as an exhibit to the registrant’s Annual Report
on Form 20-F for the year ended December 31, 2009 and filed
with the SEC on February 4, 2010.
116
(08) Previously filed as a Current Report on Form 6-K with the SEC
(13) Filed as a Current Report on Form 6-K with the SEC on May 9, 2011.
on February 24, 2010.
(09) Previously filed as a Current Report on Form 6-K with the SEC
on September 30, 2011.
(14) Previously filed as an exhibit to the registrant’s Annual Report
on Form 20-F for the year ended December 31, 2011 and filed
with the SEC on February 13, 2012.
(10) Previously filed as an exhibit to the registrant’s Annual Report
on Form 20-F for the year ended December 31, 2010 and filed
with the SEC on February 4, 2011.
(11) Previously filed as an exhibit to Crude Carriers Corp.’s Registra-
tion Statement on Form F-1 (File No. 333-165138), filed with
the SEC on March 1, 2010, and incorporated by reference to
such Registration Statement.
(15) Previously furnished as a Current Report on Form 6-K with the
SEC on May 23, 2012.
(16) Previously furnished as a Current Report on Form 6-K with the
SEC on June 6, 2012.
(17) Previously furnished as a Current Report on Form 6-K with the
SEC on March 21, 2013.
(12) Previously filed as an exhibit to Crude Carriers Corp.’s Annual
Report on Form 20-F for the year ended December 31, 2010
and filed with the SEC on April 18, 2011.
(18) Previously filed as an exhibit to the registrant’s Annual Report
on Form 20-F for the year ended December 31, 2012 and filed
with the SEC on February 5, 2013.
* Furnished only and not filed
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITAL PRODUCT PARTNERS L.P.
By: Capital GP L.L.C., its general partner
By: /s/ Ioannis E. Lazaridis
Name: Ioannis E. Lazaridis
Title: Chief Executive Officer and Chief Financial Officer of Capital GP L.L.C.
Dated: February 18, 2014
117
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Unitholders of Capital Product Partners L.P., Majuro, Republic of the Marshall Islands.
W e have audited the accompanying consolidated balance sheets of Capital Product Partners L.P. (the “Partnership”) as of December 31,
2013 and 2012, and the related consolidated statements of comprehensive income/ (loss), changes in partners’ capital, and cash
flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the
Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Capital Product Part-
ners L.P. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Partner-
ship’s internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control—Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18,
2014 expressed an unqualified opinion on the Partnership’s internal control over financial reporting.
/s/ Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
Athens, Greece, February 18, 2014
F-1
CApitAl proDuCt pArtnerS l.p.
CONSOLIDATED BALANCE SHEETS (In thousands of United States Dollars, except number of units)
ASSETS
Current assets
Cash and cash equivalents
trade accounts receivable, net
Due from related parties (note 4)
Above market acquired charters (note 6)
prepayments and other assets
inventories
TOTAL CURRENT ASSETS
Fixed assets
Vessels, net (note 5)
TOTAL FIXED ASSETS
other non-current assets
trade accounts receivable, net
Above market acquired charters (note 6)
Deferred charges, net
restricted cash (notes 2, 7)
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Current portion of long-term debt (note 7)
trade accounts payable
Due to related parties (note 4)
Derivative instruments (note 8)
Accrued liabilities (note 9)
Deferred revenue (note 4)
TOTAL CURRENT LIABILITIES
long-term liabilities
long term debt (note 7)
Deferred revenue
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
Commitments and contingencies (note 17)
partners’ capital
General partner
limited partners - Common (88,440,710 and 69,372,077 units issued
and outstanding at December 31, 2013 and 2012, respectively)
limited partners - preferred (18,922,221 and 15,555,554 Class B units issued
and outstanding at December 31, 2013 and 2012, respectively)
Accumulated other comprehensive loss (notes 2, 8)
TOTAL PARTNERS’ CAPITAL
TOTAL LIABILITIES AND PARTNERS’ CAPITAL
The accompanying notes are an integral part of these consolidated financial statements.
F-2
DECEMBER 31, 2013
DECEMBER 31, 2012
IN THOUSANDS OF US $
63,972
4,365
667
612
1,376
2,740
73,732
1,176,819
1,176,819
-
130,770
5,451
15,000
1,328,040
1,401,772
5,400
7,519
13,686
-
5,387
6,936
38,928
577,915
3,503
581,418
620,346
-
9,250
559,155
213,021
-
781,426
1,401,772
43,551
2,346
-
-
1,259
2,333
49,489
959,550
959,550
848
47,720
2,021
10,500
1,020,639
1,070,128
-
4,776
17,447
467
2,781
10,302
35,773
458,365
2,162
460,527
496,300
-
9,049
425,497
139,744
(462)
573,828
1,070,128
CApitAl proDuCt pArtnerS l.p.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)
(In thousands of United States Dollars, except number of units and net income / (loss) per unit)
FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS OF US $)
revenues
revenues – related party (note 4)
TOTAL REVENUES
expenses
Voyage expenses (note 10)
Voyage expenses – related party (notes 4, 10)
Vessel operating expenses (note 10)
Vessel operating expenses – related party (notes, 4, 10)
General and administrative expenses (note 4)
loss / (gain) on sale of vessels to third parties (note 5)
Depreciation & amortization (note 5)
Vessels’ impairment charge (note 5)
Operating income
non operating income
Gain on sale of claim (note 16)
Gain from bargain purchase (note 3)
Total non operating income
other income (expense)
interest expense and finance cost
Gain on interest rate swap agreement (note 8)
interest and other income
TOTAL OTHER EXPENSE, NET
Partnership’s Net income/ (loss)
preferred unit holders’ interest in partnership’s net income
General partner’s interest in partnership’s net income / (loss)
Common unit holders’ interest in partnership’s net income/ (loss)
net income / (loss) per (note 15)
Common unit basic
Weighted-average units outstanding
Common unit basic
net income per (note 15)
Common unit diluted
Weighted-average units outstanding
Common units diluted
Comprehensive income / (loss)
partnership’s net income / (loss)
other Comprehensive income
unrealized gain on derivative instruments (note 8)
Comprehensive income/ (loss)
2013
116,520
54,974
171,494
5,776
314
38,284
17,039
9,477
7,073
52,208
-
41,323
31,356
42,256
73,612
(15,991)
4
533
(15,454)
99,481
18,805
1,598
79,078
2012
84,012
69,938
153,950
5,114
554
22,126
23,634
9,159
(1,296)
48,235
43,178
3,246
-
-
-
(26,658)
1,448
775
(24,435)
(21,189)
10,809
(640)
(31,358)
2011
98,517
31,799
130,316
11,565
165
4,949
30,516
10,609
-
37,214
-
35,298
-
82,453
82,453
(33,820)
2,310
879
(30,631)
87,120
-
1,742
85,378
1.04
(0.46)
1.78
75,645,207
68,256,072
47,138,336
1.01
(0.46)
1.78
97,369,136
68,256,072
47,138,336
99,481
462
99,943
(21,189)
10,762
(10,427)
87,120
17,518
104,638
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CApitAl proDuCt pArtnerS l.p.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(In thousands of United States Dollars)
BALANCE AT JANUARY 1, 2011
Dividends declared and paid to unitholders (note 13)
issuance of partnership’s units for business acquisition –
of Crude (note 3)
issuance of partnership units for business acquisition –
of patroklos Marine Corp. (note 3)
partnership’s net income
Fair value of Crude’s equity incentive plan attributable
to precombination services (note 3)
equity compensation expense (note 14)
other comprehensive income (note 8)
BALANCE AT DECEMBER 31, 2011
GENERAL
PARTNER
LIMITED
PARTNERS
COMMON
TOTAL
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
IN THOUSANDS OF US $
5,584
(902)
3,111
1,470
1,742
-
-
-
262,918
(44,214)
268,502
(45,116)
152,448
155,559
57,055
85,378
1,505
2,455
-
58,525
87,120
1,505
2,455
-
11,005
517,545
528,550
(28,742)
-
-
-
-
-
-
17,518
(11,224)
TOTALS
239,760
(45,116)
155,559
58,525
87,120
1,505
2,455
17,518
517,326
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CApitAl proDuCt pArtnerS l.p.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL - CONTINUED
(In thousands of United States Dollars)
GENERAL
PARTNER
LIMITED
PARTNERS
COMMON
LIMITED
PARTNERS
PREFERRED
TOTAL
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL
IN THOUSANDS OF US $
BALANCE AT DECEMBER 31, 2011
11,005
517,545
-
528,550
(11,224)
517,326
Distributions declared and paid (distributions per
common and preferred unit) (note 13)
(1,316)
(64,516)
(7,484)
(73,316)
partnership’s net loss
(640)
(31,358)
issuance of preferred units (note 13)
equity compensation expense (note 14)
other comprehensive income (note 8)
-
-
-
-
3,826
-
10,809
136,419
-
-
(21,189)
136,419
3,826
-
BALANCE AT DECEMBER 31, 2012
9,049
425,497
139,744
574,290
-
-
-
-
10,762
(462)
(73,316)
(21,189)
136,419
3,826
10,762
573,828
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CApitAl proDuCt pArtnerS l.p.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL - CONTINUED
(In thousands of United States Dollars)
GENERAL
PARTNER
LIMITED
PARTNERS
COMMON
LIMITED
PARTNERS
PREFERRED
TOTAL
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
IN THOUSANDS OF US $
BALANCE AT DECEMBER 31, 2012
9,049
425,497
139,744
574,290
(462)
Distributions declared and paid (distributions per
common and preferred unit) (note 13)
partnership’s net income
issuance of partnership’s units (note 13)
equity compensation expense (note 14)
other comprehensive income (note 8)
(1,397)
(68,759)
(18,085)
(88,241)
1,598
-
-
-
79,078
119,811
3,528
-
18,805
72,557
-
-
99,481
192,368
3,528
-
BALANCE AT DECEMBER 31, 2013
9,250
559,155
213,021
781,426
-
-
-
-
462
-
The accompanying notes are an integral part of these consolidated financial statements.
TOTAL
573,828
(88,241)
99,481
192,368
3,528
462
781,426
F-6
CApitAl proDuCt pArtnerS l.p.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of United States Dollars)
FOR THE YEARS ENDED DECEMBER 31
Cash flows from operating activities
net income / (loss)
Adjustments to reconcile net income / (loss) to net cash provided by operating activities
Vessel depreciation and amortization (note 5)
Vessels’ impairment (notes 3, 5)
Gain from bargain purchase (note 3)
Amortization of deferred charges
Amortization of above market acquired charters (note 6)
equity compensation expense (note 14)
Gain on interest rate swap agreements (note 8)
loss / (gain) on sale of vessels to third parties (note 5)
Accrual on gain on sale of claim (note 16)
Changes in operating assets and liabilities
trade accounts receivable
Due from related parties
prepayments and other assets
inventories
trade accounts payable
Due to related parties
Accrued liabilities
Deferred revenue
Drydocking costs
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash flows from investing activities
Vessel acquisitions and improvements (notes 3, 5)
increase in restricted cash
proceeds from sale of vessels (notes 3, 5)
Cash and cash equivalents acquired in business acquisition
NET CASH (USED IN) / PROVIDED BY INVESTING ACTIVITIES
Cash flows from financing activities
proceeds from issuance of partnership units (notes 3, 13)
expenses paid for issuance of partnership units
proceeds from issuance of long-term debt (note 7)
payments of long-term debt (note 7)
loan issuance costs
Dividends paid
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Cash Flow information
Cash paid for interest
non-Cash investing and Financing Activities
Capital expenditures included in liabilities
offering expenses included in liabilities
Capitalized dry docking and deferred costs included in liabilities
Fair value of vessels purchased, M/V Archimidis and M/V Agamemnon (notes 3, 5)
Fair value of vessels sold, M/t Alexander the Great and M/t Achilleas, reduced by the net cash
consideration received (notes 3, 5)
Acquisition of above market time charter (notes 3, 6)
units issued to acquire M/V Cape Agamemnon (note 3)
Crude’s net assets at the completion of the business acquisition (note 12)
units issued to acquire Crude (note 3)
Fair value of Crude’s equity incentive plan attributable to pre combination services (note 3)
The accompanying notes are an integral part of these consolidated financial statements.
2013
99,481
52,208
-
(42,256)
405
13,594
3,528
(4)
7,073
644
(1,171)
(667)
(117)
(407)
2,066
(3,761)
1,573
(1,852)
(761)
129,576
(363,038)
(4,500)
32,192
-
(335,346)
195,771
(3,410)
129,000
(4,050)
(2,879)
(88,241)
226,191
20,421
43,551
63,972
2012
(21,189)
48,235
43,178
-
480
7,904
3,826
(1,448)
(1,296)
-
221
-
237
1,677
(5,594)
7,009
480
1,078
-
84,798
(1,614)
(3,750)
21,299
-
15,935
140,000
(1,673)
-
(175,215)
(348)
(73,316)
(110,552)
(9,819)
53,370
43,551
2011
87,120
37,214
-
(82,453)
809
5,489
2,455
(2,310)
-
-
7,211
2
(589)
5,576
(4,600)
(4,507)
(247)
5,369
-
56,539
(27,003)
(1,500)
-
11,847
(16,656)
1,470
-
159,580
(134,580)
(338)
(45,116)
(18,984)
20,899
32,471
53,370
14,845
25,864
32,210
103
(7)
628
-
-
134
1,908
-
133,000
(137,500)
97,256
4,500
-
-
-
-
-
-
-
-
252
-
-
-
-
48,551
57,055
211,144
155,559
1,505
F-7
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
1. BASIS OF PRESENTATION AND GENERAL INFORMATION
Capital Product Partners L.P. (the “Partnership”) was formed on January 16, 2007, under the laws of the Marshall Islands. The Partnership
is an international shipping company. Its fleet of thirty modern high specification vessels consists of four suezmax crude oil tankers, eight-
een modern medium range tankers all of which are classed as IMO II/III vessels, seven post-panamax container carrier vessels and one
capesize bulk carrier. Its vessels are capable of carrying a wide range of cargoes, including crude oil, refined oil products, such as gasoline,
diesel, fuel oil and jet fuel, edible oils and certain chemicals such as ethanol as well as dry cargo and containerized goods under short-term
voyage charters and medium to long-term time and bareboat charters.
The consolidated financial statements include the following vessel-owning companies and operating companies which were all incorporated
or formed under the laws of the Marshall Islands and Liberia.
SUBSIDIARY
DATE OF
INCORPORATION
Capital product operating Gp llC
01/16/2007
Crude Carriers Corp.(6)
10/29/2009
Crude Carriers operating Corp. (6)
01/21/2010
NAME
OF VESSEL
OWNED BY
SUBSIDIARY
-
-
-
DWT
-
-
-
DATE
ACQUIRED
BY THE
PARTNERSHIP
DATE
ACQUIRED BY
CMTC
-
09/30/2011
09/30/2011
-
-
-
Shipping rider Co.
09/16/2003
M/T Atlantas (M/T British Ensign) (1)
36,760
04/04/2007
04/26/2006
Canvey Shipmanagement Co.
03/18/2004
M/T Assos (M/T Insurgentes) (1),(4)
47,872
Centurion navigation limited
08/27/2003
M/T Aktoras (M/T Bridish Envoy) (1)
polarwind Maritime S.A.
Carnation Shipping Company
Apollonas Shipping Company
10/10/2003
11/10/2003
02/10/2004
M/T Agisilaos (1)
M/T Arionas (1)
M/T Avax (1)
tempest Maritime inc.
09/12/2003
M/T Aiolos (M/T British Emissary) (1)
iraklitos Shipping Company
02/10/2004
M/T Axios (1)
epicurus Shipping Company
02/11/2004
M/T Atrotos (M/T El Pipila) (2),(5)
laredo Maritime inc.
lorenzo Shipmanagement inc.
Splendor Shipholding S.A.
ross Shipmanagement Co.
02/03/2004
05/26/2004
07/08/2004
12/29/2003
M/T Akeraios (2)
M/T Apostolos (2)
M/T Anemos I (2)
M/T Attikos (3),(7)
36,759
36,760
36,725
47,834
36,725
47,872
47,786
47,781
47,782
47,782
12,000
08/16/2010
04/04/2007
05/17/2006
04/04/2007
07/12/2006
04/04/2007
08/16/2006
04/04/2007
11/02/2006
04/04/2007
01/12/2007
04/04/2007
03/02/2007
04/04/2007
02/28/2007
03/01/2010
05/08/2007
05/08/2007
07/13/2007
07/13/2007
09/20/2007
09/20/2007
09/28/2007
09/28/2007
09/24/2007
01/20/2005
Sorrel Shipmanagement inc.
02/07/2006
M/T Alexandros II (M/T Overseas Seri-
fos) (2)
51,258
01/29/2008
01/29/2008
Baymont enterprises incorporated
05/29/2007
M/T Amore Mio II (3)
159,982
03/27/2008
07/31/2007
Forbes Maritime Co.
02/03/2004
M/T Aristofanis (3),(8)
12,000
04/30/2008
06/02/2005
Wind Dancer Shipping inc.
02/07/2006
M/T Aristotelis II (M/T Overseas Sifnos) (2)
51,226
06/17/2008
06/17/2008
Belerion Maritime Co.
01/24/2006
M/T Aris II (M/T Overseas Kimolos) (2)
07/14/2006
07/14/2006
06/22/2004
06/17/2008
M/T Agamemnon II (3), (4),(10)
M/T Ayrton II (3), (5)
M/T Alkiviadis (3)
51,218
51,238
51,238
36,721
08/20/2008
08/20/2008
04/07/2009
11/24/2008
04/13/2009
04/10/2009
06/30/2010
03/29/2006
M/V Cape Agamemnon
179,221
06/09/2011
01/25/2011
04/06/2006
M/T Miltiadis M II (6)
162,000
09/30/2011
04/26/2006
Mango Finance Corp.
navarro international S.A.
Adrian Shipholding inc.
patroklos Marine Corp.
Cooper Consultants Co. renamed
to Miltiadis M ii Carriers Corp.
F-8
SUBSIDIARY
DATE OF
INCORPORATION
NAME
OF VESSEL
OWNED BY
SUBSIDIARY
DWT
DATE
ACQUIRED
BY THE
PARTNERSHIP
DATE
ACQUIRED BY
CMTC
Alexander the Great Carriers Corp.
01/26/2010
M/T Alexander the Great (6), (9)
297,958
09/30/2011
03/26/2010
Achilleas Carriers Corp.
Amoureux Carriers Corp.
Aias Carriers Corp.
01/06/2010
04/14/2010
04/14/2010
M/T Achilleas (6), (9)
297,863
09/30/2011
06/25/2012
M/T Amoureux (6)
149,993
09/30/2011
M/T Aias (6)
150,393
09/30/2011
-
-
Agamemnon Container Carrier Corp.
04/19/2012
M/T Agamemnon (9)
103,773
12/22/2012
06/28/2012
Archimidis Container Carrier Corp.
04/19/2012
M/T Archimidis (9)
103,773
12/22/2012
06/22/2012
Aenaos product Carrier S.A.
Anax Container Carrier S.A.
Hercules Container Carrier S.A.
iason Container Carrier S.A.
thiseas Container Carrier S.A.
Cronus Container Carrier S.A.
Miltiadis M ii Corp.
10/16/2013
04/08/2011
04/08/2011
04/08/2011
04/08/2011
07/19/2011
08/28/2012
M/T Aristotelis
M/T Hyundai Prestige
M/T Hyundai Premium
M/T Hyundai Paramount
M/T Hyundai Privilege
M/T Hyundai Platinum
-
51,604
63,010
63,010
63,010
63,010
63,010
-
11/28/2013
-
09/11/2013
02/19/2013
03/20/2013
03/11/2013
03/27/2013
03/27/2013
09/11/2013
05/31/2013
09/11/2013
06/14/2013
-
-
(01) Initial Vessels acquired from Capital Maritime & Trading Corp. (“CMTC”) upon consummation of the Partnership’s Initial Public Offer-
ing (“IPO”) which was completed on April 3, 2007.
(02) Committed Vessels (the Partnership committed to acquire these vessels from CMTC upon consummation of the IPO).
(03) Non-Contracted Vessels (vessels acquired from CMTC that were neither initial nor committed vessels).
(04) Was acquired on April 4, 2007, on April 7, 2009 was exchanged with the M/T Agamemnon II and was reacquired on August 16, 2010.
(05) Was acquired on May 8, 2007, on April 13, 2009 was exchanged with the M/T Ayrton II and was reacquired on March 1, 2010.
(06) Were acquired upon the completion of the business acquisition of Crude Carriers Corp. (“Crude”).
(07) Was sold on February 14, 2012.
(08) Was sold on April 4, 2012.
(09) On December 22, 2012 the M/T Alexander the Great and the M/T Achilleas were exchanged with the M/V Archimidis and the M/V
Agamemnon respectively.
(10) Was sold on November 5, 2013.
F-9
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES
(a) principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the legal entities comprising
the Partnership as discussed in Note 1. Intra-group balances and transactions have been eliminated upon consolidation. Balances and
transactions with CMTC and its affiliates have not been eliminated, but are presented as balances and transactions with related parties.
(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 financial statements and the amounts of revenues and expenses recognized during the reporting period. Actual results
could differ from those estimates. Additionally, these consolidated financial statements include corporate overhead expenses that are
normally incurred by a listed company.
(c) other Comprehensive income: The Partnership separately records certain transactions directly as components of partners’ capital
/ stockholders’ equity. For the years ended December 31, 2013 and 2012 other comprehensive income is comprised of changes in fair
value of interest rate swaps that qualify as cash flow hedges and the amortization of the accumulated other comprehensive loss attrib-
utable to interest rate swaps that do not qualify as cash flow hedges (Note 8).
(d) Accounting for revenue, Voyage and operating expenses: The Partnership generates its revenues from charterers for the charter
hire of its vessels. Vessels are chartered on time charters, bareboat charters or voyage charters. A time charter is a contract for the use
of a vessel for a specific period of time and a specified daily charter hire rate, which is generally payable monthly in advance. Some
of the Partnership’s time charters also include profit sharing provisions, under which the Partnership can realize additional revenues
in the event that spot rates are higher than the base rates in these time charters. A bareboat charter is a contract in which the vessel
owner provides the vessel to the charterer for a fixed period of time at a specified daily rate, which is generally payable monthly in
advance, and the charterer generally assumes all risk and costs of operation during the bareboat charter period. A voyage is deemed to
commence upon the later of the completion of discharge of the vessel’s previous cargo or upon vessel arrival to the agreed upon port
based on the terms of a voyage contract that is not cancelable and voyage is deemed to end upon the completion of discharge of the
delivered cargo. Revenues under voyage charter agreements are recognized when a voyage agreement exists, the price is fixed, service
is provided and the collection of the related revenue is reasonably assured.
Revenues are recorded over the term of the charter as service is provided and recognized on a pro-rata basis over the duration
of the voyage.
All of the Partnership’s time charters and bareboat charters are classified as operating leases. Revenues under operating lease arrangements
are recognized when a charter agreement exists, charter rate is fixed and determinable, the vessel is made available to the lessee, and col-
lection of the related revenue is reasonably assured. Revenues are recognized ratably on a straight line basis over the period of the respec-
tive time or bareboat charter. Revenues from profit sharing arrangements in time charters represent a portion of time charter equivalent
(voyage income less direct expenses, divided by operating days), that exceeds the agreed base rate and are recognized in the period earned.
Deferred revenue represents cash received in advance of being earned. The portion of the deferred revenue that will be earned within the
next twelve months is classified as current liability and the rest as long term liability.
Vessel voyage expenses are direct expenses to voyage revenues and primarily consist of commissions, port expenses, canal dues and
bunkers. Commissions are expensed over the related charter period and all the other voyage expenses are expensed as incurred. Under
the Partnership’s time and bareboat charter agreements, all voyages expenses, except commissions are assumed by the charterer, with
the exception of Overseas Shipholding Group Inc. bareboat charter agreements and the exception of the M/T Agamemnon II and the M/T
Ayrton II time charter agreements where the charterer is responsible for the commissions. For voyage charters all voyage expenses are
paid by the Partnership.
Vessel operating expenses presented in the consolidated financial statements mainly consisted of:
• Management fees payable to the Partnership’s manager Capital Shipmanagement Corp. (the “Manager” or “CSM”) under three different
types of Management agreements (Note 4); and
• Actual operating expenses such as crewing, repairs and maintenance, insurance, stores, spares, lubricants and other operating expenses.
Vessel operating expenses are expensed as incurred.
F-10
(e) Foreign Currency transactions: The functional currency of the Partnership is the U.S. Dollar because the Partnership’s vessels operate
in international shipping markets that utilize the U.S. Dollar as the functional currency. The accounting records of the Partnership 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 the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in
currencies other than the U.S. Dollar, are translated into the functional currency using the exchange rate at those dates. Gains or losses
resulting from foreign currency transactions are included in interest and other income in the accompanying consolidated statements
of comprehensive income / (loss).
(f) Cash and Cash equivalents: The Partnership considers highly-liquid investments such as time deposits and certificates of deposit
with an original maturity of three months or less to be cash equivalents.
(g) restricted cash: For the Partnership to comply with debt covenants under its credit facilities, it must maintain minimum cash deposits.
Such deposits are considered by the Partnership to be restricted cash. As of December 31, 2013 and 2012, restricted cash amounted to
$15,000 and $10,500, respectively, and is presented under other non-current assets.
(h) trade Accounts receivable, net: The amount shown as trade accounts receivable primarily consists of earned revenue that has not
been billed yet or that it has been billed but not yet collected. At each balance sheet date all potentially uncollectible accounts are
assessed individually for purposes of determining the appropriate provision for doubtful accounts. As of December 31, 2013 and 2012
allowance for doubtful accounts amounted to $84 and $54, respectively.
(i) inventories: Inventories consist of consumable bunkers, lubricants, spares and stores and are stated at the lower of cost or market
value. The cost is determined by the first-in, first-out method.
(j) Fixed Assets: Fixed assets consist of vessels which are stated at cost, less accumulated depreciation. Vessel cost consists of the contract
price for the vessel and any material expenses incurred upon their construction (improvements and delivery expenses, on-site super-
vision costs incurred during the construction periods, as well as capitalized interest expense during the construction period). Vessels
acquired through acquisition of businesses are recorded at their acquisition date fair values. The cost of each of the Partnership’s vessels
is depreciated beginning when the vessel is ready for its intended use, on a straight-line basis over the vessels’ remaining economic
useful life, after considering the estimated residual value. Management estimates the scrap value of the Partnership’s vessels to be $0.2
per light weight ton (LWT) and useful life to be 25 years.
(k) impairment of long-lived Assets: An impairment loss on long-lived assets is recognized when indicators of impairment are present
and the carrying amount of the long-lived asset is greater than its fair value and not believed to be recoverable. In determining future
benefits derived from use of long-lived assets, the Partnership performs an analysis of the anticipated undiscounted future net cash
flows of the related long-lived assets on a vessel by vessel basis. If the carrying value of the related asset exceeds its undiscounted
future net cash flows, the carrying value is reduced to its fair value. Various factors including future charter rates and vessel operating
costs are included in this analysis.
In recent years market conditions as compared to previous years have changed significantly as a result of the global credit crisis and
resulting slowdown in world trade. Charter rates decreased and values of assets were affected. The Partnership considered these market
developments as indicators of potential impairment of the carrying amount of its assets. The Partnership has performed an undiscounted
cash flow test based on US GAAP as of December 31, 2013 and 2012, determining undiscounted projected net operating cash flows for the
vessels and comparing them to the vessels’ carrying values. In developing estimates of future cash flows, the Partnership made assump-
tions about future charter rates, utilization rates, vessel operating expenses, future dry docking costs and the estimated remaining useful
life of the vessels. These assumptions are based on historical trends as well as future expectations that are in line with the Partnership’s
historical performance and expectations for the vessels’ utilization under the current deployment strategy. Based on these assumptions,
the Partnership determined that the undiscounted cash flows supported the vessels’ carrying amounts as of December 31, 2013 and 2012.
(l) intangible assets: The Partnership records all identified tangible and intangible assets or any liabilities associated with the acquisi-
tion of a business at fair value. When a business is acquired that owns a vessel with an existing charter agreement, the Partnership
determines the present value of the difference between: (i) the contractual charter rate and (ii) the prevailing market rate for a charter
F-11
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES - continued
of equivalent duration. When determining present value, the Partnership uses Weighted Average Cost of Capital (“WACC”). The result-
ing above-market (assets) and below-market (liabilities) charters are amortized using straight line method as a reduction and increase,
respectively, to revenues over the remaining term of the charters.
(m) Deferred charges, net: are comprised mainly of:
• fees paid to lenders for obtaining new loans or refinancing existing loans and are capitalized as deferred finance charges and amortized
to “interest expense and finance cost” over the term of the respective loan using the effective interest rate method; and
• dry docking costs. The Partnership’s vessels are required to be dry docked every thirty to sixty months for major repairs and main-
tenance that cannot be performed while the vessels are under operation. For the vessels that were operated under the floating fee
management agreement and Crude’s management agreement (Note 4) the Partnership has adopted the deferral method of accounting
for dry docking activities whereby costs incurred are deferred and amortized on a straight line basis over the period until the next
scheduled dry docking activity.
(n) pension and retirement Benefit obligations: The vessel-owning companies included in the consolidated financial statements
employ the crew on board under short-term contracts (usually up to seven months) and accordingly, they are not liable for any pen-
sion or post retirement benefits.
(o) Concentration of Credit risk: Financial instruments which potentially subject the Partnership to significant concentrations of credit risk
consist principally of cash and cash equivalents, interest rate swaps, and trade accounts receivable. The Partnership places its cash and cash
equivalents, consisting mostly of deposits, and enters into interest rate swap agreements with creditworthy financial institutions rated by
qualified rating agencies. A limited number of financial institutions hold the Partnership’s cash. Most of the Partnership’s revenues were
derived from a few charterers. For the year ended December 31, 2013, CMTC, British Petroleum Shipping Limited (“BP”), A.P. Moller-Maersk
A.S. (“Maersk”) and Hyundai Merchant Marine Co Ltd (“HMM”) accounted for 32%, 17%, 14% and 13% of the Partnership’s total revenue,
respectively. For the year ended December 31, 2012, CMTC and BP accounted for 45% and 23% of the Partnership’s total revenue, respec-
tively. For the year ended December 31, 2011, BP, CMTC, and Overseas Shipholding Group Inc. (“OSG”) accounted for 32%, 24% and 11% of
the Partnership’s total revenue, respectively. The Partnership does not obtain rights of collateral from its charterers to reduce its credit risk.
(p) Fair Value of Financial instruments: On January 1, 2008, the Partnership adopted the accounting guidance for Fair Value Meas-
urements for financial assets and liabilities and any other assets and liabilities carried at fair value. This guidance defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The carrying value of trade
receivables, due from related parties, due to related parties, accounts payable and current accrued liabilities approximates their fair
value. The fair values of long-term variable rate bank loans approximate the recorded values, due to their variable interest and due to
the fact the lenders have the ability to pass on their funding cost to the Partnership under certain circumstances, which reflects their
current assessed risk. We believe the terms of our loans are similar to those that could be procured as of December 31, 2013. Interest
rate swaps are recorded at fair value on the consolidated balance sheet.
(q) interest rate Swap Agreements: The Partnership designates its derivatives based upon the intended use, and recognizes all deriva-
tives as either assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. Changes in the fair
value of each derivative instrument are recorded depending on the intended use of the derivative and the resulting designation. For a
derivative that does not qualify as a hedge, changes in fair value are recognized within the consolidated statements of comprehensive
income / (loss). For derivatives that qualify as cash flow hedges, the changes in fair value of the effective portion are recognized at the
end of each reporting period in Other comprehensive income / (loss), until the hedged item is recognized in the consolidated state-
ments of comprehensive income / (loss). The ineffective portion of a derivative’s change in fair value is immediately recognized in the
consolidated statements of comprehensive income / (loss).
(r) net income / (loss) per limited partner unit: Basic net income per limited partner unit is calculated by dividing Partnership’s net
income less net income allocable to preferred unit holders, general partner interest in net income (including incentive distribution rights)
and net income allocable to unvested units by the weighted-average number of outstanding limited partner units during the period
(Note 15). Diluted net income per limited partner unit reflects the potential dilution that could occur if securities or other contracts to
issue limited partner units were exercised.
(s) income taxes: The Partnership is not subject to the payment of any income tax on its income. Instead, a tax is levied based on the
tonnage of the vessels, which is included in operating expenses (Note 11).
F-12
(t) Segment reporting: The Partnership reports financial information and evaluates its operations by charter revenues and not by the
length, type of vessel or type of ship employment for its customers, i.e. time or bareboat charters. The Partnership does not use discrete
financial information to evaluate the operating results for each such type of charter or vessel. Although revenue can be identified for these
types of charters or vessels, management cannot and does not identify expenses, profitability or other financial information for these
various types of charters or vessels. As a result, management, including the chief operating decision maker, reviews operating results
solely by revenue per day and operating results of the fleet, and thus the Partnership has determined that it operates as one reportable
segment. Furthermore, when the Partnership charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as
a result, the disclosure of geographic information is impracticable.
(u) omnibus incentive Compensation plan: Equity compensation expense represents vested and unvested units granted to employees
and to non-employee directors, for their services as directors, as well as to non-employees and are included in general and administra-
tive expenses in the consolidated statements of comprehensive income / (loss). These units are measured at their fair value equal to the
market value of the Partnership’s common units on the grant date. The units that contain a time-based service vesting condition are
considered unvested units on the grant date and a total fair value of such units is recognized on a straight-line basis over the requisite
service period. In addition, unvested awards granted to non-employees are measured at their then-current fair value as of the financial
reporting dates until non-employees complete the service (Note 14).
(v) recent Accounting pronouncements: There are no recent accounting pronouncements issued during 2013 whose adoption would have
a material effect on the Partnership’s consolidated financial statements in the current year or expected to have an impact on future years.
F-13
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS
A. ANAX ContAiner CArrier S.A. (M/V HyunDAi preStiGe)
O n September 11, 2013, the Partnership acquired the shares of Anax Container Carrier S.A., the vessel owning company of the M/V
Hyundai Prestige (renamed to M/V CCNI Angol) (“Anax”) from CMTC for a total consideration of $65,000 following the unanimous
recommendation of the conflicts committee and the unanimous approval of the board of directors. The vessel at the time of her
acquisition by the Partnership was fixed on a twelve year time charter, with HMM. The time charter commenced in February 2013 and
the earliest expiration date under the charter is in December 2024.
The Partnership accounted for the acquisition of Anax as an acquisition of a business. All assets and liabilities of Anax except the vessel,
necessary permits and time charter agreement, were retained by CMTC. The purchase price of the acquisition has been allocated to the iden-
tifiable assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a gain from bargain purchase.
• purchase price: The total purchase consideration of $65,000 was funded using a portion of the $75,000 that the Partnership had drawn
down under its new loan facility (Note 7), part of the net proceeds from the issuance of 13,685,000 Partnership’s Common Units in August
2013 (Note 13) and part of the Partnership’s available cash.
• Acquisition related costs: There were no costs incurred in relation to the acquisition of Anax.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Anax and the gain from bargain purchase recorded as non operating income in
the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013 was calculated as follows:
AS OF SEPTEMBER 11, 2013 (in US $)
Vessel
Above market acquired time charter
identifiable assets
purchase price
Gain from bargain purchase
54,000
19,094
73,094
(65,000)
8,094
After a subsequent review and reassessment of valuation methods and procedures
of the $73,094 fair value amount for identifiable assets acquired, the Partnership
concluded that its measurements for the assets acquired appropriately reflect consid-
eration of all available information that existed as of the acquisition date. Therefore,
the Partnership recorded a gain from bargain purchase of $8,094 in its consolidated
statements of comprehensive income / (loss), in accordance with Accounting Standard
Codification (“ASC”) Subtopic 805-30 “Business Combinations, Goodwill or Gain from
Bargain Purchase, Including Consideration Transferred” as of the Anax acquisition date.
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the
purchase of Anax which is being amortized over its duration on a straight-line basis as a reduction of revenue:
INTANGIBLE ASSETS
AS OF SEPTEMBER 11, 2013 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
19,094
11.3 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate at which the
vessel was fixed at and the market rate for a comparable charter as provided by independent third parties on the business combination
date discounted at a WACC of approximately 11%.
Total revenues and net income of M/V Hyundai Prestige since its acquisition by the Partnership were $2,778 and $1,298 respectively and
are included in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013.
• pro Forma Financial information: The supplemental pro forma financial information was prepared using the acquisition method of
accounting and is based on the following:
• The Partnership’s actual results of operations for the year ended December 31, 2013
• Pro forma results of operations of Anax for the period from its vessel’s delivery from the shipyard on February 19, 2013 (vessel inception)
to September 11, 2013 as if Hyundai Prestige was operating under post acquisition revenue and cost structure.
The combined results do not purport to be indicative of the results of the operations which would have resulted had the acquisition been
F-14
effected at beginning of the applicable period noted above, or the future results of operations of the combined entity.
The following table summarizes total net revenues; net income and net income per common unit of the combined entity had the acquisition
of Hyundai Prestige occurred on February 19, 2013 (vessel inception):
FOR THE YEAR ENDED DEC. 31, 2013 (in US $)
total revenues
PARTNERSHIP’S NET INCOME
preferred unit holders’ interest in partnership’s net income
General partner’s interest in partnership’s net income
COMMON UNIT HOLDERS INTEREST IN PARTNERSHIP’S NET INCOME
NET INCOME PER COMMON UNIT BASIC
NET INCOME PER COMMON UNIT DILUTED
176,535
100,624
18,805
1,621
80,198
1.05
1.02
F-15
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS - continued
B. THISEAS ContAiner CArrier S.A. (M/V HyunDAi priVileGe)
O n September 11, 2013, the Partnership acquired the shares of Thiseas Container Carrier S.A., the vessel owning company of the M/V Hyundai
Privilege (“Thiseas”) from CMTC for a total consideration of $65,000 following the unanimous recommendation of the conflicts committee
and the unanimous approval of the board of directors. The vessel at the time of her acquisition by the Partnership was fixed on a twelve
year time charter, with HMM. The time charter commenced in May 2013 and the earliest expiration date under the charter is in April 2025.
The Partnership accounted for the acquisition of Thiseas as an acquisition of a business. All assets and liabilities of Thiseas except the vessel,
necessary permits and time charter agreement, were retained by CMTC. The purchase price of the acquisition has been allocated to the iden-
tifiable assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a gain from bargain purchase.
• purchase price: The total purchase consideration of $65,000 was funded using a portion of the $75,000 that the Partnership had drawn
down under its new loan facility (Note 7), part of the net proceeds from the issuance of 13,685,000 Partnership’s Common Units in August
2013 (Note 13) and part of the Partnership’s available cash.
• Acquisition related costs: There were no costs incurred in relation to the acquisition of Thiseas.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Thiseas and the gain from bargain purchase recorded as non operating income in
the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013 was calculated as follows:
AS OF SEPTEMBER 11, 2013 (in US $)
Vessel
Above market acquired time charter
identifiable assets
purchase price
Gain from bargain purchase
54,000
19,329
73,329
(65,000)
8,329
After a subsequent review and reassessment of valuation methods and procedures of the
$73,329 fair value amount for identifiable assets acquired, the Partnership concluded
that its measurements for the assets acquired appropriately reflect consideration of all
available information that existed as of the acquisition date. Therefore, the Partnership
recorded a gain from bargain purchase of $8,329 in its consolidated statements of com-
prehensive income / (loss), in accordance with Accounting Standard Codification (“ASC”)
Subtopic 805-30 “Business Combinations, Goodwill or Gain from Bargain Purchase,
Including Consideration Transferred” as of the Thiseas acquisition date.
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the
purchase of Thiseas which is being amortized over its duration on a straight-line basis as a reduction of revenue:
INTANGIBLE ASSETS
AS OF SEPTEMBER 11, 2013 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
19,329
11.6 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate at which the ves-
sel was fixed at and the market rate for a comparable charter as provided by independent third parties on the business combination date
discounted at a WACC of approximately 11%.
Total revenues and net income of M/V Hyundai Privilege since its acquisition by the Partnership were $2,785 and $1,392 respectively and are
included in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013.
• pro Forma Financial information: The supplemental pro forma financial information was prepared using the acquisition method of
accounting and is based on the following:
• The Partnership’s actual results of operations for the year ended December 31, 2013
• Pro forma results of operations of Thiseas for the period from its vessel’s delivery from the shipyard on May 31, 2013 (vessel inception) to
September 11, 2013 as if Hyundai Privilege was operating under post acquisition revenue and cost structure.
The combined results do not purport to be indicative of the results of the operations which would have resulted had the acquisition been
effected at beginning of the applicable period noted above, or the future results of operations of the combined entity.
The following table summarizes total net revenues; net income and net income per common unit of the combined entity had the acquisition
of Hyundai Privilege occurred on May 31, 2013 (vessel inception):
F-16
FOR THE YEAR ENDED DEC. 31, 2013 (in US $)
total revenues
PARTNERSHIP’S NET INCOME
preferred unit holders’ interest in partnership’s net income
General partner’s interest in partnership’s net income
COMMON UNIT HOLDERS INTEREST IN PARTNERSHIP’S NET INCOME
NET INCOME PER COMMON UNIT BASIC
NET INCOME PER COMMON UNIT DILUTED
174,045
100,144
18,805
1,611
79,728
1.04
1.01
F-17
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS - continued
C. CRONUS ContAiner CArrier S.A. (M/V HyunDAi plAtinuM)
O n September 11, 2013, the Partnership acquired the shares of Cronus Container Carrier S.A., the vessel owning company
of the M/V Hyundai Platinum (“Cronus”) from CMTC for a total consideration of $65,000 following the unanimous recom-
mendation of the conflicts committee and the unanimous approval of the board of directors.
The vessel at the time of her acquisition by the Partnership was fixed on a twelve year time charter, with HMM. The time charter com-
menced in June 2013 and the earliest expiration date under the charter is in April 2025.
The Partnership accounted for the acquisition of Cronus as an acquisition of a business. All assets and liabilities of Cronus
except the vessel, necessary permits and time charter agreement, were retained by CMTC. The purchase price of the acquisition
has been allocated to the identifiable assets acquired, with the excess of the fair value of assets acquired over the purchase
price recorded as a gain from bargain purchase.
• purchase price: The total purchase consideration of $65,000 was funded using a portion of the $75,000 that the Partnership had drawn
down under its new loan facility (Note 7), part of the net proceeds from the issuance of 13,685,000 Partnership’s Common Units in August
2013 (Note 13) and part of the Partnership’s available cash.
• Acquisition related costs: There were no costs incurred in relation to the acquisition of Cronus.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Cronus and the gain from bargain purchase recorded as non operating
income in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013 was
calculated as follows
AS OF SEPTEMBER 11, 2013 (in US $)
Vessel
Above market acquired time charter
identifiable assets
purchase price
Gain from bargain purchase
54,000
19,358
73,358
(65,000)
8,358
After a subsequent review and reassessment of valuation methods and procedures
of the $73,358 fair value amount for identifiable assets acquired, the Partnership
concluded that its measurements for the assets acquired appropriately reflect
consideration of all available information that existed as of the acquisition date.
Therefore, the Partnership recorded a gain from bargain purchase of $8,358 in
its consolidated statements of comprehensive income / (loss), in accordance with
Accounting Standard Codification (“ASC”) Subtopic 805-30 “Business Combinations,
Goodwill or Gain from Bargain Purchase, Including Consideration Transferred” as
of the Cronus acquisition date.
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the purchase
of Cronus which is being amortized over its duration on a straight-line basis as a reduction of revenue::
INTANGIBLE ASSETS
AS OF SEPTEMBER 11, 2013 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
19,358
11.3 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate at which the ves-
sel was fixed at and the market rate for a comparable charter as provided by independent third parties on the business combination date
discounted at a WACC of approximately 11%.
Total revenues and net income of M/V Hyundai Platinum since its acquisition by the Partnership were $2,786 and $1,357 respectively and
are included in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013.
• pro Forma Financial information: The supplemental pro forma financial information was prepared using the acquisition method of
accounting and is based on the following:
• The Partnership’s actual results of operations for the year ended December 31, 2013
• Pro forma results of operations of Cronus for the period from its vessel’s delivery from the shipyard on June 14, 2013 (vessel inception) to
September 11, 2013 as if Hyundai Platinum was operating under post acquisition revenue and cost structure.
F-18
The combined results do not purport to be indicative of the results of the operations which would have resulted had the acquisition been
effected at beginning of the applicable period noted above, or the future results of operations of the combined entity.
The following table summarizes total net revenues; net income and net income per common unit of the combined entity had the acquisition
of Hyundai Platinum occurred on June 14, 2013 (vessel inception):
FOR THE YEAR ENDED DEC. 31, 2013 (in US $)
total revenues
PARTNERSHIP’S NET INCOME
preferred unit holders’ interest in partnership’s net income
General partner’s interest in partnership’s net income
COMMON UNIT HOLDERS INTEREST IN PARTNERSHIP’S NET INCOME
NET INCOME PER COMMON UNIT BASIC
NET INCOME PER COMMON UNIT DILUTED
173,699
100,031
18,805
1,609
79,617
1.04
1.01
F-19
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS - continued
D. HERCULES ContAiner CArrier S.A. (M/V HyunDAi preMiuM)
O n March 20, 2013, the Partnership acquired the shares of Hercules Container Carrier S.A., the vessel owning company of the M/V
Hyundai Premium (“Hercules”) from CMTC for a total consideration of $65,000 following the unanimous recommendation of the
conflicts committee and the unanimous approval of the board of directors. The vessel at the time of her acquisition by the Partner-
ship was fixed on a twelve year time charter, with HMM. The time charter commenced in March 2013 and the earliest expiration date
under the charter is in January 2025.
The Partnership accounted for the acquisition of Hercules as an acquisition of a business. All assets and liabilities of Hercules except the vessel,
necessary permits and time charter agreement, were retained by CMTC. The purchase price of the acquisition has been allocated to the identifiable
assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a gain from bargain purchase.
• purchase price: The total purchase consideration of $65,000 was funded by $27,000 through a draw-down from the Partnership’s
$350,000 credit facility (Note 7), by $36,279 representing part of the net proceeds from the issuance of 9,100,000 Partnership’s Class B
Convertible Preferred Units in March 2013 (Note 13) and by $1,721 from the Partnership’s available cash.
• Acquisition related costs: There were no costs incurred in relation to the acquisition of Hercules.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Hercules and the gain from bargain purchase recorded as non operating income
in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013 was calculated as follows:
AS OF MARCH 20, 2013 (in US $)
Vessel
Above market acquired time charter
identifiable assets
purchase price
Gain from bargain purchase
54,000
19,707
73,707
(65,000)
8,707
After a subsequent review and reassessment of valuation methods and procedures of the
$73,707 fair value amount for identifiable assets acquired, the Partnership concluded
that its measurements for the assets acquired appropriately reflect consideration of
all available information that existed as of the acquisition date. Therefore, the Partner-
ship recorded a gain from bargain purchase of $8,707 in its consolidated statements
of comprehensive income / (loss), in accordance with Accounting Standard Codifica-
tion (“ASC”) Subtopic 805-30 “Business Combinations, Goodwill or Gain from Bargain
Purchase, Including Consideration Transferred” as of the Hercules acquisition date.
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the
purchase of Hercules which is being amortized over its duration on a straight-line basis as a reduction of revenue:
INTANGIBLE ASSETS
AS OF MARCH 20, 2013 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
19,707
11.8 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate at which the vessel
was fixed at and the market rate for a comparable charter as provided by independent third parties on the business combination date discounted
at a WACC of approximately 11%. Total revenues and net income since its acquisition by the Partnership were $7,181 and $3,567 respectively
and are included in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013.
• pro Forma Financial information: The supplemental pro forma financial information was prepared using the acquisition method of
accounting and is based on the following:
• The Partnership’s actual results of operations for the year ended December 31, 2013
• Pro forma results of operations of Hercules for the period from its vessel’s delivery from the shipyard on March 11, 2013 (vessel incep-
tion) to March 20, 2013 as if Hyundai Premium was operating under post acquisition revenue and cost structure.
The combined results do not purport to be indicative of the results of the operations which would have resulted had the acquisition been
effected at beginning of the applicable period noted above, or the future results of operations of the combined entity.
The following table summarizes total net revenues; net income and net income per common unit of the combined entity had the acquisi-
tion of Hyundai Premium occurred on March 11, 2013 (vessel inception):
F-20
FOR THE YEAR ENDED DEC. 31, 2013 (in US $)
total revenues
PARTNERSHIP’S NET INCOME
preferred unit holders’ interest in partnership’s net income
General partner’s interest in partnership’s net income
COMMON UNIT HOLDERS INTEREST IN PARTNERSHIP’S NET INCOME
NET INCOME PER COMMON UNIT BASIC
NET INCOME PER COMMON UNIT DILUTED
171,717
99,571
18,805
1,600
79,166
1.04
1.01
F-21
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS - continued
e. IASON ContAiner CArrier S.A. (M/V HyunDAi pArAMount)
O n 27 March 2013, the M/V Hyundai Paramount (“Iason”) was delivered to CMTC from a shipyard and on the same date the Partner-
ship acquired the shares of Iason Container Carrier S.A., the vessel owning company of M/V Hyundai Paramount from CMTC for a
total consideration of $65,000 following the unanimous recommendation of the conflicts committee and the unanimous approval
of the board of directors. At the time of her acquisition by the Partnership the vessel was fixed on a twelve year time charter, with HMM.
The time charter commenced in April 2013 and the earliest expiration date under the charter is in February 2025.
The Partnership accounted for the acquisition of Iason as an acquisition of a business. All assets and liabilities of Iason except the vessel,
necessary permits and time charter agreement, were retained by CMTC. The purchase price of the acquisition has been allocated to the
identifiable assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a gain from bargain
purchase.
• purchase price: The total purchase consideration of $65,000 was funded by $27,000 through a draw-down from the Partnership’s
$350,000 credit facility (Note 7), by $36,278 representing part of the net proceeds from the issuance of Partnership’s Class B Convertible
Preferred Units in March 2013 (Note 13) and by $1,722 from the Partnership’s available cash.
• Acquisition related costs: There were no costs incurred in relation to the acquisition of Iason.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Iason and the gain from bargain purchase recorded as non operating income in
the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013 was calculated as follows:
AS OF MARCH 27, 2013 (in US $)
Vessel
Above market acquired time charter
identifiable assets
purchase price
Gain from bargain purchase
54,000
19,768
73,768
(65,000)
8, 768
After a subsequent review and reassessment of valuation methods and procedures
of the $73,768 fair value amount for identifiable assets acquired, the Partnership
concluded that its measurements for the assets acquired appropriately reflect consid-
eration of all available information that existed as of the acquisition date. Therefore,
the Partnership recorded a gain from bargain purchase of $8,768 in its consolidated
statements of comprehensive income / (loss), in accordance with ASC Subtopic 805-30
“Business Combinations, Goodwill or Gain from Bargain Purchase, Including Consid-
eration Transferred” as of the Iason acquisition date.
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the
purchase of Iason which is being amortized over its duration on a straight-line basis as a reduction of revenue:
INTANGIBLE ASSETS
AS OF MARCH 27, 2013 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
19,768
11.8 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate at which the vessel
was fixed at and market rate for comparable charter as provided by independent third parties on the business combination date discounted
at a WACC of approximately 11%.
Total revenues and net income of Hyundai Paramount since its acquisition by the Partnership were $6,732 and $3,220 respectively and
included in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2013.
• pro Forma Financial information: There is no pro forma financial information available in relation to the acquisition of Iason as its
vessel was under construction up to the date of her acquisition by the Partnership.
F-22
F. AGAMEMNON ContAiner CArrier Corp. (M/V AGAMeMnon)
O n December 22, 2012, the Partnership acquired the shares of Agamemnon Container Carrier Corp., the vessel owning company
of the M/V Agamemnon, (“Agamemnon”), from CMTC in exchange for the shares of the Partnership’s wholly owned subsidiary
Achilleas Carriers Corp., the vessel owning company of the M/T Achilleas (“Achilleas”) following the unanimous recommendation
of the conflicts committee and the unanimous approval of the board of directors. The vessel at the time of her acquisition by the Part-
nership operated under a three year time charter, with Maersk. The time charter commenced in June 2012 and the earliest expiry is in
July 2015. Maersk has the option to extend the charter for up to an additional four years. The acquisition of Agamemnon was deemed
accretive to the Partnership’s distributions.
The Partnership accounted for the acquisition of Agamemnon as an acquisition of a business. All assets and liabilities of Agamemnon
except the vessel, necessary permits and time charter agreement, were retained by CMTC. Furthermore up to the date of the exchange of
Achilleas Carriers Corp., all assets and liabilities of Achilleas, except the vessel, were retained by the Partnership. CMTC has also waived
any compensation for the early termination of the charter of Achilleas. The purchase price of the acquisition has been allocated to the
identifiable assets acquired.
• purchase price: The total purchase consideration of $70,250 is comprised of:
• $68,875 representing the fair value of Achilleas, and;
• $1,375 representing the cash consideration paid to CMTC by the Partnership.
• Acquisition related costs: Acquisition-related costs of approximately $5.0 are included in general and administrative expenses in the
consolidated statements of comprehensive income / (loss) for the year ended December 31, 2012.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Agamemnon was calculated as follows:
AS OF DECEMBER 22, 2012 (in US $)
Vessel
Above market acquired time charter
identifiable assets
purchase price
68,000
2,250
70,250
(70,250)
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the purchase
of Agamemnon which is being amortized over its duration on a straight-line basis as a reduction of revenue:
INTANGIBLE ASSETS
AS OF DECEMBER 22, 2012 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
2,250
2,6 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate and the market rate
for a comparable charter on the business combination date discounted at the WACC of approximately 11%.
Total revenues and net income of Agamemnon since its acquisition by the Partnership were $318 and $185 respectively and included in the
Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2012.
• pro Forma Financial information: The supplemental pro forma financial information was prepared using the acquisition method of
accounting and is based on the following:
• The Partnership’s actual results of operations for the year ended December 31, 2012 excluding non recurring transactions such as Achil-
leas impairment charge of $21,614 (Note 5) as well as the actual results of operations of Achilleas for the period from January 1, 2012
to December 21, 2012 and actual acquisition related costs the Partnership incurred in connection with the acquisition of Agamemnon;
• The Partnership’s actual results of operations for the year ended December 31, 2011 adjusted for non recurring transactions such as Achil-
leas impairment charge of $21,614 and actual acquisition related costs the Partnership incurred in connection with the acquisition of
F-23
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS \ AGAMEMNON - continued
Agamemnon. Achilleas actual results of operations for the period from October 1, 2011 to December 31, 2011 have been excluded from
the Partnership’s actual results of operations as the vessel owning company of Achilleas was a fully owned subsidiary of Crude which was
merged with the Partnership on September 30, 2011 (Note 3i) and;
• Pro forma results of operations of Agamemnon for the period from January 1, 2012 to December 21, 2012 and for the year ended Decem-
ber 31, 2011 as if Agamemnon was operating under post acquisition revenue and cost structure.
The combined results do not purport to be indicative of the results of the operations which would have resulted had the acquisition been
effected at beginning of the applicable period noted above, or the future results of operations of the combined entity.The following table
summarizes total net revenues; net income / (loss) and net income / (loss) per common unit of the combined entity had the acquisition of
Agamemnon occurred on January 1, 2011:
FOR THE YEAR ENDED DECEMBER 31 (in US $)
total revenues
PARTNERSHIP’S NET INCOME
preferred unit holders’ interest in partnership’s net income
General partner’s interest in partnership’s net income
COMMON UNIT HOLDERS INTEREST IN PARTNERSHIP’S NET (LOSS) INCOME
NET (LOSS) / INCOME PER COMMON UNIT (BASIC AND DILUTED)
2012
154,227
2,210
10,809
(172)
(8,427)
(0,12)
2013
137,065
72,508
-
1,450
71,058
1,51
F-24
G. ARCHIMIDIS ContAiner CArrier Corp. (M/V ArCHiMiDiS)
O n December 22, 2012, the Partnership acquired the shares of Archimidis Container Carrier Corp., the vessel owning company of the M/V
Archimidis, (“Archimidis”), from CMTC in exchange for the shares of the Partnership’s wholly owned subsidiary Alexander The Great
Carriers Corp., the vessel owning company of the M/T Alexander The Great (“Alexander The Great”) following the unanimous recom-
mendation of the conflicts committee and the unanimous approval of the board of directors. The vessel at the time of her acquisition by the
Partnership operated under a three year time charter, with Maersk. The time charter commenced in November 2012 and the earliest expiry
is in October 2015. Maersk has the option to extend the charter for up to an additional four years. The acquisition of Archimidis was deemed
accretive to the Partnership’s distributions.
The Partnership accounted for the acquisition of Archimidis as an acquisition of a business. All assets and liabilities of Archimidis except the
vessel, necessary permits and time charter agreement, were retained by CMTC. Furthermore up to the date of the exchange of Alexander the
Great Carriers Corp., all assets and liabilities of Alexander the Great, except the vessel, were retained by the Partnership. CMTC has also waived
any compensation for the early termination of the charter of Alexander the Great. The purchase price of the acquisition has been allocated
to the identifiable assets acquired.
• purchase price: The total purchase consideration of $67,250 is comprised of:
• $68,875 representing the fair value of Alexander the Great and;
• $1,625 representing the cash consideration the Partnership received by CMTC.
• Acquisition related costs: Acquisition-related costs of approximately $5.0 are included in general and administrative expenses in the
consolidated statements of comprehensive income / (loss) for the year ended December 31, 2012.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Archimidis was calculated as follows:
AS OF DECEMBER 22, 2012 (in US $)
Vessel
Above market acquired time charter
identifiable assets
purchase price
65000
2,250
67,250
(67,250)
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the purchase
of Archimidis which is being amortized over its duration on a straight-line basis as a reduction of revenue:
INTANGIBLE ASSETS
AS OF DECEMBER 22, 2012 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
2,250
3 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate and market rate for
comparable charter on the business combination date discounted at the WACC of approximately 11%.
Total revenues and net income of Archimidis since its acquisition by the Partnership were $321 and $178 respectively and included in the
Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2012.
• pro Forma Financial information: The supplemental pro forma financial information was prepared using the acquisition method of
accounting and is based on the following:
• The Partnership’s actual results of operations for the year ended December 31, 2012 excluding non recurring transactions such as Alexander the
Great impairment charge of $21,564 (Note 5) as well as the actual results of operations of Alexander the Great for the period from January 1,
2012 to December 21, 2012 and actual acquisition related costs the Partnership incurred in connection with the acquisition of Archimidis;
• The Partnership’s actual results of operations for the year ended December 31, 2011 adjusted for non recurring transactions such as
Alexander the Great impairment charge of $21,564 and actual acquisition related costs the Partnership incurred in connection with the
acquisition of Archimidis. Alexander the Great actual results of operations for the period from October 1, 2011 to December 31, 2011 have
been excluded from the Partnership’s actual results of operations as the vessel owning company of Alexander the Great was a fully owned
subsidiary of Crude which was merged with the Partnership on September 30, 2011 (Note 3i) and;
F-25
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS \ ARCHIMIDIS - continued
• Pro forma results of operations of Archimidis for the period from January 1, 2012 to December 21, 2012 and for the year ended Decem-
ber 31, 2011, as if Archimidis was operating under post acquisition revenue and cost structure.
The combined results do not purport to be indicative of the results of the operations which would have resulted had the acquisition been
effected at beginning of the applicable period noted above, or the future results of operations of the combined entity.
The following table summarizes total net revenues; net (loss) / income and net (loss) / income per common unit of the combined entity had
the acquisitions of Archimidis occurred on January 1, 2011:
FOR THE YEAR ENDED DECEMBER 31 (in US $)
total revenues
PARTNERSHIP’S NET INCOME
preferred unit holders’ interest in partnership’s net income
General partner’s interest in partnership’s net income
COMMON UNIT HOLDERS INTEREST IN PARTNERSHIP’S NET (LOSS) INCOME
NET (LOSS) / INCOME PER COMMON UNIT (BASIC AND DILUTED)
2012
155,011
2,746
10,809
(161)
(7,902)
(0,12)
2013
139,890
72,813
-
1,456
71,357
1,51
F-26
H. PATROKLOS MArine Corp. (M/V CApe AGAMeMnon)
O n June 9, 2011, the Partnership acquired the shares of Patroklos Marine Corp., the vessel owning company of the M/V Cape Agamemnon
(“Patroklos”), from CMTC as it was deemed accretive to the Partnership’s distributions by the board of directors. The vessel at the time of
her acquisition by the Partnership operated under a ten year time charter, with Cosco Bulk Carrier Co. Ltd. (“COSCO Bulk”), an affiliate
of the COSCO Group. The time charter commenced in July 2010 and the earliest expiry under the charter is in June 2020. The acquisition of
Patroklos was unanimously approved by the Partnership’s Board of Directors following the unanimous approval and recommendation of the
Board’s conflicts committee, which is comprised entirely of independent directors.
The Partnership accounted for the acquisition of Patroklos as an acquisition of a business. All assets and liabilities of Patroklos except the
vessel, necessary permits and time charter agreement, were retained by CMTC. The purchase price of the acquisition has been allocated to the
identifiable assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a gain from bargain purchase.
• purchase price: The total purchase consideration of $83,525 was funded by $1,470 from available cash, $25,000 through a draw down
from the Partnership’s credit facility with Credit Agricole Emporiki Bank and the remaining through the issuance of 6,958,000 Partnership’s
common units to CMTC at a price of $8.20 per unit as quoted on the Nasdaq Stock Exchange the date of the acquisition of Patroklos by the
Partnership. Furthermore upon the acquisition of Patroklos, the Partnership issued another 142,000 of Partnership’s common units. These
units were converted into 142,000 of general partner units by the Partnership and delivered to Capital General Partner (“CGP”) in order for it
to maintain its 2% interest in the Partnership. The Partnership received the amount of $1,470 in exchange for these general partner units.
• Acquisition related costs: Acquisition-related costs of approximately $409 are included in general and administrative expenses in the
consolidated statements of comprehensive income / (loss) for the year ended December 31, 2011.
• purchase price allocation: The allocation of the purchase price to acquired identifiable assets was based on their estimated fair values
at the date of acquisition.
The fair value allocated to each class of identifiable assets of Patroklos and the gain from bargain purchase recorded as non operating income
/ (expense), net in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2011 was
calculated as follows:
Vessel
51,500
identifiable assets
AS OF JUNE 9, 2011 (in US $)
Above market acquired time charter
The gain from bargain purchase of $16,526 has resulted from the decline of the Part-
nership’s common unit price as the 6,958,000 common units which were issued to
CMTC were valued at $8.20 per unit as quoted on the Nasdaq Stock Exchange on the
day of the acquisition of Patroklos, as compared to the Partnership’s common unit
price of $10.35 representing a value of Partnership’s common unit on the day CMTC
and the Partnership agreed on the purchase consideration, including the issuance of
these common units.
After a subsequent review and reassessment of valuation methods and procedures
of the $100,051 fair value amount for identifiable assets acquired, the Partnership
concluded that its measurements for the assets acquired appropriately reflect consideration of all available information that existed as of the
acquisition date. Therefore, the Partnership recorded a gain from bargain purchase of $16,526 in accordance with ASC Subtopic 805-30 as of
the Patroklos acquisition date.
Gain from bargain purchase
purchase price
100,051
(83,525)
16,526
48,551
• identifiable intangible assets: The following table sets forth the component of the identifiable intangible asset acquired with the purchase
of Patroklos which is being amortized over its duration on a straight-line basis as a reduction of revenue:
INTANGIBLE ASSETS
AS OF JUNE 9, 2011 (IN US $)
DURATION OF TIME CHARTER ACQUIRED
Above market acquired time charter
48,551
9,1 years
The fair value of the above market time charter acquired was determined as the difference between the time charter rate and market rate for
comparable charter on the business combination date discounted at the WACC of approximately 11%.
Total revenues and net income of Patroklos since its acquisition by the Partnership were $5,305 and $2,899 respectively and included in the
Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2011.
F-27
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
3. ACQUISITIONS - continued
i. CRUDE
O n September 30, 2011, the merger between the Partnership and Crude was successfully completed. The exchange ratio of this unit for
share transaction was 1.56 Partnership’s common units for each Crude share. The Partnership was the surviving entity in the merger
and continued to be structured as a master limited partnership. This transaction was deemed accretive to the Partnership’s distributions
in the long term and it added to the balance sheet strength and financial flexibility of the Partnership.
The Crude acquisition has been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the
total purchase price has been allocated to the all identifiable assets acquired and liabilities assumed with the excess of the fair value of assets
acquired and liabilities assumed over the purchase price recorded as a gain from bargain purchase.
• purchase price: The total purchase consideration of $157,064 was comprised of:
• $155,559 representing the value of 24,344,176 Partnership’s common units that were issued to Crude’s shareholders’, based on the exchange
ratio of 1.56 Partnership’s common units for each Crude share, at a price of $6.39 per unit as quoted on the Nasdaq Stock Exchange on
September 30, 2011 the day of the successful closing of the acquisition and;
• $1,505 representing the fair value attributable to precombination services of Crude’s Equity Incentive Plan awards at the closing of the
merger on September 30, 2011. Crude’s Equity Incentive Plan awards consisted of 399,400 of Crude’s common shares which were also
exchanged at a ratio of 1.56 into 623,064 Partnership’s common units at the closing of the merger.
Furthermore at the closing of the acquisition of Crude the Partnership converted 499,346 of Partnership’s common units held by CMTC into
499,346 general partner units and delivered to CGP in order for it to maintain its 2% interest in the Partnership. For these units there was no
cash consideration paid to the Partnership.
• Acquisition related costs: Acquisition-related costs of approximately $4,225 were included in general and administrative expenses in
the consolidated statements of comprehensive income / (loss) for the year ended December 31, 2011.
• purchase price allocation: The allocation of the purchase price to all identifiable assets acquired and liabilities assumed was based on
their estimated fair values at the date of acquisition.
The fair value allocated to each class of assets and liabilities of Crude and the gain from bargain purchase recorded as non operating income
/ (expense), net, in the Partnership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2011 was
calculated as follows:
AS OF SEPTEMBER 30, 2011 (in US $)
The gain from bargain purchase of $65,927 has mainly resulted from:
Current assets
Vessel
total liabilities
30,300
351,750
(159,059)
net assets acquired and liabilities assumed
222,991
purchase price
Gain from bargain purchase
(157,064)
65,927
• the decline of the Partnership’s common unit price as the common units which
were issued to Crude’s shareholders were valued at $6.39 per unit as quoted on
the Nasdaq Stock Exchange on the day of the acquisition of Crude as compared to
the Partnership’s common unit price of $11.27 used to determine the exchange
ratio of the unit for share transaction;
• the fair value adjustments for the five crude tanker vessels comprising Crude’s
fleet on the day of the acquisition and;
• the fair value attributable to precombination services of Crude’s Equity Incentive
Plan awards included into the purchase consideration.
After a subsequent review and reassessment of valuation methods and procedures of the $222,991 fair value amount for identifiable assets
acquired and liabilities assumed, the Partnership concluded that its measurements for the identifiable assets acquired and liabilities assumed
appropriately reflect consideration of all available information that existed as of the acquisition date. As a result of the merger and based on
ASC Subtopic 805-30 the Partnership recorded a gain from bargain purchase of $65,927 in its consolidated statements of comprehensive
income / (loss) as of the acquisition date.
Total revenues and net loss of Crude since its acquisition by the Partnership were $13,327 and $1,399 respectively and included in the Part-
nership’s consolidated statements of comprehensive income / (loss) for the year ended December 31, 2011.
F-28
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
4. TRANSACTIONS WITH RELATED PARTIES
The Partnership and its subsidiaries, have related-party transactions with the Manager, arising certain terms of the following three different
types of management agreements.
(1) Fixed fee management agreement: At the time of the completion of the IPO, the Partnership entered into an agreement with its
Manager , according to which the Manager provides the Partnership with certain commercial and technical management services
for a fixed daily fee per managed vessel which covers the commercial and technical management services, the respective vessels’
operating costs such as crewing, repairs and maintenance, insurance, stores, spares, and lubricants as well as the cost of the first
special survey or next scheduled dry-docking, of each vessel. In addition to the fixed daily fees payable under the management
agreement, the Manager is entitled to supplementary compensation for additional fees and costs (as defined in the agreement) of
any direct and indirect additional expenses it reasonably incurs in providing these services, which may vary from time to time. The
Partnership also pays a fixed daily fee per bareboat chartered vessel in its fleet, mainly to cover compliance and commercial costs,
which include those costs incurred by the Manager to remain in compliance with the oil majors’ requirements, including vetting
requirements;
(2) Floating fee management agreement: On June 9, 2011, the Partnership entered into an agreement with its Manager based on actual
expenses per managed vessel with an initial term of five years. Under the terms of this agreement the Partnership compensates
its Manager for expenses and liabilities incurred on the Partnership’s behalf while providing the agreed services, including, but not
limited to, crew, repairs and maintenance, insurance, stores, spares, lubricants and other operating costs. Costs and expenses associ-
ated with a managed vessel’s next scheduled dry docking are borne by the Partnership and not by the Manager. The Partnership
also pays its Manager a daily technical management fee per managed vessel that is revised annually based on the United States
Consumer Price Index; and
(3) Crude management agreement: On September 30, 2011, the Partnership completed the acquisition of Crude. The five crude tanker ves-
sels the Partnership acquired continue to be managed under a management agreement entered into in March 2010 with the Manager,
whose initial term expires on December 31, 2020. Under the terms of this agreement the Partnership compensates the Manager for all
of its expenses and liabilities incurred on the Partnership’s behalf while providing the agreed services, including, but not limited to, crew,
repairs and maintenance, insurance, stores, spares, lubricants and other operating and administrative costs. The Partnership also pays its
Manager the following fees:
• a daily technical management fee per managed vessel that is revised annually based on the United States Consumer Price Index;
• a sale & purchase fee equal to 1% of the gross purchase or sale price upon the consummation of any purchase or sale of a vessel acquired/
disposed by Crude; and
• a commercial services fee equal to 1.25% of all gross charter revenues generated by each vessel for commercial services rendered.
The Manager has the right to terminate the Crude management agreement and, under certain circumstances, could receive substantial sums
in connection with such termination. As of March 2013 this termination fee had been adjusted to $9,654.
All the above three agreements constitute the “Management Agreements”.
Under the terms of the fixed fee management agreement, the Manager charged the Partnership for additional fees and costs, relating to
insurances deductibles, vetting, and repairs and spares that related to unforeseen events. For the years ended December 31, 2013, 2012 and
2011 such fees amounted to $644, $1,850 and $1,237, respectively. The 2013 and 2011 charge includes the amounts of $330 and $710 that
reflect the claim proceeds the Partnership received for the M/T Aristofanis and the M/T Attikos respectively.
On April 4, 2007, the Partnership entered into an administrative services agreement with the Manager, pursuant to which the Manager will
provide certain administrative management services to the Partnership such as accounting, auditing, legal, insurance, IT, clerical, investor
relations and other administrative services. Also the Partnership reimburses CGP for all expenses which are necessary or appropriate for
the conduct of the Partnership’s business. The Partnership reimburses the Manager and CGP for reasonable costs and expenses incurred
in connection with the provision of these services after the Manager submits to the Partnership an invoice for such costs and expenses,
together with any supporting detail that may be reasonably required. These expenses are included in general & administrative expenses
in the consolidated statements of comprehensive income / (loss).
F-29
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
4. TRANSACTIONS WITH RELATED PARTIES - continued
Balances and transactions with related parties consisted of the following:
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2013 (in US $)
AS OF DECEMBER 31, 2012 (in US $)
Assets
Hire receivable (c)
Due from related parties
TOTAL ASSETS
liabilities
Manager – payments on behalf of the partnership (a)
Management fee payable to CSM (b)
Due to related parties
Deferred revenue – current (e)
TOTAL LIABILITIES
CONSOLIDATED STATEMENTS OF INCOME
revenues (c)
Voyage expenses
Vessel operating expenses
General and administrative expenses (d)
667
667
667
12,333
1,353
13,686
5,198
18,884
-
-
-
15,957
1,490
17,447
4,637
22,084
FOR THE YEAR ENDED DECEMBER 31 (in US $)
2013
54,974
314
17,039
3,052
2012
69,938
554
23,634
3,092
2011
31,799
165
30,516
1,630
(a) Manager - payments on Behalf of Capital product partners
l.p.: This line item includes the payments made by the Manager
on behalf of the Partnership and its subsidiaries.
(b) Management fee payable to CSM: The amount outstanding as
of December 31, 2013 and 2012 represents the management fee
payable to CSM as a result of the Management Agreements the
Partnership entered into with the Manager.
(c) revenues: The following table includes information regarding the
charter agreements were in place between the Partnership and
CMTC during 2013 and 2012.
F-30
VESSEL NAME
M/t Agisilaos
M/t Agisilaos
M/t Agisilaos
M/t Axios
M/t Axios
M/t Arionas
M/t Arionas
M/t Arionas
M/t Alkiviadis
M/t Alkiviadis
M/t Alkiviadis
M/t Amore Mio ii
M/t Amore Mio ii
M/t Avax
M/t Avax
M/t Avax
M/t Akeraios
M/t Akeraios
M/t Akeraios
M/t Apostolos
M/t Apostolos
M/t Anemos i
M/t Aristotelis
M/t Miltiadis M ii
M/t Alexander the Great (1)
M/t Amoureux
M/t Aias
M/t Aias
M/t Agamemnon
M/t Achilleas (1)
TIME CHARTER (TC)
IN YEARS
COMMENCEMENT
OF CHARTER
TERMINATION OR EARLIEST
EXPECTED REDELIVERY
GROSS (NET) DAILY /
HIRE RATE (IN US $)
1 TC
1 TC
1 TC
1 TC
1 TC
1 TC
1 TC
1 TC
2 TC
1 TC
1 TC
0.9 to 1.2TC
1 TC
1 TC
1 TC
1 TC
1 TC
1 TC
1.5 TC
1 TC
1.2 to 1.5 TC
1.2 to 1.5 TC
1.5 to 2 TC
1 TC
1TC
1+1 TC
1+1 TC
1 TC
1 TC
1TC
08/2011
09/2012
09/2013
06/2012
06/2013
10/2011
11/2012
11/2013
06/2010
07/2012
07/2013
12/2011
12/2013
05/2011
05/2012
05/2013
07/2011
07/2012
07/2013
09/2012
10/2013
12/2013
12/2013
03/2012
11/2011
10/2011
11/2011
12/2013
03/2013
01/2012
09/2012
09/2013
08/2014
06/2013
05/2014
11/2012
11/2013
10/2014
07/2012
07/2013
06/2014
03/2012
11/2014
05/2012
05/2013
10/2013
07/2012
07/2013
12/2014
10/2013
12/2014
02/2015
06/2015
09/2012
12/2012
1/2014
12/2013
11/2014
10/2013
12/2012
13.5 (13.3)
13.5 (13.3)
14.3 (14.1)
14.0 (13.8)
14.8 (14.6)
13.8 (13.6)
13.8 (13.6)
14.3 (14.1)
13.0 (12.8)
13.4 (13.2)
14.3 (14.1)
18.3 (18.0)
17.0 (16.8)
14.0 (13.8)
14.0 (13.8)
14.8 (14.6)
14.0 (13.8)
14.0 (13.8)
15.0 (14.8)
14.0 (13.8)
14.9 (14.7)
14.9 (14.7)
17.0 (16.8)
18.3 (18.0)
28.0 (27.7)
20.0+24.0 (19.8+23.7)
20.0+24.0 (19.8+23.7)
24.0 (23.7)
14.5
28.0 (27.7)
(1) On December 22, 2012, the Partnership acquired the shares of the vessel owning companies of the M/V Agamemnon and the M/V
Archimidis from CMTC in exchange of the shares of the vessel owning companies of the M/T Achilleas and the M/T Alexander The Great
respectively (Note 3).
(d) General and administrative expenses: This line item mainly includes internal audit, investor relations and consultancy fees.
(e) Deferred revenue: As of December 31, 2013 and 2012 the Partnership received cash in advance for revenue earned in a subsequent
period from CMTC.
F-31
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
5. VESSELS NET
An analysis of vessels is as follows:
CARRYING AMOUNT AS AT JANUARY 1, 2012
Acquisition and improvements
Disposals
impairment of vessels
Depreciation
CARRYING AMOUNT AS AT DECEMBER 31, 2012
Acquisitions and improvements
Disposals
Depreciation
CARRYING AMOUNT AS AT DECEMBER 31, 2013
NET BOOK VALUE (in US $)
1,073,986
133,105
(156,128)
(43,178)
(48,235)
959,550
308,141
(38,923)
(51,949)
1,176,819
All of the Partnership’s vessels as of December 31, 2013 have been provided as collateral to secure the Partnership’s credit
facilities.
On November 28, 2013, the Company acquired the M/T Aristarchos (renamed M/T Aristotelis), a 51,604 dwt eco type medium range product
tanker built in 2013, from an unrelated third party, for a total consideration of $38,141 including initial expenses of $111. The acquisition
price was funded from the selling proceeds of the M/T Agamemnon II and from the Partnership’s available cash.
On November 5, 2013, the Company disposed the M/T Agamemnon II a 51,238 dwt chemical tanker built in 2008 for net proceeds of
$32,192 to an unrelated third party. The Partnership realized a net loss on this disposal of $7,073 as the carrying value of the vessel at the
time of her disposal was $38,923. This net loss is presented in the Partnership’s consolidated statements of comprehensive income / (loss)
as “Loss / (gain) on sale of vessels to third parties”. For the year ended December 31 2013, the Partnership has unpaid expenses relating
to this sale of $343.
On September 11, 2013, the Company acquired the shares of Anax Container Carrier S.A., the vessel owning company of the M/V Hyundai
Prestige renamed to CCNI Angol, Thiseas Container Carrier S.A., the vessel owning company of the M/V Hyundai Privilege and Cronus
Container Carrier S.A., the vessel owning company of the M/V Hyundai Platinum (Note 3). The vessels were recorded in the Partnership’s
financial statements at their respective fair values of $54,000 each as quoted by independent brokers at the time of their acquisition by
the Partnership.
On March 20 and March 27, 2013, the Company acquired the shares of Hercules Container Carrier S.A., the vessel owning company of M/V
Hyundai Premium, and Iason Container Carrier S.A., the vessel owning company of the M/V Hyundai Paramount, respectively (Note 3). The
vessels were recorded in the Partnership’s financial statements at their respective fair values of $54,000 each as quoted by independent
brokers at the time of their acquisition by the Partnership.
On December 22, 2012, the Partnership acquired the shares of the vessel owning companies of two post panamax container carrier ves-
sels the M/V Agamemnon and the M/V Archimidis from CMTC in exchange of the shares of the vessel owning companies of two very
large crude carrier vessels the M/T Achilleas and the M/T Alexander The Great respectively (Note 3). The M/V Agamemnon and the M/V
Archimidis have been recorded in the Partnership’s financial statements at their fair value as quoted by independent brokers at the time
of the acquisition of $68,000 and $65,000 respectively.
In relation to the transaction described above the Partnership recorded an impairment charge of $43,178 which represents the difference
between the carrying value of the M/T Achilleas and the M/T Alexander the Great of $180,928 and the fair market value of these vessels of
$137,750 as quoted by independent brokers and is presented as “Vessels’ impairment charge” in the Partnership’s consolidated statements
of comprehensive income / (loss). The vessel-owning companies of the M/T Achilleas and the M/T Alexander the Great were deconsolidated
F-32
from the Partnership accounts as of the date of their disposal to CMTC. Results of operations, cash flows, and assets and liabilities of these
vessels prior to their disposal to CMTC are included in the Partnership’s consolidated financial statements.
On April 4, 2012 the Company disposed the M/T Aristofanis, a 12,000 dwt, chemical tanker built in 2005 for net proceeds of $9,867, to
an unrelated third party. The Partnership realized a net gain on this disposal of $353 as the carrying value of the vessel at the time of her
disposal was $9,514.
On February 14, 2012 the Company disposed the M/T Attikos, a 12,000 dwt chemical tanker built in 2005 for net proceeds of $9,807, to
an unrelated third party. The Partnership realized a net gain on this disposal of $943 as the carrying value of the vessel at the time of
her disposal was $8,864.
During 2012 the M/T Avax, M/T Axios, M/T Akeraios, M/T Apostolos, M/T Anemos and M/T Atrotos (renamed El Pipila) underwent improve-
ments following their respective first special survey. These costs for these six vessels amounted to $105 and were capitalized as part of
the respective vessels’ historic cost.
F-33
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
6. ABOVE MARKET ACQUIRED CHARTERS
O n September 11, 2013 the Partnership acquired the shares of Anax Container Carrier S.A., Thiseas Container Carrier S.A. and Cronus
Container Carrier S.A., the vessel owning companies of the M/V Hyundai Prestige renamed to CCNI Angol, M/V Hyundai Privilege,
and M/V Hyundai Platinum, respectively, from CMTC with outstanding time charters to Hyundai which were above the market
rates for equivalent time charters prevailing at the time of acquisition. The present value of the above market acquired time charters were
estimated by the Partnership at $19,094, $19,329 and $19,358, respectively, and recorded as an asset in the consolidated balance sheet
as of the acquisition date (Note 3).
On March 20 and March 27, 2013 the Partnership acquired the shares of Hercules Container Carrier S.A. and Iason Container Carrier S.A.,
the vessel owning companies of M/V Hyundai Premium and M/V Hyundai Paramount, respectively, from CMTC with outstanding time
charters to Hyundai which were above the market rates for equivalent time charters prevailing at the time of acquisition. The present
value of the above market acquired time charters were estimated by the Partnership at $19,707 and $19,768, respectively, and recorded
as an asset in the consolidated balance sheet as of the acquisition date (Note 3).
In December 22, 2012 the Partnership acquired the shares of Agamemnon and Archimidis, from CMTC with outstanding time charters
to Maersk which were above the market rates for equivalent time charters prevailing at the time of acquisition. The present value of the
above market acquired time charters were estimated by the Partnership at $2,250 each, and recorded as an asset in the consolidated bal-
ance sheet as of the acquisition date (Note 3).
In June 2011 the Partnership acquired the shares of Patroklos, the vessel-owning company of M/V Cape Agamemnon from CMTC with
an outstanding time charter to COSCO Bulk terminating in June, 2020, which was above the market rates for equivalent time charters
prevailing at the time of acquisition. The present value of the above market acquired time charter was estimated by the Partnership at
$48,551, and recorded as an asset in the consolidated balance sheet as of the acquisition date (Note 3).
For the years ended December 31, 2013, 2012 and 2011 revenues included a reduction of 13,594, $7,904 and $5,489 as amor-
tization of the above market acquired charters, respectively.
An analysis of above market acquired charters is as follows:
ABOVE MARKET ACQUIRED CHARTERS (in US $)
CARRYING
AMOUNT
as at January 1,
2012
45,543
5,581
-
-
-
-
-
-
-
M/V Cape Agamemnon
M/t Assos
M/V Agamemnon
M/V Archimidis
M/V Hyundai premium
M/V Hyundai paramount
M/V Hyundai prestige
M/V Hyundai privilege
M/V Hyundai platinum
ACQUISITIONS AMORTIZATION
-
-
2,250
2,250
-
-
-
-
-
(5,372)
(2,488)
(23)
(21)
-
-
-
-
-
CARRYING
AMOUNT
as at December
31, 2012
40,171
3,093
2,227
2,229
-
-
-
-
-
TOTAL
51,124
4,500
(7,904)
47,720
F-34
ACQUISITIONS AMORTIZATION
CARRYING
AMOUNT
as at December
31, 2013
34,814
612
1,363
1,432
18,396
18,528
18,575
18,816
18,846
(5,357)
(2,481)
(864)
(797)
(1,311)
(1,240)
(519)
(513)
(512)
(13,594)
131,382
-
-
-
-
19,707
19,768
19,094
19,329
19,358
97,256
As of December 31, 2013 the remaining carrying amount of unamortized above market acquired time and bare-boat charters was $131,382
and will be amortized in future years as follows:
FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31 (in US $)
M/V Cape Agamemnon
M/t Assos
M/V Agamemnon
M/V Archimidis
M/V Hyundai premium
M/V Hyundai paramount
M/V Hyundai prestige
M/V Hyundai privilege
M/V Hyundai platinum
2014
5,357
612
863
796
1,668
1,670
1,693
1,672
1,669
2015
5,357
-
500
636
1,668
1,670
1,693
1,672
1,669
2016
5,372
-
-
-
1,668
1,670
1,697
1,675
1,674
2017
5,357
-
-
-
1,668
1,670
1,693
1,672
1,669
2018
5,357
-
-
-
1,668
1,670
1,693
1,672
1,669
THEREAFTER
8,014
-
-
-
10,056
10,178
10,106
10,453
10,496
TOTAL
34,814
612
1,363
1,432
18,396
18,528
18,575
18,816
18,846
TOTAL
16,000
14,865
13,756
13,729
13,729
59,303
131,382
F-35
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
7. LONG-TERM DEBT
Long-term debt consists of the following:
BANK LOANS
ENTITY
AS OF DECEMBER 31
2013 (in US $)
AS OF DECEMBER 31
2012 (in US $)
MARGIN
(in %)
issued in April, 2007 maturing in June, 2017
Capital Product Partners L.P.
issued in March, 2008 maturing in March 2018
Capital Product Partners L.P.
issued in June 2011 maturing in March 2018
Capital Product Partners L.P.
issued in September 2013 maturing in December 2020
Capital Product Partners L.P.
TOTAL
less: Current portion
long-term portion
250,850
238,465
19,000
75,000
583,315
5,400
577,915
2.00
3.00
3.25
3.50
250,850
188,515
19,000
-
458,365
-
458,365
As at December 31, 2013, the amounts drawn down under the Partnership’s four credit facilities were as follows:
DATE
370,000 CREDIT
Facility (i)
350,000 CREDIT
Facility (ii)
25,000 CREDIT
Facility (iii)
225,000 SENIOR
SECURED CREDIT
Facility (iv)
IN US $
VESSEL / ENTITY
M/t Akeraios
M/t Apostolos
M/t Anemos i
M/t Alexandros ii
M/t Amore Mio ii
M/t Aristofanis
M/t Aristotelis ii
M/t Aris ii
M/V Cape Agamemnon
M/V Hyundai premium
M/V Hyundai paramount
M/V Hyundai prestige (CCni Angol)
M/V Hyundai privilege
M/V Hyundai platinum
07/13/2007
09/20/2007
09/28/2007
01/29/2008
03/27/2008
04/30/2008
06/17/2008
08/20/2008
06/09/2011
03/20/2013
03/27/2013
09/06/2013
09/06/2013
09/06/2013
46,850
56,000
56,000
48,000
-
-
20,000
24,000
-
-
-
-
-
-
-
Crude Carriers Corp. and its subsidiaries
09/30/2011
TOTAL
250,850
-
-
-
-
46,000
11,500
-
1,584
-
24,975
24,975
-
-
-
129,431
238,465
-
-
-
-
-
-
-
-
19,000
-
-
-
-
-
-
19,000
-
-
-
-
-
-
-
-
-
-
-
75,000
75,000
75,000
-
75,000
In September 2013 the Partnership entered into a new senior secured credit facility of up to $200,000, which was amended in Decem-
ber, 2013 to upsize it up to $225,000, led by ING Bank N.V. in order to partly finance the acquisition cost of certain vessels. The facility
is divided in two tranches. Tranche A consisted of $75,000 which was drawn down on September 11, 2013, in order to part finance the
acquisition cost of the shares of Anax Container Carrier S.A., Cronus Container Carrier S.A. and Thiseas Container Carrier S.A. that were
the owning companies of the 2013-built 5,000 TEU container vessels “Hyundai Prestige” (renamed to “CCNI Angol”), “Hyundai Privilege”
and “Hyundai Platinum” respectively (Note 3). Tranche B, consisted of $150,000, which will be available in multiple advances in order
to finance up to 50% of the acquisition cost of certain additional ships or to finance the cost of acquiring the issued share capital of an
F-36
additional vessel owning company. As of December 31, 2013 the Partnership had not drawn down any amount of Tranche B. The facility
is repayable in twenty consecutive quarterly installments, beginning in March 2016, in the amount that provides for the overall thirteen
and sixteen year repayment profiles on sub facilities A (Tranche A) and B (Tranche B) respectively, after adjustment for the security vessel
age at acquisition date and availability period.
All amounts outstanding, including the balloon payment, will become due and payable in December 2020. The facility bears
interest at LIBOR plus a margin of 3.50% and commitment fees of 1.0%.
In November, 2013 the Partnership amended its credit facility of $370,000 in order to replace the M/T Agamemnon II which was sold on
November 5, 2013 (Note 5) with the M/T Aristotelis as a security.
In March, 2013, the Partnership’s credit facility of $350,000 was converted into a term loan, and the undrawn amount of $1,420 was cancelled.
On March 20, and March 27, 2013, the Partnership had drawn in total the amount of $54,000 from the undrawn portion of its $350,000
credit facility in order to partly finance the acquisition of the vessel owning companies of the M/V Hyundai Premium and the M/V Hyundai
Paramount respectively (Note 3). The amount of $54,000 is payable in twenty equal consecutive quarterly installments of $1,350 com-
mencing in June 2013 plus a balloon payment of $27,000 in March 2018.
Following the exchange of the M/T Achilleas with the M/V Agamemnon and the M/T Alexander the Great with the M/V Archimidis in
December 2012, the Partnership prepaid from its available cash the amount of $5,149 and the M/V Archimidis and the M/V Agamemnon
replaced the M/T Alexander the Great and the M/T Achilleas as collateral under its credit facility of $350,000.
Following the issuance of Class B Convertible Preferred Units in May and June 2012 (Note 13), the Partnership prepaid debt of $149,566
across its three credit facilities by using in full the net proceeds of the issuance of $136,419 and an amount of $13,147 from its available
cash. Following the debt repayment of $149,566, on May 23, 2012 the Partnership’s credit facilities were amended: a) The new amorti-
zation schedule will commence in March 2016 b) the margin of the credit facility of $370,000 and $350,000 has increased to 2% and
3% respectively and c) the Partnership’s credit facility of $370,000 was converted into a term loan, and the undrawn tranche of $52,500
relating to the credit facility of $350,000 was cancelled.
The Partnership’s loan of $370,000 will be repaid in 6 equal consecutive quarterly installments of $12,975 commencing in March, 2016 plus a
balloon payment due in June, 2017. The Partnership’s credit facilities of $350,000 and $25,000 will be repaid in 9 equal consecutive quarterly
installments of $7,855 and $1,000 respectively commencing in March, 2016 plus a balloon payment for each facility due in March, 2018.
On April 4, 2012, an amount of $10,500 was repaid on the Partnership’s revolving credit facility of $370,000, from the proceeds of the
disposal of its vessel M/T Aristofanis.
On February 15, 2012, an amount of $10,000 was repaid on the Partnership’s revolving credit facility of $370,000, from the proceeds of
the disposal of its vessel M/T Attikos.
The Partnership’s credit facilities contain customary ship finance covenants, including restrictions as to: changes in management and own-
ership of the mortgaged vessels, the incurrence of additional indebtedness, the mortgaging of vessels, the ratio of EBITDA to Net Interest
Expenses shall be no less than 2:1, minimum cash requirement of $500 per vessel, as well as the ratio of net Total Indebtedness to the
aggregate Market Value of the total fleet shall not exceed 0.725:1. The credit facilities also contain the collateral maintenance requirement
in which the aggregate average fair market value, of the collateral vessels shall be no less than 125% of the aggregate outstanding amount
under these facilities. Also the vessel-owning companies may pay dividends or make distributions when no event of default has occurred
and the payment of such dividend or distribution has not resulted in a breach of any of the financial covenants. As of December 31, 2013
and 2012 the Partnership was in compliance with all financial debt covenants.
The credit facilities have a general assignment of the earnings, insurances and requisition compensation of the respective vessel or ves-
sels. Each also requires additional security, including: pledge and charge on current account; corporate guarantee from each of the thirty
vessel-owning companies, and mortgage interest insurance.
F-37
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
7. LONG-TERM DEBT - continued
The Partnership’s credit facilities contain a “Market Disruption Clause” where the lenders, at their discretion, may impose additional inter-
est margin if their borrowing rate exceeds effective interest rate (LIBOR) stated in the loan agreement with the Partnership. For the years
ended December 31, 2013, 2012 and 2011 the Partnership incurred an additional interest expense in the amount of $0, $373 and $1,290
respectively due to the “Market Disruption Clause”.
For the years ended December 31, 2013, 2012 and 2011, the Partnership recorded interest expense of $14,982, $25,788 and $32,216,
respectively. As of December 31, 2013 and 2012 the weighted average interest rate of the Partnership’s loan facilities was 2.81% and
3.11%, respectively.
The required annual loan payments to be made subsequent to December 31, 2013 are as follows:
370,000 CREDIT
Facility (i)
350,000 CREDIT
Facility (ii)
25,000 CREDIT Facil-
ity (iii)
225,000 SENIOR
SECURED CREDIT
Facility (iv)
2014
2015
2016
2017
2018
Thereafter
TOTAL
-
-
51,900
198,950
-
-
250,850
5,400
5,400
36,819
36,819
154,027
-
238,465
IN US $
-
-
4,000
4,000
11,000
-
19,000
-
-
5,769
5,769
5,769
57,693
75,000
TOTAL
5,400
5,400
98,488
245,538
170,796
57,693
583,315
F-38
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
8. DERIVATIVE INSTRUMENTS
T he Partnership had entered into fourteen interest rate swap agreements in order to mitigate the exposure from interest rate fluctua-
tions. Nine of the Partnership’s interest rate swap agreements under its $370,000 credit facility expired as of June 29, 2012 and one was
terminated upon the disposal of the M/T Attikos and the M/T Aristofanis. During the year ended December 31, 2012, the Partnership
terminated one interest rate swap agreement in full and one partially under its $350,000 credit facility. During the year ended December 31,
2013, the Partnership’s three remaining swaps with a notional amount of $59,084 expired.
All derivatives are carried at fair value on the consolidated balance sheet at each period end. Balances as of December 31, 2013 and Decem-
ber 31, 2012 are as follows:
DECEMBER 31, 2013
DECEMBER 31, 2012
INTEREST RATE SWAPS
TOTAL
INTEREST RATE SWAPS
TOTAL
Short-term liabilities
Long-term liabilities
TOTAL
-
-
-
Tabular disclosure of financial instruments is as follows:
DERIVATIVE LIABILITIES
BALANCE SHEET LOCATION
IN US $
467
-
467
-
-
-
467
-
467
AS OF DECEMBER 31, 2013
Fair value
AS OF DECEMBER 31, 2012
Fair value
Derivatives designated as hedging instruments - effective hedges
Derivative instruments long-term liabilities
Derivative instruments short-term liabilities
total derivatives not designated as hedging instruments - ineffective hedges
Derivative instruments short-term liabilities
TOTAL DERIVATIVE LIABILITIES
-
-
-
-
-
100
367
467
The table below shows the effective portion of the hedging relationship of the Partnership’s derivatives designated as hedging instruments recognized
in Other Comprehensive Income (“OCI”), the realized losses from net interest rate settlements transferred from OCI into the Partnership’s consoli-
dated statements of comprehensive income / (loss) and the amounts recognized in the consolidated statements of comprehensive income / (loss)
arising from the hedging relationships not qualifying for hedge accounting for the years ended December 31, 2013, 2012 and 2011, respectively:
DERIVATIVES
DESIGNATED
IN CASH
FLOW
HEDGING
RELATION-
SHIPS
recognized
in OCI
(Effective
Portion)
CHANGE IN FAIR
VALUE OF HEDGING
INSTRUMENT
recognized in OCI
(Effective Portion)
LOCATION
OF GAIN /
(LOSS)
RECLASSIFIED
into consolidated
statements of
comprehensive /
income
(Effective Portion)
AMOUNT
OF LOSS RECLASSIFIED
FROM OCI
into consolidated
statements of
comprehensive income
(Effective Portion)
AMOUNT OF GAIN
recorded in OCI
(Effective Portion)
LOCATION
OF GAIN/
(LOSS)
Recognized
in the
consolidated
statements of
comprehensive
/ income
(ineffective
portion)
AMOUNT
OF GAIN/(LOSS)
recognized the
consolidated statements
of comprehensive /
income
2013 2012 2011
2013
2012
2011
2013 2012 2011
2013 2012 2011
Interest rate
swaps
(4)
(1,903)
(4,234)
Interest
expense and
finance cost
(466)
(12,665)
(21,752)
462
10,762
17,518
4
1,448
2,310
F-39
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
8. DERIVATIVE INSTRUMENTS - continued
The Partnership follows the accounting guidance for derivative instruments that establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair value measurements. This guidance enables the reader of
the financial statements to assess the inputs used to develop those measurements by establishing hierarchy for ranking the quality and
reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value will be
classified and disclosed in one of the following three categories:
level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date;
level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly;
level 3: Inputs are unobservable inputs for the asset or liability.
The Partnership’s interest rate swap agreements, entered into pursuant to its loan agreements, are based on LIBOR swap rates. LIBOR
swap rates are observable at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items. The
fair values of the interest rate swap determined through Level 2 of the fair value hierarchy are derived principally from or corroborated by
observable market data. Inputs include quoted prices for similar assets, liabilities (risk adjusted) and market-corroborated inputs, such as
market comparable, interest rates, yield curves and other items that allow value to be determined. Fair value of the interest rate swaps is
determined using a discounted cash flow method based on market-base LIBOR swap yield curves.
The fair value of the Partnership’s interest rate swaps is the estimated value of the swap agreements at the reporting date, taking into
account current interest rates and the forward yield curve and the creditworthiness of the Partnership and its counterparties.
DERIVATIVES
TOTAL
December 31, 2012
December 31, 2013
467
-
QUOTED PRICES
IN ACTIVE MARKETS
FOR IDENTICAL ASSETS
(Level 1)
SIGNIFICANT
OTHER OBSERVABLE
INPUTS
(Level 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS
(Level 3)
IN US $
467
-
-
-
-
-
Since March 31, 2012 and May 23, 2012 two out of three interest rate swaps did not qualify as cash flow hedges and the changes in their
fair value was recognized in the consolidated statements of comprehensive income / (loss) whilst the third interest rate swap agreement
qualified as a cash flow hedge and the changes in its fair value is recognized in accumulated other comprehensive income / (loss). As a
result the amount of $1,400 and $50, which was part of the Partnership’s accumulated other comprehensive income / (loss) (“OCL”) as
of March 31, 2012 and May 23, 2012 respectively, were attributable to the two ineffective hedges and were being amortized over their
respective remaining term up to their maturity date March 27, 2013 and March 28, 2013, respectively in the Partnership’s consolidated
statements of comprehensive income by using the effective interest rate method.
The net result of the accumulated OCL amortization and the change of the fair value of certain interest rate swap agreements of $4, $1,448
and $2,310 is presented under other non operating income (expense) net as a “Gain on interest rate swap agreement” in the Partnership’s
consolidated statements of comprehensive income/(loss)for the years ended December 31, 2013, 2012 and 2011, respectively.
F-40
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Accrued loan interest and loan fees
Accrued operating expenses
Accrued voyage expenses and commissions
Accrued general and administrative expenses
TOTAL
2013
312
2,501
1,543
1,031
5,387
AS OF DECEMBER 31
IN US $
2012
62
1,311
909
499
2,781
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
10. VOYAGE EXPENSES AND VESSEL OPERATING EXPENSES
Voyage expenses and vessel operating expenses consist of the following:
FOR THE YEARS ENDED DECEMBER 31
Voyage expenses:
Commissions
Bunkers
port expenses
other
TOTAL
Vessel operating expenses:
Crew costs and related costs
insurance expense
Spares, repairs, maintenance and other expenses
Stores and lubricants
Management fees
Vetting, insurances, spares and repairs (note 4)
other operating expenses
TOTAL
2013
2,742
2,473
226
649
6,090
21,154
3,780
6,545
5,022
16,395
644
1,783
55,323
2012
IN US $
1,752
3,921
-
(5)
5,668
13,230
2,830
2,231
3,115
21,784
1,850
720
45,760
2011
1,844
8,400
1,390
96
11,730
2,963
784
390
651
29,279
1,237
161
35,465
F-41
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
11. INCOME TAXES
U nder the laws of the Marshall Islands, the country in which the vessel-owning subsidiaries were incorporated, these companies are not
subject to tax on international shipping income. However, they are subject to registration and tonnage taxes in the country in which
the vessels are registered and managed from, which have been included in vessel operating expenses in the accompanying consolidated
statements of comprehensive income / (loss).
Pursuant to Section 883 of the United States Internal Revenue Code (the “Code”) and the regulations thereunder, a foreign corporation engaged
in the international operation of ships is generally exempt from U.S. federal income tax on its U.S.-source shipping income if the foreign
corporation meets both of the following requirements: (a) the foreign corporation is organized in a foreign country that grants an “equivalent
exemption” to corporations organized in the United States for the types of shipping income (e.g., voyage, time, bareboat charter) earned by the
foreign corporation and (b) more than 50% of the voting power and value of the foreign corporation’s stock is “primarily and regularly traded
on an established securities market” in the United States and certain other requirements are satisfied (the “Publicly-Traded Test”).
The jurisdictions where the Partnership’s vessel-owning subsidiaries are incorporated each grants an “equivalent exemption” to United States
corporations with respect to each type of shipping income earned by the Partnership’s ship-owning subsidiaries. Additionally, our units are
only traded on the Nasdaq Global Market, which is considered to be established securities market. The Partnership has satisfied the Publicly-
Traded Test for the years ended December 31, 2013, 2012 and 2011 and the ship-owning subsidiaries are exempt from United States federal
income taxation with respect to U.S.-source shipping income.
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
12. CASH FLOW
O n September 30, 2011 the
acquisition of Crude was suc-
cessfully completed (Note
3). As the merger agreement with
Crude was a unit for share trans-
action no cash consideration was
paid and thus the following assets
and liabilities of Crude acquired
in a non-cash transaction are not
included into the Partnership’s con-
solidated statement of cash flows
for the year ended December 31,
2011.
CRUDE’S NET ASSETS
trade receivables
prepayments and other assets
inventories
Vessels
TOTAL ASSETS
trade accounts payable
Due to related parties
Accrued liabilities
long term debt
TOTAL LIABILITIES
TOTAL NET ASSETS
F-42
AS OF SEPTEMBER 30, 2011 (IN US $)
8,321
629
9,503
351,750
370,203
12,497
10,457
1,525
134,580
159,059
211,144
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
13. PARTNERS’ CAPITAL
1. General: The partnership agreement requires that within 45 days after the end of each quarter, beginning with the quarter ending June 30,
2007, all of the Partnership’s available cash will be distributed to unitholders.
2. Definition of Available Cash: Available Cash, for each fiscal quarter, consists of all cash on hand at the end of the quarter:
• less the amount of cash reserves established by our board of directors to:
• provide for the proper conduct of the Partnership’s business (including reserves for future capital expenditures and for our anticipated credit
needs);
• comply with applicable law, any of the Partnership’s debt instruments, or other agreements; or
• provide funds for distributions to the Partnership’s unitholders and to the general partner for any one or more of the next four quarters;
• plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after
the end of the quarter. Working capital borrowings are generally borrowings that are made under our credit agreement and in all cases are
used solely for working capital purposes or to pay distributions to partners.
General partner interest and incentive Distribution rights: The General Partner has an approximate 2% interest in the Partnership as
well as the incentive distribution rights. In accordance with Section 5.2(b) of the Partnership Agreement, upon the issuance of additional units
by the Partnership, the general partner may elect to make a contribution to the Partnership to maintain its 2% interest.
Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from operating
surplus after the minimum quarterly distribution and the target distribution levels have been achieved. The Partnership’s general partner as
of December 31, 2013, 2012 and 2011 holds the incentive distribution rights.
The following table illustrates the percentage allocations of the additional available cash from operating surplus among the unitholders
and general partner up to the various target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distribu-
tions” are the percentage interests of the unitholders and general partner in any available cash from operating surplus that is being dis-
tributed up to and including the corresponding amount in the column “Total Quarterly Distribution Target Amount,” until available cash
from operating surplus we distribute reaches the next target distribution level, if any. The percentage interests shown for the unitholders
and general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the
minimum quarterly distribution.
TOTAL QUARTERLY
DISTRIBUTION TARGET
AMOUNT PER UNIT (IN US $)
UNITHOLDERS (IN %)
GENERAL PARTNER (IN %)
MARGINAL PERCENTAGE INTEREST IN DISTRIBUTIONS
Minimum Quarterly Distribution
First target Distribution
Second target Distribution
third target Distribution
thereafter
0.3750
up to 0.4313
above 0.4313 up to 0.4688
above 0.4688 up to 0.5625
above 0.5625
98%
98%
85%
75%
50%
2%
2%
15%
25%
50%
Distributions of Available Cash From operating Surplus After the Subordination period: Our Partnership agreement requires that
we will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:
• first, 98% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding unit an amount equal to
the minimum quarterly distribution for that quarter; and
• Thereafter, in the manner described in the above table under section “General Partner Interest and Incentive Distribution Rights”.
In August 2013, the Partnership completed successfully an equity offering of 13,685,000 common units, including 1,785,000 common units
representing the overallotment option which was fully exercised, at a net price of $9.25 per common unit, receiving proceeds of $120,696
after the deduction of the underwriters’ commissions. After the deduction of expenses relating to this equity offering the net proceeds of
F-43
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
13. PARTNERS’ CAPITAL - continued
this offering amounted to $119,811. The net proceeds were used to partially fund the acquisition cost of the vessel owning companies of
the M/V Hyundai Prestige, the M/V Hyundai Privilege and the M/V Hyundai Platinum from CMTC (Note 3). CMTC participated in both the
offering and the exercise of the over-allotment option and purchased 279,286 units at the public offering price, subsequently, in August
2013, converting 349,700 common units into general partner units in order CGP to maintain its 2% interest in the Partnership.
During 2013 various investors’ holders of Class B Convertible Preferred Units converted 5,733,333 Class B Convertible Preferred
Units into common units.
On March 15, 2013 the Partnership entered into a Class B Convertible Preferred Unit Subscription Agreement (the “Agreement”) in order
to issue 9,100,000 Class B Convertible Preferred Units at a price of $8.25 per Class B Convertible Preferred Unit to a group of investors
including among others Kayne Anderson Capital Advisors L.P., Oaktree Capital Management, L.P. and CMTC. The Partnership used the net
proceeds of $72,557 to partially fund the acquisition of the vessel owning companies of the M/V Hyundai Premium and the M/V Hyundai
Paramount from CMTC (Note 3).
On May 23, and June 6, 2012 the Partnership entered into a Class B Convertible Preferred Unit Subscription Agreement (the “Agreement”)
with various investors. According to this Agreement the Partnership issued 15,555,554 Class B Convertible Preferred Units to a group of
investors including Kayne Anderson Capital Advisors L.P., Swank Capital LLC, Salient Partners, Spring Creek Capital LLC, Mason Street
Advisors LLC and CMTC for net proceeds of $136,419. The Partnership used the net proceeds to prepay part of its debt (Note 7). The hold-
ers of the Class B Convertible Preferred Units have the right to convert all or a portion of such Class B Convertible Preferred Units at any
time into Common Units at the conversion price of $9 per Class B Convertible Preferred Unit and a conversion rate of one Common Unit
per one Class B Convertible Preferred Unit. The Conversion Ratio and the Conversion Price shall be adjusted upon the occurrence of certain
events as described to the Agreement.
Commencing on May 23, 2015, in the event the 30-day volume-weighted average trading price (“VWAP”) and the daily VWAP of the Com-
mon Units on the National Securities Exchange on which the Common Units are listed or admitted to trading exceeds 130% of the then
applicable Conversion Price for at least 20 Trading Days out of the 30 consecutive Trading Day period used to calculate the 30-day VWAP
(the “Partnership Mandatory Conversion Event”) the Partnership acting pursuant to direction and approval of the Conflicts Committee (fol-
lowing consultation with the full board of directors), shall have the right to convert the Class B Convertible Preferred Units then outstanding
in whole or in part into Common Units at the then-applicable Conversion Ratio.
The holders of the outstanding Class B Convertible Preferred Units as of an applicable record date shall be entitled to receive, when, as and if
authorized by the Partnership’s board of directors or any duly authorized committee, out of legally available funds for such purpose, (a) first,
the minimum quarterly Class B Convertible Preferred Unit Distribution Rate on each Class B Convertible Preferred Unit and (b) second, any
cumulative Class B Convertible Preferred Unit Arrearage then outstanding, prior to any other distributions made in respect of any other
Partnership Interests pursuant to this Agreement in cash. The minimum quarterly Class B Convertible Preferred Unit Distribution Rate
shall be payable quarterly which is generally expected to be February 10, May 10, August 10 and November 10, or, if any such date is not
a business day, the next succeeding business day.
Any distribution payable on the Class B Convertible Preferred Units for any partial quarter (other than the initial distribution payable on
the Class B Convertible Preferred Units for the period from May 22, 2012 through June 30, 2012 that equals to $0.26736 for each Class
B Convertible Preferred Unit ) shall equal the product of the minimum quarterly Class B Convertible Preferred Unit distribution rate of
$0.21375 (equals to a 9.5% annual distribution rate, subject to adjustment in the cases where clause of change of control, and/or clause
of cross default provisions of the “Agreement” applies).
No distribution on the Class B Convertible Preferred Units shall be authorized by the board of directors or declared or paid or set apart for
payment by the Partnership at such time as the terms and provisions of any agreement of the Partnership, including any agreement relat-
ing to its indebtedness, prohibits such authorization, declaration, payment or setting apart for payment or provides that such authorization,
declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such authorization,
declaration, payment or setting apart for payment shall be restricted or prohibited by law. The foregoing, distributions with respect to the
Class B Convertible Preferred Units shall accumulate as of the Class B Convertible Preferred Unit distribution payment date on which
they first become payable whether or not any of the foregoing restrictions in above exist, whether or not there is sufficient Available Cash
for the payment thereof and whether or not such distributions are authorized. A cumulative Class B Convertible Preferred Unit arrearage
F-44
shall not bear interest and holders of the Class B Convertible Preferred Units shall not be entitled to any distributions, whether payable in
cash, property or Partnership Interests, in excess of the then cumulative Class B Convertible Preferred Unit arrearage plus the minimum
quarterly Class B Convertible Preferred Unit distribution rate for such quarter.
With respect to Class B Convertible Preferred Units that are converted into Common Units, the holder thereof shall not be entitled to a
Class B Convertible Preferred Unit distribution and a Common Unit distribution with respect to the same period, but shall be entitled only
to the distribution to be paid based upon the class of Units held as of the close of business on the record date for the distribution in respect
of such period; provided , however , that the holder of a converted Class B Convertible Preferred Unit shall remain entitled to receive any
accrued but unpaid distributions due with respect to such Unit on or as of the prior Class B Convertible Preferred Unit distribution pay-
ment date; and provided, further , that if the Partnership exercises the Partnership Mandatory Conversion Right to convert the Class B
Convertible Preferred Units pursuant to this Agreement then the holders’ rights with respect to the distribution for the Quarter in which
the Partnership Mandatory Conversion Notice is received is as set forth in this Agreement.
As of December 31, 2013 and 2012 our partners’ capital included the following units:
AS OF DECEMBER 31, 2013
AS OF DECEMBER 31, 2012
Common units
General partner units
preferred units
TOTAL PARTNERSHIP UNITS
88,440,710
1,765,457
18,922,221
109,128,388
69,372,077
1,415,757
15,555,554
86,343,388
During the years ended December 31, 2013, 2012 and 2011, the Partnership declared and paid dividends amounting to $88,241, $73,316
and $45,116, respectively.
F-45
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
14. OMNIBUS INCENTIVE COMPENSATION PLAN
A. PARTNERSHIP’S OMNIBUS INCENTIVE CoMpenSAtion plAn
On April 29, 2008, the board of directors approved the Partnership’s Omnibus Incentive Compensation Plan (the “Plan”) according to which
the Partnership may issue a limited number of awards, not to exceed 500,000 units. The Plan was amended on July 22, 2010 increasing the
aggregate number of restricted units issuable under the Plan to 800,000. The Plan is administered by the General Partner as authorized by
the board of directors. The persons eligible to receive awards under the Plan are officers, directors, and executive, managerial, administra-
tive and professional employees of the Manager, or CMTC, or other eligible persons (collectively, “key persons”) as the General Partner, in its
sole discretion, shall select based upon such factors as it deems relevant. Members of the board of directors are considered to be employees
of the Partnership (“Employees”) for the purposes of recognition of equity compensation expense, while employees of the Manager, CMTC
and other eligible persons under the plan are not considered to be employees of the Partnership (“Non-Employees”). Awards may be made
under the Plan in the form of incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights,
restricted stock, unrestricted stock, restricted stock units and performance shares.
On August 25 and 31, 2010 CGP awarded 448,000 and 347,200 unvested units to Employees and Non-Employees, respectively. Awards granted
to certain Employees vest in three equal annual installments. The remaining awards vested on August 31, 2013.
All unvested units were conditional upon the grantee’s continued service as Employee and/or Non-Employee until the applicable vesting date.
The unvested units accrued distributions as declared and paid which were retained by the custodian of the Plan until the vesting date at which
were payable to the grantee. As unvested unit grantees accrued distributions on awards that were expected to vest, such distributions were
charged to Partner’s capital.
B. CRUDE’S EQUITY inCentiVe plAn
On March 1, 2010 Crude adopted an equity incentive plan according to which Crude issued 399,400 shares out of 400,000 restricted shares
that were authorized. Members of the board of directors were considered to be employees of Crude (“Employees”), while employees of Crude’s
affiliates and other eligible persons under this plan were not considered to be employees of Crude (“Non-Employees”). Awards granted to
certain Employees vest in three equal annual installments. The remaining awards vested on August 31, 2013.
All unvested units were conditional upon the grantee’s continued service as Employee and/or Non-Employee until the applicable vesting date.
The unvested units accrued distributions as declared and paid which were retained by the custodian of the Plan until the vesting date at
which were payable to the grantee. As unvested shares grantees accrued dividends on awards that were expected to vest, such dividends
were charged to Stockholders’ equity prior to Crude’s acquisition and were charged to the Partner’s capital subsequently to the acquisition.
C. ACQUISITION OF CRUDE By tHe pArtnerSHip
Upon the completion of the acquisition of Crude by the Partnership on September 30, 2011, the Crude’s Equity Incentive Plan existing that date was
incorporated into the Partnership’s Plan at a ratio of 1.56 common Partnership’s unit for each Crude share. The 205,000 unvested shares of Crude’s
Employee award converted to 319,800 Partnership’s unvested units and the 194,400 unvested shares of Crude’s Non-Employee award converted
to 303,264 Partnership’s unvested units. The terms and conditions of both plans are significantly the same and remained unchanged after the
acquisition, with the exception of 20,000 Crude shares, which were converted to 31,200 Partnership’s units upon the completion of the acquisition.
These Crude shares were held by those members of the Crude’s Independent Committee who were not designated by Crude to serve as a member
of the Partnership board of directors and were vested in full immediately upon the consummation of the acquisition on September 30, 2011.
UNVESTED UNITS
UNITS
GRANT-DATE FAIR VALUE
UNITS
AWARD-DATE FAIR VALUE
EMPLOYEE EQUITY COMPENSATION
NON-EMPLOYEE EQUITY COMPENSATION
unvested on January 1, 2013
Vested
unvested on December 31, 2013
338,135
338,135
-
2,521
2,521
-
IN US $
650,464
650,464
-
4,736
4,736
-
For the year ended December 31, 2013, 2012, and 2011 the equity compensation expense that has been charged in the consolidated state-
ments of comprehensive income / (loss) was $1,216, $1,834 and $1,358 for the Employee awards and $2,312, $1,992 and $1,097 for the
Non-Employee awards, respectively. This expense has been included in general and administrative expenses for each respective year.
The Partnership has used the straight-line method to recognize the cost of the awards.
F-46
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
15. NET INCOME / (LOSS) PER UNIT
T he general partner’s, common unit holders’ and subordinated unitholders’ interests in net income are calculated as if all net income
for periods subsequent to April 4, 2007, were distributed according to the terms of the Partnership’s Agreement, regardless of whether
those earnings would or could be distributed. The Partnership Agreement does not provide for the distribution of net income; rather, it
provides for the distribution of available cash (Note 13), which is a contractually-defined term that generally means all cash on hand at the
end of each quarter after establishment of cash reserves established by the Partnership’s board of directors to provide for the proper resources
for the Partnership’s business. Unlike available cash, net income is affected by non-cash items. The Partnership follows the guidance relat-
ing to the Application of the Two-Class Method and its application to Master Limited Partnerships which considers whether the incentive
distributions of a master limited partnership represent a participating security when considered in the calculation of earnings per unit under
the Two-Class Method.
This guidance also considers whether the partnership agreement contains any contractual limitations concerning distributions to the incen-
tive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for each reporting period.
BASIC
NUMERATORS
partnership’s net income
less
partnership’s net income available to preferred unit holders
General partner’s interest in partnership’s net income
partnership’s net income allocable to unvested units
partnership’s net income available to common unit holders
DENOMINATORS
2013
99,481
18,805
1,598
678
78,400
2012
IN US $
(21,189)
10,809
(640)
-
(31,358)
2011
87,120
-
1,742
1,571
83,807
Weighted average number of common units outstanding, basic
75,645,207
68,256,072
47,138,336
net income per common unit
Basic
DILUTED
NUMERATORS
1.04
(0.46)
1.78
2013
2012
2011
partnership’s net income available to common unit holders
99,481
less
General partner’s interest in partnership’s net income
partnership’s net income available to preferred unit holders
partnership’s net income allocable to unvested units
Add
partnership’s net income available to preferred unit holders
partnership’s net income allocable to unvested units
1,574
18,805
678
18,805
678
IN US $
(21,189)
(640)
10,809
-
-
-
87,120
1,742
-
1,571
-
-
Weighted average number of common units outstanding, basic
75,645,207
68,256,072
47,138,336
DENOMINATORS
Dilutive effect of preferred units
Dilutive effect of unvested shares
97,907
(31,358)
83,807
21,069,664
654,265
-
-
-
-
Weighted average number of common units outstanding, diluted
97,369,136
68,256,072
47,138,336
net income per common unit:
Diluted
1.01
(0.46)
1.78
Under the Partnership Agreement,
the holder of the incentive distribu-
tion rights in the Partnership, which
is currently the CGP, assuming that
there are no cumulative arrearages
on common unit distributions, has
the right to receive an increasing
percentage of cash distributions
after the minimum quarterly dis-
tribution (Note 13).
Excluding the non-cash gain from
bargain purchase for the years
ended December 31, 2013 and 2011
and vessels’ impairment charge for
the year ended December 31, 2012,
as these were not distributed to the
Partnership’s unit holders the Part-
nership’s net income for the respec-
tive years did not exceed the First
Target Distribution Level, and as a
result, the assumed distribution of
net income did not result in the use
of increasing percentages to calcu-
late CGP’s interest in net income.
All common unit equivalents were
antidilutive for the year ended
December 31, 2012 because the
limited partners were allocated a
net loss. The Partnership excluded
the dilutive effect of 1,187,130
non-vested unit awards in calcu-
lating dilutive EPU for its common
unitholders as they were anti-dilu-
tive. The non-vested units are par-
ticipating securities because they
received distributions from the
Partnership and these distributions
did not have to be returned to the
Partnership if the non-vested units
were forfeited by the grantee.
F-47
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
16. GAIN ON SALE OF CLAIM
O n November 14, 2012, OSG and certain of its subsidiaries made a voluntary filing for relief under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Partnership had three IMO II/III Chemi-
cal/Product tankers (M/T Alexandros II, M/T Aristotelis II and M/T Aris II) or (the “Vessels”), all built in 2008 by STX Offshore &
Shipbuilding Co. Ltd. with long term bareboat charters to subsidiaries of OSG (“Original Charter Contracts” or “Rejected Charters”).
After discussions with OSG, the Partnership agreed to enter into new charter contracts (“New Charter Contracts”) with OSG on substantially
the same terms as the Original Charter Contracts, but at a bareboat rate of $6.3 per day per vessel instead of $13.0 per day per vessel as
per the Original Charter Contracts. The new charters were approved by the Bankruptcy Court on March 21, 2013 and were effective as
of March 1, 2013. On the same date, the Bankruptcy Court also rejected the Original Charter Contracts as of March 1, 2013. Rejection of
each charter constitutes a material breach of such charter. On May 24, 2013, the Partnership filed claims (the “Claims”) against each of
the charterers and their respective guarantors for damages resulting from the rejection of each of the Original Charter Contracts, includ-
ing, among other things, the difference between the reduced amount of the New Charter Contracts and the amount due under each of the
Rejected Charters. The total claim amount of the three claims stood at $54,096 (“Total Claim Amount”).
The Partnership unconditionally and irrevocably sold, transferred and assigned to Deutsche Bank, 100% of its right, title, interest, claims
and causes of action in and to arising in connection with all three of the claims that the vessel-owning subsidiaries have against OSG, via
Assignment Agreements signed on June 25, 2013, thus releasing the Partnership of any payments or distributions of money or property in
respect of the claim to be delivered or made to Deutsche Bank. In connection with the Assignment Agreements, on July 2, 2013, Deutsche
Bank filed with the Bankruptcy Court six separate Evidences of Transfer of Claim, each pertaining to the Partnership’s vessel-owning sub-
sidiaries’ claims against each charterer party to the original three charter agreements and each respective guarantor thereof.
On June 26, 2013 pursuant to the Assignment Agreements, the Partnership received from Deutsche Bank an amount of $32,000 as part
payment for the assignment of the three claims. On December 18, 2013 the Partnership and Deutsche Bank entered into a Settlement
Notice and Refund Modification Agreement according to which the maximum amount to be refunded to Deutsche Bank will be $644 which
is presented under “Accrued liabilities” in the Partnership’s consolidated Balance Sheets.
Consequently, the Partnership has recorded the amount of $31,356 which represents the difference between the proceeds of $32,000 the
Partnership received by Deutsche Bank and the maximum amount to be refunded to Deutsche Bank of $644, as “Gain on sale of claim” in
its consolidated statement of comprehensive income / (loss).
F-48
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
17. COMMITMENTS AND CONTINGENCIES
V arious claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary
course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims
with suppliers relating to the operations of the Partnership’s vessels. The Partnership is not aware of any such claims or contingent
liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.
The Partnership accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able
to reasonably estimate the probable exposure. Currently, the Partnership is not aware of any such claims or contingent liabilities, which
should be disclosed, or for which a provision should be established in the consolidated financial statements.
An estimated loss from a contingency should be accrued by a charge to expense and a liability recorded only if all of the following condi-
tions are met:
• Information available prior to the issuance of the financial statement indicates that it is probable that a liability has been incurred at
the date of the financial statements.
• The amount of the loss can be reasonably estimated.
LEASE COMMITMENTS
The vessel-owning subsidiaries of the Partnership have entered into time and bareboat charter agreements, which as of December 31,
2013 are summarized as follows:
TIME CHARTER (TC)
/ BARE BOAT
CHARTER (BC)
(IN YEARS)
COMMENCE-
MENT OF
CHARTER
CHARTERER
PROFIT
SHARING (1)
GROSS DAILY HIRE RATE
(WITHOUT
PROFIT SHARING)
(IN US $)
VESSEL NAME
M/V Archimidis (4)
M/V Agamemnon (4)
M/t Amoureux
M/t Aias
M/t Atlantas (M/t British ensign) (8)
M/t Aktoras (M/t British envoy) (8)
M/V Cape Agamemnon
M/t Agisilaos
M/t Arionas
3+2+1+1 TC
3+2+1+1 TC
1 TC
1 TC
5+3+2+1 BC
5+3+1.5+1 BC
10 TC
1 TC
1 TC
M/t Aiolos (M/t British emissary) (8)
5+3+2+1 BC
M/t Avax
M/t Axios
M/t Alkiviadis
1+1 TC
1 TC
1 TC
11/2012
06/2012
01/2014
12/2013
04/2006
07/2006
07/2010
09/2013
11/2013
03/2007
10/2013
06/2013
07/2013
M/t Assos (M/t insurgentes)
5 BC
04/2009
M/t Atrotos (M/t el pipila)
M/t Akeraios
M/t Anemos i
5 BC
1.5 TC
1.2 TC
04/2009
07/2013
12/2013
Maersk
Maersk
CMTC (6)
CMTC (6)
BP
BP
-
-
50/50(6)
50/50 (6)
34.0
34.0
24.0
24.0
-
-
15.2 (5y), 13.5 (3y), 6.8 (2y)
15.2 (5y), 13.5 (3y), 7.0 (1.5y)
COSCO Bulk
42.2
50/50 (3)
50/50 (3)
14.3
14.3
-
15.2 (5y), 13.5 (3y), 7.0 (2y)
CMTC
CMTC
BP
BP (7)
CMTC
CMTC
Arrendadora
Ocean, Mexicana,
S.A. de C.V
renamed to Blue
Marine Cargo
S.A. de C.V. (“Blue
Marine”) (5)
Blue Marine (5)
50/50 (3)
50/50 (3)
50/50 (3)
-
-
CMTC
CMTC
50/50 (3)
50/50 (3)
14.8 (7)
14.8
14.3
16.8
16.8
15.0
14.9
F-49
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
17. COMMITMENTS AND CONTINGENCIES - continued
VESSEL NAME
M/t Apostolos
M/t Alexandros ii (8), (M/t overseas Serifos)
M/t Aristotelis ii (8), (M/t overseas Sifnos)
M/t Aris ii (8) (M/t overseas Kimolos)
M/t Aristotelis
M/t Ayrton ii
M/t Amore Mio ii
M/t Miltiadis M ii
M/t Hyundai prestige
M/t Hyundai premium
M/t Hyundai paramount
M/t Hyundai privilege
M/t Hyundai platinum
TIME CHARTER (TC)
/ BARE BOAT
CHARTER (BC)
(IN YEARS)
COMMENCE-
MENT OF
CHARTER
CHARTERER
PROFIT
SHARING (1)
GROSS DAILY HIRE RATE
(WITHOUT
PROFIT SHARING)
(IN US $)
1.2 TC
5 BC, 5 BC
5 BC, 5 BC
5 BC, 5 BC
1.5 TC
1+1 TC
1 TC
2 TC
12 TC
12 TC
12 TC
12 TC
12 TC
10/2013
01/2008, 05/2013
06/2008, 03/2013
08/2008, 03/2013
12/2013
04/2012
12/2013
09/2012
02/2013
03/2013
04/2013
05/2013
06/2013
CMTC
OSG (2)
OSG (2)
OSG (2)
CMTC
BP
CMTC
Subtec, S.A.
de C.V.
HMM
HMM
HMM
HMM
HMM
50/50 (3)
-
-
-
50/50 (3)
50/50 (3)
-
-
-
-
-
-
-
14.9
13.0, 6.3
13.0, 6.3
13.0, 6.3
17.0
14.0 (1y)+15 (1y)
17.0
23.2
29.4
29.4
29.4
29.4
29.4
(1) Profit sharing refers to an arrangement between vessel-owning
companies and charterers to share a predetermined percentage
voyage profit in excess of the basic rate.
day for the final two years. If all options were to be exercised,
the employment of the vessels would extend to July 2019 for
the M/V Agamemnon and October 2019 for the M/V Archimidis.
(2) On November 14, 2012, OSG made a voluntary filing for relief
under Chapter 11 of the U.S. Bankruptcy Code. After discus-
sions with the Partnership and OSG agreed to enter into new
charters contracts on substantially the same terms as the prior
charters but at a bareboat rate of $6.3 per day. OSG has the
option of extending the employment of each vessel following
the completion of the bareboat charters for an additional two
years on a time chartered basis at a rate of $16.5 per day. OSG
has an option to purchase each of the three STX vessels at the
end of the eighth, ninth or tenth year of the charter, for $38,000,
$35,500 and $33,000, respectively, which option is exercisable
six months before the date of completion of the eighth, ninth
or tenth year of the charter. The expiration date above may
therefore change depending on whether the charterer exercises
its purchase option.
(3) 50/50 profit share for breaching IWL (Institute Warranty Lim-
its – applies to voyages to certain ports at certain periods of
the year).
(4) M/V Archimidis and the M/V Agamemnon are employed on time
charters with Maersk at a gross day rate of US$34.0 per day with
earliest redelivery in October 2015 and July 2015, respectively.
Maersk has the option to extend the charter of both vessels for
an additional four years at a gross day rate of $31.5 and $30.5
per day, respectively for the fourth and fifth year and $32.0 per
(5) Blue Marine has since delivered these vessels to the state-owned
Mexican petroleum company Petroleos Mexicanos.
(6) The vessel owning companies of the M/T Amoureux and the
M/T Aias have entered into a one year time charter with Capital
Maritime at a gross rate of $24.0 per day for each vessel with
profit share on actual earnings settled every six months. The
charters were commenced in January 2014 and December 2013
respectively.
(7) The vessel’s actual earnings under its charter will be $14.75 gross
per day until May 2014 and $14.8 gross per day between May
and October 2014, as the new daily charter rate includes com-
pensation that CMTC will pay to the Partnership for the vessel’s
early redelivery in accordance with the terms of the charter party
agreement with CMTC. BP has the option to extend the charter
for one year at a daily rate of $15.6
(8) The M/T British Ensign will continue its bareboat charter with
BP after the completion of its current charter in April 2014 for
an additional 24 months at a bareboat rate of $6.8 per day. BP
has the option to extend the duration of the charter for up to a
further 12 months either as bareboat charter at a bareboat rate
of $7.3 per day for the optional periods if declared or on time
charter basis during the optional periods at a time charter rate
of $14.3 per day, if declared.
F-50
The M/T British Envoy will continue its bareboat charter with BP after the completion of the current charter in July 2014 for an additional
18 months at a bareboat rate of $7.0 per day. BP has the option to extend the charter duration for up to a further 12 months either as a
bareboat charter at a bareboat rate $7.3 per day for the optional periods, if declared or as a time charter at a time charter rate of $14.3
per day, if declared.
The M/T British Emissary will continue its bareboat charter with BP after the completion of its current charters in March 2015 for an
additional 24 months at a bareboat rate of $7.0 per day. BP has the option to extend the duration of the charter for up to a further 12
months either as bareboat charter at a bareboat rate of $7.3 per day for the optional periods if declared or on a time charter basis dur-
ing all optional periods at a time charter rate of $14.3 per day if declared.
Future minimum charter hire receipts, excluding any profit share revenue that may arise, based on non-cancelable long-term time and
bareboat charter contracts, as of December 31, 2013 were:
YEAR ENDED DECEMBER 31
AMOUNT (IN US $)
2014
2015
2016
2017
2018
thereafter
TOTAL
183,430
104,139
79,454
76,038
70,692
351,292
865,045
CApitAl proDuCt pArtnerS l.p.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of United States Dollars)
18. SUBSEQUENT EVENTS
(a) Dividends: On January 22, 2014, the board of directors of the Partnership declared a cash distribution of $0.2325 per common unit
for the fourth quarter of 2013. The fourth quarter common unit cash distribution was paid on February 14, 2014, to unit
holders of record on February 7, 2014.
(b) Dividends: On January 22, 2014, the board of directors of the Partnership declared a cash distribution of $0.21375 per Class B unit
for the fourth quarter of 2013. The cash distribution was paid on February 10, 2014, to Class B unit holders of record on
February 3, 2014.
F-51
CORPORATE INFORMATION
EXECUTIVE OFFICERS & DIRECTORS
Evangelos M. Marinakis
Chairman of the Board
Ioannis E. Lazaridis
Director and CEO/CFO of Capital GP L.L.C.
(the General Partner of CPLP)
Abel Rasterhoff*
Director
Keith Forman*
Director
Pierre de Demandolx-Dedons*
Director
Evangelos G. Bairactaris
Director and Secretary
Nikolaos Syntychakis
Director
Dimitris Christacopoulos*
Director
*Member, Audit & Conflicts Committees
STOCK EXCHANGE LISTING
Listed: NASDAQ Global Market
Symbol: CPLP
Limited Partnership Common Units: 88,440,710
Class B Convertible Preferred Units: 18,922,221
(As of April 30, 2014)
TRANSFER AGENT
Computershare
480 Washington Boulevard
Jersey City, New Jersey 07310-1900, USA
INDEPENDENT AUDITORS
Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
250-254 Kifissias Avenue
152 31 Athens, Greece
INVESTOR RELATIONS CONTACT
Nicolas Bornozis
Capital Link Inc.
230 Park Avenue - Suite 1536
New York, NY 10169, USA
Tel. (+1) 212 661 7566
Fax. (+1) 212 661 7526
TAX INFORMATION FOR U.S. INVESTORS
• Capital Product Partners is a publicly traded partnership that has elected to be taxed as a C-Cor-
poration for U.S. federal income tax purposes.
• Unlike a partnership, a corporation is a taxable entity and is subject to U.S. federal and state
income taxes.
• Cash distributions to the unitholders are taxed as dividends in the year received to the extent of
the partnership’s earnings and profits. Cash distributions in excess of the partnership’s earnings
and profits will be treated as a potential return of capital.
• Capital Product Partners intends to provide, annually, to each registered U.S. unitholder of record,
a Form 1099 that will indicate the amount of the unitholder’s annual distributions that are
treated as dividends for U.S. federal tax purposes and other information necessary to be included
in tax returns.
NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect
management’s current assumptions and expectations with respect to expected future events and performance. All statements, other than statements
of historical facts, including, among others, statements regarding: our expected cash flows and annual growth, expectations regarding our quarterly unit
distribution, the expected redelivery of our charters, our expected charter coverage ratio for 2013 and 2014, developments in connection with our credit
facility, the outcome of the Overseas Shipholding Group Inc. (“OSG”) bankruptcy proceedings and the actions of OSG and other parties, employment of
our vessels and future dealings with oil majors; as well as statements regarding market and industry trends including future refining capacity and ton
mile development, are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which
are beyond our control, and undue reliance should not be placed upon them. Many factors could cause forecasted and actual results to differ materially
from those anticipated or implied in these forward-looking statements. Stated competitive positions are based on management estimates supported
by information provided by specialized external agencies. For a more comprehensive discussion of the risk factors affecting our business please see our
Annual Report on Form 20-F for the year ended December 31, 2012, filed with the U.S. Securities and Exchange Commission, also included herein, a copy
of which can also be found on our website www.capitalpplp.com. Unless required by law, we expressly disclaim any obligation to update or revise any of
these forward-looking statements, whether because of future events, new information, a change in our views or expectations, to conform them to actual
results or otherwise. Neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We
make no prediction or statement about the performance of our common units or our Class B Convertible Preferred Units.