Capital Product Partners L.P.
Capital Product Partners L.P. (Nasdaq: CPLP) is an international, diversified ship-
ping company and leader in the seaborne transportation of a wide range of car-
goes, including crude oil, refined oil products, such as gasoline, diesel, fuel oil, jet
fuel and edible oils, as well as dry cargo and containerized goods. As a publicly
traded master limited partnership, CPLP has elected to be treated as a C-Corp.
for tax purposes which is most beneficial for U.S. investors (as they receive the
standard 1099 form). The Partnership is well-positioned to benefit from the long-
term growth dynamics of the global shipping industry and to capitalize on poten-
tial acquisition opportunities in the fragmented shipping market. CPLP benefits
from the commercial and technical management agreement with its Sponsor,
Capital Maritime & Trading Corp. (“Capital Maritime”), an established and reputa-
ble diversified shipping company.
Capital Product Partners L.P. | Annual Report 2015
AGISILAOS
TYPE: Product Tanker
BUILT: 2006
DWT: 36,700
CLASS: ABS
FLAG: Marshall Islands
BUILDER: Hyundai Mipo
Dockyard Company, Ltd -
S. Korea
ARCHIMIDIS
TYPE: Containership
BUILT: 2006
DWT/TEU: 108,892 / 8,000
CLASS: BV
FLAG: Liberia
BUILDER: Daewoo Shipbuilding
& Marine Engineering Co., Ltd.,
S.Korea
2
Dear Unitholders,
Despite a tumultuous year end for master limited partnerships (‘MLPs’),
we achieved in 2015 a number of important milestones for Capital Prod-
uct Partners L.P. We successfully raised $133.3 million of new equity and
strengthened our balance sheet by prepaying a significant part of our debt.
In addition, we expanded our fleet with the timely delivery of four ves-
sels that we had agreed to acquire from our sponsor, Capital Maritime &
Trading Corp. (“Capital Maritime” or “Sponsor”) and re-chartered several
of our vessels at higher rates and for longer periods. Finally, we paid total
distributions of $0.942 per common unit for the year compared to $0.93 per
common unit in 2014.
Successful Equity Raise & Strong Balance Sheet
In April 2015, we raised $133.3 million in net proceeds from a common equity
offering, which we used to further strengthen our balance sheet, by prepaying
a significant portion of our debt. We improved our debt structure by deferring
the Partnership's debt amortization installments under three of our facilities
until the fourth quarter of 2017 and extending the maturity of our two largest
facilities to the end of 2019. Our balance sheet remains strong; our net debt to
capitalization at the end of 2015 was 30.6% and Partners’ capital represented
60.3% of our total assets.
Significant Fleet Growth
We achieved significant fleet growth over the last twelve months, expanding
our fleet by 21% in terms of deadweight capacity and reducing the average
age of our fleet, as we took delivery of four dropdown vessels in 2015 and
Annual Report 2015 | Capital Product Partners L.P.
one in February 2016 from our Sponsor. Today the average age of our fleet
is 6.7 years, which compares favorably with the industry average of 10.1
years. The five dropdown vessels comprise three newbuild Daewoo 9,288
TEU eco-flex containerships and two newbuild Samsung 50,000 Dwt eco MR
product tankers, all with long term charters attached. In addition, Capital
Maritime has granted the Partnership a right of first refusal for a total of
eight newbuild eco MR product tankers. It is worth noting that our Sponsor
has secured over the course of the fourth quarter 2015 a credit facility for the
financing of five of these vessels, which, if drawn, would allow the potential
dropdown of any of these five eco MRs to the Partnership through the same
facility at a 50% loan to value ratio, provided that these vessels have employ-
ment for two years or longer.
High Charter Coverage
The Partnership's charter coverage for 2016 and 2017 currently stands at
92% and 73%, respectively, with an average remaining charter duration of 6.2
years, as we took advantage of the favorable tanker market to secure aver-
age higher rates for longer time periods. Since the beginning of 2015, we
have fixed a total of 18 vessels for two years or longer and diversified our cus-
tomer base with the addition of Cargill, Flopec, Petrobras, PIL, Repsol, Shell
and Stena Bulk.
Industry Overview and Prospects
The product tanker market, where most of our fleet operates, saw a
marked improvement in 2015. The expansion of refinery capacity, particu-
larly in the Middle East, and the sharp decline in oil prices had a positive
ALKIVIADIS
TYPE: Product Tanker
BUILT: 2006
DWT: 36,700
CLASS: ABS
FLAG: Marshall Islands
BUILDER: Hyundai Mipo Dock-
yard Company, Ltd - S. Korea
CMA CGM AMAZON
TYPE: Containership
BUILT: 2015
DWT/TEU: 115,145 / 9,160
CLASS: LRS
FLAG: Liberia
BUILDER: Daewoo Shipbuilding
& Marine Engineering Co., Ltd.
and Daewoo-Mangalia Heavy
Industries S.Α
3
Capital Product Partners L.P. | Annual Report 2015
ARIONAS
TYPE: Product Tanker
BUILT: 2006
DWT: 36,700
CLASS: ABS
FLAG: Marshall Islands
BUILDER: Hyundai Mipo Dock-
yard Company, Ltd - S. Korea
AGISILAOS
TYPE: Product Tanker
BUILT: 2006
DWT: 36,700
CLASS: ABS
FLAG: Marshall Islands
BUILDER: Hyundai Mipo
Dockyard Company, Ltd -
S. Korea
4
impact on the demand for product tankers. In addition, oil product exports
from the U.S. Gulf continued to rise, further increasing employment op-
portunities for product tankers. Overall, it is estimated that product tanker
demand increased by 5.9% in 2015, the highest growth rate since 2010. For
2016, increased product exports from China, continued refinery expansion
and growing oil demand in Asia are expected to support demand and rates
for product tankers.
Suezmax tankers also experienced a stronger freight market, as they
benefited from increased tonne miles, increased crude oil production and
stronger oil demand. China in particular imported record volumes of crude
oil in 2015, taking advantage of the low oil prices to, among other things,
grow its strategic petroleum reserves. Looking ahead, Suezmax tanker
demand is projected to continue to be strong in 2016 on expectations of
firm Chinese crude oil demand, robust European seaborne crude oil im-
port growth and increased crude exports from the Middle Eastern Gulf to
India and the Mediterranean. Further, it is worth noting that 2015 saw a
surge in new orders for crude tankers, which we will continue to monitor
going forward, as an increased vessel supply could have an adverse effect
on freight rates.
The container market was overall weaker in the second half of 2015, as it ex-
perienced a sharp decline in cargo bookings on the Far East - Europe trade
along with decreased demand on most secondary routes, as well as a high
supply of new Ultra Large Container Vessels. Analysts estimate that container
vessel demand grew by only 2.3% in 2015, while the container fleet grew at
8.1%. The depressed state of the market resulted in a sharp increase in the
idle container fleet and negatively affected tonnage providers, as well as liner
companies, including one of our significant charterers, which is currently fac-
Annual Report 2015 | Capital Product Partners L.P.
ing severe financial difficulties. Market fundamentals are expected to gradu-
ally improve from 2016 onwards, as industry analysts estimate that container
demand will grow at 3.8%, while the container fleet is projected to increase by
3.3%. The opening of the new Panama Canal locks in 2016, increased rate of
demolition of older vessels and higher cargo volumes in the Far East-Europe
trade are potential catalysts that could all lead to a more sustained recovery of
the container charter market.
Concluding this Letter
While our underlying markets have in general benefited from the low
energy prices environment, the wider MLP space has been negatively af-
fected by these developments and, as a result, we experienced towards
the end of 2015 a severe equity and debt market pricing dislocation that
weighed on our unit price and restricted our ability to access equity mar-
kets. As we navigate these difficult market conditions, we remain com-
mitted to safeguarding our balance sheet and the quality of our opera-
tions, while also paying a sustainable distribution to our unit holders. We
believe that -as conditions in the capital markets and certain of our un-
derlying markets improve, allowing us among other things to refinance
our debt under more favorable terms,- we should again be in a position
to take advantage of new opportunities and improve the long term dis-
tributable cash flow to our unitholders.
Jerry Kalogiratos
Chief Executive and Chief Financial Officer,
31 March 2016
AIAS
TYPE: Crude Oil
BUILT: 2008
DWT: 149,993
CLASS: LRS
FLAG: Liberia
BUILDER: Tsu Shipyard, Universal
Shipbuilding Corporation, Japan
AMOUREUX
TYPE: Crude Oil
BUILT: 2008
DWT: 149,993
CLASS: LRS
FLAG: LIBERIA
BUILDER: Tsu Shipyard,
Universal Shipbuilding
Corporation, Japan
5
Capital Product Partners L.P. | Annual Report 2015
Strong Charter Coverage At Attractive Rates
Charter Profile
Expiry Of Current Charters
Rates
Vessel Type
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Gross Rate
CPLP is Positioned
Crude tanker
Miltiadis M II
Crude tanker
Amore Mio II
Product tanker
Alkiviadis
Product tanker
Agisilaos
Product tanker
Aktoras
Product tanker
Aristotelis
Crude tanker
Amoureux
Containership
Archimidis
Product tanker
Atlantas
Containership
Agamemnon
Product tanker
Active
Product tanker
Amadeus
Product tanker
Alexandros II
Product tanker
Aiolos
Product tanker
Ayrton II
Crude tanker
Aias
Product tanker
Assos
Product tanker
Aristotelis II
Product tanker
Avax
Product tanker
Axios
Product tanker
Aris II
Product tanker
Atrotos
Product tanker
Arionas
Product tanker
Apostolos
Product tanker
Anemos I
Product tanker
Akeraios
Containership
CMA CGM Amazon
Dry Bulk
Cape Agamemnon
CMA CGM Uruguay
Containership
Containership CMA CGM Magdalena
Hyundai Prestige
Containership
Containership
Hyundai Premium
Containership Hyundai Paramount
Hyundai Privilege
Containership
Hyundai Platinum
Containership
to Capitalize On the
Improving Product
Tanker Rates:
CPLP has staggered
the charters of many
of its vessel.
$35,000
$33,750
$15,125
$14,500
$7,2501
$19,000
$29,000
-
$7,2501
-
$17,700
$17,000
$6,2501
$7,0001
$18,000
$26,500
$15,400
$6,2501
$15,400
$15,400
$6,2501
$17,750
$19,000
$17,750
$17,750
$17,750
$39,250
$42,200
$39,250
$39,250
$29,350
$29,350
$29,350
$29,350
$29,350
1 Bareboat.
Revenue Weighted Average Remaining Charter Duration: 6.2 Years (as of March 2016)
6
Modern High-Specification Fleet
Annual Report 2015 | Capital Product Partners L.P.
Fleet Profile
Fleet Age
4
6.7 Years
10.1 Years1
10
1
20
•SUEzMAx TAnKERS |•MR TAnKERS |•BULKER |•COnTAInERS
CPLP
Industry
Diversified Customer Base
35 Vessels - 2.6mm DWT (~70k TEUs)
6.7 Years Weighted Average Fleet Age
1. Industry average age data from Clarksons as of March 2016 weighted by dwt for the composition of the CPLP fleet.
7
Capital Product Partners L.P. | Annual Report 2015
THE CPLP FLEET
Historical data on total fleet dwt
and vessels number.
• PRODUCT TAnKER
• CRUDE TAnKER
• CAPESIzE BULK CARRIER
• COnTAInER VESSEL
CMA CGM Magdalena
CMA CGM Uruguay
CMA CGM Amazon
CMA CGM Amazon
Hyundai Platinum
Hyundai Platinum
Hyundai Privilege
Hyundai Privilege
Hyundai Platinum
Hyundai Prestige
Hyundai Prestige
Hyundai Privilege
Hyundai Paramount
Hyundai Paramount
Hyundai Prestige
Hyundai Premium
Hyundai Premium
Hyundai Paramount
Agamemnon
Agamemnon
Hyundai Premium
Archimidis
Archimidis
Agamemnon
Cape Agamemnon
Cape Agamemnon
Archimidis
Miltiadis M II
Miltiadis M II
Cape Agamemnon
Cape Agamemnon
Amoureux
Amoureux
Miltiadis M II
Miltiadis M II
Aias
Aias
Amoureux
Amoureux
Amore Mio II
Amore Mio II
Aias
Aias
Amore Mio II
Amore Mio II
Amore Mio II
Aris II
Alkiviadis
Aristotelis
Aristotelis II
Aris II
Assos
Aristofanis
Aristotelis II
Alkiviadis
Amore Mio II
Alexandros II
Aristofanis
Aris II
Amadeus
Active
Aristotelis
Assos
Alkiviadis
Aris II
Amadeus
Active
Aristotelis
Assos
Alkiviadis
Aris II
Alexandros II
Anemos I
Alexandros II
Aristotelis II
Aristotelis II
Aristotelis II
Anemos I
Attikos
Apostolos
Akeraios
Atrotos
Assos
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2008
741,678
15
Attikos
Apostolos
Akeraios
Ayrton II
Atrotos
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Agamemnon II
Agamemnon II
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2010
910,748
19
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2012
2,221,166
26
Alexandros II
Alexandros II
Alexandros II
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2013
2,136,307
30
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2015
2,352,085
33
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2016
2,593,601
35
Assos
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
IPO Fleet
327,307
8
8
Annual Report 2015 | Capital Product Partners L.P.
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, 2015
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)
3 Iassonos Street, Piraeus, 18537 Greece
+30 210 458 4950
(Address and telephone number of principal executive offices and company contact person)
Gerasimos (Jerry) Kalogiratos, j.kalogiratos@capitalmaritime.com
(Name and Email of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Common units representing limited partnership interests
Title of each class
Name of each exchange on which registered
Nasdaq Global Select 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 cov-
ered by the annual report.
120,409,456 Common Units | 2,439,989 General Partner Units | 12,983,333 Class B Convertible Preferred Units
1
Capital Product Partners L.P. | Annual Report 2015
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ☐ NO ☑
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sec-
tion 13 or 15(d) of the Securities Exchange Act of 1934.
YES ☐ NO ☑
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 Ex-
change 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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Inter-
active 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 ☐
YES ☑ NO ☐
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 ☐
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 ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statements item the regis-
trant has elected to follow.
ITEM 17 ☐ ITEM 18 ☐
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 ☑
2
Annual Report 2015 | Capital Product Partners L.P.
CAPITAL PRODUCT PARTNERS L.P.
TABLE OF CONTENTS
Page
Forward-Looking Statements ....................................................................................................................................................... 4
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Identity of Directors, Senior Management and Advisors. ......................................................................................................... 7
Offer Statistics and Expected Timetable. ..................................................................................................................................... 7
Key Information. ............................................................................................................................................................................ 7
Information on the Partnership. ................................................................................................................................................. 48
Item 4A.
Unresolved Staff Comments. ...................................................................................................................................................... 71
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Operating and Financial Review and Prospects. ...................................................................................................................... 71
Directors, Senior Management and Employees. ...................................................................................................................... 84
Major Unitholders and Related-Party Transactions. ............................................................................................................... 90
Financial Information. ................................................................................................................................................................. 94
The Offer and Listing. .................................................................................................................................................................. 96
Item 10.
Additional Information. .............................................................................................................................................................. 97
Item 11.
Quantitative and Qualitative Disclosures About Market Risk. ............................................................................................ 105
Item 12.
Description of Securities Other than Equity Securities. ....................................................................................................... 106
PART II
Item 13.
Defaults, Dividend, Arrearages and Delinquencies. .............................................................................................................. 107
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds. ............................................................... 107
Item 15.
Controls and Procedures. .......................................................................................................................................................... 107
Item 16A.
Audit Committee Financial Expert. ......................................................................................................................................... 109
Item 16B.
Code of Ethics. ............................................................................................................................................................................ 109
Item 16C.
Principal Accountant Fees and Services. ................................................................................................................................. 109
Item 16D.
Exemptions from the Listing Standards for Audit Committees. .......................................................................................... 110
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. ............................................................................. 110
Item 16F.
Change in Registrant’s Certifying Accountant. ...................................................................................................................... 110
Item 16G.
Corporate Governance. ............................................................................................................................................................. 110
PART III
Item 17.
Financial Statements .................................................................................................................................................................. 111
Item 18.
Financial Statements .................................................................................................................................................................. 111
Item 19.
Exhibits ........................................................................................................................................................................................ 112
3
Capital Product Partners L.P. | Annual Report 2015
This annual report on Form 20-F (this “Annual Report”) should be read in conjunction with our audited consolidated financial state-
ments and accompanying notes included herein. In this Annual Report, the “Partnership”, “CPLP”, “we”, “us” or “our” refer to Capital
Product Partners L.P.; “Capital Maritime” or “CMTC” refer to Capital Maritime & Trading Corp., our sponsor and “Capital Ship Man-
agement” or the “Manager” refer to Capital Ship Management Corp., a subsidiary of Capital Maritime and our manager.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this Annual Report concerning our business, operations, cash flows, and financial position, including,
among other things, 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”, “might”, “could”, “should”, “would”, “expect”, “plan”, “anticipate”, “like-
ly”, “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 avail-
able information, including projections of revenues, 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 regarding our ability to make distributions on our common units and our 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 or decreases in domestic or worldwide oil consumption;
increases or decreases in seaborne transportation of containerized goods;
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 various new markets, including the tanker, drybulk and container carrier markets;
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 any 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 acquisitions of vessels from Capital Maritime and from third parties, including the eight newbuild Samsung
eco medium range product tankers controlled by Capital Maritime on which we have a right of first refusal;
anticipated future chartering arrangements with Capital Maritime and third parties;
our ability to secure employment for our vessels that come off their current charters;
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 and/or repay our debt and/or achieve further postponement of any amortization of our debt if necessary
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
4
Annual Report 2015 | Capital Product Partners L.P.
under the current terms of our credit facilities;
interest rate developments in any of our funding currencies;
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 condition, viability and sustainability of our customers, including their ability to obtain liquidity and access the
capital markets;
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;
planned capital expenditures and availability of capital resources to fund capital expenditures;
our ability to maintain long-term relationships with major refined product importers and exporters, major crude oil companies
and major commodity traders, operators and liner companies;
the ability of our Manager to qualify for short- and long-term charter business with oil major charterers and oil traders, and
drybulk operators and liner companies;
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 shipping and oil transportation industry, including, without limi-
tation, stricter requirements 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 stan-
dards, including with new environmental regulations and standards being introduced, as well as with standard regulations im-
posed 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 admin-
istrative 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, lubricating 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 on operating expenses of the floating fee structure under which an increasing number of our vessels are managed;
potential increases in costs and expenses under our management agreements following expiration and/or renewal of such agree-
ments 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 product tankers,
container and drybulk 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 chang-
es 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;
our transition in leadership following Mr. Gerasimos (Jerry) Kalogiratos’ appointment as Chief Executive Officer and Chief Financial Officer;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
5
Capital Product Partners L.P. | Annual Report 2015
•
•
the performance and expected cost savings of the vessels we have acquired or expect to acquire from CMTC, including three newbuild
Daewoo 9,160 TEU eco-flex containerships (collectively, the “Dropdown Containerships”), and two newbuild Samsung eco medium
range product tankers (collectively, the “Dropdown Tankers” and, together with the Dropdown Containerships, the “Dropdown Ves-
sels”), and any new technologies incorporated into their construction, at least some of which may not have yet been tested; 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 inher-
ently 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 business 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.
6
Annual Report 2015 | Capital Product Partners L.P.
PART I
Item 1.
Identity of Directors, Senior Management and Advisors.
Not Applicable.
Item 2.
Offer Statistics and Expected Timetable.
Not Applicable.
Item 3.
Key Information.
A. Selected Financial Data
We have derived the following selected historical financial data for the three years ended December 31, 2015, and as of December 31,
2015 and 2014, from our audited consolidated financial statements (the “Financial Statements”), appearing elsewhere in this Annual
Report. The historical financial data presented for the years ended December 31, 2012 and 2011 and as of December 31, 2013, 2012
and 2011 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 among others, the number of vessels in our fleet, prevailing charter rates, management and
administrative services fees, as well as financing 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 below table should also be read together with “Item 5A: Management’s Discussion and Analysis of Financial Con-
dition and Results of Operations”.
Our Financial Statements are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) as
described in Note 2 (Significant Accounting Policies) to the Financial Statements included herein. All numbers are in thousands of U.S.
Dollars, except numbers of units and earnings per unit.
7
Capital Product Partners L.P. | Annual Report 2015
Income Statement Data:
Revenues
Revenues – related party
Total revenues
Expenses:
Voyage expenses (1)
Voyage expenses—related party (1)
Vessel operating expenses (2)
Vessel operating expenses—related party (2)
General and administrative expenses
Loss / (gain) on sale of vessels to third parties
Vessel depreciation and amortization
Vessels’ impairment charge (5)
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
Other income
$
43,197
0.38
0.38
115,030,879
55,410
11,334
879
Partnership’s net income / (loss)
Class B unit holders’ interest in our net income
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:
Common unit basic
Common unit diluted
Weighted–average units outstanding basic
Common units
Weighted–average units outstanding diluted
Common units
Balance Sheet Data (at end of the year):
Fixed assets (3)(5)(10)
Total assets (15)
Total long-term liabilities (15)
Total partners’ capital (3)(4)(6)(7)(8)(9)(11)(12)(13)(14)
Number of units
Common units
Class B units
General Partner units
Dividends declared per common unit
Dividends declared per class B unit
Cash Flow Data:
Net cash provided by operating activities
134,209
Net cash (used in) / provided by investing activities (209,937)
1,719
Net cash provided by / (used in) financing activities
$ 1,333,657
1,555,875
556,809
937,820
135,832,778
120,409,456
12,983,333
2,439,989
0.94
$
0.87
115,030,879
8
2015
Year ended December 31,
2013
2014
2012
2011
$ 156,613
63,731
220,344
$ 119,907
72,870
192,777
$ 116,520
54,974
171,494
$
84,012
69,938
153,950
$ 98,517
31,799
130,316
6,479
411
58,625
11,708
6,608
—
62,707
—
146,538
73,806
—
—
(20,143)
—
1,747
5,907
338
48,714
13,315
6,316
—
57,476
—
132,066
60,711
—
—
(19,225)
—
2,526
5,776
314
38,284
17,039
9,477
7,073
52,208
—
130,171
41,323
42,256
31,356
(15,991)
4
533
5,114
554
22,126
23,634
9,159
(1,296)
48,235
43,178
150,704
3,246
—
—
(26,658)
1,448
775
$
44,012
14,042
593
$
99,481
18,805
1,598
$ (21,189)
10,809
(640)
11,565
165
4,949
30,516
10,609
—
37,214
—
95,018
35,298
82,453
—
(33,820)
2,310
879
$ 87,120
—
1,742
29,377
79,078
(31,358)
85,378
0.31
0.31
1.04
1.01
(0.46)
(0.46)
1.78
1.78
93,353,168
75,645,207
68,256,072
47,138,336
93,353,168
97,369,136
68,256,072
47,138,336
$ 1,186,711
1,489,853
572,545
872,561
120,427,778
104,079,960
14,223,737
2,124,081
0.93
$
0.86
125,277
(30,327)
5,277
$ 1,176,819
1,397,721
578,186
781,426
109,128,388
88,440,710
18,922,221
1,765,457
0.93
$
0.86
129,576
(335,346)
226,191
$ 959,550
1,068,510
459,262
573,828
86,343,388
69,372,077
15,555,554
1,415,757
0.93
$
0.48
$ 1,073,986
1,194,352
621,894
517,326
70,787,834
69,372,077
—
1,415,757
0.93
$
—
84,798
15,935
(110,552)
56,539
(16,656)
(18,984)
Annual Report 2015 | Capital Product Partners L.P.
(1) Voyage expenses primarily consist of commissions, port expenses, canal dues and bunkers.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Vessel operating expenses consist of management fees payable to our Manager pursuant to the terms of our three separate man-
agement agreements and actual operating expenses such as crewing, repairs and maintenance, insurance, stores, spares, lubri-
cants and other operating expenses incurred in respect of our vessels.
On June 9, 2011, we completed the acquisition of Patroklos Marine Corp., the vessel owning company of the M/V Cape Agamem-
non, from Capital Maritime. The acquisition was funded through $1.5 million from available cash and the incurrence of $25.0
million of debt under a new credit facility entered into in 2011 (as amended, the “2011 credit facility”), as well as through the
issuance of 6,958,000 common units to Capital Maritime. In connection with this transaction, we issued an additional 142,000
common units, which were converted into general partner units and delivered to our general partner in order for it to maintain
its 2% interest in us. On September 30, 2011, we completed a merger with Crude Carriers Corp., a corporation 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.
In May and June 2012, we issued a total of 15,555,554 Class B units to a group of investors, including Capital Maritime, and re-
ceived net proceeds of $136.4 million, which, together with $13.2 million from our available cash, were used to prepay bank debt
of $149.6 million.
In December 2012, we acquired Capital Maritime’s vessel-owning companies of the M/V Archimidis and the M/V Agamemnon,
in exchange for our vessel-owning companies of M/T Alexander the Great and M/T Achilleas, two Very Large Crude Carriers
(“VLCC”). As a consequence of this exchange, we recognized an impairment charge of $43.2 million, 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.
In March 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 million draw down under our existing $350.0 million credit facility en-
tered into in 2008 (as amended, the “2008 credit facility”) and $3.4 million from available cash, were used to acquire from Capital
Maritime the shares of two separate vessel-owning companies, each of which owns a 5,000 twenty foot equivalent (“TEU”) high
specification container vessel, built in 2013, at a price of $65.0 million each.
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, receiving net proceeds of $119.8 million after deducting expenses related
to the offering. The net proceeds, together with a $75.0 million draw down under our $225.0 million term loan facility entered
into in 2013 (as amended, the “2013 credit facility”) and $0.2 million from available cash, were used to acquire from Capital
Maritime three vessel-owning companies, each of which owned a 5,000 TEU high specification container vessel, built in 2013, at
a price of $65.0 million each.
In August 2013, our sponsor converted 349,700 common units into general partner units and delivered such units to our general
partner in order for it to maintain its 2% interest in us.
During 2013, certain holders of our Class B Units converted an aggregate of 5,733,333 Class B Units into common units in ac-
cordance with the terms of the partnership agreement.
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. 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 sale proceeds of the M/T Agamemnon II and our available
cash. The M/T Aristotelis replaced the M/T Agamemnon II as a security under our $370.0 million credit facility entered into in
2007 (as amended, the “2007 credit facility”).
(11)
In September 2014, we completed an equity offering of 17,250,000 common units, which included the full exercise of the un-
derwriters’ overallotment option of 2,250,000 common units, receiving net proceeds of $173.5 million after deducting expenses
related to the offering. The net proceeds were used to repurchase from Capital Maritime 5,950,610 common units at an aggregate
9
Capital Product Partners L.P. | Annual Report 2015
price of $60.0 million and to cancel such common units. Furthermore, we used the amount of $30.2 million of the net proceeds
of the offering as an advance payment to Capital Maritime in connection with the acquisition of the Dropdown Vessels, four of
which were delivered between March and September 2015 and the fifth of which is expected to be delivered in February 2016.
The total acquisition cost for these five vessels was $311.5 million. The remaining proceeds of this offering were used for general
partnership purposes.
(12)
In 2015 and 2014, our sponsor converted 315,908 and 358,624 common units, respectively, into general partner units and deliv-
ered such units to our general partner in order for it to maintain its 2% interest in us.
(13)
During 2015 and 2014, various holders of our Class B Units, including Capital Maritime, converted an aggregate of 1,240,404 and
4,698,484 Class B Units into common units, respectively, in accordance with the terms of the partnership agreement.
(14)
(15)
In April 2015, we completed an equity offering of 14,555,000 common units, including 1,100,000 common units sold to Capital
Maritime and 1,755,000 common units representing the overallotment option, at a net price of $9.53 per common unit, and re-
ceived net proceeds before expenses of $133.3 million. The net proceeds were used to prepay the quarterly installments scheduled
for 2016 and the first quarter of 2017 under our 2007, 2008 and 2011 credit facilities and to pay related fees and expenses and for
general partnership purposes.
We have early adopted the new standard Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Sub-
topic 835-30), Simplifying the Presentation of Debt Issuance Costs, retrospectively during the fourth quarter of 2015. The guid-
ance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from
the corresponding liability, consistent with debt discounts, instead of presenting debt issuance costs as long-term assets on the
consolidated balance sheets. The recognition and measurement guidance for debt issuance costs is not affected. Therefore, these
costs will continue to be amortized as interest expense using the effective interest method.
Please read Note 2 (Significant Accounting Policies), Note 3 (Acquisitions), Note 5 (Fixed Assets), Note 7 (Long-Term Debt), and Note
12 (Partners’ Capital) to our Financial Statements included herein for additional information.
10
Annual Report 2015 | Capital Product Partners L.P.
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 a corporation engaged
in a similar business would face, limited partner interests are inherently different from the capital stock of a corporation. 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. The risks described below also include forward-looking statements and our actual results may differ substantially from
those discussed in such forward-looking statements. For more information, please read “Forward-Looking Statements” above.
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, finan-
cial position 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 several 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 recovery prospects of the Euro zone
and the United States, and the recent economic slowdown in China and other emerging markets are all expected to affect demand for
product and crude tankers going forward. Demand for oil and refined petroleum products has recently rebounded on the back of lower
oil prices, but there remains a general long-term global trend towards energy efficient technologies and alternative sources of energy.
Future oil demand is expected to come primarily from emerging markets which have been historically volatile, and a slowdown in these
economies, such as recently in China, may severely affect global oil demand growth, and may result in protracted, reduced consump-
tion 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 global economic conditions deteriorate or oil prices increase and, as a result, the rate of growth for the demand of oil and oil prod-
ucts decreases, 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 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 busi-
ness, 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.
Charter rates for tanker vessels are highly volatile and may decrease in the future, which may adversely affect our earnings and our abil-
ity 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 success-
fully charter our vessels in the future or renew existing charters at the same or similar rates. Charter hires are currently close to average
historical rates, but may 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
11
Capital Product Partners L.P. | Annual Report 2015
markets as the majority of the vessels in our fleet are tankers. 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 rate environment
changes and charterers do not display an 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, among others. In the
past, the spot market has also experienced periods when spot rates have declined below the operating cost of vessels. 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 or traveling unladen to pick up cargo. Furthermore, as charter rates for spot charters
are fixed for a single voyage of 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 improve or may decline. The oc-
currence 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 num-
ber of different factors outside of our control, including:
•
•
•
•
•
•
•
•
•
the supply for oil and oil products, which is influenced by, among others, international economic activity, geographic changes in oil
production, processing and consumption, oil price levels, inventory policies of the major oil and oil trading companies, competition
from alternative sources of energy and 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
applicable 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.
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 were delivered in significant numbers starting at the beginning of 2006 and continued to be delivered in significant numbers
through to 2015. In addition, Clarkson Research Services Limited estimates that the newbuilding order book, which extends to 2020, increased
significantly during 2015 and equals approximately 19.2% of the existing world tanker fleet and the order book may increase further in pro-
portion 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
12
Annual Report 2015 | Capital Product Partners L.P.
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 and taken delivery of so-called “eco-type” vessel designs, which offer substantial bun-
ker savings as compared to older designs. Increased demand for and supply of “eco-type” vessels could reduce demand for our vessels
that are not classified as such and expose us to lower vessel utilization and/or decreased charter rates.
According to Clarkson Research Services Limited, the product tanker newbuilding order book as of December 2015 is estimated at
379 vessels or 14.0% of the current product tanker fleet. The majority of these orders are based on new vessel designs, which purport to
offer material bunker savings compared to older designs, which include certain of our vessels. Such savings could result in a substantial
reduction of bunker cost for charterers. As the supply of such “eco-type” vessel increases and if charterers prefer such vessels over our
vessels that are not classified as such, this may reduce demand for our non-“eco-type” vessels, impair our ability to recharter such ves-
sels at competitive rates and have a material adverse effect on our cash flows and operations.
RISKS RELATED TO THE DRYBULK INDUSTRY
We are exposed to various risks in the international drybulk shipping industry, which is cyclical and volatile.
Since our acquisition of the M/V Cape Agamemnon from Capital Maritime in June 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 historically 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
confidence. 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;
economic growth in China and other developing economies;
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.
•
•
•
•
•
•
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 con-
tracted 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, operations 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 the rate of economic growth in the global economy including
13
Capital Product Partners L.P. | Annual Report 2015
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 drybulk 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 date 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, incurring losses in recent years, and is in the process of merging with China Shipping (Group) Co.
The loss of this customer could result in a significant loss of revenues, cash flow and affect our ability to maintain or improve distribu-
tions in 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, to restructure its operations 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 re-negotiate the terms of the charter agreement due to prevailing economic and market conditions or due
to continued 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, if at all, which would result in a significant
loss of expected future revenues and cash flows. This could adversely affect our ability to service our debt or to make cash distributions.
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. For example, the recent slowdown of
the Chinese economy has adversely affected demand for capesize bulk carriers and, as a result, spot and period rates, as well as asset values are
currently at historical low levels. 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 eco-
nomic downturn in any of these countries could have a material adverse effect on our business, financial condition and results of operations.
An oversupply of drybulk vessel capacity may lead to reductions in charter rates and profitability.
The market supply of drybulk vessels has been increasing, and the number of drybulk vessels on order as of December 2015, was estimated
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Annual Report 2015 | Capital Product Partners L.P.
by market sources to be approximately 16.3% 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 new-
build deliveries are not always accurate or may not be readily available.
Despite increased demolition of older drybulk vessels between 2011 and 2015, the drybulk fleet continues to grow. An oversupply of
drybulk vessel capacity will likely result in a protracted weakness for dry bulk charter hire rates. Upon the expiration of its current pe-
riod 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 com-
pete 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, which is capital intensive and highly fragmented. Competition arises primarily from other ves-
sel 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 Agamemnon
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 waterlogged 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 RELATED TO THE CONTAINER CARRIER INDUSTRY
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.
With 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 nine container vessels from Capital Maritime (with an additional tenth container vessel
expected to be delivered in February 2016) and have become subject to various risks of the container shipping industry. We employ
the nine container vessels we currently own in the container shipping market in which we had limited experience prior to 2012. The
ocean-going container shipping industry is both cyclical and volatile in terms of charter rates and profitability and demand for our ves-
sels 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 2015, as the impact of the slowdowns in the European and Chinese
economies 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 con-
tainerships. 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 over the last few years, including a number of “ultra
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Capital Product Partners L.P. | Annual Report 2015
large container vessels”. Since the second half of 2015, a slowdown in demand in certain key container trade routes, including the Asia
to Europe route at a time of increased vessel supply has resulted in an increase of the idle container fleet to 6.8%, which is the highest
since early 2010. Accordingly, weak conditions in the containership sector may affect our business, results of operations, financial con-
dition and ability to make cash distributions and service our debt.
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 and charterers not performing under, or requesting
modifications of, existing time charters. A further downturn in the container shipping industry could adversely affect our business,
results of operations, financial condition and our ability to make cash distributions, and to service or refinance our debt.
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 and the overall supply of
container vessels. 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. We will face the same issues if we acquire additional vessels and attempt to obtain multi-year
time charters as part of our acquisition and financing plan.
Consumer confidence and consumer spending recently have been relatively weak and remain uncertain. Consumer purchases of dis-
cretionary 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 increase the coun-
terparty risk associated with the charters for our vessels and, in turn, affect overall demand for containerships.
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
conditions 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;
weather; and
cost of bunkers.
•
•
•
•
•
•
•
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 profitability, operations or 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.
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Annual Report 2015 | Capital Product Partners L.P.
An oversupply of containership capacity may prolong or further depress current charter rates and adversely affect our ability to re-
charter 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, as of December 31, 2015 the order-book is still at
almost 19.1% of the existing fleet and deliveries of vessels ordered will significantly increase the size of the container fleet over the next
year. Additionally, a 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 to recharter our containerships at all.
A number of third-party owners have ordered and taken delivery of so-called “eco-type” vessel designs, which offer substantial bun-
ker savings, higher container intake as compared to older designs and comply with the latest regulatory and charterers’ requirements.
Increased demand for and supply of “eco-type” vessels could reduce demand for our vessels that are not classified as such and expose
us to lower vessel utilization and/or decreased charter rates.
According to Clarkson Research Services Limited, the container vessel newbuilding order book as of December 2015 is esti-
mated at 455 vessels or 19.1% of the current container fleet. The majority of these orders are based on new vessel designs, which
purport to offer material bunker savings compared to older designs and higher container intakes, which include certain of our
vessels. Such savings could result in a substantial reduction of bunker cost for charterers on a per unit basis. In addition, older
designs may require additional capital expenditure in order to comply with regulatory and charterers’ requirements such as the
installation of Alternative Maritime Power (AMP) or other equipment and/or modifications. As the supply of such “eco-type”
vessel increases, if charterers prefer such vessels over our vessels that are not classified as such, this may reduce demand for our
non-“eco-type” vessels, impair our ability to recharter such vessels at competitive rates and have a material adverse effect on our
cash flows and operations.
We are dependent on our container carrier vessel charterers fulfilling their obligations under their agreements with us, and their in-
ability or unwillingness to honor these obligations could reduce our revenues and cash flow.
The nine container carrier vessels we presently own are currently under charters with Hyundai Merchant Marine Co. Ltd. (“HMM”)
and CMA CGM Group (“CMA CGM”). Many liner companies, including our charterers, finance their activities through the incur-
rence of debt. Since 2008, there has been a significant decline in the credit markets and the availability of credit, and the equity mar-
kets have been volatile. In addition, the tanker and drybulk markets have been or are currently at historically low levels, which have
negatively affected the profitability and balance sheet of such liner companies. 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 and losses from other operations may result in a significant reduction in the ability of our charterers to make charter
payments to us. We have been informed that HMM is developing a restructuring proposal and intends to engage in discussions with
various parties, including its finance providers and the owners of its charter-in fleet. For the year ended December 31, 2015, our char-
ters to HMM accounted for 21% of our revenues.
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 obli-
gations 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 CMA CGM to comply with the terms of its respec-
tive 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 our charterers or a decline in payments under our time charters could have a material
adverse effect on our business, results of operations, financial condition, revenues and cash flow and our ability to continue to grow
and/or pay cash distributions to our unitholders.
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Capital Product Partners L.P. | Annual Report 2015
Several of our container vessels are under charters 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 Prestige are each
currently under 12-year time charters to HMM, at a gross charter rate of $29,350 per day, all of which commenced in the first half of
2013. The M/V CMA CGM Magdalena, M/V CMA CGM Uruguay and M/V CMA CGM Amazon are each under time charters for
a minimum of five years to CMA CGM, at a gross charter rate of $39,250 per day, all of which were entered into in December 2013.
Recently, HMM and CMA CGM have each faced financial difficulties, and incurred losses and increased indebtedness, and we have
been informed that HMM is developing a restructuring proposal. The loss of these customers could result in a significant loss of rev-
enues, cash flows and our ability to maintain or improve distributions over the long term, and to service or refinance our debt. We could
lose these customers or the benefits of the charters entered into with them 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, restructure its operations 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, CMA CGM or both 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 even profitable,
rates for these vessels or we may not be able to recharter these vessels at all and our earnings and ability to grow or make cash distribu-
tions, and to service or refinance our debt may be adversely affected.
A decrease in the level of China’s export of goods or an increase in trade protectionism globally 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 condition and
cash flows.
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 charter-
ers’ 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 in 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 poli-
cies of the Chinese government.
For instance, China recently enacted a new tax for non-resident international transportation enterprises engaged in the provision of
services of passengers or cargo, among other items, in and out of China using their own, chartered or leased vessels, including any
stevedore, warehousing and other services connected with the transportation. The new regulation broadens the range of international
transportation companies who may find themselves liable for Chinese enterprise income tax on profits generated from international
transportation services passing through Chinese ports. This tax or similar regulations by China may result in an increase in the cost of
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Annual Report 2015 | Capital Product Partners L.P.
goods exported from China and the risks associated with exporting goods from China, as well as a decrease in the quantity of goods
to be shipped from our charterers through China, which 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.
Our operations expose us to the risk that increased trade protectionism from China or other nations will adversely affect our business.
If the global recovery is undermined by downside risks and the recent economic downturn returns, governments may turn to trade bar-
riers 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 may 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, financial condition and our ability to pay cash distributions to our unitholders.
Containership values have been volatile over the last five years and have decreased during the last six months. Containership 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; or
changes in applicable environmental or other regulations 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 state-
ments, which could adversely affect our financial condition and 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 depend on our ability to expand relationships with existing customers
and develop relationships with new customers, for which we will face substantial competition.
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 contain-
ership sector, including many with strong reputations and extensive resources and experience in the marine transportation industry.
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Capital Product Partners L.P. | Annual Report 2015
This increased competition 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 RELATED 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 container, crude and product tanker markets by fixing period charters for our vessels at attractive rates;
identify businesses engaged in managing, operating or owning vessels for acquisitions or joint ventures;
identify vessels and/or shipping companies for acquisitions;
access capital markets, including equity and debt capital markets;
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 our 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 con-
dition and ability to pay cash 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. See also “—Risks Related to Financing Activities—We rely on the master limited partnership (“MLP”) structure and its
appeal to investors for accessing debt and equity markets to finance our growth and repay or refinance our debt. The recent drop in energy
prices has, among other factors, caused increased volatility and contributed to a dislocation in pricing for MLPs. The depressed trading
price of our common units may affect our ability to access capital markets and, as a result, our ability to pay distributions or repay our debt”.
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 Ship Management, a subsidiary of 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 distribu-
tion to our unitholders.
We have entered into three separate technical and commercial management agreements with Capital Ship Management for the man-
agement 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. Rises 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 six of our vessels currently managed under it, such vessels, and any
additional acquisitions we make in the future, will 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, or costs of crews for our time chartered vessels and insurance, will lead to an increase in the fees we would have to pay to
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Annual Report 2015 | Capital Product Partners L.P.
Capital Ship Management or another third party under any new agreements.
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 dry-dockings and/or intermediate surveys on our vessels, which are expected to be significant, could ad-
versely 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 determination by our board of directors each quarter after its review of financial performance. Our ability to grow and pay distri-
butions in any period will depend upon factors, including, but not limited to, our 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 12,983,333 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 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 de-
velopments and the charter rates we earn when we recharter our vessels, our cash earnings, financial condition and cash requirements,
and could be affected by a variety of factors, including the loss of a vessel, required capital expenditures, reserves established by our board
of directors, increased or unanticipated expenses, refinancing or repayment of indebtedness, additional borrowings and compliance
with our loan covenants, our anticipated future cost of capital and access to equity and debt capital markets including for the purposes
of refinancing or repaying 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 dis-
tribution, 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.
Subject to limited exceptions, 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 subordinated to our existing and future indebtedness and our Class B 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 the Partnership. Ad-
ditionally, 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, distribution payments relating to our common units are prohibited un-
der our partnership agreement, 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 hold-
ers 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. As of the date of this Annual Report, there were 12,983,333 Class B Units issued and outstanding. Any such
actions as described above could adversely affect the market price of our common units.
21
Capital Product Partners L.P. | Annual Report 2015
Since 2011 our board of directors has elected not to deduct any replacement capital expenditures from our operating surplus. If this
practice continues in the future, 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 neces-
sary 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 direc-
tors, 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 unitholders 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 when actual capital ex-
penditures exceed our previous estimates.
Our board of directors has elected not to deduct any replacement capital expenditures from our operating surplus since 2011. If this
practice continues in the future, it will likely 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 maintenance capital expenditures required to maintain the operating capacity of our vessels including any costs as-
sociated with scheduled drydockings as part of our operating expenses. 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.
Once one of our vessels is put into drydock, it is automatically considered to be off-hire for the duration of the special or intermediate
survey and associated drydocking, which means that for such period of time that vessel will not be earning any revenues. In 2015, 10 of
our vessels were dry-docked with a total of 192 off-hire days. We expect five of our vessels to be put into drydock during 2016. During
the drydocking of our vessels, we may incur certain costs, including, among other things, the installation of the ballast water treatment
system for vessels (if or when applicable legislation comes into effect), the levels of which are not possible to predict, are not covered
under our management agreements 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 increase, which may materially affect our cash
available for distribution to our unitholders. In addition, we may decide to put any of our vessels into drydock before the scheduled
drydocking date in anticipation of regulatory changes, opportunities in the charter market or if we deem that due to the position of the
vessel, it will be less costly to put the vessel into drydock.
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
interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other
circumstances 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.
22
Annual Report 2015 | Capital Product Partners L.P.
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 “arrest-
ing” 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.
The 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 busi-
ness, results of operations, cash flows, financial condition and ability to pay cash distributions.
Acts of piracy on ocean-going vessels have continued and could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian
Ocean, the Gulf of Aden off the coast of Somalia and the Red Sea. Although the frequency of sea piracy worldwide has decreased in re-
cent years, sea piracy incidents continue to occur, particularly in the Gulf of Aden and towards the Mozambique Channel in the North
Indian Ocean, and increasingly in the Gulf of Guinea.
If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones 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 trad-
ing 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 distri-
butions. 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
23
Capital Product Partners L.P. | Annual Report 2015
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 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 flex-
ibility 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, have increased capacity, 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 abil-
ity to service our debt or make cash distributions.
Matters Related to Investigations of Greek Professional Football (Soccer).
Our former Chairman and the founder and chairman of Capital Maritime, Evangelos M. Marinakis, has been the principal owner of
the Greek professional football team Olympiacos since January 2011 and has served as President of Olympiacos since December 2010.
Mr. Marinakis also was President of the Superleague Greece in which Olympiacos participates and Vice-President of the Hellenic
Football Federation from August 2010 for a year. Since 2011, Greek authorities have investigated allegations of match-fixing and other
improprieties related to professional football in Greece. Various individuals, including Mr. Marinakis, have been identified as subjects
of these investigations. Mr. Marinakis has cooperated with the investigations and has denied any wrongdoing.
While it is not possible to predict the outcome of these matters with certainty, CPLP does not expect that the outcome of these matters
will be materially adverse to us or Mr. Marinakis’s relationship to CPLP.
Transition of our senior management may cause certain disruptions that could have a material adverse effect on our business, finan-
cial condition, results of operations and ability to retain key officers and employees.
As we announced on June 12, 2015, Mr. Gerasimos (Jerry) Kalogiratos was appointed as Chief Executive Officer and Chief Financial
Officer, succeeding Mr. Petros Christodoulou, who served as the Chief Executive Officer and Chief Financial Officer of the Partner-
ship’s general partner between September 2014 and June 2015. Previously, Mr. Ioannis Lazaridis served in those positions between
January 2007 and September 2014, and had been a key contributor to our performance. Although Mr. Kalogiratos’ appointment was
unanimously approved by our board of directors and he has been involved with the Partnership since its inception, and Mr. Lazaridis
remains non-executive chairman and a member of our board of directors, our business, results of operations, cash flows, financial con-
dition, ability to make distributions and ability to retain key officers and employees could be adversely affected if we cannot effectively
transition management responsibilities to Mr. Kalogiratos. Furthermore, leadership transitions can be inherently difficult to manage
and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover in key officers and employees.
There can be no assurance that we will not experience disruptions arising from this leadership transition.
The Dropdown Vessels may not meet our design or cost savings expectations.
All Dropdown Vessels will have been delivered by February 2016. The Dropdown Vessels incorporate many technological and design
features, such as new hull and propulsion designs, energy saving devices, de-rated electronic engines and other equipment not previ-
ously tested on our other vessels. Certain of the Dropdown Vessels were also constructed at shipyards and by vessel construction firms
with which we have not previously worked. While we expect the acquisition of the Dropdown Vessels with such features will generate
increased cost savings and, in turn, increase demand for our charters, there is no assurance that they will do so. For example, if the
current trend of decreased costs for oil and bunkers were to continue, it could substantially reduce the cost savings these vessels are
expected to deliver to our charterers. If they do not generate the cost reduction benefits that we anticipate, competition from vessels
without these features, but with lower charter rates, could adversely affect the amount of charter hire payments we receive for the Drop-
down Vessels and, in turn, our return on investment on such vessels. As a result, our business, results of operations, cash flows, financial
condition and ability to make distributions could be adversely affected.
24
Annual Report 2015 | Capital Product Partners L.P.
RISKS RELATING TO FINANCING ACTIVITIES
We may be harmed by any limitation in the availability of funding, as a result of a contraction of or volatility in financial markets
or for any other reason. 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.
A number of major financial institutions have experienced serious financial difficulties in recent years and, in some cases, have entered
into bankruptcy proceedings or are or have been involved in regulatory enforcement actions. These difficulties resulted, in part, from
declining markets for assets held by such institutions, particularly the reduction in the value of their mortgage and asset-backed securi-
ties portfolios. These difficulties were 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). As
a result, the ability of banks and credit institutions to finance new projects, including the acquisition of new vessels in the future, was
uncertain for a time. A recurrence of global economic weakness 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 adverse market conditions, including weakened
demand for, and increased supply of, product tankers, drybulk or container vessels, resulting from, among other things, general eco-
nomic conditions, the financial condition of charterers and operators of vessels, 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, our ability to
fund current and future obligations may be negatively impacted. In addition, the recent severe deterioration in the banking and credit
markets resulted in potentially higher interest costs and overall limited availability of liquidity, which, if such conditions were to occur
again, may further affect our ability to complete any future purchases of vessels from Capital Maritime or from third parties or to refi-
nance our debt. Furthermore, banks and financial institutions have faced in the recent past financial difficulties and increased scrutiny
by credit rating agencies, which has meant that available funding from banks has been, and may continue to be, relatively limited such
that we may not be able to easily 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.
We rely on the master limited partnership (“MLP”) structure and its appeal to investors for accessing debt and equity markets to
finance our growth and repay or refinance our debt. The recent drop in energy prices has, among other factors, caused increased
volatility and contributed to a dislocation in pricing for MLPs. The depressed trading price of our common units may affect our abil-
ity to access capital markets and, as a result, our ability to pay distributions or repay our debt.
The fall in energy prices and, in particular, the price of oil, among other factors, has contributed to increased volatility in the pricing of
MLPs and the energy debt markets, as a number of MLPs and other energy companies may be adversely affected by a lower energy pric-
es environment. A number of MLPs, including certain maritime MLPs, have reduced or eliminated their distributions to unitholders.
We rely on our ability to raise capital in the equity and debt markets to grow our fleet and to refinance our debt. A protracted deteriora-
tion in the valuation of our common units would increase our cost of capital, make any equity issuance significantly dilutive and may
affect our ability to access capital markets and, as a result, our capacity to pay distributions to our unitholders and refinance or repay
our debt.
A limited number of financial institutions hold our cash, including, from time to time, financial institutions located in Greece.
We maintain our cash with a limited number of financial institutions, occasionally including institutions located in Greece. Of these
financial institutions 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 and politi-
cal uncertainty in Greece 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.
25
Capital Product Partners L.P. | Annual Report 2015
We have incurred significant indebtedness, which could adversely affect our ability to further finance our operations, refinance our
existing indebtedness, 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, 2015, our total debt was $571.6 million, consisting of: (i) $186.0 million outstanding under a credit facility entered into in
2007 (the “2007 credit facility”); (ii) $181.6 million outstanding under a credit facility entered into in 2008 (the “2008 credit facility”); (iii) $14.0
million outstanding under a credit facility entered into in 2011 (the “2011 credit facility”) and (iv) $190.0 million outstanding under a credit
facility entered into in 2013 (the “2013 credit facility”). With the exception of part of the 2013 credit facility, which has a quarterly amortization
schedule of $3.2 million starting with the first quarter of 2016, the remaining facilities are non-amortizing until the fourth quarter of 2017.
As of December 31, 2015, the principal repayment schedule under our existing credit facilities, on an aggregated basis, is as follows:
Year
Aggregate Principal Amount Due
2016
13.0
$
$
(Expressed in millions of United States Dollars)
2018
114.7
2019
269.7
2017
36.1
$
$
2020
138.1
$
•
•
•
•
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 three of our
existing credit facilities expires in the fourth quarter of 2017, 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 discontinuing any distribution increases, or 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
subsidiaries will be entitled to payment in full prior to any distributions to the holders of our common units.
our 2007 and 2008 credit facilities will mature in 2019, while our 2011 and 2013 credit facilities will mature in 2018 and 2020,
respectively. Our ability to secure additional financing, or to refinance such facilities, 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, distributions and future business opportunities.
The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of opera-
tions, prospects and ability to make cash 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 cov-
enants, which may limit our business and financing activities, including our ability to make cash 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 payable 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:
26
Annual Report 2015 | Capital Product Partners L.P.
•
•
•
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.
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. Our ability to comply with the covenants and restrictions contained in
our credit facilities may be affected by events beyond our control, including 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 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, or 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
global economic downturn that occurred within the past several years had an adverse effect on vessel values, which may occur again
if an economic slowdown arises in the future. If the estimated asset values of the vessels in our fleet 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 addi-
tion, 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 unavailable 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. Default under these 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 val-
ues, 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, reduc-
ing or 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 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 or make cash distributions.
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, 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, or if we trigger a cross-default
currently contained in our credit facilities or any interest rate swap agreements, or in any such facility or agreement we may enter into,
27
Capital Product Partners L.P. | Annual Report 2015
pursuant to their terms, a significant portion of our obligations may become immediately due and payable, and our lenders’ commit-
ment 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
•
document 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
document 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 Select Market or on any other recognized securities exchange;
any breach under any provisions contained in our interest rate swap agreements;
termination of any interest rate swap agreements or an event of default thereunder that is not timely remedied;
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 key charter parties, such as HMM, CMA CGM, Petróleo Brasileiro S.A. (“Petrobras”), Capital Maritime and BP Ship-
ping Limited or other charterers we may have from time to time, to comply with the terms of their charters to the extent that 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 inter-
est rate swap agreements.
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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
Condition and Results of Operations”.
Risks arising from the political situation in Greece.
Following the national elections in Greece in September 2015, the previous government led by Greek political parties from the left and
right wings has been kept in place. While the new government announced its commitment to the European Union and the Euro, it is
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Annual Report 2015 | Capital Product Partners L.P.
required to implement in return a new Memorandum of Understanding between Greece and the “Troika”, comprised of the European
Commission, the IMF and the ECB, which includes numerous austerity measures and could potentially result in increased taxation for
shipping companies. These and related developments may have adverse effects on the Greek economy as well as the political and regula-
tory environment in Greece. While we believe that any resulting effects on managing our business and operations would be limited, it
is possible that these developments could adversely affect our operations based in Greece.
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.
We 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, 2015, Capital Maritime and HMM accounted for 29% and 21% of our revenues, respectively. For the year
ended December 31, 2014, Capital Maritime, HMM and Maersk Line accounted for 38%, 24% and 12% of our revenues, respectively.
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. We could lose a customer, including Capital Maritime or HMM, or the benefits of some or all
of a charter if:
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the customer faces financial difficulties forcing it to declare bankruptcy or to restructure its operations, 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 profit-
ably 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. In addi-
tion, some of our charterers including HMM, Petrobras and CMA-CGM have been reported at time to be under significant financial
pressure. We have been informed that HMM is developing a restructuring proposal and intends to engage in discussions with various
parties, including its finance providers and the owners of its charter-in fleet. Please read “Item 4B: Business Overview—Our Custom-
ers” and “—Our Charters” 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 or at all. 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 or for short periods 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 ves-
sels 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, financial condition and our ability to make cash distributions.
We depend on Capital Maritime and its affiliates to assist us in operating and expanding our business. If Capital Maritime is materially
adversely affected by market fluctuations, and risks or suffers material damage to its reputation, 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 may be negatively affected.
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Capital Product Partners L.P. | Annual Report 2015
As of December 31, 2015, eight of our 34 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, such as the Dropdown Tankers. Capi-
tal Maritime is subject to the same risks and market fluctuations as all other charterers. In the event Capital Maritime is affected by a
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 administra-
tive, financial and other support services to us. Please read “Item 4B: Business Overview—Our Management Agreements” for a description
of all our management 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 a 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:
•
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•
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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 construc-
tion-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 drybulk
trade, as well as on growth in demand for refined products and crude oil and the demand for their seaborne transportation.
Our growth strategy depends on developments in the refined product tanker, crude oil, drybulk and container shipping sectors. In
particular, our growth depends on 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:
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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 consump-
tion of oil less attractive or energy conservation measures; and
availability of new, alternative energy sources.
Additionally, our growth depends on 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;
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Annual Report 2015 | Capital Product Partners L.P.
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the supply and demand of containerized goods;
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 Eu-
rope 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.
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,
completion 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:
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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
requirements 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’ ter-
minating 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 profitable charters.
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Capital Product Partners L.P. | Annual Report 2015
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 for the secondhand vessels that we acquire. Our fleet had an average age of approximately 6.8 years as of December 31, 2015.
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 ad-
ditional newbuildings or other modern vessels (or interests in vessel owning companies). If Capital Maritime or any third-party seller
we may contract 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 vessels or newbuildings is influenced by the ability of buyers to access debt and bank financing and equity capital, and
any disruptions to the market and the possible lack of adequate available financing 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, 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 increas-
ing our indebtedness or by issuing debt or equity securities, our ability to make cash or grow our 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, 2015, our fleet consisted of 34 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 by issuing
additional equity securities. We also acquired additional vessels through the acquisition of Crude Carriers in 2011. If we issue addi-
tional 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.”
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% and 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 acquisi-
tions by issuing debt or equity securities, we will increase the aggregate amount of interest payments or quarterly distributions we must
make prior to generating 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 capi-
tal 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 issu-
ing 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 grow or make cash
distributions. See also “—Risks Related to Financing Activities— We rely on the master limited partnership (“MLP”) structure and its
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Annual Report 2015 | Capital Product Partners L.P.
appeal to investors for accessing debt and equity markets to finance our growth and repay or refinance our debt. The recent drop in
energy prices has, among other factors, caused increased volatility and contributed to a dislocation in pricing for MLPs compared to
their recent pricing history. The depressed trading price of our common units may affect our ability to access capital markets and, as a
result, our ability to pay distributions or repay our debt”.
Political and government instability, terrorist or other attacks, war or international hostilities can affect the industries in which we
operate, 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, in Paris on January 7 and on November 13, 2015,
the bombings in Spain on March 11, 2004 and in London on July 7, 2005, the recent conflicts in Iraq, Afghanistan, Syria, Ukraine, 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 instability and uncertainty in global financial markets. Future terrorist attacks could
result in increased volatility of the financial markets in the 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
facilities, 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 insur-
ance 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 sanc-
tions 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 Cor-
rupt 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 representatives. 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 performance 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 jurisdic-
tions. 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 incorpo-
rates our anti-bribery and corruption policy, may not adequately prevent or detect possible violations under applicable anti-bribery
and anti-corruption legislation.
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Capital Product Partners L.P. | Annual Report 2015
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 (including the Crimea region of Ukraine, Cuba, Iran, North Korea, Sudan and Syria), entities and persons are tar-
geted by economic sanctions and embargoes imposed by the United States, the European Union and other jurisdictions, and a number
of those countries, currently Iran, Sudan and Syria, have been identified as state sponsors of terrorism by the U.S. Department of State.
Such economic sanctions and embargo laws and regulations vary in their application with regard to countries, entities or persons and
the scope of activities they subject to sanctions. These sanctions and embargo laws and regulations may be strengthened, relaxed or
otherwise modified over time.
We generally do not do business in sanctions-targeted jurisdictions unless an activity is authorized by the appropriate governmental
or other sanctions authority. We have not entered into agreements or other arrangements with the governments or any governmental
entities of sanctioned countries, and we do not have any direct business dealings with officials or representatives of any sanctioned
governments or entities. However, although we have various policies and controls designed to help ensure our compliance with these
economic sanctions and embargo laws, it is possible that the charterers of our vessels, or their sub-charterers, may arrange for vessels
in our fleet to call on ports located in one or more sanctioned countries.
With regard to Iran, significant sanctions relief has recently been implemented in accordance with the agreement among the permanent
members of the United Nations Security Council (China, France, Russia, the United Kingdom and the United States), plus Germany,
the High Representative of the European Union for Foreign Affairs and Security Policy and Iran on the final text of a Joint Comprehen-
sive Plan of Action (“JCPOA”) in exchange for Iran’s implementation of certain measures intended to ensure that Iran’s nuclear program
is used for peaceful purposes. Nevertheless, certain transactions and dealings, including transactions involving targeted Iran-related
persons and entities and transactions that implicate U.S. jurisdiction remain subject to sanctions.
We are mindful of the restrictions discussed above and contained in other applicable economic sanctions programs and embargo laws
administered by 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 and entities. We believe that we are currently in compliance with all ap-
plicable economic sanctions laws and regulations.
In order to maintain our compliance with such laws and regulations, we monitor and review the movement of our vessels, as well as
the cargo being transported by our vessels, on a continuing basis. During 2015, our vessels under time charter contracts made ap-
proximately 1,206 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, one vessel made one port call to Iran, which represented approximately 0.2% of our total calls in 2015. 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 2015 did not include any payments
for refueling or bunkers for the vessels making such port calls. The one port call made by a CPLP vessel and 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 par-
ties. To the best of our knowledge, the vessels making these port calls were transporting vegetable oils or palm oil, and not crude oil,
petroleum, refined petroleum, petrochemical products, uranium or weapons, or other goods that were or remain specifically targeted
by the various economic sanctions and embargo laws of the United States or the European Union. We believe all such port calls were
made in full compliance with applicable economic sanctions laws and regulations, including those of the United States, the European
Union and other relevant jurisdictions.
Further, our charter agreements include provisions that restrict trades of our vessels to countries targeted by economic sanctions unless
such transportation activities involving sanctioned countries are permitted under applicable economic sanctions and embargo regimes.
Our ordinary chartering policy is to try to include similar provisions in all of our period charters. Prior to agreeing to waive existing
charter party restrictions on carrying cargoes to or from ports that may implicate sanctions risks, we ensure that the charterers have
proof of compliance with international and U.S. sanctions requirements, or applicable licenses or other 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
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Annual Report 2015 | Capital Product Partners L.P.
of economic sanctions and embargo laws or regulations, we would rely on our monitoring and control systems, including documenta-
tion, 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, or changes to existing, sanctions-related legislation or agreements may
impact our business. 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 the
sanctioned 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, the scope of certain laws may be unclear, may
be subject to changing interpretations or may be strengthened or otherwise amended. Any violation of sanctions or engage-
ment in sanctionable conduct could result in fines, sanctions or other penalties, and could result in some investors deciding,
or being required, to divest their interest, or not to invest, in our common 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 distribu-
tions 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 reputation.
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:
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•
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 spilled oil or other petroleum products, and to pay for environ-
mental 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.
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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.
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Capital Product Partners L.P. | Annual Report 2015
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.
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, cov-
ering loss of revenue during extended vessel off-hire periods such as may occur while a vessel is under repair. Accordingly, even though
a unique cover has been negotiated to mitigate such off-hire losses, 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 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. Our third-party liability insurance coverage is maintained through mutual protection and indemnity associations. 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 them and unbudgeted cash-calls made upon us
by the associations”.
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, results of operations, cash flows, financial condition and ability to make cash distributions. In addi-
tion, certain of our vessels are under bareboat charters with BP Shipping Limited and subsidiaries of Overseas Shipholding Group Inc.
(“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, results
of operations, cash flows, financial condition and ability to make cash distributions. 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 resourc-
es to cover claims made against them, resulting in potential unbudgeted supplementary liability to fund claims made upon them and
unbudgeted cash-calls made upon us by the associations.
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 association’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 standards,
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,
treaties, conventions and standards in force in international waters, the jurisdictional waters of the countries in which our vessels operate,
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Annual Report 2015 | Capital Product Partners L.P.
as well as the countries of our vessels’ registration. Many of these requirements are designed to reduce the risk of oil spills, limit air
emissions and other pollution, and to reduce potential negative environmental effects associated with the maritime industry in general.
These requirements can affect the resale value or useful lives of our vessels, increase operational costs, require a reduction in cargo
capacity, ship modifications or operational changes or restrictions, decrease profitability, lead to decreased availability of insurance cov-
erage 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 obligations 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 his-
toric 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.
Under the International Convention for the Prevention of Pollution from Ships (“MARPOL”) Annex VI requirements, all ships trad-
ing in designated emission control areas (“ECA”) will have to use fuel oil on board with a sulfur content of no more than 0.10% after
January 1, 2015, as opposed to the limit of 1.00% in effect up until December 31, 2014. Outside the emission control areas, the current
limit for sulfur content of fuel oil is 3.50%, falling to 0.50% m/m on and after January 1, 2020. The 2020 date is subject to a review, to
be completed by 2018, as to the availability of the required fuel oil. Depending on the outcome of the review, the effective date could
be deferred to January 1, 2025.
Similarly MARPOL Annex VI requires Tier III standards for NOx emissions to be applied to ships constructed and engines installed
in ships operating in NOx emission control areas from January 1, 2016.
The International Maritime Organization (“IMO”) ballast water management convention requires vessels to install expensive
ballast water treatment at the first MARPOL renewal survey after the convention becomes effective. This convention will enter
into force 12 months after the date on which no less than 30 states, and the combined merchant fleets of which constitute no less
than 35% of the gross tonnage of the world’s merchant shipping, have either signed it without reservation as to ratification, ac-
ceptance or approval, or have deposited the requisite instruments of ratification, acceptance, approval or accession. The process
to verify global tonnage figures to assess the convention’s entry into force has completed. As of December 31, 2015, 47 states have
ratified this convention, but their combined fleets comprise 34.35% of the gross tonnage of the world’s merchant fleet, just under
the 35% required for entry into force.
Irrespective of IMO requirements, however, installation of expensive ballast water treatment systems will be required earlier for ships
entering U.S. jurisdictions as the U.S. Coast Guard requires installation of ballast water treatment systems at the first bottom survey
after January 1, 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 environmental regulations.
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 by 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 U.S. 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 their own 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, ship-owners may incur significant addi-
tional 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 compliance, or even to scrap or sell certain vessels altogether.
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Capital Product Partners L.P. | Annual Report 2015
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
greenhouse gases), cold-ironing while docked and ballast treatment and handling.
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”) regu-
lating, 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 2017.
Other requirements may also come into force regarding the protection of threatened and endangered species, which could
lead to changes in the routes our vessels follow or in trading patterns generally, and thus to additional operating expendi-
tures. Additionally, new environmental regulations with respect to greenhouse gas emissions and preservation of biodiver-
sity among 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 and through other multi-
lateral 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. The IMO and EU have both accelerated single-hull tanker phase-out schedules in re-
sponse 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” 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 our
Manager, may not prevent labor interruptions, and the failure to renegotiate these agreements or to successfully attract and retain
qualified personnel in the future may disrupt our operations and adversely affect our cash flows.
The collective bargaining agreement between our Manager and the Pan-Hellenic Seamen’s Federation, effective August 1, 2015, expires
on July 31, 2016. This collective bargaining agreement may not prevent labor interruptions and it is subject to renegotiation in the
future. Although we believe that our relations with our employees are satisfactory, no assurance can be given that we will be able to
successfully extend or renegotiate our collective bargaining agreement when it expires. If we fail to extend or renegotiate our collective
bargaining agreement, if disputes with our union arise, or if our unionized workers engage in a strike or other work stoppage or inter-
ruption, we could experience a significant disruption of our operations, which could have a material adverse effect on our business,
results of operations, cash flows and financial condition.
Also, our success depends in part on our ability to attract and retain qualified personnel. In crewing our vessels, we employ certain
employees with specialized training who can perform physically demanding work. Competition to attract and retain qualified crew
members is intense. If we are not able to attract and retain qualified personnel, it could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay cash distributions.
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. Currently, two of our container vessels are chartered for less than two
years. 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 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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Annual Report 2015 | Capital Product Partners L.P.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of origin and desti-
nation and trans-shipment points. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading,
offloading, trans-shipment or delivery and the levying of customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Changes to inspec-
tion procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment
of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to make cash distributions.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels call in ports throughout the world, and smugglers may attempt to hide drugs and other contraband on our vessels, with or
without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull
of our vessels, and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or
penalties, which could have an adverse effect on our business, results of operations, cash flows, financial condition and ability to make
distributions.
RISKS INHERENT IN AN INVESTMENT IN US
Capital Maritime and its affiliates may engage in competition with us.
Pursuant 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 Capi-
tal 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”.
Capital Maritime is a privately held company and there is little publicly available information about it.
Capital Maritime, the sole member of our general partner, is our largest customer in revenue terms, with eight of our 34 vessels char-
tered to it as of December 31, 2015. 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 Capital Maritime’s 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 investor 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.
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Capital Product Partners L.P. | Annual Report 2015
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, 100,576,973 common units are owned by non-affiliated public unitholders, representing 83.5% of our common
units and a 74.0% 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 direc-
tors, beneficially owns 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 unithold-
ers, 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, 2015, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to benefi-
cially own on a fully converted basis a 16.4% interest in us (18.1% on a non-fully converted basis), through, among others, Capital
Maritime, which may be deemed to beneficially own a 14.0% interest in us, including 16,548,273 common units and a 1.8% interest in
us (2% on a non-fully converted basis) through its ownership of our general partner, and Crude Carriers Investments, which may be
deemed to beneficially own a 2.4% 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 direc-
tion 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 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 man-
ner 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 uni-
tholders. Conflicts of interest 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”. 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 decisions in the best interests of the shareholders 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 Repub-
lic 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
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Annual Report 2015 | Capital Product Partners L.P.
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 subor-
dinated 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.
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•
•
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 6: Directors, Senior Management and Employees”.
The vote of a majority of our common unitholders generally is required to amend the terms of our partnership agreement, includ-
ing votes cast by affiliates of our general partner. As of the date hereof, an 16.5% interest in us may be deemed to be beneficially
owned by affiliates of our general partner, which can significantly impact any vote under the terms of our partnership agreement
and may significantly affect your rights under our 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 (including, in certain circumstances
described in the partnership agreement, the votes of holders of Class B Units voting on an as-converted basis, or in certain other cases,
a higher percentage) is required in order to reach certain decisions or actions, including:
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•
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•
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 our incentive distribution rights (“IDRs”);
the ability of the board of directors 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;
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
Partnership and amendments necessary or appropriate to carrying on our business consistent with historical practice, including
any change that our board of directors determines to be necessary or appropriate to qualify or continue our qualification as a
limited partnership, or any amendment that our board of directors, and, if required, our general partner, determines to be neces-
sary 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. 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.
As of December 31, 2015, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to benefi-
cially own on a fully converted basis a 16.4% interest in us (18.1% on a non-fully converted basis), through, among others, Capital
Maritime, which may be deemed to beneficially own a 14.0% interest in us, including 16,548,273 common units and a 1.8% interest
in us (2% on a non-fully converted basis) through its ownership of our general partner, and Crude Carriers Investments, which may
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Capital Product Partners L.P. | Annual Report 2015
be deemed to beneficially own a 2.4% interest in us. These considerations may significantly impact any vote under the terms of our
partnership agreement and may significantly affect your rights under our partnership agreement.
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” 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 con-
flicts 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
and its Chief Operating Officer are also executive officers 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 rem-
edies available to unitholders for actions taken by our general partner or our directors.
Our partnership agreement contains provisions that reduce the standards and fiduciary duties to which our general partner and direc-
tors may otherwise be held by or owed to you pursuant to Marshall Islands law. For example, our partnership agreement:
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•
•
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 Mari-
time. 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 partner-
ship, transfers (to the extent permitted under our partnership agreement) or refrains from transferring its units, general partner
interest or IDRs, 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 com-
mittee 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
partners 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 en-
gaged in actual fraud or willful misconduct.
In order to become a limited partner of our partnership, a unitholder is required to agree to be bound by the provisions in the partner-
ship 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 re-
move 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 thresh-
old, all of which could diminish the trading price of our units.
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Annual Report 2015 | Capital Product Partners L.P.
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 Decem-
ber 31, 2015, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to beneficially own
on a fully converted basis a 16.4% interest in us (18.1% on a non-fully converted basis), through, among others, Capital Maritime.
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, deter-
mining 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 as-
sets 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 war-
rants, in the market, 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.
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, 2015, certain Class B unitholders, including Capital Maritime, have converted an aggregate of 11,672,221 Class B Units
into 11,672,221 common units. As of December 31, 2015, there were 12,983,333 Class B Units outstanding. During 2015, our sponsor
converted 315,908 common units into general partner units and delivered such units to our general partner in order for it to maintain
its 2% interest in us. 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 partnership 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 Report on Form 6-K dated September 30, 2011, as Exhibit II to our Cur-
rent Report on Form 6-K/A dated May 23, 2012, as Exhibit II to our Current Report on Form 6-K dated March 21, 2013 and as Exhibit
A to Exhibit I to our Current Report on Form 6-K dated August 26, 2014.
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Capital Product Partners L.P. | Annual Report 2015
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
securities to Capital Maritime. To date, we have issued an outstanding 12,983,333 Class B Units to certain investors, which are convert-
ible 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 of 279,286 common units in August 2013 in connection with
the purchase of the Hyundai Prestige, Hyundai Privilege and Hyundai Platinum. In addition, on August 21, 2014, following approval
obtained from our limited partners at our 2014 annual meeting, we amended and restated our Omnibus Incentive Compensation
Plan, adopted in April 2008, as amended (the “Plan”), to increase the maximum number of restricted units authorized for issuance
thereunder from 800,000 to 1,650,000, of which 795,200 have been previously issued and have vested. We also issued an aggregate of
17,250,000 common units in a public offering in September 2014, which included the full exercise of the underwriters’ overallotment
option of 2,250,000 common units. In accordance with the terms of such offering, we used part of the proceeds from such offering
to acquire from Capital Maritime 5,950,610 common units, which were canceled immediately after their acquisition. Finally, in April
2015, we issued an aggregate of 14,555,000 million units, which included a partial exercise of the underwriters’ overallotment option
of 1,755,000 common units and a sale of 1,100,000 common units to Capital Maritime. The net proceeds from this offering were partly
used for the repayment of $115.9 million under three of our credit facilities and for general corporate purposes. We may make ad-
ditional such issuances in the future. The issuance by us of additional units or other equity securities of equal or senior rank may 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 Republic 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. In ad-
dition, 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 or buy back our units, 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
borrowings 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.
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Annual Report 2015 | Capital Product Partners L.P.
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 speci-
fied 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. The MILPA provides that for a period of three years from the date of the impermissible distribution, limited partners who re-
ceived 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 state-
ments, which could result in a decrease in the value of our common units.
We completed our IPO on the Nasdaq Global Select 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 Select 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 report-
ing 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. Our sponsor, 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
regulatory 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 com-
pany 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, incremen-
tal 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 unit-
holders 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
partnership 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 the laws of the Marshall Islands, with respect to the subject matter of the MILPA, uniform with the laws of the
State of Delaware and, so long as it does not conflict with the MILPA or decisions of the High and Supreme Courts of the Republic of
the Marshall Islands, the non-statutory law (or case law) of the State of Delaware is adopted as the law of the Marshall Islands. However,
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Capital Product Partners L.P. | Annual Report 2015
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 directors 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 incorpo-
rated 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.
TAX RISKS
In addition to the following risk factors, you should 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 invest-
ment 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 tax-
able year if there were to be changes in our assets, income or operations. See “Item 10E: Taxation—Material U.S. Federal Income Tax
Considerations—U.S. Federal Income Taxation of U.S. Holders—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 chartering
corporation that is attributable to transportation that either begins or ends, but that does not both begin and end, in the United States
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 U.S. 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.
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Annual Report 2015 | Capital Product Partners L.P.
In addition, our conclusion that we currently qualify for this exemption is based upon legal authorities that do not expressly contem-
plate 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, be-
cause 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.
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 ques-
tion 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 au-
thorities to determine that we are carrying on business in such country and are subject to its taxation laws. See also “Item 3D: Risk
Factors—Risks Relating to Financing Activities—Risks arising from the political situation in Greece”. Any foreign taxes imposed on us
or any subsidiaries or the increase of any tonnage tax will reduce our cash available for distribution.
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Capital Product Partners L.P. | Annual Report 2015
Item 4.
Information on the Partnership.
A. History and Development of the Partnership
We are a master limited partnership organized 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 34 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.
2015 Developments
Issuance and Sale of Common Units
In April, 2015, we completed the issuance of 14,555,000 common units at an offering price of $9.53 per unit. This total includes
1,100,000 common units sold to our sponsor and 1,755,000 common units sold to the underwriters following partial exercise of the
overallotment option. Also in May 2015, our sponsor converted an aggregate of 315,908 common units into general partner units and
delivered such units to our general partner in order for it to maintain its 2% interest in us. Net proceeds, after the deduction of the
underwriters’ commission but before expenses, relating to the offering were approximately $133.3 million. The proceeds were used to
prepay the quarterly amortization installments scheduled for 2016 and the first quarter of 2017 under our 2007, 2008 and 2011 credit
facilities and to pay related fees and expenses and for general partnership purposes.
Amendments to Certain of Our Credit Facilities
In April 2015, upon the completion of the issuance and sale of the 14,555,000 common units, we entered into three amendments to our 2007,
2008 and 2011 credit facilities providing for: (i) the prepayments made on April 30, 2015, and funded by the proceeds of the April 2015 offer-
ing of common units, of the scheduled four quarterly amortization payments in 2016 and the first quarter of 2017 in the respective aggregate
amounts of $64.9 million, $46.0 million and $5.0 million; (ii) the deferral, following the prepayments, of any further scheduled amortization
payments until November 2017 for the 2007 and 2008 credit facilities and until December 2017 for the 2011 credit facility; (iii) an extension
of the final maturity date to December 31, 2019 for the 2007 and 2008 credit facilities; and (iv) an increase of the interest rate under the 2007
credit facility to 3.0% over LIBOR from 2.0% over LIBOR. All other terms in our existing credit facilities remained unchanged.
Delivery of Dropdown Vessels
On July 24, 2014, we entered into a Master Vessel Acquisition Agreement with our sponsor, Capital Maritime (the “Master Vessel
Acquisition Agreement”), pursuant to which we agreed to acquire the Dropdown Vessels for an aggregate purchase price of approxi-
mately $311.5 million. Between March and September 2015, we took delivery of the M/T Active, the M/V CMA CGM Amazon, the
M/T Amadeus, and the M/V CMA CGM Uruguay. We expect to take delivery of the last Dropdown Containership in February 2016.
Further to the Master Vessel Acquisition Agreement, the Partnership has a right of first refusal over six newbuild eco medium range
product tankers built by Samsung Heavy Industries (Ningbo) Co. Ltd. On September 11, 2015, Capital Maritime extended the right of
first refusal to another two newbuild Samsung eco medium range product tankers for a total of eight vessels.
Management Transition
On June 30, 2015, Mr. Gerasimos (Jerry) Kalogiratos was appointed as Chief Executive Officer and Chief Financial Officer, succeeding
Mr. Petros Christodoulou, who served as the Chief Executive Officer and Chief Financial Officer of the Partnership’s general partner
between September 2014 and June 2015, and Mr. Gerasimos (Gerry) Ventouris was appointed as Chief Operating Officer. Mr. Christo-
doulou resigned as a director of our board of directors and was replaced by Mr. Nikolaos Syntychakis. The initial term of Mr. Synticha-
kis appointment to our board of directors will expire at our 2016 annual general meeting of unitholders.
During 2015, various holders of our Class B Units converted an aggregate of 1,240,404 Class B Units into common units in accordance
with the terms of the partnership agreement.
2014 Developments
As consideration for the acquisitions of the Dropdown Vessels at prices below current market value, we agreed, subject to, among other
things, the approval of our unitholders, to amend the partnership agreement to revise the target distributions to holders of our IDRs.
Prior to this amendment to the partnership agreement, our general partner had the right to receive, subject to the rights of holders of
the Class B Units and assuming our general partner maintained a 2% general partner interest in us and had not transferred the IDRs:
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Annual Report 2015 | Capital Product Partners L.P.
•
•
•
•
•
2% of all quarterly distributions until the holders of our common units had received $0.3750 per unit (the “Minimum Quarterly
Distribution”);
2% of all quarterly distributions until the holders of our common units had received $0.4313 per unit (the “First Target Distribu-
tion”);
15% of all quarterly distributions until the holders of our common units had received $0.4688 per unit (the “Second Target Distribu-
tion”);
25% of all quarterly distributions until the holders of our common units had received $0.5625 per unit (the “Third Target Distri-
bution”); and
50% of all quarterly distributions in excess of $0.5625 per unit.
Under the amendment to the partnership agreement proposed for unitholder approval, each of the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution and the Third Target Distribution would be reduced to $0.2325, $0.2425,
$0.2675 and $0.2925, respectively, while our general partner’s right to receive 50% of quarterly cash distributions in excess of the Third
Target Distribution would be reduced to a right to receive 35% of such cash distributions. As a result, our general partner would receive:
•
•
•
•
•
2% of all quarterly distributions until the holders of our common units had received $0.2325 per unit;
2% of all quarterly distributions until the holders of our common units had received $0.2425 per unit;
15% of all quarterly distributions until the holders of our common units had received $0.2675 per unit;
25% of all quarterly distributions until the holders of our common units had received $0.2925 per unit; and
35% of all quarterly distributions in excess of $0.2925 per unit.
On August 21, 2014, our unitholders approved, among other things, the amendment to the partnership agreement outlined above. As a
result, we adopted the Fourth Amendment to the partnership agreement, dated as of August 25, 2014 (the “Fourth Amendment to the
Partnership Agreement”), to reflect the approval of such amendment.
Thereafter, Capital Maritime, after discussion with, and with the unanimous support of, the conflicts committee of our board of direc-
tors, unilaterally notified us that it decided to waive its rights to receive quarterly incentive distributions between $0.2425 and $0.25.
This waiver effectively has increased the First Target Distribution from $0.2425 to $0.25.
In September 2014, we completed the issuance of 15,000,000 common units at a public offering price of $10.53 per common unit. An
additional 2,250,000 common units were subsequently sold on the same terms following the full exercise of the overallotment option
granted to the underwriters. Also in September 2014, our sponsor converted an aggregate of 358,624 common units into general part-
ner units and delivered such units to our general partner in order for it to maintain its 2% interest in us. Net proceeds, after the deduc-
tion of the underwriters’ commission but before expenses, relating to the offering were approximately $173.9 million. The net proceeds
from the offering were used to repurchase from Capital Maritime 5,950,610 common units at an aggregate price of approximately $60.0
million, and to cancel such common units. The remaining proceeds were used and will be used to partially fund the approximately
$311.5 million aggregate purchase price for the Dropdown Vessels and for general partnership purposes.
At our annual general meeting of unitholders held on August 21, 2014, the Plan was amended and restated to increase the maximum
number of restricted units authorized for issuance thereunder from 800,000 to 1,650,000, of which 795,200 have been previously issued
and have vested. No other actions were taken at the meeting.
During 2014, certain holders of our Class B Units, including Capital Maritime, converted an aggregate of 4,698,484 Class B Units into
common units in accordance with the terms of the partnership agreement.
2013 Developments
During 2013, we completed the issuance and sale of 9.1 million Class B Units, including 615,151 to Capital Maritime, which are con-
vertible into common units on a one-for-one basis. The Class B Units pay fixed quarterly cash distribution of $0.21375 per unit repre-
senting 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 Amend-
ment to the Partnership 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 this issuance and sale of the Class B Units, and
49
Capital Product Partners L.P. | Annual Report 2015
together with a $54.0 million draw-down under 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 12 (Partners’ Capital) to our Financial Statements included herein for more information.
During 2013, various holders of our Class B Units converted an aggregate of 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 $32.0 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 Modification pursuant to which, among other things, we agreed that if the Claims were allowed in an aggregate amount
less than $43.25 million, the maximum aggregate amount that we would be obligated to refund to Deutsche Bank was $0.6 million. The
Claims have been settled with OSG and were allowed as general unsecured claims in the aggregate amount of $43 million. In February,
2014 as a result of this allowance, we paid to Deutsche Bank the amount of $0.6 million.
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 overallotment 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 overallotment 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.
In November 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 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.
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 “Item 5B: Liquidity and Capital Resourc-
es—Net Cash 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
We are an international owner of modern tanker, container and drybulk vessels. Our fleet of 34 modern high specification vessels
(2.5 million dwt) with an average age of approximately 6.8 years as of December 31, 2015, consists of four Suezmax crude oil tank-
ers, twenty modern MR tankers, all of which are classed as IMO II/III vessels, nine 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, 2015, with the exception of two of our post panamax containers that remained idle and one of our MR tankers
that performed a short period time charter, the remaining vessels were chartered under medium- to long-term time and bareboat
charters (with a revenue weighted average remaining term of approximately 6.4 years) to large charterers such as BP Shipping Lim-
ited, CMA CGM, Petrobras, subsidiaries of OSG, HMM, CSSA S.A. (Total S.A.), Cosco, Repsol Trading S.A. (“Repsol”), Stena Bulk
A.B. (“Stena Bulk”) and Capital Maritime. 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 three of our 26 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” for a detailed description of how profit
50
Annual Report 2015 | Capital Product Partners L.P.
sharing is calculated. As of December 31, 2015, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may
be deemed to beneficially own on a fully converted basis a 16.4% interest in us (18.1% on a non-fully converted basis), through,
among others, Capital Maritime.
Business Strategies
Our primary business objective is to pay a sustainable quarterly distribution for 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 and
our cost efficient ship management operations under our agreements with Capital Ship Management contribute to providing vis-
ibility of revenues and cash flows in the medium- to long-term. As of December 31, 2015, with the exception of two of our post
panamax containers that remained idle and one of our MR tankers that performed a short period time charter, the remaining
vessels were chartered under medium- to long-term time and bareboat charters with a revenue weighted average remaining term
of approximately 6.4 years. As our vessels come up for rechartering, we will seek to redeploy them under period contracts that
reflect our expectations of prevailing market conditions. We will continue to evaluate growth opportunities across all shipping
sectors. 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 ma-
jor charterers in the tanker, drybulk and container sectors will position us favorably to continue to secure medium- to long-term
charters for our vessels.
Expand our relationships with both current and new charterers and capitalize on our relationship with Capital Maritime. We
aim to increase the number of vessels we charter to third-party charterers, including our current charters, to expand our relation-
ships and to take advantage of our charterers’ diverse shipping requirements. We also believe that we can leverage our relation-
ship with Capital Maritime and its ability to meet the rigorous vetting and selection processes of leading oil companies, as well
as other charterers in the tanker, drybulk and container sectors, in order to attract new charterers for our fleet and increase the
product, customer, geography and maturity diversity of our portfolio. We also believe that Capital Maritime will remain a strong
chartering option.
Expand our fleet through opportunistic and accretive acquisitions. Our fleet currently consists of 34 vessels with an aggregate
2.5 million deadweight tonnage, as compared to eight vessels with 0.3 million deadweight tonnage at the time of our initial
public offering in 2007. We intend to continue to evaluate potential acquisitions of both newbuilds and second-hand vessels,
subject to developments in the financial markets, in order to make opportunistic acquisitions for our fleet while maintaining
a strong balance sheet. We also intend to take advantage of opportunities afforded to us by our relationship with our sponsor
Capital Maritime. Currently, pursuant to the Master Vessel Acquisition Agreement, we have a right of first refusal to acquire
eight additional product tanker vessels, as further described in “Item 4A: History and Development of the Partnership—2015
Developments—Delivery of Dropdown Vessels”. For additional information, please also see our Current Report on Form 6-K,
and the exhibits thereto, furnished to the SEC on July 29, 2014 and September 16, 2015. For future acquisitions, we may consider
moderate increases in our overall leverage, either through debt or equity financing, provided that we are able to maintain low
breakeven rates and deliver steady distributions to our unitholders. In addition, we may pursue opportunities for acquisitions of,
or combinations with, other shipping businesses.
Maintain a strong balance sheet through moderate use of leverage. While we seek to finance our vessels and future vessel ac-
quisitions through a mix of debt, equity financing, and current cash balances, we intend to maintain a moderate level of leverage
over time. By maintaining moderate levels of leverage, we expect to retain greater flexibility than our more leveraged competi-
tors, maintain low breakeven rates and deliver steady distributions to our unitholders. In addition, charterers have increasingly
favored financially solid vessel owners, and we believe that our anticipated balance sheet strength will enable us to access more
favorable chartering opportunities, as well as give us a competitive advantage in pursuing vessel acquisitions.
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, we will need to maintain our vessel safety record and build on our high level of customer service
and support. Our Manager, Capital Ship Management, has a strong record of vessel safety and compliance with rigorous health, safety
and environmental protection standards, and is also committed to providing our customers with a high level of customer service and
support.
51
Capital Product Partners L.P. | Annual Report 2015
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 from us since our initial public offering in 2007, provide a platform for the
growth of our business and operating cash flow. We have established longstanding relationships with large well-known charter-
ers, such as CMA CGM, Petrobras, HMM, BP, Total S.A., and Repsol S.A. Because of our existing relationships, we believe that
we are well situated to further develop our medium- to long-term charter relationships with leading charterers in the shipping
industry. Our business also benefits from our unique relationship with Capital Maritime, our sponsor, which has a well-estab-
lished 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.
High specification diversified fleet. Since our initial public offering in 2007, our fleet has grown from eight to 34 modern high
specification vessels as of December 31, 2015. Our vessels were primarily constructed at reputable shipyards in Japan and South
Korea, and have an average age of 6.8 years, as of December 31, 2015. We believe that the wide range of sizes and geographic
flexibility of our fleet and our compliance with existing regulatory standards, as well as our sponsor’s excellent operational track
record and its ability to meet the rigorous vetting requirements of some of the world’s most selective major international oil com-
panies and other charterers in the drybulk and container sectors, are attractive to charterers, providing them with a high degree
of flexibility with respect to cargoes and trade routes. As a result, we have been able to expand our chartering relationships with
both existing and new counterparties, such as Repsol Trading S.A., Stena Bulk AB and CSSA S.A. (a wholly owned subsidiary of
Total S.A.).
Revenue and cash flow visibility and stability. As a number of our vessels are chartered under medium and long-term contracts,
we benefit from revenue and cash flow visibility. We have also developed a diversified revenue stream due to our exposure to the
product, crude, container and bulk shipping sectors, with a view to enhancing the stability of our revenue and cash flow. As of
December 31, 2015, our average remaining charter duration was 6.4 years. In addition, taking into account the earliest charter
expiration date, we have 83.1% charter coverage for 2016 and 59.4% charter coverage for 2017. The remaining staggered charter
expirations are primarily in the product and crude segments, and we believe we are well positioned to take advantage of the posi-
tive demand fundamentals in the tanker business as our vessels become available for rechartering.
Modern, high specification product tanker and containership fleet. The 20 medium range tankers that form part of our fleet 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 our compliance with existing regulatory standards, are attractive to our charter-
ers, 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. We believe that these characteristics of our product tankers position us to take advantage of the positive demand
fundamentals in the product tanker business as our vessels become available for rechartering. In addition, five of our existing con-
tainer vessels and the three Dropdown Containerships are ‘eco, wide beam’ type and have an increased cargo intake and reduced
bunker consumption as compared to older vessel designs. We believe that these characteristics make our containerships more at-
tractive to charterers.
Strong asset coverage, cost efficient operations and acquisition funding. We believe that we have a strong balance sheet and that
our financial strength positions us to continue to make opportunistic acquisitions, subject to financial market developments, and
grow our business with charterers as they seek financially sound counterparties for long-term contracts. We also believe that we
have a long history of cost efficient ship management with consistent cost performance below industry benchmarks due to our
outsourcing of our vessel management and operations to our Manager.
Our Customers
We provide marine transportation services under medium- to long-term time charters or bareboat charters with a range of counterparties:
52
Annual Report 2015 | Capital Product Partners L.P.
•
•
•
•
•
•
•
•
•
•
•
•
CMA CGM, a French container transportation and shipping company. With a fleet of 470 vessels, it serves 400 of the world’s 521
commercial ports.
Petrobras, a semi-public Brazilian multinational energy corporation that is a significant oil producer. It also owns oil refineries,
oil tankers, and is a major distributor of oil products.
Stena Bulk, a Swedish tanker shipping company that operates a fleet of tankers worldwide.
Hyundai Merchant Marine Co. Ltd (“HMM”), an integrated logistics company, operating around 160 state-of-the-art vessels.
HMM has 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.
BP Shipping Limited, the shipping affiliate of BP, one of the world’s largest producers of crude oil and natural gas. BP has explora-
tion and production interests in almost 80 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 78 owned and operated vessels.
CSSA S.A. (Total S.A.), the shipping affiliate of Total S.A., the fourth largest publicly-traded integrated international oil and gas
company in the world. Total S.A. is a multinational energy company with more than 100,000 employees, and operations in more
than 130 countries.
Cosco Bulk Carrier Co. Ltd., 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.
Repsol Trading S.A., a subsidiary of Repsol S.A., an oil and gas conglomerate that operates in 30 countries, produces more than
1 million barrels a day from its oil fields, has a total installed capacity of 1.2 million barrels a day in its 10 refineries and sells its
products through 7,250 service stations around the world.
Shell Western Supply and Trading, a subsidiary of Royal Dutch Shell PLC independent oil and gas company engaging in the
principal aspects of the oil and gas industry in more than 70 countries.
Cargill International S.A., a multinational corporation with operations in 67 countries providing food, agriculture, financial and
industrial products and services.
Capital Maritime & Trading Corp., an established, diversified 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.
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
We have entered into three separate technical and commercial management agreements with Capital Ship Management, a subsidiary
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, under 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, and the cost of the first special survey or next scheduled drydocking of
each vessel. In addition to the fixed daily fees payable under the management agreement, Capital Ship Management is entitled
to supplementary compensation for extraordinary fees and costs (as described 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 includes 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 ex-
penses 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
53
Capital Product Partners L.P. | Annual Report 2015
•
vessel’s next scheduled drydocking are borne by us and not by our Manager. We also pay our Manager a daily technical manage-
ment 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. Currently, three of
the five crude tanker vessels 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 and 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 unitholders
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 United States Consumer Price Index over the immediately preceding 12 months. Since March 2015, this termination fee has
been $9.8 million.
We expect that as the fixed fee management agreement expires for certain of our vessels, such vessels and any additional vessels we may
acquire in the future will 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, in-
cluding other Capital Maritime subsidiaries.
The table below sets out, as of December 31, 2015, the management agreement under which each vessel in our fleet is managed.
Vessel Name
Fixed fee management
agreement
Floating fee management
agreement
Crude management
agreement
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 Ayrton II
M/T Alkiviadis
M/V Cape Agamemnon
M/T Miltiadis M II
M/T Amoureux
M/T Aias
54
X
until Apr 22, 2014
X
—
—
—
X
—
until Apr 26, 2014
—
—
—
until Jan 21, 2013
& since May 9, 2013
until May 18, 2014
X
X
until Mar 31, 2014
until Sep 30, 2015
—
—
—
—
—
since Apr 23, 2014
—
X
X
X
—
X
since Apr 27, 2014
X
X
X
since Jan 22, 2013
up to May 8, 2013
since May 19, 2014
—
—
since Apr 1, 2014
since Oct 1, 2015
X
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
X
X
X
M/V Agamemnon
M/V Archimidis
M/V Hyundai Prestige
M/V Hyundai Premium
M/V Hyundai Paramount
M/V Hyundai Privilege
M/V Hyundai Platinum
M/T Aristotelis
M/T Active
M/V CMA CGM Amazon
M/T Amadeus
M/V CMA CGM Uruguay
Our Fleet
Annual Report 2015 | Capital Product Partners L.P.
—
—
—
—
—
—
—
—
—
—
—
—
X
X
X
X
X
X
X
X
X
X
X
X
—
—
—
—
—
—
—
—
—
—
—
—
At 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 34 vessels of various sizes with an average age of
approximately 6.8 years and average remaining term under our charters of approximately 6.4 years (each, as of December 31, 2015).
We intend to continue to take advantage of our unique relationship with Capital Maritime and, subject to prevailing shipping, charter
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. Please read “Item 4A: History and Devel-
opment of the Partnership—2015 Developments—Delivery of Dropdown Vessels” for a more detailed description of the right of first
refusal Capital Maritime granted to us with respect to the acquisition of eight additional product tanker vessels. In addition, we may
pursue opportunities for acquisitions of, or combinations with, other shipping businesses. Pursuant to the amended and restated om-
nibus agreement we have entered into with Capital Maritime in connection with 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 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, 2015 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 ad-
vantages 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.
55
Capital Product Partners L.P. | Annual Report 2015
VESSELS IN OUR FLEET AS OF DECEMBER 31, 2015
Vessel name
Sister Year
Vessels 1 built
DWT -
TEU 13
OPEX Management Charter
Daily
(per day)2 Agreement Duration/ of Charter 4 Charter
Type 3
Rate (Net)
Expiration
Expiry
Profit Charterer 6
Share 5
Description
A
A
A
A
A
B
B
B
B
B
PRODUCT TANKERS
Atlantas 7
Aktoras 7
Aiolos 7
Agisilaos
Arionas 11
Axios
Avax
Akeraios 9
Anemos I 9
Apostolos 9
Alexandros II 8
Aristotelis II 8
Aris II 8
Ayrton II 10
C
C
C
C
2006
2006
2007
2006
2006
2007
2007
2007
2007
2007
2008
2008
2008
2009
Atrotos
Alkiviadis
Assos
Aristotelis
Active
Amadeus
B
A
B
B
J
J
CRUDE TANKERS
D
Amoureux
D
Aias
E
Amore Mio II
2007
2006
2006
2013
2015
2015
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
47,786
36,721
47,872
51,604
50,136
50,108
$ 500
$ 500
$ 500
Floating
Floating
Floating
Floating
Floating
Floating
Floating
$ 250
$ 250
$ 250
Floating
Floating
Floating
Floating
Mar 2016
Mar 2016
Jan 2017
Dec 2016
Aug 2016
Jun 2017
Apr 2017
Aug 2017
Dec 2017
Sep 2017
Mar 2018
June 2018
Aug 2018
Apr 2019
Apr 2019
Oct 2020
Apr 2019
10-yr BC Mar 2016
10.5-yr BC Dec 2016
Feb 2017
10-yr BC
Aug 2016
1-yr TC
Jan 2016
1.2-yr TC
3-yr TC May 2018
3-yr TC May 2018
2-yr TC
Feb 2017
1-yr TC May 2016
2-yr TC Mar 2017
10-yr BC
10-yr BC
10-yr BC
0.1 yr TC
Nov 2017
Apr 2018
Jun 2018
Jan 2016
Nov 2018
3-yr TC
1-yr TC
Aug 2016
3-yr TC Mar 2018
Floating
Nov 2018
Floating Mar 2020
Jun 2020
Floating
1.1-yr TC
Jan 2017
2-yr TC May 2017
2-yr TC May 2017
$ 6,750
$ 7,250
$ 7,000
$ 14,319
$ 14,813
$ 15,015
$ 15,015
$ 15,405
$ 17,034
$ 15,405
$ 6,250
$ 6,250
$ 6,250
$ 23,275
$ 17,306
$ 14,936
$ 15,015
$ 18,763
$ 17,258
$ 16,788
BP
BP
BP
CMTC
CMTC
PETROBRAS
PETROBRAS
CMTC
CMTC
CMTC
☑
Ice Class 1A
IMO II/III
Chem./Prod.
OSG
OSG
OSG
LOUIS DREYFUS
PETROBRAS
CSSA
PETROBRAS
☑
☑
CMTC
CARGILL
CMTC
IMO II/III
Chem./Prod.
Ice Class 1A
IMO II/III
Chem./Prod.
Eco IMO II/
III Chem.
Prod.
149,993
150,393
159,982
Dec 2020
Crude
Crude
Dec 2020
Floating May 2019
2-yr TC Mar 2017
Jan 2018
3-yr TC
Apr 2016
0.7-yr TC
$ 28,638
$ 25,506
$ 33,328
STENA
REPSOL
SHELL
Miltiadis M II
F
2006
162,397
Crude
Dec 2020
0.6-yr TC Mar 2016
$ 35,000
CMTC
DRYBULK VESSEL
Cape Agamemnon
G
2010
179,221
Floating
Jun 2021
10-yr TC
Jun 2020
$ 40,090
COSCO
CONTAINER CARRIER VESSELS
Archimidis 12
H
Agamemnon 12
H
2006 108,892 - 8,266 TEU Floating
2007 108,892 - 8,266 TEU Floating
Hyundai Prestige
Hyundai Premium
Hyundai Paramount
Hyundai Privilege
Hyundai Platinum
I
I
I
I
I
2013 63,010 - 5,023 TEU Floating
2013 63,010 - 5,023 TEU Floating
2013 63,010 - 5,023 TEU Floating
2013 63,010 - 5,023 TEU Floating
2013 63,010 - 5,023 TEU Floating
Dec 2017
Dec 2017
Sep 2018
Apr 2018
Apr 2018
Sep 2018
Sep 2018
—
—
—
—
Dec 2024
12-yr TC
Jan 2025
12-yr TC
Feb 2025
12-yr TC
12-yr TC Mar 2025
Apr 2025
12-yr TC
CMA CGM Amazon K
CMA CGM Uruguay K
2015 115,145 - 9,288 TEU Floating
2015 115,639 - 9,288 TEU Floating
Jun 2020
Sep 2020
5-yr TC May 2020
Aug 2020
5-yr TC
—
—
$ 28,616
$ 28,616
$ 28,616
$ 28,616
$ 28,616
$ 38,759
$ 38,759
TOTAL FLEET DWT:
2,477,573 – 60,223 TEU
—
—
HMM
HMM
HMM
HMM
HMM
CMA
CMA
56
Crude Oil
Suezmax
Ice Class 1A
Crude Oil
Suezmax ax
Cape Size
Dry Cargo
Container
Carrier
Eco Wide
Beam
Container
Carrier
Eco-Flex,
Wide Beam
Container
Annual Report 2015 | Capital Product Partners L.P.
1
2
3
4
5
6
7
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 Engi-
neering 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; (J): these vessels were built by Samsung Heavy
Industries (Ningbo) Co. Ltd.; (K): these vessels were built by Daewoo-Mangalia Heavy Industries S.A.
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 regarding our
management agreements please see “Item 4B: Business Overview—Our Management Agreements” above.
TC: Time Charter; BC: Bareboat Charter.
Earliest possible redelivery date.
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 arrangements are subject to the same commissions payable on the gross charter
rates, if any. There is also 50/50 profit share on actual earnings settled every 6 months.
BP: BP Shipping Ltd. OSG: certain subsidiaries of OSG. CMTC: Capital Maritime & Trading Corp. (our Sponsor). COSCO:
Cosco Bulk Carrier Co. Ltd., an affiliate of the COSCO Group. HMM: Hyundai Merchant Marine Co. Ltd. CSSA: CSSA S.A. (To-
tal S.A.). CMA CGM: CMA CGM. STENA: Stena Bulk A.B. SHELL: Shell International Trading and Shipping Company Limited.
PETROBRAS: Petroleo Brasileiro S.A. REPSOL: Repsol Trading S.A. CARGILL: Cargill International S.A. LOUIS DREYFUS:
Louis Dreyfus Commodities Suisse SA.
For the duration of the BC these vessels have been renamed British Ensign, British Envoy and British Emissary, respectively.
The M/T British Ensign is continuing its bareboat charter with BP Shipping 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 as either bareboat charter at a bareboat rate of
$7,250 per day for the optional periods if declared or as on time charter basis during the optional periods at a time charter rate
of $14,250 per day, if declared.
During 2015, the M/T British Envoy continued its bareboat charter with BP Shipping at a bareboat rate of $7,000 per day. In De-
cember 2015, BP Shipping exercised its option to extend the bareboat charter duration for an additional six months at a bareboat
rate of $7,250 per day. The charter commenced in January 2016.
In March 2015, BP Shipping exercised its option to extend the M/T British Emissary bareboat 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 dur-
ing all optional periods at a time charter rate of $14,250 per day if declared.
8
9
10
11
12
13
For the duration of the BC, these vessels have been renamed: Overseas Serifos, Overseas Sifnos and Overseas Kimolos. 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 $16,500 per day. 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 depend-
ing on whether the charterer exercises its purchase option.
The vessel owning companies of the M/T Apostolos, the M/T Anemos I and the M/T Akeraios have entered into a three year time
charter with Petrobras at a net rate of $17,306 per day for each vessel. The first two vessels commenced their respective charters
in January 2016 while the third vessel is expected to commence its charter in the second quarter of 2016.
The vessel owning company of the M/T Ayrton II has entered into a two-year time charter with CMTC at a net rate of $17,775
per day. The charter commenced in February 2016.
The vessel owning company of the M/T Arionas has entered into a three-year time charter with Empresa Publica Flota Petrolera
Ecuatoriana – EP Flopec (“Flopec”) at a net rate of $18,288 per day. The charter commenced in January 2016.
The vessel owning companies of the M/V Archimidis and the M/V Agamemnon have entered into a one-year time charter each
with Pacific International Lines (PTE) Ltd, Singapore at a net rate of $8,838 per day. The charters for both vessels will commence
in April 2016. The charterer has the option to extend the duration of the charters for both vessels for one year at a net rate of
$19,750.
DWT: Dead Weight Ton, TEU: Twenty-foot Equivalent Unit.
57
Capital Product Partners L.P. | Annual Report 2015
Comparison of Possible Excess of Carrying Value over Estimated Charter-Free Market Value of Certain Vessels
In “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 of certain of our vessels may have declined below those ves-
sels’ carrying 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, 2015 and 2014; (ii) which of our ves-
sels we believe has a charter free 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 com-
pulsion 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. You should note that 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.
58
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 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 Hyundai Premium
M/V Hyundai Paramount
M/V Hyundai Privilege
M/V Hyundai Platinum
M/T Aristotelis
M/T Active
M/V CMA CGM Amazon
M/T Amadeus
M/V CMA CGM Uruguay
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
04/13/2009
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
03/31/2015
06/10/2015
06/30/2015
09/18/2015
Annual Report 2015 | Capital Product Partners L.P.
Carrying value as of
December 31, 2015
(in millions of United
States dollars)
20.6
$
26.0 *
$
20.9
$
21.5 *
$
21.7 *
$
24.3 *
$
21.7
$
24.6 *
$
25.2 *
$
25.2 *
$
28.0 *
$
28.0 *
$
32.7 *
$
51.2 *
$
33.2 *
$
33.4 *
$
34.8 *
$
23.0 *
$
42.6 *
$
42.7
$
44.4
$
44.3
$
55.6 *
$
58.7 *
$
49.2 *
$
48.4 *
$
48.4 *
$
49.3 *
$
49.3 *
$
35.1 *
$
35.3
$
89.8 *
$
35.6
$
90.8 *
$
1,315.5
Carrying value as of
December 31, 2014
(in millions of United
States dollars)
21.8 *
$
27.6 *
$
22.2 *
$
22.7 *
$
23.0 *
$
25.7 *
$
23.0 *
$
26.0 *
$
26.6 *
$
26.6 *
$
29.6 *
$
29.6 *
$
34.5 *
$
55.7 *
$
35.0 *
$
35.2 *
$
36.6 *
$
24.3 *
$
44.6 *
$
45.2
$
46.7
$
46.7
$
58.5
$
61.5 *
$
51.3 *
$
50.4 *
$
50.4 *
$
51.3 *
$
51.3 *
$
36.5 *
$
—
—
—
—
1,120.1
$
*
Indicates vessels, for which we believe, as of December 31, 2015 and 2014, the basic charter-free market value is lower than the ves-
sel’s carrying value as of December 31, 2015 and 2014. We believe that the aggregate carrying value of these vessels, assessed separately,
exceeds their aggregate basic charter-free market value by approximately $130.1 and $100.7 million as of December 31, 2015 and 2014,
respectively. This increase of $29.4 million in 2015 as compared to 2014 is due to the decrease of asset values mainly in container and
bulk carriers as a consequence of slowdown in container and bulk carriers market that negatively affected market values of the respec-
tive type of vessels. As discussed in “Critical Accounting Policies—Vessel Lives and Impairment”, we believe that the carrying values of
our vessels as of December 31, 2015 and 2014 were recoverable as the undiscounted projected net operating cash flows of these vessels
exceeded their carrying value by a significant amount.
Our Charters
As of December 31, 2015, with the exception of two of our post panamax containers that remained idle and one of our MR tankers
that performed a short period time charter, the remaining vessels in our fleet were under medium- to long-term time or bareboat
charters with an average remaining term under our charters of approximately 6.4 years. Under certain circumstances, we may operate
59
Capital Product Partners L.P. | Annual Report 2015
our vessels in the spot market or certain of our vessels might remain idle 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, or at all, which may affect our future cash flows from operations. Please read “Item 4B: Business
Overview—Our Fleet”, including the chart and accompanying notes, for more information on our time and bareboat charters, includ-
ing 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 28 vessels under time charter agreements, of which three 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
incorporated in our charters or, in some instances, through greater utilization of our vessels by our charterers.
Profit Sharing Arrangements
We currently have two types of profit sharing arrangements. The profit sharing arrangement for M/T Amadeus under time charter
with Capital Maritime is based on the calculation of the vessel’s actual earnings and is settled every six months. In the event actual time
charter equivalent (“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 purposes of the calculation. The charterer is
obligated to provide us with a copy of each fixture note and all reasonable documentation with respect to items of cost and earnings.
The profit sharing arrangements for vessels M/T Aristotelis and M/T Anemos I, which are also under time charter with Capital Mari-
time, are based on the calculation of the 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 purposes of the calculation. The charterer is obligated 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 Capital Maritime, if any, is calculated and settled the next calendar month
following the completion of the voyage.
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”, including the table 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 operation. 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.
60
As of December 31, 2015, we had six vessels under bareboat charter, three with BP Shipping Limited and three with subsidiaries of
OSG. 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.
Annual Report 2015 | Capital Product Partners L.P.
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 dis-
charge 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
Capital 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, in-
vestor relations, information technology and technical management services, including commercial management of the vessels, vessel
maintenance 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, 2015
were $11.7 million as compared to $13.3 million and $17.0 million for the years ended December 31, 2014 and 2013, respectively.
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”.
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 has furthermore implemented an
“Integrated Management System Approach” verified by the Lloyd’s Register Group. Capital Ship Management 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 the key strategies for a regime of responsible, safe and clean shipping. As a result, our vessels’ operations are conducted
in a manner intended to protect the safety and health of Capital Ship Management’s employees, the general public and the environ-
ment. Capital Ship Management’s senior management team actively manages 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.
61
Capital Product Partners L.P. | Annual Report 2015
In 2014, Capital Ship Management was successfully assessed by Lloyd’s Register against the “IMO Strategic Concept of a Sustainable
Shipping Industry”. It is the first shipping company worldwide to receive such certification, in line with Capital Ship Management
strategy to be inspired by and apply the key principles and goals of the International Maritime Organization’s (IMO’s) Strategy for
Sustainable Maritime Transport Systems. In particular, Capital Ship Management has established a task force to implement specific ac-
tions, plans, processes, and to develop systems addressing sustainability. Priority has been given to the promotion of a safety culture and
environmental stewardship, as well as to the education, training and support of seafarers, technical co-operation, energy efficiency and
ship-port interface, new technology and innovation, energy supply for ships, finance, liability and insurance mechanisms, maritime
traffic support and advisory systems, ocean governance.
Major Oil Company Vetting Process
Shipping 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
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 Inspec-
tion 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 under-
gone 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, Tesoro Corporation and Total S.A.).
Crewing and Staff
Capital 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 has entered into an agreement for the
training of officers under ice conditions at a specialized training center in St. Petersburg, Russia. Capital Maritime’s vessels are currently
manned primarily by Romanian, Russian and Filipino crew members. Having employed these crew configurations for Capital Mari-
time 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
Every 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
62
Annual Report 2015 | Capital Product Partners L.P.
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 af-
ter 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) are carried out at the intervals indicated by the classification for the hull, which
are 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 clas-
sification society will order steel renewals. The classification society may grant a three-month extension for completion of the special
survey under certain conditions. Substantial 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, a ship-owner or manager has the option, de-
pending on the type of ship, 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.
These processes are referred to as Continuous Hull Survey (“CHS”) and Continuous Machinery Survey (“CSM”). However, the CHS
notation is not valid for vessels that are subject to Enhanced Survey Program (“ESP”) surveys, as required by SOLAS.
Occasional Surveys 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.
Most vessels are also drydocked every two and a half years for inspection of the underwater parts and any deficiencies related to inspec-
tions need to be rectified either during the inspection or at a later stage if found to be appropriate according to its class. The classifica-
tion surveyor in this case will issue a “recommendation” which must be rectified by the ship-owner within prescribed time limits. Class
and SOLAS rules allow one of the bottom surveys (the intermediate one) in a five-year period to be carried out afloat instead of dry
docking; however this is only applicable for certain ship types and for modern vessels.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification soci-
ety 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 and BV. 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 agree-
ments, we will have no obligation to take delivery of such vessel.
Risk Management and Insurance
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters, death or personal injury and prop-
erty 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,
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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 coverage 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 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.
Specifically 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 pol-
lution) 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, 2015:
Type
Hull and Machinery
Increased Value (including Excess Liabilities)
Hull & Machinery (War Risks)
Protection and Indemnity (P&I) Pollution liability claims
Aggregate Sum Insured for All Vessels in Our Existing Fleet*
$1.8 billion
$498 million additional “total loss” coverage
$2.3 billion
Up to $1.0 billion per incident per vessel
* 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.
The International Shipping Industry
The 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 do-
mestic 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.
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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. According to the IEA, global oil demand for 2015 has been revised as of December 2015 to 94.6 mb/
day compared to 92.8 mb/day during 2014.
Tonnage of oil shipped is also influenced by transportation alternatives (such as pipelines) and the output of refineries. Between 2012 and
2014, it is estimated that 18 refineries, predominantly in OECD countries, with combined throughput of approximately 2.4 mb/day, ceased
operations as a result of weak margins. Europe has been hit the hardest as the region’s aging refineries have struggled to adjust to the lower
demand and weaker profit margins that accompanied the economic slowdown. European refineries have also been hit by increased competi-
tion from newer refineries in the Middle East and Asia, which benefit from lower operating costs. It is estimated that refinery capacity in the
Middle East and Asia combined increased by 2.2 mb/day in 2015. In 2016, a notable number of additional refineries are expected to start op-
erations in the two regions. These new so-called super-refineries are expected to offset the lost refining capacity in the OECD countries, which
could potentially have a positive impact on tonne-mile demand for product tankers as cargoes will be transported across longer distances.
Growth in global container trade has been 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. Both world merchandise
trade, and global container trade itself, have generally grown at a multiple of global GDP, with the expansion of the kinds of goods being
transported in containers amongst the fastest growing parts of world trade overall. In general, although it has been relatively volatile from
year to year, the multiple of global container trade growth over world economic growth appears to be gradually reducing, as some of the
trends driving it begin to mature. Demand for containerships is expected to grow at rate of 4.0% for 2016 mainly due to increased demand
in the Far East to Europe and Transpacific trades, as well as in most non- mainline trades and especially in the intra-Asia trade.
Competition
We operate in a highly fragmented, highly diversified global market with many charterers, owners and operators of vessels.
Competition 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 acceptability 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 number of our vessels will come off charter during 2016. However,
Capital Maritime is among a small number of ship management companies in the tanker sector that has undergone and successfully com-
pleted 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 better with the
rigorous standards of major oil companies relative to less qualified or experienced operators allows us to effectively compete for new charters.
Regulation
General
Our operations and our status as an operator and manager of ships are extensively regulated by international conventions, Class re-
quirements, 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
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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 ad-
opted by the IMO and the European Union, air emission requirements, IMO/U.S. Coast Guard / EPA pollution 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 adopting ballast water management conventions to prevent the introduction of non-indigenous invasive species. Compliance
with these laws, regulations and other requirements could entail additional expense, including vessel modifications and implementa-
tion of additional operating procedures.
We are also required by various 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 neces-
sary permits, licenses or certificates could require us to incur substantial costs or temporarily suspend the operation 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 inspec-
tions 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
The United States regulates the tanker industry with extensive environmental protection requirements and a liability regime addressing
violations 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
phased out the use of single-hull tankers 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. U.S. Coast Guard regulations limit OPA liability for environmental damages for double-hull ves-
sels 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. On November 19, 2015, U.S. Coast Guard issued a final rule to raise these limits to the greater of $2,200/gross ton
or $18.79 million. 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, li-
ability and response laws, many providing for unlimited liability. Bills are 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
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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 material 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 personnel, and for vessels and their crews are required. Our vessel response plans have been
approved by the U.S. Coast Guard (“USCG”). 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 regulations, 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 USCG
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. USCG regulations phase in stricter VGP
ballast management requirements in the future.
Administrative obligations, such as monitoring, recordkeeping and reporting requirements also apply. Implementation of the water
treatment standards adopted by the USCG/EPA is required earlier than the implementations of equivalent standards agreed by the
IMO. For trading in the U.S. waters, vessels are to be installed with ballast water treatment systems (“BWT”) approved by the USCG
at the first bottom survey after January 1, 2016. A number of BWT technologies have already received Alternate Management System
(“AMS”) extension approval, but to date none of the systems available in the market have received a USCG type BWT approval certifi-
cate. We have applied to the USCG for AMS extensions for all of our vessels with a bottom survey within 2016, and will apply by year
end for extensions for all vessels with due docking dates within 2017. So far, our applications for vessels with due docking dates within
2016 have been successful and extensions for these vessels have been granted until January 2018 by the USCG and EPA. Although
further extensions may be granted if suitable USCG certified BWT systems are not made available in due course, compliance with this
requirement at a later date may impose substantial costs for retrofitting our vessels with BWT systems or otherwise restrict our vessels
from entering 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 ad-
opted 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. Compliance with these regulations entails significant capital expenditures or otherwise
increases the costs of our operations.
International Requirements
The IMO has 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
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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 (“SECA areas”).
Amendments to Annex VI to the MARPOL address 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, as of January 1, 2015, more stringent sulfur emission standards apply in coastal areas designated as Emission Con-
trol Areas. We may incur additional costs to comply with these revised standards. A failure to comply with Annex VI require-
ments 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. Nevertheless, as existing vessels are not mostly designed to operate on ultra-low sulfur
distillate fuel continuously we are introducing mitigating measures and or modifications enabling vessels to operate continuously
within SECA areas. These mitigation measures and modifications may increase our operating expenses.
SOLAS new requirements necessitate installation of ECDIS equipment (electronic charts) for some type of vessels at the 1st radio
survey carried out after July 1, 2015. For container vessels, this requirement comes in force at the first radio survey after 1st July 2016.
While some of our vessels are already fitted with ECDIS equipment requiring only minimal upgrades, a number of our vessels are not
fitted with such equipment and additional expenditure might be incurred to comply with this regulation.
The ISM Code, promulgated by the IMO, also requires the party with operational control of a vessel to develop an extensive safety
management 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 un-
less 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.
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 Pro-
tocol 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 contracting 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 insur-
ance 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 (the “Bunker Con-
vention”) 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 insur-
ance 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
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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 ma-
rine 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 carriage requirements, etc.
MARPOL Annex II, applicable from January 1, 2016, requires the upgrade of oil discharge monitoring equipment (“ODME”) installed
on all of our MR tankers certified for the carriage of biofuels. To permit carriage of biofuels on our MR tankers, we have placed orders
for on-time upgrades of ODME. As such, we expect to incur additional expenditures for compliance.
MARPOL Annex I, applicable from January 1, 2016, requires stability instruments onboard our tankers to demonstrate compliance
with damage stability calculations. All of our tankers already comply with this requirement, so no additional expenditures are expected
for compliance with this amended regulation.
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 cer-
tificates will have a material adverse financial impact on the operation of our vessels.
Climate Change and Greenhouse Gas Regulation
Increasing concerns about climate change have resulted in a number of international, national and regional measures to limit green-
house gas emissions and additional stricter measures can be expected in the future.
The Kyoto Protocol to the United Nations Framework Convention on Climate Change, or Kyoto Protocol, requires participating coun-
tries to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which 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. A consensus agreement reached at the 2015
United Nations Climate Change Conference in Paris will, if formally adopted, commit participating nations to reduce greenhouse
gas emissions in order to keep global temperature increases well below two degrees Celsius, with regular five-year reviews of progress
beginning in 2023. National and multilateral efforts to meet these goals could result in reductions in the use of carbon fuels generally,
and stricter limits on greenhouse gas emissions from ships in particular. Any passage of climate control legislation or other regulatory
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 can 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.
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C. Organizational Structure
Capital Maritime & Trading Corp. (Sponsor)
16,548,273 Common Units
100% Membership Interest
Public Unitholders
103,861,183 Common Units
12,983,333 Class B Units
Capital GP L.L.C
(General Partner)
2,439,989 GP Units
12,2% Limited Partner Interest
2% General Partner Interest
(1,8% on a fully converted basis)
86,0% 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
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, 2015.
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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Annual Report 2015 | Capital Product Partners L.P.
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 con-
solidated Financial Statements for the years ended December 31, 2015, 2014, and 2013 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
We are an international owner of modern tanker, container and drybulk vessels organized 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
34 modern high specification vessels with an average age of approximately 6.8 years as of December 31, 2015. Our fleet comprises four
Suezmax crude oil tankers (0.6 dwt), 20 medium range product tankers (0.9 dwt), nine post-panamax container carrier vessels (0.8
dwt) and one Capesize bulk carrier (0.2 dwt). 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.
Our primary business objective is to pay a sustainable quarterly distribution per unit and to increase our distributions over time, sub-
ject to shipping, charter and financial market developments and our financing requirements. Our strategy aims to maintain and grow
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 and our cost-efficient ship management operations un-
der our agreements with Capital Ship Management and the fact that we currently have no capital commitments to purchase or build
further vessels, other than the Dropdown Containership with expected delivery in February 2016, contribute to providing visibility of
revenues, earnings and distributions in the medium- to long-term. As our vessels come up for rechartering, we 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 Mari-
time 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
distribution 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 op-
portunities from external financing sources, including bank borrowings and depending on market conditions, the issuance of debt and
equity securities. Consistent with this strategy, we have a right of first refusal to acquire eight additional product tanker vessels from
Capital Maritime, as further described in “Item 4A: History and Development of the Partnership—2015 Developments—Delivery of
Dropdown Vessels”.
As of December 31, 2015, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to benefi-
cially own on a fully converted basis a 16.4% interest in us (18.1% on a non-fully converted basis), through, among others, Capital
Maritime.
Our Charters
We 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, 2015, 32 of the 34 vessels in our fleet were
trading in the period market and two were idle seeking period employment.
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Capital Product Partners L.P. | Annual Report 2015
Our vessels are currently under contracts with BP Shipping Limited, OSG, HMM, CSSA S.A. (Total S.A.), Cosco, Petrobras,
CMA CGM, Stena Bulk and Capital Maritime. For the year ended December 31, 2015, Capital Maritime and HMM accounted
for 29% and 21% of our revenues, respectively. For the year ended December 31, 2014, Capital Maritime, HMM and Maersk
Line accounted for 38%, 24% and 12% of our revenues, respectively. 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. The loss
of, default by or restructuring 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. As our fleet expands, we seek
to enter into charters with new charterers and aim to maintain a portfolio that is diverse from a customer, geographic and
maturity perspective.
Please see “Item 4B: Business Overview—Our Fleet”, “—Our Charters” and “—Profit Sharing Arrangements” for additional details.
Accounting for Acquisition and Disposal of Vessels
On July 24, 2014, we entered into a Master Vessel Acquisition Agreement with Capital Maritime, pursuant to which we agreed to
acquire, subject to the satisfaction of various conditions precedent, the Dropdown Vessels for an aggregate purchase price of approxi-
mately $311.5 million. As consideration for these vessel acquisitions at prices below current market value, we agreed to amend the
partnership agreement to revise the target distributions to holders of our incentive distribution rights. In September 2014, we paid
the amount of $30.2 million to Capital Maritime as an advance payment in connection with the acquisition of the Dropdown Vessels
as described in the Master Vessel Acquisition Agreement. During 2015, we acquired four of the five Dropdown Vessels, which we ac-
counted for as acquisition of assets. For more information, please read Note 5 (Fixed Assets) and Note 12 (Partners’ Capital) in our
Financial Statements included herein.
During 2013, we acquired all of the interest in five of Capital Maritime’s wholly owned subsidiaries that each owned a con-
tainer carrier vessel, the M/V Hyundai Prestige, the M/V Hyundai Premium, the M/V Hyundai Paramount, the M/V Hyundai
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. We determined that the acquisition of each of the five above-mentioned vessels constituted an acquisition of a busi-
ness. The fair value of net assets acquired of $367.3 million exceeded the purchase consideration of $325.0 million and there-
fore, a gain from bargain purchase of $42.3 million was recognized in our consolidated statements of comprehensive income
/ (loss).
M/T Aristotelis, which was acquired during 2013 from an unaffiliated third party, was treated as an acquisition of 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.
Industry Developments and Outlook
In 2015, the tanker charter market, where the majority of our fleet operates and where we have the vast majority of our charter renewals
in the next couple of years, overall displayed positive trends on the back of strong demand and favorable low oil price environment. As
a result, we secured employment for a number of our vessels at increased rates and for longer durations. In particular, since January 1,
2015, we have fixed a total of 16 vessels for two-year or longer terms and expanded our customer base with the addition of Petrobras,
Shell, Repsol, Stena Bulk and Flopec. These positive trends may, however, be affected, on the supply side, by the potential impact of
increased vessel supply.
In the container market, certain key routes have slowed down sharply at a time of increased supply of container vessels, which has
depressed container charter rates and asset values. While all but two of our container vessels come up for re-chartering after 2020, we
depend on the ability of vessel charterers, which have come under market pressure, to honor their commitments. For further informa-
tion, see “Item 3.D Risks Factors—Risks Related to the Container Carrier Industry”.
Generally, our ability to grow our fleet through further dropdown opportunities from Capital Maritime, our sponsor, or third parties
and to increase our distributions, as well as to maintain a strong balance sheet, including through refinancing, depends on, among
other things, our continuous access to the financial market. In the light of the severe pricing dislocation that has recently affected pub-
licly traded MLPs, including us, we maintained the unit distribution for the fourth quarter of 2015 at $0.2385, which was unchanged
from the previous quarter.
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Annual Report 2015 | Capital Product Partners L.P.
Factors Affecting Our Future Results of Operations
We 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 that the principal factors affecting our future results of operations are the economic, regulatory,
financial, credit, political and governmental conditions prevailing in the shipping industry generally and in the countries and markets
in which our vessels are chartered. The world economy has experienced significant economic and political challenges in recent history,
as well as a severe deterioration in the banking and credit markets, which have had, and to a certain extent continue to have, a negative
impact on world trade. The pace of growth 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
levels of oil product demand and inventories;
demand for raw materials, dry cargo and containerized goods;
charter hire levels (under time and bareboat charters) and our ability to recharter our vessels as their current charters expire at
competitive rates;
our ability to service our debt and, when the non-amortizing period expires in March 2016, to refinance our existing indebted-
ness 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;
our ability to comply with the covenants in our credit facilities, including covenants relating to the maintenance of vessel value
ratios;
our level of debt and the related interest expense and amortization of principal;
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 attrac-
tive 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 and the increased costs associated with new maritime regulations and the more restrictive regulations for
the transport of certain products and cargoes;
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;
the strength of and growth in the number of our customer relationships, especially with major international oil companies and
major commodity traders;
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; and
the level of any distribution on our common units.
Please read “Item 3D: Risk Factors” 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:
•
Size of 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 from
and to unaffiliated third parties. During 2015, we acquired four vessels that were part of the Dropdown Vessels. As we continue
to evaluate potential acquisitions of vessels or other shipping businesses in a prudent manner that is accretive to our distributable
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Capital Product Partners L.P. | Annual Report 2015
cash flow per unit and subject to developments affecting the financial markets, our Financial Statements reflect the results of
operations of a different number of vessels each year. Please see “Item 5A: Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Overview—Accounting for Acquisition and Disposal of Vessels” for a description of the
financial treatment of vessel acquisitions and dispositions.
•
•
Vessel Acquisitions and Disposals. Our results of operations, cash flows and financial position reflect the vessels that have been ac-
quired from the date of their acquisition, while the vessel 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 in our fleet during the relevant year. For a detailed description of our vessel acquisitions and
disposals please read Note 1 (Basis of Presentation and General Information) to the Financial Statements included herein.
Management Structure and Operating Expenses. We have entered into three separate technical and commercial management
agreements with Capital Ship Management for the management 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 agreement has a different operating expenses structure. We expect that as the fixed management
agreement expires for the remaining vessels under this agreement and for any additional acquisitions we make in the future, they
will be managed under the 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”.
Results of Operations
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Results of operations for the years ended December 31, 2015 and December 31, 2014 differ primarily due to:
•
•
•
•
•
the increased number of vessels in our fleet translating into increased charter revenue for the year ended December 31, 2015, as
we acquired four additional newbuilding vessels from Capital Maritime in 2015;
the increased charter rates on certain of our vessels;
the increased number of vessels managed under our floating fee management agreement;
the increased profit share earned by a number of our vessels; and
the higher special survey costs we incurred, as ten of our vessels underwent special surveys in 2015, whereas no surveys were
completed in 2014.
Total Revenues
Time, voyage and bareboat charter revenues amounted to $220.3 million for the year ended December 31, 2015, as compared to $192.8
million for the year ended December 31, 2014. The increase of $27.5 million is primarily attributable to increased operating days as
our average fleet size increased by 2.1 vessels, increased charter rates as certain of our vessels were rechartered at higher rates and the
profit share earned by a number of our vessels. On the back of positive trends in the tanker charter market, we secured employment for
a number of our vessels at increased rates and for longer durations in 2015. In particular, since January 1, 2015, we have fixed a total of
16 vessels for two-year or longer terms. For the year ended December 31, 2015, $63.7 million of total revenues represented charter hire
received from Capital Maritime as compared to $72.9 million of total revenues for the year ended December 31, 2014. The decrease of
$9.2 million in charter hire received from Capital Maritime is mainly attributable to the lower numbers of vessels in our fleet chartered
by Capital Maritime during 2015 compared to 2014.
Time, voyage and bareboat charter revenues are mainly comprised of the charter hire received from unaffiliated third-party custom-
ers and Capital Maritime and are affected by the number of operating days, 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 $6.9 million for the year ended December 31, 2015, as compared to $6.2 million for the year ended
December 31, 2014. The increase of $0.7 million is mainly attributable to bunkers consumption related to special surveys for certain of
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Annual Report 2015 | Capital Product Partners L.P.
our vessels during 2015 as well as repositioning voyages or ballast legs performed by certain of our vessels prior to commencing their
next period of employment.
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 char-
ters are paid for by us.
Vessel Operating Expenses
For the year ended December 31, 2015, our vessel total operating expenses amounted to $70.3 million, of which $11.7 million was
incurred under our management agreements with our Manager and $0.5 million was incurred 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, 2014, our vessel total operating expenses amounted to $62.0 million, of which $13.3 million was
incurred under our management agreements with our Manager and $0.8 million was incurred 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 operating days due to the increase in average fleet size
by 2.1 vessels and the increased number of vessels managed under our floating fee management agreement. In 2015, we also incurred
additional operating expenses attributable to special survey costs, as ten of our vessels underwent special survey. In 2014, no special
surveys were conducted under the floating fee management agreement.
General and Administrative Expenses
General and administrative expenses amounted to $6.6 million for the year ended December 31, 2015, compared to $6.3 million for
the year ended December 31, 2014. 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.
Vessel Depreciation and Amortization
Depreciation and amortization of fixed assets amounted to $62.7 million for the year ended December 31, 2015, as compared to $57.5
million for the year ended December 31, 2014. This increase is in line with the increased average number of vessels during 2015.
Depreciation is expected to increase if the number of vessels in our fleet increases.
Total Other Expense, Net
Total other expense, net for the year ended December 31, 2015 was approximately $18.4 million, as compared to $16.7 million for the
year ended December 31, 2014.
The 2015 amount includes interest expense, amortization of financing charges, commitment fees and bank charges of $20.1 million,
as compared to $19.2 million for the year ended December 31, 2014. The increase of $0.9 million in 2015 was the result of increased
interest costs due to higher rates on average under the 2007 credit facility. Other income amounted to $1.7 million, as compared to $2.5
million for the year ended December 31, 2014, due to the lower average cash balance on which interest income is earned and certain
one-off items related to the employment of two of our vessels in 2014.
Net Income
Net income for the year ended December 31, 2015 amounted to $55.4 million compared to $44.0 million for the year ended Decem-
ber 31, 2014. For a list of factors which we believe are important to consider when evaluating our results, please refer to the discussion
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”.
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Capital Product Partners L.P. | Annual Report 2015
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Results of operations for the years ended December 31, 2014 and December 31, 2013 differ primarily due to the increased aver-
age number of vessels in 2014 as compared with 2013, gains from bargain purchases in the acquisition of a number of container
vessels from Capital Maritime during 2013, gains from the sale of the claim against OSG in 2013, losses related to the sale of one
vessel to third parties in 2013 and the larger number of vessels managed under our floating fee management agreement in 2014
as compared to 2013.
Total Revenues
Time, voyage and bareboat charter revenues amounted to $192.8 million for the year ended December 31, 2014, as compared to $171.5
million for the year ended December 31, 2013. The increase of $21.3 million is primarily attributable to increased operating days due
to an increase in average fleet size by 2.6 vessels (chartered to HMM). For the year ended December 31, 2014, $72.9 million of total
revenues represented charter hire received from Capital Maritime as compared to $55.0 million of total revenues for the year ended
December 31, 2013. The increase of $17.9 million in charter hire received from Capital Maritime is mainly attributable to the increased
operating days due to the increased average fleet size and corresponding increase in chartering to Capital Maritime during 2014 com-
pared to 2013.
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, including daily charter rates.
Voyage Expenses
Voyage expenses amounted to $6.2 million for the year ended December 31, 2014, as compared to $6.1 million for the year ended
December 31, 2013.
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 char-
ters are paid for by the owner.
Vessel Operating Expenses
For the year ended December 31, 2014, our vessel operating expenses amounted to $62.0 million, of which $13.3 million was incurred
under our management agreements with our Manager, and included $0.8 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, 2013, our vessel operating expenses amounted to $55.3 million, of which $17.0 million was incurred
under our management agreements with our Manager, and included $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.
Increases to vessel operating expenses are primarily attributable to the increased operating days due to the increase in average fleet size
by 2.6 vessels and the increased number of vessels managed under our floating fee management agreement.
General and Administrative Expenses
General and administrative expenses amounted to $6.3 million for the year ended December 31, 2014, compared to $9.5 million for
the year ended December 31, 2013. The decrease of $3.2 million was mainly due to the vesting of units under our Omnibus Incentive
Compensation Plan, in August 2013. As of December 31, 2014, 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 pub-
licly traded partnership.
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Annual Report 2015 | Capital Product Partners L.P.
Loss on Sale of Vessels to Third Parties
During the year ended December 31, 2014, we did not dispose of any of our vessels, as compared to 2013 where we disposed of the M/T
Agamemnon II to an unaffiliated third party recognizing a loss on sale of vessel of $7.1 million.
Loss on sale of vessels to third parties reflects the difference between the carrying value of the vessels and the net selling proceeds at
the time of the sale.
Vessel Depreciation and Amortization
Depreciation and amortization of fixed assets amounted to $57.5 million for the year ended December 31, 2014, as compared to $52.2
million for the year ended December 31, 2013. This increase is in line with the increased average number of vessels during 2014.
Depreciation is expected to increase if the number of vessels in our fleet increases.
Gain on Sale of Claim
For the year ended December 31, 2013, 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 Development of the Partnership—2013 Developments” and Note 15 (Gain on sale of claim) to our
Financial Statements included herein for additional information.
Gain from Bargain Purchase
For the year ended December 31, 2013, gain from bargain purchase is attributable to the acquisition during 2013 of the M/V Hyundai
Premium, the M/V Hyundai Paramount, the M/V Hyundai Prestige, the M/V Hyundai Privilege and the M/V Hyundai Platinum, as
the net identifiable assets acquired exceeded the purchase consideration paid by an aggregate amount of $42.3 million.
Total Other Expense, Net
Total other expense, net for the year ended December 31, 2014 was approximately $16.7 million, as compared to $15.5 million for the
year ended December 31, 2013.
The 2014 amount includes interest expense, amortization of financing charges, commitment fees and bank charges of $19.2 million,
as compared to $16.0 million for the year ended December 31, 2013. The increase of $3.2 million in 2014 was the result of increased
interest due to a higher outstanding average debt balance in 2014 and due to commitment fees we paid under the 2013 facility. Other
income amounted to $2.5 million, as compared to $0.5 million for the year ended December 31, 2013.
Net Income
Net income for the year ended December 31, 2014 amounted to $44.0 million as compared to $99.5 million for the year ended Decem-
ber 31, 2013. For a list of factors which we believe are important to consider when evaluating our results, please refer to the discussion
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
As of December 31, 2015, total cash and cash equivalents were $90.2 million, restricted cash (under our credit facilities) was $17.0
million, and total liquidity including cash and undrawn long-term borrowings of $35.0 million was $142.2 million. In February 2016,
we expect to use $73.6 million out of the $142.2 million to acquire the remaining Dropdown Containership.
Generally, our primary sources of funds, in the short term, have been cash from operations, and, in the long term, bank borrowings
and other debt or equity financings. 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.
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Capital Product Partners L.P. | Annual Report 2015
Cash flow from operations may further be affected by other factors. Because we distribute all of our available cash, we generally rely
upon external financing sources, including bank borrowings and the issuance of debt and equity securities 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, and to refinance or repay outstanding indebtedness under our
credit facilities. Our ability to grow through further dropdown opportunities from Capital Maritime, our sponsor, or third parties,
and to increase our distributions as well as to maintain a strong balance sheet will depend on, among other things, our continuous
access to the financial market.
Subject to financial markets developments, we expect to continue to evaluate opportunities to acquire vessels and businesses, and 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. Other than the remaining Dropdown
Containership with expected delivery date in February 2016, which will be financed from the undrawn portion of $35.0 million under
our 2013 credit facility and from our available cash, we currently have no capital commitments to purchase or build additional vessels.
During 2016, we anticipate that five of our vessels will undergo special survey.
Total Partners’ Capital as of December 31, 2015 amounted to $937.8 million, which reflects an increase of $65.2 million from the year
ended December 31, 2014. This change consisted of:
•
•
•
an increase of $132.6 million from the net proceeds from the issuance of 14,555,000 common units;
a decrease of $122.8 million due to distributions to our unit holders; and
an increase of $55.4 million reflecting our net income for the year ended December 31, 2015.
Notwithstanding the global economic downturn that occurred in the last several years and subject to shipping, charter and financial
market developments, we believe that our working capital and existing credit facilities 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:
Net Cash Provided by Operating Activities
Net Cash (Used in) Investing Activities
Net Cash Provided by Financing Activities
Net Cash Provided by Operating Activities
2015
$
134.2
$ (209.9)
1.7
$
2014
$
$
$
125.3
(30.3)
5.3
2013
$
129.6
$ (335.3)
226.2
$
Net cash provided by operating activities increased to $134.2 million for the year ended December 31, 2015 from $125.3 million for
the year ended December 31, 2014, mainly due to higher operating income as a result of the increased number of vessels in our fleet,
the higher profit share and the increased charter rates on certain of our vessels, which were partially offset by higher operating costs,
including expenses related to the ten special surveys which our vessels underwent in 2015. Net cash provided by operating activities
decreased to $125.3 million for the year ended December 31, 2014 from $129.6 million for the year ended December 31, 2013, mainly
due to the one-time proceeds of $32.0 million we received from the sale of the OSG claim in 2013, which was partially offset by the
increase of our net operating inflows in 2014. 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” above.
Net Cash Used in Investing Activities
Cash used in investing activities is used primarily for vessel acquisitions, and changes in net cash used in investing activities are primar-
ily due to the number of vessels acquired in the relevant period. Subject to financial market developments, 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.
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Annual Report 2015 | Capital Product Partners L.P.
For the year ended December 31, 2015, net cash used in investing activities was $209.9 million and comprised:
•
$207.7 million, representing the balance of the acquisition cost of the M/T Active, the M/V CMA CGM Amazon, the M/T
Amadeus and the M/V CMA CGM Uruguay, which were delivered to us on March 31, June 10, June 30 and September 18, 2015,
respectively;
$2.0 million, representing the increase in our restricted cash following the acquisitions of the four Dropdown Vessels. Restricted
cash is the minimum amount of free cash we were required to maintain under our credit facilities for the period; and
$0.2 million, representing the amounts paid for improvements of certain of our vessels during their respective special surveys.
•
•
For the year ended December 31, 2014, net cash used in investing activities was $30.3 million and comprised:
•
•
$30.2 million, representing the advance payment we made to Capital Maritime in connection with the Dropdown Vessels; and
$0.1 million, representing the amounts paid for the improvements made to the M/T Aristotelis.
For the year ended December 31, 2013, net cash used in investing activities was $335.3 million and comprised:
•
$363.0 million, representing 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 in 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.
•
•
Net Cash Provided by Financing Activities
Net cash provided by financing activities amounted to $1.7 million for the year ended December 31, 2015, as compared to $5.3 million
for the year ended December 31, 2014. For the year ended December 31, 2013, net cash provided by financing activities amounted to
$226.2 million.
For the year ended December 31, 2015, we received net proceeds of $132.6 million from the sale of 14,555,000 common units. The
proceeds were used to prepay the quarterly amortization installments scheduled for 2016 and the first quarter of 2017 under our 2007,
2008 and 2011 credit facilities, pursuant to proposed amendments to these credit facilities, and to pay related fees and expenses, and
for general partnership purposes.
For the year ended December 31, 2014, we received net proceeds of $173.5 million from the sale of 17,250,000 common units. We used
$60.0 million from the net proceeds to repurchase from Capital Maritime 5,950,610 common units, which were immediately cancelled.
The remaining proceeds were used and will be used to partially fund the approximately $311.5 million aggregate purchase price for the
Dropdown Vessels and for general partnership purposes.
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
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 facility
and part of our cash balances, to acquire 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, 2015, total proceeds of long-term debt amounted to $115.0 million as a result of the drawdowns
under our 2013 credit facility. This amount was used to partially finance the acquisitions of (a) the M/T ‘Active’, which was delivered on
March 31, 2015, (b) the M/V ‘CMA CGM Amazon’, which was delivered on June 10, 2015, (c) the M/T ‘Amadeus’, which was delivered
on June 30, 2015 and (4) the M/V ‘CMA CGM Uruguay’, which was delivered on September 18, 2015. During 2015, we prepaid $115.9
million of principal amount under the 2007, 2008 and 2011 credit facilities and $5.4 million in scheduled debt amortization under our
2008 credit facility. For the year ended December 31, 2014, there were no proceeds from the issuance of long-term debt, and we repaid
debt from our 2008 facility of $5.4 million. 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 each of the years ended December 31, 2015, 2014, and 2013, loan issuance costs amounted to $1.8, $0.0, and $2.9 million, respec-
tively.
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Capital Product Partners L.P. | Annual Report 2015
During the years ended December 31, 2015, 2014, and 2013, we made aggregate distributions to our unitholders, including to our Class
B unitholders and to Capital Maritime, of $122.8, $102.8, and $88.2 million, respectively.
Borrowings
Our long-term third-party borrowings are reflected in our balance sheet as “Long-term debt” and as current liabilities in “Current por-
tion of long-term debt.” As of December 31, 2015, total borrowings were $571.6 million consisting of: (i) $186.0 million outstanding
under the 2007 credit facility; (ii) $181.6 million outstanding under the 2008 credit facility; (iii) $14.0 million outstanding under the
2011 credit facility and (iv) $190.0 million under the 2013 credit facility. As of December 31, 2014, total borrowings were $577.9 million
consisting of: (i) $250.9 million outstanding under the 2007 credit facility; (ii) $233.0 million 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,
2015, long-term debt was $558.6 million, as compared to $572.5 million as of December 31, 2014. The current portion of long-term
debt as of December 31, 2015 was $13.0 million, as compared to $5.4 million as of December 31, 2014.
Our Credit Facilities
We entered into four credit facilities:
In March 2007, we entered into a loan agreement with a syndicate of financial institutions including HSH Nordbank AG for a re-
volving credit facility of up to $370.0 million for the financing of the acquisition cost, or part thereof, of up to 15 MR product tank-
ers. Following 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. During 2012, 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 amortiza-
tion 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. In April 2015, this facility was further amended as a result of the prepayment
of $64.9 million from our issuance and sale of 14,555,000 common units. This amendment provides for the deferral of scheduled
amortization payments until November 2017 and the repayment of the facility in nine equal consecutive quarterly installments
commencing in November 2017 plus a balloon payment due in December 2019. The interest margin of this facility, as further
amended, is 3.0%.
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 re-
payment of the facility in nine equal consecutive 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 disposal of the M/T Alexander the Great and the M/T Achilleas to Capital Maritime we prepaid an additional $5.2 mil-
lion. 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 an-
num on any undrawn amount and are paid quarterly.
In March 2013 we drew the amount of $54.0 million from our 2008 facility in order to partly finance the acquisition of the M/V
Hyundai Premium and the M/V Hyundai Paramount. This tranche of the 2008 facility is payable in twenty equal consecutive
quarterly installments, beginning in June 2013, plus a balloon payment due in March 2018. In April 2015, this facility was further
amended in connection with the prepayment of $46.0 million from our issuance and sale of 14,555,000 common units. This amend-
ment provides for the deferral of scheduled amortization payments until November 2017 and the repayment of the facility in nine
equal consecutive quarterly installments commencing in November 2017 plus a balloon payment due in December 2019. The inter-
est margin of this facility remains at 3.0%.
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
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Annual Report 2015 | Capital Product Partners L.P.
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 install-
ments commencing in March 2016 and a balloon payment due in March 2018. In April 2015, this facility was further amended as
a result of the prepayment of $5.0 million from our issuance and sale of 14,555,000 common units. This amendment provides for
the deferral of scheduled amortization payments until December 2017 and the repayment of the facility in two equal consecutive
quarterly installments commencing in December 2017 plus a balloon payment due in March 2018. The interest margin of this facil-
ity remains at 3.25%.
On September 6, 2013, we entered into a 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 commitment fee of 1.00%. The facility is 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 $75.0 million from the Tranche A of this facility
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 material terms of the credit facility were amended. During 2015, we
drew $115.0 million from the Tranche B of this facility to partly finance the acquisition of four out of the five Dropdown Vessels.
The undrawn portion of $35.0 million under the tranche B of this facility will be used to partly finance the acquisition of the
remaining Dropdown Vessel.
All our 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, which shall be no less than 2:1, a minimum cash requirement of $500,000 per vessel, 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 payment of such dividend or distribution has
not resulted in a breach of any of the financial covenants. The credit facilities require the earnings, insurances and requisition
compensation of the respective vessel or vessels to be assigned as collateral. 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,” which the lenders may unilaterally trigger,
requiring us to compensate the lenders for any increases to their funding costs caused by disruptions to the market. For the years
ended December 31, 2015, 2014, and 2013, we did not incur additional interest expense due to the “Market Disruption Clause”.
As of December 31, 2015, we had $35.0 million in undrawn amounts under our 2013 credit facility 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 conditions, 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 cov-
enants 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 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.
Any contemplated vessel acquisitions will have to be at levels that do not impair the required ratios set out above. The global eco-
nomic downturn that occurred in the last several years has had an adverse effect on vessel values, and economic conditions remain
fragile with significant uncertainty surrounding levels of recovery and long-term economic growth effects. If the estimated asset
values of the vessels in our fleet decrease, we may be obligated to prepay part of our outstanding debt in order to remain in compli-
ance 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.
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Capital Product Partners L.P. | Annual Report 2015
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, 2015 (in thousands of U.S. Dollars).
Long-term Debt Obligations
Interest Obligations (1)
Management fee (2)
Commercial services fee (3)
Vessels purchase commitments (4)
Total:
Payment due by period
Total
$ 571,616
93,113
30,204
443
73,579
$ 768,955
Less than
1 year
$ 12,957
22,410
9,857
293
73,579
$ 119,096
1-3 years
$ 150,812
45,393
14,293
150
—
$ 210,648
3-5 years
$ 407,847
25,310
5,884
—
—
$ 439,041
More than
5 years
$ —
—
170
—
—
$ 170
(1)
(2)
(3)
(4)
For our 2007, 2008, 2011 and 2013 credit facilities, calculations for interest obligations are based on Bloomberg forward rates plus
a margin of 3%, 3%, 3.25% and 3.5%, respectively.
The fees payable to Capital Ship Management represent fees for the provision of commercial and technical services such as crew-
ing, repairs and maintenance, insurance, stores, spares and lubricants under 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 2015.
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 that were under long-term time charters as of December 31, 2015. For the year ended
December 31, 2015 three of our vessels, the M/T Miltiadis M II, the M/T Amoureux and the M/T Aias, were operated under the
Crude Carriers management agreement.
Represents the total cost of $81.5 million for the acquisition of the remaining Dropdown Vessel with expected delivery in Feb-
ruary 2016 less the advance payment of $7.9 million we made to Capital Maritime in September 2014 in connection with this
acquisition.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our Financial Statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judg-
ments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and lia-
bilities 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 which could potentially result in ma-
terially different results under different assumptions and conditions. We have described below what we believe are our most critical
accounting policies. 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
The 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 the result-
ing slowdown in world trade. Charter rates for vessels have decreased and vessel values have been affected. We consider these market
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Annual Report 2015 | Capital Product Partners L.P.
developments as indicators of potential impairment of the carrying amount of our assets. We performed undiscounted cash flow tests
as of December 31, 2015 and 2014, 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 98.2% 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. We believe that the 10 year average historical Time Charter Equivalent is appropri-
ate (or less than 10 years if appropriate data is not available) for the following reasons:
•
•
•
•
estimates of vessel utilization, including estimated off-hire time and the estimated amount of time our vessels may spend operat-
ing 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 historical 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 per ton; and
the remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in our de-
preciation calculations.
it reflects more accurately the earnings capacity of the type, specification, deadweight capacity and average age of our vessels;
it reflects the type of business concluded by us (period as opposed to spot);
it includes at least one market cycle; and
respective data series are adequately populated;
The impairment test that we conduct is most sensitive to variances in future time charter rates. Based on the sensitivity analysis per-
formed for December 31, 2015 and 2014, 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:
Percentage Decline from which Impairment would be Recorded
Year ended December 31, 2015
Year ended December 31, 2014
Vessel
Product tankers
Suezmax vessels
Cape vessel
Container vessels 5,000 TEU
Container vessels 8,000 TEU
Container vessels 9,000 TEU
21.3%
26.0%
64.0%
41.9%
45.1%
33.4%
18.9%
26.6%
66.6%
40.9%
42.9%
—
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Capital Product Partners L.P. | Annual Report 2015
As of December 31, 2015 and February 17, 2016, our current rates for time charters on average were above / (below) their 10-year
historical averages as follows:
Time Charter Rates as Compared with 10-year Historical Average (as percentage above/(below)
As of December 31, 2015
As of February 17, 2016
Vessel
Product tankers
Suezmax vessels
Cape vessel
Container vessels 5,000 TEU
Container vessels 8,000 TEU*
Container vessels 9,000 TEU
(6.6)%
10.5%
3.5%
49.9%
—
10.9%
(6.6)%
10.5%
3.5%
49.9%
(74.7)%
10.9%
* As of December 31, 2015, the two 8,000 TEU post panamax container carriers were without employment, due to the recent downturn
in the container market and therefore, we do not present a comparison with the 10-year historical average charter rate.
Based on the above assumptions we determined that the undiscounted cash flows support the vessels’ carrying amounts as of Decem-
ber 31, 2015 and 2014.
Please also read “Item 4B: Business Overview—Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market
Value of Certain Vessels” for additional information.
Recent accounting pronouncements
Please see Note 2(s) (Significant Accounting Policies—Recent Accounting Pronouncements) to our Financial Statements included
herein.
Item 6.
Directors, Senior Management and Employees.
Management of Capital Product Partners L.P.
Pursuant 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 discre-
tion 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. Fol-
lowing 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
has been 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 outstanding common units.
At our annual general meeting of unitholders held on July 23, 2015, Dimitris Christacopoulos and Abel Rasterhoff were re-elected to
act as second Class II Directors until the Partnership’s 2018 annual meeting of Limited Partner.
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Annual Report 2015 | Capital Product Partners L.P.
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, Gerasi-
mos (Jerry) Kalogiratos, and its Chief Operating Officer, Mr. Gerasimos and Mr. Ventouris allocate their time between managing our
business and affairs and the business and affairs of Capital Maritime. The amount of time they allocate 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 gen-
eral partner or our directors. 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” 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, 2015.
Name
Ioannis E. Lazaridis (1)
Gerasimos (Jerry) Kalogiratos (1)
Gerasimos Ventouris
Nikolaos Syntichakis (1)
Pierre de Demandolx-Dedons (2)
Abel Rasterhoff (3)
Evangelos G. Bairactaris (4)
Keith Forman (4)
Dimitris P. Christacopoulos (3)
Age
48
38
65
54
75
75
45
58
45
Position
Director and Chairman of the Board
Director and Chief Executive Officer and Chief Financial Officer of our general partner
Chief Operating Officer of our general partner
Director
Director (5)
Director (5)
Director and Secretary
Director (5)
Director (5)
Appointed by our general partner (term expires in 2016).
(1)
Class I director (term expires in 2017).
(2)
(3)
Class II director (term expires in 2018).
(4) Class III director (term expires in 2016).
(5)
Member of our audit committee and our conflicts committee.
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 executive officers is 3 Iassonos Street Piraeus, 18537 Greece.
Ioannis E. Lazaridis, Director and Chairman of the Board.
Mr. Lazaridis joined our board of directors on March 13, 2007 and served as the Chief Executive and Chief Financial Officer of our gen-
eral partner since its formation in January 2007 until September 8, 2014. Mr. Lazaridis was appointed as non-executive Chairman of the
Board effective December 19, 2014. Mr. Lazaridis served as President of NYSE-listed Crude Carriers Corp., an affiliate of Capital Mari-
time, from March 2010 until its merger with us in September 2011, and also served as Capital Maritime’s Chief Financial Officer and as
a director from 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, Kleinwort Benson Securities and
Norwich Union Investment Management in various positions related to equity sales and portfolio 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.
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Capital Product Partners L.P. | Annual Report 2015
Gerasimos (Jerry) Kalogiratos, Director and Chief Executive and Chief Financial Officer.
Mr. Kalogiratos’ appointment as the Chief Executive and Chief Financial Officer of our general partner was announced on June 12,
2015. He joined our board of directors in December 2014. Mr. Kalogiratos joined Capital Maritime & Trading Corp. in 2005 and was
part of the team that completed the IPO of Capital Product Partners L.P. in 2007. He has also served as Chief Financial Officer and
director of NYSE-listed Crude Carriers Corp. before its merger with us in September 2011. He has over 11 years of experience in the
shipping and finance industries, specializing in vessel acquisition and projects and shipping finance. Before he joined Capital Maritime,
he worked in equity sales in Greece. He completed his MA in European Economics and Politics at the Humboldt University in Berlin
and holds a B.A. degree in Politics, Philosophy and Economics from the University of Oxford in the United Kingdom and an Executive
Finance degree from the London Business School.
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
committee. 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.
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
Committee on the North Sea. From 1991 to 1997, Mr. Rasterhoff was Director and Vice President Finance and Planning for Shell Inter-
national 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 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 executive 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 Maritime Board as the chairman of the audit committee from May 2005 until his resignation in February 2007. Mr. Raster-
hoff 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.
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 Bairac-
taris & 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. The law firm of Bairactaris & Partners has
provided, and may continue to provide, legal services to us and to Capital Maritime and its affiliates.
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
appointed President and Chief Executive Officer of Rentech, Inc. (NASDAQ: RTK) in December 2014. He was also appointed Chief Execu-
tive Officer of Rentech Nitrogen Partners (NYSE: RNF) at the same time. Previously Mr. Forman had served, since November of 2011, as an
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Annual Report 2015 | Capital Product Partners L.P.
independent director of RNF. Rentech is the owner of the general partner of RNF, a publicly traded partnership, which produces fertilizer
products. RTK also owns subsidiaries engaged in the wood fiber industry in the United States, Canada, South America and the U.K. Mr. For-
man was, until March 2010, a Partner and served as Chief Financial Officer of Crestwood Midstream Partners. Crestwood Midstream was a
private equity backed investment partnership focused on making investments in the midstream energy market. Prior to his tenure at Crest-
wood, he was Senior Vice President, Finance for El Paso Corporation, a Vice President, of El Paso Field Services, and from 1992 to 2003 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. Mr. For-
man 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.
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 re-
gion. 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.
Nikolaos Syntychakis, Director.
Mr. Syntychakis joined our board of directors on June 30, 2015. 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.
Gerasimos Ventouris, Chief Operating Officer.
Mr. Ventouris has been appointed as our Chief Operating Officer as of June 30, 2015. Mr. Ventouris has been the Chief Commercial
Officer of our Manager since 2003 and brings more than 40 years of experience in the shipping industry. Mr. Ventouris started his ca-
reer with Union Commercial Steamship, which was one of the most prominent ship management companies in Piraeus, Greece at the
time, and ascended to the position of Operations and Chartering Manager and obtained considerable experience in all aspects of the
management of various types of vessels. He then joined his family shipping business, which he led until 2000, overseeing the operations
of a large fleet of bulk carriers, container general cargo and product tankers vessels, as well as the construction and sale and purchase
of new vessels. Mr. Ventouris holds a bachelor’s degree in Economics from the University of Athens.
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
affiliates 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.
Executive Compensation
We and our general partner were formed in January 2007. Prior to April 3, 2007, neither we nor our general partner paid any com-
pensation to our directors or our general partner’s officers, nor accrued any obligations with respect to management incentive or
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Capital Product Partners L.P. | Annual Report 2015
retirement benefits for our directors or our general partner’s officers. The compensation of our Chief Executive Officer and Chief Finan-
cial Officer, Mr. Kalogiratos, and our Chief Operating Officer, Mr. Ventouris are set and paid by our general partner, and we reimburse
our general partner for such costs and related expenses under relevant executive service agreements. 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
Our directors receive compensation for their services as directors, as well as for serving in the role of committee chair, and have also
received restricted units. Please read “Item 6E: Share Ownership—Omnibus Incentive Compensation Plan” for additional informa-
tion. For the year ended December 31, 2015, our directors, including our chairman, received an aggregate amount of $0.5 million.
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 separate service agreements entered into between our general partner and each of our officers, if a change in control occurs, each
of our officers may resign within six months of such change in control. There are no service agreements between any of the directors
and us.
C. Board Practices
Our 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.
During the year ended December 31, 2015, our board of directors held twelve meetings. Even if Board members are not be able to at-
tend a board meeting, all board members are provided information related to each of the agenda items before each meeting, and can
therefore, provide counsel outside regularly scheduled meetings. All directors were present at all meetings of the board of directors and
all meetings of committees of the board of directors on which such director served.
Although the Nasdaq Global Select 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 Select 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 Raster-
hoff (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. The audit committee met four times during the year ended December 31, 2015, on Janu-
ary 22, April 23, July 22 and October 21, 2015.
Conflicts Committee. The conflicts committee of our board of directors is composed of the same directors constituting the audit com-
mittee, being Keith Forman (chair), Abel Rasterhoff, Pierre de Demandolx-Dedons and Dimitris Christacopoulos. The members of
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Annual Report 2015 | Capital Product Partners L.P.
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 Select 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 direc-
tors, our general partner or its affiliates of any duties any of them may owe us or our unitholders. The conflicts committee met eleven
times during the year ended December 31, 2015, on January 29, February 25, May 26, May 28, June 9, August 21, September 1, Septem-
ber 30, October 13, November 27 and December 28, 2015.
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 employees of affiliates of Capital Maritime.
E. Share Ownership
As of December 31, 2015:
•
•
•
850,000 restricted common units had been issued under our Plan (described below);
Our director Keith Forman has owned a small number of common units since the date of our IPO. In addition, restricted com-
mon units were also issued in August 2010 and December 2015 to all members then-serving on our board of directors under the
terms of our Plan (described below), which such members may be deemed to beneficially own, or to have beneficially owned.
The shares issued to our director Dimitris Christacopoulos, when he was a member of the board of directors of Crude Carri-
ers, 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 Evangelos M. Marinakis, our former chairman, through its beneficial ownership of Capital Mari-
time and Crude Carriers Investments, may be deemed to beneficially own, or to have beneficially owned, all of our common units
held by Capital Maritime and Crude Carriers Investments.
Omnibus Incentive Compensation Plan
On 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 di-
rectors 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
December 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, among others. 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.
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Capital Product Partners L.P. | Annual Report 2015
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 is-
sued to the four independent members of the Crude board of directors who did not continue as members of our board of directors,
which vested immediately. 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.
Following approval of our unitholders at our 2014 annual meeting, on August 21, 2014, our board of directors amended the Plan to
increase the aggregate number of restricted units issuable under the Plan to 1,650,000 from 800,000.
On December 23, 2015, the Partnership awarded 850,000 unvested units 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.
All awards issued under our 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 13 (Omnibus Incentive Compensation Plan) to our Financial Statements
included herein for more information.
Item 7. Major Unitholders and Related-Party Transactions.
As of December 31, 2015, our partners’ capital consisted of 120,409,456 common units, of which 100,576,973 are owned by non-
affiliated public unitholders, 12,983,333 Class B Units, no subordinated units and 2,439,989 general partner units. The Marinakis fam-
ily, including Evangelos M. Marinakis, our former chairman, may be deemed to beneficially own on a fully converted basis a 16.4%
interest in us (18.1% on a non-fully converted basis), through, among others, Capital Maritime, which may be deemed to beneficially
own a 14.0% interest in us, including 16,548,273 common units and a 1.8% interest in us (2% on a non-fully converted basis) through
its ownership of our general partner, and Crude Carriers Investments, which may be deemed to beneficially own a 2.4% interest in us.
A. Major Unitholders
The following table sets forth as of the date hereof, the beneficial ownership of our common units by each person we know beneficially
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) (3)
Swank Capital, L.L.C. (4)
Number of Common
Units Owned
16,548,273
3,284,210
*
7,936,624
Percentage of Total
Common Units
13.7 %
2.7 %
*
6.6 %
Excludes the 2% general partner interest (1.8% on a fully converted basis) held by our general partner, a wholly owned subsidiary
of Capital Maritime.
The Marinakis family, including Evangelos M. Marinakis, our former chairman, through its ownership of Capital Maritime and
Crude Carriers Investments, may be deemed to beneficially own, or to have beneficially owned, all of our units held by Capital
Maritime and Crude Carriers Investments.
Our director Keith Forman has owned a small number of common units since the date of our IPO. In addition, restricted com-
mon units were also issued in August 2010 to all members then-serving on our board of directors under the terms of our Plan,
(1)
(2)
(3)
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Annual Report 2015 | Capital Product Partners L.P.
which such members may be deemed to beneficially own, or to have beneficially owned. The shares issued to our director Dimi-
tris 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 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.
This information is based on the Schedule 13G filed on February 10, 2016, by Swank Capital, L.L.C., Cushing MLP Asset Manage-
ment, LP and Jerry V. Swank.
(4)
Our major 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 voting 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
Capital 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 13.7% of our common units, which it can
vote in their totality on all matters that arise under the partnership agreement (except for the election of directors elected by holders
of our common units), 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.
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., 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 without 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.
Transactions entered into during the year ended December 31, 2015
1.
Amendments to Management Agreements. On July 1, 2015 and October 1, 2015, we amended and restated the fixed fee manage-
ment agreement with Capital Ship Management in its entirely to reflect, among other things, the vessels covered by each manage-
ment agreement. On March 31, 2015, June 10, 2015, June 30, 2015, September 18, 2015, and October 1, 2015, we amended the
floating rate management agreement with Capital Ship Management to reflect, among other things, the vessels covered by each
management agreement. Please read “Item 4B: Business Overview—Our Management Agreements” for a detailed description of
the terms of each management agreement.
2.
Equity Offering. On April 21, 2015, we completed the issuance and sale of 14,555,000 common units representing limited part-
nership interests at a public offering price of $9.53 per unit, which included 1,755,000 common units sold as a result of the
partial exercise of the overallotment option granted to the underwriters of the public offering and 1,100,000 common units
sold to our sponsor. Proceeds after the deduction of the underwriters’ commissions and net proceeds after the deduction of the
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Capital Product Partners L.P. | Annual Report 2015
transaction expenses amounted to $133.3 and $132.6 million, respectively. Our sponsor Capital Maritime subsequently con-
verted an aggregate of 315,908 common units into general partner units and delivered such units to our general partner in order
for it to maintain its 2% interest in us.
3.
Share Purchase Agreements for the acquisition of the vessel owning companies of each of the M/T Active, M/V CMA CGM Amazon,
M/T Amadeus and M/V CMA CGM Uruguay. On March 31, June 10, June 30, and September 18, 2015, in accordance with the
Master Vessel Acquisition Agreement, we entered into four share purchase agreements with Capital Maritime pursuant to which
we acquired all of Capital Maritime’s interests in the vessel owning companies of the M/T Active, M/V CMA CGM Amazon,
M/T Amadeus and M/V CMA CGM Uruguay, respectively. The acquisition was funded by four separate drawdowns under our
2013 credit facility in the aggregate amount of $115.0 million, while the remaining balance of $115.0 million was funded through
available cash. The M/T Active and the M/T Amadeus were built in 2015 at Samsung Heavy Industries (Ningbo) Co. Ltd. and are
currently employed by Cargill and Capital Maritime under a two-year time charter (+/-30 days) at a gross daily rate of $17,700
and a two-year time charter (+/-30 days) at a gross daily rate of $17,000 plus 50/50 profit share on actual earnings, respectively.
The M/V CMA CGM Amazon and M/V CMA CGM Uruguay were built in 2015 at Daewoo-Mangalia Heavy Industries S.A. and
both are currently employed by CMA CGM under five-year time charters (+90 days / -30 days) at a gross daily rate of $39,250.
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 Investing Activities” and Note 5 (Fixed Assets) to our
Financial Statements included herein for more information regarding this acquisition, including a detailed explanation of how it
was accounted for.
4.
Charter Party Agreements with Capital Maritime. During 2015, each of the M/T Agisilaos, M/T Atrotos, M/T Amore Mio II, M/T
Akeraios, M/T Apostolos, M/T Active, M/T Amadeus, M/T Miltiadis M II, M/T Aristotelis, M/T Ayrton II and M/T Anemos
I entered into new or extended existing charter party agreements with Capital Maritime. These new charters/extensions were
unanimously approved by the conflicts committee of independent directors of our board of directors. Please see “Item 4B: Busi-
ness Overview—Our Fleet” and “—Our Charters” for a detailed description of these charters, including earliest possible redeliv-
ery dates of the vessels and relevant charter rates.
Transactions entered into during the year ended December 31, 2014
Amendments to Management Agreements. On February 28, 2014 and December 31, 2014, we amended and restated the fixed fee
management agreement with Capital Ship Management in its entirely to reflect, among other things, the vessels covered by each
management agreement. On April 1, 2014, May 18, 2014, and December 31, 2014, we amended the floating rate management
agreement with Capital Ship Management to reflect, among other things, the vessels covered by each management agreement.
Please read “Item 4B: Business Overview—Our Management Agreements” for a detailed description of the terms of each man-
agement agreement.
Master Vessel Acquisition Agreement. On July 24, 2014 we entered into the Master Vessel Acquisition Agreement with Capital
Maritime, as described in further detail in “Item 4A: History and Development of the Partnership—2015 Developments”. Pursu-
ant to this agreement, we agreed to acquire the Dropdown Vessels at prices below current market value and have been granted
a right of first refusal over six additional newbuild Samsung eco medium range product tankers. As consideration, we agreed,
subject to, among other things, the approval of our unitholders, to adopt the Fourth Amendment to the Partnership Agreement.
This amendment was adopted on August 25, 2014 following our unitholders’ approval at our 2014 annual meeting of unitholders,
which was held on August 21, 2014.
Purchase Agreement. On September 3, 2014, we entered into a purchase agreement for 5,950,610 of our common units held by
Capital Maritime at an aggregate price of approximately $60.0 million. The purchase price was funded by the net proceeds from
a public offering of our common units in September 2014. We subsequently cancelled the common units that were repurchased
from Capital Maritime pursuant to this purchase agreement. Please see “Item 4A: History and Development of the Partner-
ship—2014 Developments”. The transaction was approved by our board of directors following approval by the conflicts commit-
tee of independent directors of our board of directors.
Charter Party Agreements with Capital Maritime. During 2014, each of the M/T Axios, M/T Avax, M/T Atrotos, M/T Assos, M/T
Agisilaos and M/T Arionas entered into new or extended existing charter party agreements with Capital Maritime. These new
charters/extensions were unanimously approved by the conflicts committee of independent directors of our board of directors.
1.
2.
3.
4.
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Annual Report 2015 | Capital Product Partners L.P.
Transactions entered into during the year ended December 31, 2013
1.
2.
3.
4.
5.
6.
7.
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 each
management agreement. Please read “Item 4B: Business Overview—Our Management Agreements” for a detailed description of
the terms of this management agreement.
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. An additional 1,785,000 common units were subsequently sold on the same terms following the full exercise of
the overallotment 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 overallotment 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.
Acquisition of the M/V 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 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.
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 of the M/V Hyundai Premium
and M/V Hyundai Paramount, respectively. The acquisition was funded by the net proceeds from the issuance 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 were built in 2013 at Hyundai Heavy Industries Co. Ltd. The vessels were originally
ordered by Capital Maritime and are currently employed under a twelve-year time charter (+/- 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 directors. Please see “Item 5B: Liquidity and Capital Resources—Net Cash Used in Investing Activities” and Note
1 (Basis of 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.
Subscription Agreement for Class B Units. On March 15, 2013, we entered into a subscription agreement for the sale and issuance of 9.1 mil-
lion 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.
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
II 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 Institute Warranty Limits. 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 unani-
mously 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 rede-
livery dates of the vessels and relevant charter rates.
Investor Relations Services Agreement. On January 1, 2013, we renewed our Investor Relations Agreement with Capital Ship Man-
agement 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 agreement will be renewed annually on its terms unless we elect not to renew amendments to management agreements.
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Capital Product Partners L.P. | Annual Report 2015
C. Interests of Experts and Counsel
Not applicable.
Item 8.
Financial Information.
A. Consolidated Statements and Other Financial Information.
See Item 18 for additional information required to be disclosed under this Item 8.
Legal Proceedings
Although 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 contem-
plated 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 custom-
ary 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
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 expansionary 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 agreement, 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).
Limitations on Cash Distributions and Our Ability to Change Our 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”. 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 provi-
sions requiring us to make cash distributions contained therein, may be amended. The partnership agreement can be amended
in certain circumstances with the approval of a majority of the outstanding common units (including, in certain circumstances
described in the partnership agreement, with the holders of Class B Units voting on an as-converted basis). As of December 31,
2015, the Marinakis family, including Evangelos M. Marinakis, may be deemed to beneficially own on a fully converted basis a
16.4% interest in us (18.1% on a non-fully converted basis), through, among others, Capital Maritime.
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 liabili-
ties 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
•
•
•
•
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Annual Report 2015 | Capital Product Partners L.P.
•
•
•
•
•
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 12,983,333 Class B Units issued and outstanding. Under the terms of our partnership agree-
ment, 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. 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 partner-
ship 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 mate-
rial financial 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 distribu-
tions 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 distributions to our unitholders may be restricted.
Quarterly Common Distributions; Historic Distributions
Our common unitholders are entitled under our partnership agreement to receive a quarterly distribution to the extent we have suf-
ficient 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 if an event of default exists, under the terms of our credit facilities.
We have generally declared distributions on our common units in January, April, July and October of each year and paid those distribu-
tions 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. On April 30, 2015, we announced that it is our
objective to increase our common and Class B distributions between 2% and 3% per annum for the foreseeable future. As a result, we
have increased our quarterly distribution for the first quarter of 2015 by $0.002 to $0.2345, for the second quarter of 2015 to $0.2365
and for the third quarter of 2015 to $0.2385. Our board of directors chose to maintain the distribution level for the fourth quarter at
$0.2385, due to the severe pricing dislocation for Master Limited Partnerships observed at the end of 2015 and at the beginning of 2016.
We made distributions on our 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, February 2014, August 2014, November 2014, February 2015, May 2015, August 2015, November 2015, and February 2016.
Incentive Distribution Rights
IDRs represent the right to receive an increasing percentage of quarterly distributions of available cash from operating 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 IDRs, but may transfer these rights separately from its general partner interest, subject to
restrictions in the partnership agreement. Except for transfers of IDRs 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 and Class B Units, considered together as a single class (excluding common units held by our general partner and its affiliates),
is required for a transfer of the IDRs to a third party prior to March 31, 2017. Any transfer by our general partner of the IDRs would
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Capital Product Partners L.P. | Annual Report 2015
not change the percentage allocations of quarterly distributions with respect to such rights. The target amounts for our IDRs were reset
pursuant to the Fourth Amendment to the Partnership Agreement to the amounts set forth in the table below.
Percentage Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of the additional available cash from operating surplus among the unitholders
and our general partner up to the various target distribution levels. The percentage allocations in the table are subject to the distribution
rights of the holders of our Class B Units. 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 a 2% general partner
interest and assume our general partner has not transferred the IDRs.
Minimum Quarterly Distribution
First Target Distribution
Second Target Distribution
Third Target Distribution
Thereafter
Total Quarterly Distribution
Target Amount
$0.2325
up to $0.2425 (1)
above $0.2425 (1) up to $0.2675
above $0.2675 up to $0.2925
above $0.2925
Marginal Percentage Interest in Distributions
General Partner
2%
2%
15%
25%
35%
Unitholders
98%
98%
85%
75%
65%
(1)
As disclosed on our Current Report on Form 6-K furnished on August 26, 2014, Capital Maritime unilaterally notified the Part-
nership that it decided to waive its rights to receive quarterly incentive distributions between $0.2425 and $0.25. Capital Maritime
waived these rights after discussion with, and with the unanimous support of, the conflicts committee of our board of directors.
This waiver effectively increases the First Target Distribution and the lower bound of the Second Target Distribution (as refer-
enced in the table above) from $0.2425 to $0.25.
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 20, 2016, we declared a cash distribution of $0.2385 per common unit for the fourth quarter of 2015, which was paid on
February 12, 2016 to unitholders of record on February 5, 2016.
On January 20, 2016, we declared a cash distribution of $0.21975 per Class B Unit for the fourth quarter of 2015, in line with our part-
nership agreement. The fourth quarter Class B Unit cash distribution was paid on February 10, 2016, to Class B unitholders of record
on February 3, 2016.
Item 9. The Offer and Listing.
Our common units started trading on the Nasdaq Global Select 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.
Year Ended: December 31,
2015
2014
2013
2012
2011
96
High
9.94
11.56
10.57
8.74
11.32
Low
5.05
6.79
6.81
6.21
4.89
Annual Report 2015 | Capital Product Partners L.P.
7.57
8.18
9.93
9.94
9.90
11.56
11.56
11.15
4.67
5.25
6.31
7.49
7.57
7.36
7.69
5.05
5.94
7.78
7.84
6.79
9.79
10.53
9.68
3.20
3.55
5.05
6.24
6.34
5.94
6.47
Quarter Ended:
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
Month Ended:
February 29, 2016 (1)
January 31, 2016
December 31, 2015
November 30, 2015
October 31, 2015
September 30, 2015
August 31, 2015
(1) Through February 16, 2016.
Item 10. Additional Information.
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The 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”, “Descrip-
tion of the Common Units—The Units”, “Conflicts of Interest and Fiduciary Duties” and “Our Cash Distribution Policy and Restric-
tions on Distributions” and our Current Reports on Form 6-K and relevant Exhibits furnished to the SEC on May 23, 2012, June 6,
2012, March 21, 2013 and August 26, 2014.
C. Material Contracts
The 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.
Please read “Item 7B: Related-Party Transactions” for transactions entered into with related parties, as well as further details on certain
of the transactions described below.
•
•
•
•
•
Purchase Agreement, dated September 18, 2015, with Capital Maritime to acquire the shares of the vessel owning company of the
M/V CMA CGM Uruguay.
Purchase Agreement, dated June 30, 2015, with Capital Maritime to acquire the shares of the vessel owning company of the M/T
Amadeus.
Purchase Agreement, dated June 10, 2015, with Capital Maritime to acquire the shares of the vessel owning company of the M/V
CMA CGM Amazon.
Amendments, dated April 30, 2015, to each of our 2007, 2008 and 2011 credit facilities.
Purchase Agreement, dated March 31, 2015, with Capital Maritime to acquire the shares of the vessel owning company of the
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Capital Product Partners L.P. | Annual Report 2015
•
•
•
•
M/T Active.
Purchase Agreement, dated September 3, 2014, with Capital Maritime to acquire 5,950,610 of our common units.
Amendment to Partnership Agreement, dated August 25, 2014, in connection with our entry into the Master Vessel Acquisition
Agreement. This amendment reset the thresholds for our IDRs.
Amendment to Omnibus Incentive Compensation Plan. On August 21, 2014, following approval of our unitholders at our 2014
annual meeting, our board of directors amended the Plan to increase the aggregate number of restricted units issuable under the
Plan to 1,650,000 from 800,000.
Master Vessel Acquisition Agreement dated July 24, 2014, with Capital Maritime to acquire the Dropdown Vessels and a right of
first refusal over six additional newbuild Samsung eco medium range product tankers.
D. Exchange Controls and Other Limitations Affecting Unitholders
We 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 securi-
ties imposed by the laws of the Republic of the Marshall Islands or our partnership agreement.
E. Taxation
Marshall Islands Taxation
The following is a discussion of the material Marshall Islands tax consequences of our activities to unitholders who are not citizens of
and do not reside in, maintain offices in or engage in business in the Marshall Islands (“non-resident holders”). Because we, our operat-
ing 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 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 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 U.S. Federal Income Tax Considerations
The 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, pos-
sibly 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” (gener-
ally, 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, construc-
tive sale, wash sale or other integrated transaction for U.S. federal income tax purposes, persons that own (actually or con-
structively) 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
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Annual Report 2015 | Capital Product Partners L.P.
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 con-
cerning 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 U.S.
Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences”),
generally not be directly subject to U.S. federal income tax on our income, but rather will be subject to U.S. federal income tax on dis-
tributions 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, our distributions to common unitholders will generally be reported on
IRS 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
products, as well as dry cargo and containerized goods. For this purpose, gross income attributable to transportation (or “Transporta-
tion 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. Transportation 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. Trans-
portation 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.
Based on our current operations, we do not expect to have U.S. Source Domestic Transportation Income. However, certain of our ac-
tivities 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 that, accordingly, 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.
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Capital Product Partners L.P. | Annual Report 2015
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 orga-
nized 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 “primar-
ily 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 Sec-
tion 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 Re-
public 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 Se-
lect 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 trad-
ing 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 condi-
tions 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 partnership agreement provides that the voting rights of any 5% Unitholders (other than our general partner and
its affiliates, their transferees 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
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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 exception 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 de-
scribed 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 Con-
nected Income”) if we have a fixed place of business in the United States and substantially all of our U.S. Source International Transpor-
tation Income is attributable 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 scheduled 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 determined 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 substan-
tial 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
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principles. Distributions 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 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 Select 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
corporation 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 tax-
able 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 par-
ticular, 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.
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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 Cir-
cuit 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 U.S. Holders that the nature of our operations will
not change in the future, or that we can avoid PFIC status in the future.
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 taxa-
tion rules depending on whether the U.S. Holder makes an election to treat us as a Qualified Electing Fund (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. In addition, if a U.S. Holder owns our common units during any taxable year that we are a PFIC, such units
owned by such holder will be treated as units in a PFIC even if we are not a PFIC in a subsequent year and, if the total value of all PFIC
stock that such holder directly or indirectly owns exceeds certain thresholds, such holder must file IRS Form 8621 with the holder’s U.S.
federal income tax return to report the holder’s ownership of our common units.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election (such U.S. Holder, 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 undistrib-
uted 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 com-
mon 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 (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%
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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 com-
mon 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 result-
ing 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 succes-
sor 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.
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 disposition 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 pay-
ments within the United States by certifying their status on IRS Form W-8BEN, W-8BEN-E, 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 with-
held 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.
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F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
We have filed with the SEC a registration statement on Form F-1, a registration statement on Form F-4 and two effective registration
statements on Form F-3 regarding our common units, among other securities. This Annual Report does not contain all of the informa-
tion 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 pre-
scribed 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 registration statement can also be inspected and copied at the offices of the Nasdaq
Global Select 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, 2015.
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 20% of our ex-
penses 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, 2015, 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, 2015. 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 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, and during 2015 we had, no interest rate swap agreements outstanding. As a result of a possible market disruption
in determining the cost of funds for our banks, any increases by the lenders to their “funding costs” under our credit facilities will lead
to proportional increases in the relevant interest amounts payable under such credit facilities 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
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resulted in an increase in our interest expense by approximately $5.7 million for the year ended December 31, 2015, assuming all other
variables had remained constant.
Concentration of Credit Risk
Financial instruments which potentially subject us to significant concentrations of credit risk consist principally of cash and cash
equivalents, and trade accounts receivable. We place our cash and cash equivalents, consisting mostly of deposits, with creditworthy
financial institutions as rated by qualified rating agencies. For the years ended December 31, 2015, 2014, and 2013, 50%, 62%, and 49%
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.
Item 12. Description of Securities Other than Equity Securities.
Not Applicable.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
No material modifications to the rights of security holders.
Item 15. Controls and Procedures.
a. Disclosure Controls and Procedures
As of December 31, 2015, 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 procedures as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. 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 reason-
able, 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.
Based on this evaluation, the chief executive officer and chief financial officer of our general partner concluded that, as of December 31,
2015, our disclosure controls and procedures, which include, without limitation, controls and procedures designed to ensure that in-
formation required to be disclosed by us in the reports we file or submit under the Exchange Act is communicated to 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 in providing reasonable assurance that information that was required to be disclosed by us in reports
we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
b. Management’s Annual Report on Internal Control over Financial Reporting
Our 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 finan-
cial 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 transactions 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 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 2013
framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Com-
mission. 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, 2015.
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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 presen-
tation. 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 relevant 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 ef-
fectiveness 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.
We have audited the internal control over financial reporting of Capital Product Partners L.P. and subsidiaries (the “Partnership”) as
of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Partnership’s management is responsible for maintaining effective inter-
nal 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
standards 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 reporting, 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 con-
trol 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 acquisi-
tion, 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 man-
agement override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of 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, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the con-
solidated financial statements as of and for the year ended December 31, 2015 of the Partnership and our report dated February 17,
2016 expressed an unqualified opinion on those financial statements.
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Annual Report 2015 | Capital Product Partners L.P.
/s/ Deloitte Hadjipavlou, Sofianos, & Cambanis S.A.
Athens, Greece
February 17, 2016
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.
Item 16A. Audit Committee Financial Expert.
Our 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 Select
Market and SEC standards.
Item 16B. Code of Ethics.
Our board of directors has adopted a 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 ac-
counting 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. The Code incorporates terms and conditions consistent with the FCPA and U.K. Bribery Act, and
includes a 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 Investor Relations area of our web site, any waivers to or amendments of the Code for the benefit of any of our directors and execu-
tive officers within five business days of such waiver or amendment.
Item 16C. Principal Accountant Fees and Services.
Our principal accountant for 2015 and 2014 was Deloitte. The following table shows the fees we paid or accrued for audit services pro-
vided by Deloitte for these periods (in thousands of U.S. Dollars).
Fees
Audit Fees (1)
Audit-Related Fees
Tax Fees (2)
Total
2015
$ 553.0
—
28.2
$ 581.2
2014
$ 449.7
—
25.0
$ 474.7
(1)
(2)
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 information, audit services provided in connection with other regulatory
filings, issuance of consents and assistance with and review of documents filed with the SEC.
Tax fees represent fees for professional services provided in connection with various U.S. income tax compliance and information
reporting matters.
The audit committee of our board of directors has the authority to pre-approve permissible audit-related and non-audit services not
prohibited 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 committee separately pre-approved all engagements and fees paid to our principal accountant in 2015 and 2014.
109
Capital Product Partners L.P. | Annual Report 2015
Item 16D. Exemptions from the Listing Standards for Audit Committees.
None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
In April 2015, we issued and sold to Capital Maritime 1,100,000 common units at the public offering price of $9.53 per unit (not subject
to any underwriting discount). Capital Maritime subsequently converted an aggregate of 315,908 common units into general partner
units and delivered such units to our general partner in order for it to maintain its 2% interest in us. Following these transactions,
Capital Maritime owned 16,548,273 common units, representing a 14.0% interest in us. As of December 31, 2015, the Marinakis fam-
ily, including Evangelos M. Marinakis, may be deemed to beneficially own on a fully converted basis a 16.4% interest in us (18.1% on a
non-fully converted basis), through, among others, Capital Maritime.
Item 16F. Change in Registrant’s Certifying Accountant.
Not applicable.
Item 16G. Corporate Governance.
The Nasdaq Global Select 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 Select 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 com-
mittee 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 Select Market. Please see “Item 6C: Board Practices” and
“Item 10B: Memorandum and Articles of Association” for more detail regarding our corporate governance practices.
110
Annual Report 2015 | Capital Product Partners L.P.
PART III
Item 17.
Financial Statements
Not Applicable.
Item 18.
Financial Statements
INDEX TO FINANCIAL STATEMENTS CAPITAL PRODUCT PARTNERS L.P.
Page
Report of Independent Registered Public Accounting Firm .......................................................................................................................... F-1
Consolidated Balance Sheets as of December 31, 2015 and 2014 .................................................................................................................. F-2
Consolidated Statement of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013 ....................................... F-3
Consolidated Statement of Changes in Partners’ Capital for the years ended December 31, 2015, 2014 and 2013 .............................. F-4
Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014 and 2013 ............................................................. F-5
Notes to the Consolidated Financial Statements .............................................................................................................................................. F-6
111
Capital Product Partners L.P. | Annual Report 2015
Item 19.
Exhibits
The following exhibits are filed as part of this Annual Report:
Exhibit
No.
Description
1.1
1.2
1.3
1.4
1.5
1.6
Certificate of Limited Partnership of Capital Product Partners L.P. (1)
Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated February 22, 2010 (7)
Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated
September 30, 2011 (8)
Second Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P.,
dated March 19, 2013 (14)
Third Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated
May 22, 2012 (15)
Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P.,
dated August 25, 2014 (17)
Certificate of Formation of Capital GP L.L.C. (1)
Limited Liability Company Agreement of Capital GP L.L.C. (1)
Certificate of Formation of Capital Product Operating GP L.L.C. (1)
Revolving $370.0 Million Credit Facility, dated March 22, 2007 (1)
First Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated September 19, 2007 (2)
Second Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated June 11, 2008 (3)
1.7
1.8
1.9
4.1
4.2
4.3
4.4 Third Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated April 7, 2009 (6)
Fourth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated April 8, 2009 (6)
4.5
Fifth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated October 2, 2009 (6)
4.6
Sixth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated June 30, 2010 (9)
4.7
Seventh Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated November 30, 2010 (9)
4.8
Eighth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated December 23, 2011 (13)
4.9
Ninth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated May 21, 2012 (14)
4.10
Tenth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated November 4, 2013
4.11
Eleventh Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated April 30, 2015
4.12
Revolving $350.0 Million Credit Facility, dated March 19, 2008 (2)
4.13
First Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated October 2, 2009 (6)
4.14
4.15
Second Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated June 30, 2010 (9)
4.16 Third Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated May 21, 2012 (14)
4.17
4.18
4.19
4.20
4.21
Fourth Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated December 21, 2012 (16)
Fifth Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated April 28, 2015
Loan Agreement with Emporiki Bank of Greece S.A., dated June 9, 2011 (13)
Supplemental Deed to Loan Agreement with Emporiki Bank of Greece S.A., dated April 28, 2015
Amended and Restated Loan Agreement with ING Bank N.V., HSH Nordbank AG, National Bank of Greece S.A. and Skandi-
naviska Enskilda Banken AB (publ), dated December 27, 2013 (18)
Omnibus Agreement (1)
Amended and Restated Omnibus Agreement, dated September 30, 2011 (8)
Amended and Restated Management Agreement with Capital Ship Management, dated May 9, 2013 (18)
Amended and Restated Management Agreement with Capital Ship Management, dated November 30, 2013 (18)
Amended and Restated Management Agreement with Capital Ship Management, dated February 28, 2014 (19)
Amended and Restated Management Agreement with Capital Ship Management, dated December 31, 2014 (19)
4.22
4.23
4.24
4.25
4.26
4.27
112
Exhibit
No.
Description
Annual Report 2015 | Capital Product Partners L.P.
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
4.40
4.41
4.42
4.43
4.44
4.45
4.46
4.47
4.48
4.49
4.50
4.51
4.52
4.53
4.54
4.55
4.56
4.57
4.58
4.59
4.60
4.61
4.62
4.63
4.64
4.65
4.66
4.67
4.68
4.69
4.70
4.71
4.72
Amended and Restated Management Agreement with Capital Ship Management, dated July 1, 2015
Amended and Restated Management Agreement with Capital Ship Management, dated October 1, 2015
Floating Rate Management Agreement with Capital Ship Management Corp., dated June 9, 2011 (13)
Amendment 1 to Floating Rate Management Agreement with Capital Ship Management Corp., dated August 4, 2011 (13)
Amendment 2 to Floating Rate Management Agreement with Capital Ship Management Corp., dated December 5, 2011 (13)
Amendment 3 to Floating Rate Management Agreement with Capital Ship Management Corp., dated April 18, 2012 (16)
Amendment 4 to Floating Rate Management Agreement with Capital Ship Management Corp., dated June 13, 2011 (16)
Amendment 5 to Floating Rate Management Agreement with Capital Ship Management Corp., dated August 26, 2012 (16)
Amendment 6 to Floating Rate Management Agreement with Capital Ship Management Corp., dated September 15, 2012 (16)
Amendment 7 to Floating Rate Management Agreement with Capital Ship Management Corp., dated December 22, 2012 (16)
Amendment 8 to Floating Rate Management Agreement with Capital Ship Management Corp., dated December 24, 2012 (16)
Amendment 9 to Floating Rate Management Agreement with Capital Ship Management Corp., dated January 22, 2013 (18)
Amendment 10 to Floating Rate Management Agreement with Capital Ship Management Corp., dated March 20, 2013 (18)
Amendment 11 to Floating Rate Management Agreement with Capital Ship Management Corp., dated September 11, 2013 (18)
Amendment 12 to Floating Rate Management Agreement with Capital Ship Management Corp., dated November 28, 2013 (18)
Amendment 13 to Floating Rate Management Agreement with Capital Ship Management Corp., dated April 1, 2014 (19)
Amendment 14 to Floating Rate Management Agreement with Capital Ship Management Corp., dated May 18, 2014 (19)
Amendment 15 to Floating Rate Management Agreement with Capital Ship Management Corp., dated December 31, 2014 (19)
Amendment 16 to Floating Rate Management Agreement with Capital Ship Management Corp., dated March 31, 2015
Amendment 17 to Floating Rate Management Agreement with Capital Ship Management Corp., dated June 10, 2015
Amendment 18 to Floating Rate Management Agreement with Capital Ship Management Corp., dated June 30, 2015
Amendment 19 to Floating Rate Management Agreement with Capital Ship Management Corp., dated September 18, 2015
Amendment 20 to Floating Rate Management Agreement with Capital Ship Management Corp., dated October 1, 2015
Administrative Services Agreement with Capital Ship Management (1)
Amendment 1 to Administrative Services Agreement with Capital Ship Management Corp., dated April 2, 2012 (16)
Share Purchase Agreement for M/V Hyundai Premium, dated March 20, 2013 (15)
Share Purchase Agreement for M/V Hyundai Paramount, dated March 27, 2013 (18)
Share Purchase Agreement for M/V CCNI Angol (ex Hyundai Prestige), dated August 9, 2013 (18)
Share Purchase Agreement for M/V Hyundai Platinum, dated August 9, 2013 (18)
Share Purchase Agreement for M/V Hyundai Privilege dated August 9, 2013 (18)
Share Purchase Agreement for M/T Active, dated March 31, 2015
Share Purchase Agreement for M/V CMA CGM Amazon, dated June 10, 2015
Share Purchase Agreement for M/T Amadeus, dated June 30, 2015
Share Purchase Agreement for M/V CMA CGM Uruguay, dated September 18, 2015
Master Vessel Acquisition Agreement, dated July 24, 2014 (19)
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan, dated April 29, 2008 (4)
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan, amended July 22, 2010 (9)
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan, amended August 21, 2014 (17)
Crude Carriers Corp. Equity Incentive Plan, dated March 1, 2010 (10)
Form of Management Agreement between Crude Carriers Corp. and Capital Ship Management Corp. (10)
Amendment No. 1 to Crude Carriers Management Agreement, dated August 5, 2010 (11)
Amendment No. 2 to Crude Carriers Management Agreement, dated August 6, 2010 (11)
Memorandum of Agreement for acquisition of M/T Aristotelis (ex M/T Aristarchos), dated October 16, 2013 (18)
Memorandum of Agreement for disposition of M/T Agamemnon II, dated October 17, 2013 (18)
Form Restricted Unit Award of Capital Product Partners L.P. (9)
113
Capital Product Partners L.P. | Annual Report 2015
Exhibit
No.
Description
Subscription Agreement, dated March 15, 2013 (15)
Assignment of Claim Agreement, dated June 24, 2013 (18)
Assignment of Claim Agreement, dated June 24, 2013 (18)
Assignment of Claim Agreement, dated June 24, 2013 (18)
Settlement Notice and Refund Modification, dated December 18, 2013 (18)
List of Subsidiaries of Capital Product Partners L.P.
Rule 13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief Financial Officer
Capital Product Partners L.P. Certification of Gerasimos (Jerry) Kalogiratos, Chief Executive Officer, pursuant to 18 U.S.C. Sec-
tion 1350, as adopted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002*
Capital Product Partners L.P. Certification of Gerasimos (Jerry) Kalogiratos, Chief Financial Officer, pursuant to 18 U.S.C. Sec-
tion 1350, as adopted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002*
Consent of Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
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.
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.
Previously filed as an exhibit to the registrant’s Registration Statement on Form F-3 filed with the SEC on August 29, 2008.
Previously filed as a Current Report on Form 6-K with the SEC on April 30, 2008.
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.
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.
Previously filed as a Current Report on Form 6-K with the SEC on February 24, 2010.
Previously filed as a Current Report on Form 6-K with the SEC on September 30, 2011.
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.
Previously filed as an exhibit to Crude Carriers Corp.’s Registration 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.
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.
Previously filed as a Current Report on Form 6-K with the SEC on May 9, 2011.
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.
Previously furnished as a Current Report on Form 6-K with the SEC on May 23, 2012.
Previously furnished as a Current Report on Form 6-K with the SEC on March 21, 2013.
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.
4.73
4.74
4.75
4.76
4.77
8.1
12.1
12.2
13.1
13.2
15.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
114
Annual Report 2015 | Capital Product Partners L.P.
(17)
(18)
(19)
(20)
Previously furnished as a Current Report on Form 6-K with the SEC on August 26, 2014.
Previously filed as an exhibit to the registrant’s Annual Report on Form 20-F for the year ended December 31, 2013 and
filed with the SEC on February 18, 2014.
Previously furnished as a Current Report on Form 6-K with the SEC on July 29, 2014.
Previously filed as an exhibit to the registrant’s Annual Report on Form 20-F for the year ended December 31, 2014 and
filed with the SEC on February 26, 2015.
* 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/ Gerasimos (Jerry) Kalogiratos
Name: Gerasimos (Jerry) Kalogiratos
Title: Chief Executive Officer and Chief
Financial Officer of Capital GP L.L.C.
Dated: February 17, 2016
115
Capital Product Partners L.P. | Annual Report 2015
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.
We have audited the accompanying consolidated balance sheets of Capital Product Partners L.P. and subsidiaries (the “Partnership”)
as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income, changes in partners’ capital, and
cash flows for each of the three years in the period ended December 31, 2015. 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
Partners L.P. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2015, 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 Part-
nership’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—In-
tegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 17, 2016 expressed an unqualified opinion on the Partnership’s internal control over financial reporting.
/s/ Deloitte Hadjipavlou, Sofianos, & Cambanis S.A.
Athens, Greece
February 17, 2016
F-1
Annual Report 2015 | Capital Product Partners L.P.
As of December 31, 2015 As of December 31, 2014
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)
Prepayments and other assets
Inventories
Total current assets
Fixed assets
Advances for vessels under construction – related party (Notes 4, 5)
Vessels, net (Note 5)
Total fixed assets
Other non-current assets
Above market acquired charters (Note 6)
Deferred charges, net
Restricted cash (Note 7)
Prepayments and other assets
Total non-current assets
Total assets
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt, net (Note 7)
Trade accounts payable
Due to related parties (Note 4)
Accrued liabilities (Note 9)
Deferred revenue, current (Note 4)
Total current liabilities
Long-term liabilities
Long-term debt, net (Note 7)
Deferred revenue
Total long-term liabilities
Total liabilities
Commitments and contingencies (Note 16)
Partners’ capital
General Partner
Limited Partners - Common (120,409,456 and 104,079,960 units issued
and outstanding at December 31, 2015 and 2014, respectively)
Limited Partners - Preferred (12,983,333 and 14,223,737 Class B units issued
and outstanding at December 31, 2015 and 2014, respectively)
Total partners’ capital
Total liabilities and partners’ capital
$
90,190
2,680
—
2,547
4,407
99,824
18,172
1,315,485
1,333,657
100,518
3,482
17,000
1,394
1,456,051
$ 1,555,875
$
11,922
8,431
22,154
7,872
10,867
61,246
555,888
921
556,809
618,055
16,998
810,239
110,583
937,820
$
164,199
2,588
55
1,839
3,434
172,115
66,641
1,120,070
1,186,711
115,382
645
15,000
—
1,317,738
$ 1,489,853
$
4,579
5,351
17,497
5,636
11,684
44,747
570,094
2,451
572,545
617,292
15,602
735,547
121,412
872,561
$ 1,555,875
$ 1,489,853
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Consolidated Statements of Comprehensive Income
(In thousands of United States Dollars, except number of units and net income per unit)
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 on sale of vessels to third parties
Vessel depreciation and amortization (Note 5)
Operating income
Non operating income:
Gain on sale of claim (Note 15)
Gain from bargain purchase (Note 3)
Total non operating income
Other income / (expense):
Interest expense and finance cost (Note 7)
Gain on interest rate swap agreement (Note 8)
Other income
Total other expense, net
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: (Note 14)
Common unit basic
Weighted-average units outstanding:
Common unit basic
Net income per: (Note 14)
Common unit diluted
Weighted-average units outstanding:
Common units diluted
Comprehensive income:
Partnership’s net income
Other Comprehensive income:
For the years ended December 31,
2014
2015
2013
$
156,613
63,731
220,344
$
119,907
72,870
192,777
$ 116,520
54,974
171,494
6,479
411
58,625
11,708
6,608
—
62,707
73,806
—
—
—
(20,143)
—
1,747
(18,396)
55,410
11,334
879
43,197
0.38
$
$
$
$
$
5,907
338
48,714
13,315
6,316
—
57,476
60,711
—
—
—
(19,225)
—
2,526
(16,699)
44,012
14,042
593
29,377
0.31
$
$
$
$
$
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
1.04
115,030,879
93,353,168
75,645,207
$
0.38
$
0.31
$
1.01
115,030,879
93,353,168
97,369,136
55,410
44,012
99,481
Unrealized gain on derivative instruments (Note 8)
—
—
462
Comprehensive income
$
55,410
$
44,012
$
99,943
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Consolidated Statements of Changes in Partners’ Capital
(In thousands of United States Dollars)
Balance at December 31, 2012
$ 9,049
$ 425,497
$ 139,744
$ 574,290
$ (462)
$ 573,828
General
Partner
Limited
Partners
Common
Limited
Partners
Preferred
Accumulated Other
Comprehensive
Loss
Total
Total
Distributions declared and paid
(distributions of $0.93 per common
and $0.86 per preferred unit) (Note 12)
Partnership’s net income
Issuance of Partnership’s units (Note 12)
Equity compensation expense (Note 13)
Other comprehensive income (Note 8)
Conversion of Partnership’s units (Note 12)
(1,397)
1,598
—
—
—
3,060
(68,759)
79,078
119,811
3,528
—
47,258
(18,085)
18,805
72,557
—
—
(50,318)
(88,241)
99,481
192,368
3,528
—
—
Balance at December 31, 2013
$ 12,310
$ 606,413
$ 162,703
$ 781,426
Balance at December 31, 2013
$ 12,310
$ 606,413
$ 162,703
$ 781,426
Distributions declared and paid
(distributions of $0.93 per common
and $0.86 per preferred unit) (Note 12)
Partnership’s net income
Issuance of Partnership’s units (Note 12)
Repurchase from CMTC and cancellation
of Partnership’s units (Note 12)
Excess between the fair value of the
contracted vessels and the contractual
cash consideration (Note 5)
Conversion of Partnership’s units (Note 12)
(1,725)
593
—
(86,027)
29,377
173,504
(15,046)
14,042
—
(102,798)
44,012
173,504
—
(60,000)
—
(60,000)
728
3,696
35,689
36,591
—
(40,287)
36,417
—
Balance at December 31, 2014
$ 15,602
$ 735,547
$ 121,412
$ 872,561
Balance at December 31, 2014
$ 15,602
$ 735,547
$ 121,412
$ 872,561
Distributions declared and paid
(distributions of $0.94 per common
and $0.87 per preferred unit) (Note 12)
Partnership’s net income
Issuance of Partnership’s units (Note 12)
Equity compensation expense (Note 13)
Conversion of Partnership’s units (Note 12)
(2,225)
879
—
—
2,742
(109,027)
43,197
132,588
34
7,900
(11,521)
11,334
—
—
(10,642)
(122,773)
55,410
132,588
34
—
—
—
—
—
462
—
$ —
$ —
—
—
—
—
—
—
$ —
$ —
—
—
—
—
—
Balance at December 31, 2015
$ 16,998
$ 810,239
$ 110,583
$ 937,820
$ —
The accompanying notes are an integral part of these consolidated financial statements.
(88,241)
99,481
192,368
3,528
462
—
$ 781,426
$ 781,426
(102,798)
44,012
173,504
(60,000)
36,417
—
$ 872,561
$ 872,561
(122,773)
55,410
132,588
34
—
$ 937,820
F-4
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Consolidated Statements of Cash flows
(In thousands of United States Dollars)
For the year ended December 31
2015
2014
2013
$
55,410
62,707
—
908
14,864
34
—
—
—
(92)
55
(2,102)
(973)
1,929
4,657
1,114
(2,207)
(2,095)
134,209
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Vessel depreciation and amortization (Note 5)
Gain from bargain purchase (Note 3)
Amortization of deferred charges
Amortization of above market acquired charters (Note 6)
Equity compensation expense (Note 13)
Gain on interest rate swap agreements (Note 8)
Loss on sale of vessels to third parties
Accrual on gain on sale of claim (Note 15)
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 (Note 5)
Advances for vessels under construction – related party (Note 5)
Increase in restricted cash
Proceeds from sale of vessels
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of Partnership units (Note 12)
Expenses paid for issuance of Partnership units
Repurchase from CMTC and cancellation of Partnership’s units (Note 12)
Proceeds from issuance of long-term debt (Note 7)
Payments of long-term debt (Note 7)
Loan issuance costs
Dividends paid (Note 12)
Net cash provided by financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Supplemental Cash Flow Information
Cash paid for interest
Non-Cash Investing and Financing Activities
Excess between the fair value of the contracted vessels
and the contractual cash consideration (Note 5)
Capital expenditures included in liabilities
Offering expenses included in liabilities
Capitalized dry docking and deferred costs included in liabilities
Acquisition of above market time charter (Note 3)
133,327
(739)
—
115,000
(121,299)
(1,797)
(122,773)
1,719
(74,009)
164,199
90,190
(207,937)
—
(2,000)
—
(209,937)
—
769
—
1,687
—
$
$
$
$
$
16,759
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
$
44,012
$
99,481
57,476
—
809
16,000
—
—
—
—
1,777
612
(463)
(694)
(1,570)
3,811
178
3,919
(590)
125,277
(103)
(30,224)
—
—
(30,327)
173,932
(416)
(60,000)
—
(5,400)
(41)
(102,798)
5,277
100,227
63,972
164,199
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
$
16,564
$
14,845
$
$
$
$
$
36,417
183
12
—
—
$
$
$
$
$
—
103
(7)
628
97,256
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars, except number of units)
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 Partner-
ship is an international shipping company. Its fleet of thirty four modern high specification vessels consists of four suezmax crude oil
tankers, twenty modern medium range tankers all of which are classed as IMO II/III chemical/product carriers, nine 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 incor-
porated or formed under the laws of the Marshall Islands and Liberia.
Subsidiary
Capital Product Operating GP LLC
Crude Carriers Corp.
Crude Carriers Operating Corp.
Shipping Rider Co.
Canvey Shipmanagement Co.
Centurion Navigation Limited
Polarwind Maritime S.A.
Carnation Shipping Company
Apollonas Shipping Company
Tempest Maritime Inc.
Iraklitos Shipping Company
Epicurus Shipping Company
Laredo Maritime Inc.
Lorenzo Shipmanagement Inc.
Splendor Shipholding S.A.
Ross Shipmanagement Co.
Sorrel Shipmanagement Inc.
Baymont Enterprises Incorporated
Forbes Maritime Co.
Wind Dancer Shipping Inc.
Belerion Maritime Co.
Mango Finance Corp.
Navarro International S.A.
Adrian Shipholding Inc.
Patroklos Marine Corp.
Cooper Consultants Co. renamed
to Miltiadis M II Carriers Corp.
Date of
Incorporation
Name of Vessel Owned by
Subsidiary
01/16/2007
10/29/2009
01/21/2010
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
—
—
—
M/T Atlantas (M/T British Ensign)
M/T Assos
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
DWT
—
—
—
36,760
47,872
36,759
36,760
36,725
47,834
36,725
47,872
47,786
M/T Akeraios
M/T Apostolos
M/T Anemos I
M/T Attikos (1)
47,781
02/03/2004
47,782
05/26/2004
47,782
07/08/2004
12/29/2003
12,000
02/07/2006 M/T Alexandros II (M/T Overseas Serifos) 51,258
159,982
05/29/2007
12,000
02/03/2004
51,226
02/07/2006 M/T Aristotelis II (M/T Overseas Sifnos)
51,218
01/24/2006
51,238
07/14/2006
51,260
07/14/2006
36,721
06/22/2004
179,221
06/17/2008
M/T Aris II (M/T Overseas Kimolos)
M/T Agamemnon II (3)
M/T Ayrton II
M/T Alkiviadis
M/V Cape Agamemnon
M/T Amore Mio II
M/T Aristofanis (2)
Date acquired
by the
Partnership
—
09/30/2011
09/30/2011
04/04/2007
08/16/2010
04/04/2007
04/04/2007
04/04/2007
04/04/2007
04/04/2007
04/04/2007
04/04/2007
03/01/2010
05/08/2007
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
Date
acquired
by CMTC
—
—
—
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
04/06/2006
M/T Miltiadis M II
162,397
09/30/2011
04/26/2006
F-6
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars, except number of units)
1. Basis of Presentation and General Information – Continued
Date of
Incorporation
Subsidiary
04/14/2010
Amoureux Carriers Corp.
Aias Carriers Corp.
04/14/2010
Agamemnon Container Carrier Corp. 04/19/2012
04/19/2012
Archimidis Container Carrier Corp.
10/16/2013
Aenaos Product Carrier S.A.
04/08/2011
Anax Container Carrier S.A
04/08/2011
Hercules Container Carrier S.A.
04/08/2011
Iason Container Carrier S.A
04/08/2011
Thiseas Container Carrier S.A.
07/19/2011
Cronus Container Carrier S.A.
08/28/2012
Miltiadis M II Corp.
05/16/2013 M/V Akadimos (CMA CGM Amazon) (4) 115,145
Dias Container Carrier S.A
05/16/2013 M/V Adonis (CMA CGM Uruguay) (4) 115,639
Poseidon Container Carrier S.A
50,136
05/31/2013
Isiodos Product Carrier S.A
50,108
05/31/2013
Titanas Product Carrier S.A
Name of Vessel
Owned by
Subsidiary
M/T Amoureux
M/T Aias
M/V Agamemnon
M/V Archimidis
M/T Aristotelis
M/V Hyundai Prestige
M/V Hyundai Premium
M/V Hyundai Paramount
M/V Hyundai Privilege
M/V Hyundai Platinum
—
DWT
149,993
150,393
108,892
108,892
51,604
63,010
63,010
63,010
63,010
63,010
—
M/T Active (4)
M/T Amadeus (4)
Date acquired
by the
Partnership
09/30/2011
09/30/2011
12/22/2012
12/22/2012
11/28/2013
09/11/2013
03/20/2013
03/27/2013
09/11/2013
09/11/2013
—
06/10/2015
09/18/2015
03/31/2015
06/30/2015
Date
acquired
by CMTC
—
—
06/28/2012
06/22/2012
—
02/19/2013
03/11/2013
03/27/2013
05/31/2013
06/14/2013
—
06/10/2015
09/18/2015
03/31/2015
06/30/2015
(1) Was sold on February 14, 2012.
(2) Was sold on April 4, 2012.
(3) Was sold on November 5, 2013.
(4)
Vessels that were acquired according to the terms of the Master Vessel Acquisition Agreement
(“Master Agreement”) (Notes 5, 12)
F-7
Annual Report 2015 | Capital Product Partners L.P.
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.
(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 report-
ing period. Actual results could differ from those estimates.
(c)
Other Comprehensive Income: The Partnership separately records certain transactions directly as components of partners’
capital. For the years ended December 31, 2015 and 2014 there was no other comprehensive income.
(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 Partner-
ship 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 agree-
ments are recognized on a pro-rata basis over the duration of the voyage when a voyage agreement exists, the price is fixed,
service is provided and the collection of the related revenue is reasonably assured.
Time, bareboat and voyage charter revenues are recognized when a charter agreement exists, charter rate is fixed and determinable,
the vessel is made available to the lessee, and collection of the related revenue is reasonably assured. Revenues are recognized rat-
ably on a straight line basis over the period of the respective 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. In
general under time and bareboat charter agreements, all voyages expenses, except commissions are assumed by the charterer. For
voyage charters all voyage expenses are paid by the Partnership.
Vessel operating expenses presented in the consolidated financial statements mainly consist 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-8
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(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. Dol-
lars 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 other income in the accompany-
ing consolidated statements of comprehensive income.
(f)
Cash and Cash Equivalents: The Partnership considers highly-liquid investments such as time deposits and certificates of de-
posit 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.
(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 write off. As of December 31, 2015 and 2014 the respective write
off amounted to $22 and $70, 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 supervision costs incurred during the construction periods, as well as capitalized interest expense dur-
ing 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 vessel’s 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 pres-
ent 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 un-
discounted 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 vessels. The Partnership has performed an undis-
counted cash flow test based on US GAAP as of December 31, 2015 and 2014, 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 assumptions 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 Decem-
ber 31, 2015 and 2014.
F-9
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(l)
Intangible assets: The Partnership records 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, the
Partnership determines 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, the Partnership uses Weighted Average
Cost of Capital (“WACC”). The resulting above-market (assets) and below-market (liabilities) charters are amortized using the
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 dry docking costs. The Partnership’s vessels are required to be dry docked every
thirty to sixty months for major repairs and maintenance 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) 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 Partner-
ship 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,
2015 CMTC and Hyundai Merchant Marine Co Ltd (“HMM”) accounted for 29% and 21% of the Partnership’s total revenue,
respectively. For the year ended December 31, 2014 CMTC, HMM and A.P. Moller-Maersk A.S. (“Maersk”) accounted for
38%, 24% and 12% of the Partnership’s total revenue, respectively. For the year ended December 31, 2013, CMTC, British Pe-
troleum Shipping Limited (“BP”), Maersk and HMM accounted for 32%, 17%, 14% and 13% of the Partnership’s total revenue,
respectively. The Partnership does not obtain rights of collateral from its charterers to reduce its credit risk.
(o)
Interest Rate Swap Agreements: The Partnership designates its derivatives based upon the intended use, and recognizes all de-
rivatives 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. 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”, until the hedged item is recog-
nized in the consolidated statements of comprehensive income. The ineffective portion of a derivative’s change in fair value is
immediately recognized in the consolidated statements of comprehensive income.
(p)
Net Income Per Limited Partner Unit: Basic net income per limited partner unit is calculated by dividing the Partnership’s
net income less net income allocable to preferred unit holders, general partner’s interest in net income (including incentive
distribution rights) and net income allocable to unvested units, by the weighted-average number of common units outstand-
ing during the period (Note 14). 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.
(q)
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 rev-
enue 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.
F-10
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(r)
Omnibus Incentive Compensation Plan: Equity compensation expense represents vested and unvested units granted to em-
ployees and to non-employee directors, for their services as directors, as well as to non-employees and are included in general
and administrative expenses in the consolidated statements of comprehensive income. 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 ser-
vice vesting condition are considered unvested units on the grant date and the 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 (Note 13).
(s)
Recent Accounting Pronouncements: In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory
to simplify the measurement of inventory using first-in, first out (FIFO) or average cost method. According to this ASU an
entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices
less reasonably predictable costs of completion, disposal and transportation. This update is effective for public entities with
reporting periods beginning after December 15, 2016. Early adoption is permitted. The Partnership believes that the imple-
mentation of this update will not have any material impact on its financial statements and has not elected the early adoption.
In April 2015, the FASB issued ASU 2015-03 Interest -Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of
Debt Issuance Costs. The guidance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented
as a deduction from the corresponding liability, consistent with debt discounts instead of presenting debt issuance costs as long-
term assets on the consolidated balance sheets. The recognition and measurement guidance for debt issuance costs is not affected.
Therefore, these costs will continue to be amortized as interest expense using the effective interest method pursuant to ASC 835-
30-35-2 through 35-3. This standard is effective for public entities with reporting periods beginning after December 15, 2015. Early
adoption is permitted. The Partnership elected to early adopt the new standard retrospectively during the fourth quarter of 2015.
The reclassification does not impact net income as previously reported or any prior amounts reported on the consolidated state-
ments of comprehensive income, or the consolidated statements of cash flows. The effect of the retrospective application of this
change in accounting principle on the Partnership’s consolidated balance sheets as of December 31, 2014 resulted in a reduction of
Deferred charges, net in the amount of $3,242 with a corresponding decrease of $2,421 in Long-term debt, net and Total long-term
liabilities and a decrease of $821 in Current portion of long-term debt, net and Total current liabilities.
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No 2014-09 as
amended by ASU 2015-14 which was issued on August 12, 2015, Revenue From Contracts With Customers, which outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most cur-
rent revenue recognition guidance, including industry-specific guidance. This standard is effective for public entities with reporting
periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods (including interim
reporting periods within those periods) beginning after December 15, 2016. The Company is currently evaluating the impact, if any,
of the adoption of this new standard.
F-11
Annual Report 2015 | Capital Product Partners L.P.
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)
On September 11, 2013, the Partnership acquired the shares of Anax Container Carrier S.A., the vessel owning company of the M/V Hyundai
Prestige (“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, neces-
sary 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 $225,000 credit facility (the “2013 credit facility”), part of the net proceeds from the issuance of 13,685,000 Partnership’s Common
Units in August 2013 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 for the year ended December 31, 2013 was calculated as follows:
Vessel
Above market acquired time charter
Identifiable assets
Purchase price
Gain from bargain purchase
As of September 11, 2013
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 as-
sets 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 $8,094 in its con-
solidated statements of comprehensive income, 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
Above market acquired time charter
As of September 11, 2013
$ 19,094
Duration of time charter acquired
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 for the year ended December 31, 2013.
F-12
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
3. Acquisitions – Continued
a. Anax Container Carrier S.A. (M/V Hyundai Prestige)
•
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 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 acqui-
sition of Hyundai Prestige occurred on February 19, 2013 (vessel inception):
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
For the year ended December 31, 2013
176,535
100,624
18,805
1,621
80,198
1.05
1.02
$
$
$
$
$
$
$
b. Thiseas Container Carrier S.A. (M/V Hyundai Privilege)
On September 11, 2013, the Partnership acquired the shares of Thiseas Container Carrier S.A., the vessel owning company of the M/V Hyun-
dai Privilege (“Thiseas”) from CMTC for a total consideration of $65,000 following the unanimous recommendation of the conflicts commit-
tee 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
2013 credit facility, part of the net proceeds from the issuance of 13,685,000 Partnership’s Common Units in August 2013 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 for the year ended December 31, 2013 was calculated as follows:
F-13
Annual Report 2015 | Capital Product Partners L.P.
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) – Continued
Vessel
Above market acquired time charter
Identifiable assets
Purchase price
Gain from bargain purchase
As of September 11, 2013
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 avail-
able 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 comprehensive income, in accordance with 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
Above market acquired time charter
As of September 11, 2013
$ 19,329
Duration of time charter acquired
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
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 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 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):
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
For the year ended December 31, 2013
174,045
100,144
18,805
1,611
79,728
1.04
1.01
$
$
$
$
$
$
$
F-14
Capital Product Partners L.P. | Annual Report 2015
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)
On September 11, 2013, the Partnership acquired the shares of Cronus Container Carrier S.A., the vessel owning company of the M/V Hyun-
dai Platinum (“Cronus”) from CMTC for a total consideration of $65,000 following the unanimous recommendation of the conflicts com-
mittee 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 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 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
2013 credit facility, part of the net proceeds from the issuance of 13,685,000 Partnership’s Common Units in August 2013 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 for the year ended December 31, 2013 was calculated as follows:
Vessel
Above market acquired time charter
Identifiable assets
Purchase price
Gain from bargain purchase
As of September 11, 2013
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 avail-
able 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, in accordance with 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
Above market acquired time charter
As of September 11, 2013
$ 19,358
Duration of time charter acquired
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
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%.
F-15
Annual Report 2015 | Capital Product Partners L.P.
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) – Continued
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 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.
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 acqui-
sition of Hyundai Platinum occurred on June 14, 2013 (vessel inception):
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
For the year ended December 31, 2013
173,699
100,031
18,805
1,609
79,617
1.04
1.01
$
$
$
$
$
$
$
d. Hercules Container Carrier S.A. (M/V Hyundai Premium)
On 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 Partnership 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 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 by $27,000 through a draw-down from the Partnership’s $350,000 credit facil-
ity (the “2008 credit facility”), 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 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 for the year ended December 31, 2013 was calculated as follows:
F-16
Capital Product Partners L.P. | Annual Report 2015
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) – Continued
Vessel
Above market acquired time charter
Identifiable assets
Purchase price
Gain from bargain purchase
As of March 20, 2013
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 avail-
able information that existed as of the acquisition date. Therefore, the Partnership recorded a gain from bargain purchase of $8,707 in
its consolidated statements of comprehensive income, in accordance with 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
Above market acquired time charter
As of March 20, 2013
$ 19,707
Duration of time charter acquired
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 of M/V Hyundai Premium 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 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
inception) 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.
•
Pro Forma Financial Information—Continued
The following table summarizes total net revenues; net income and net income per common unit of the combined entity had the acqui-
sition of Hyundai Premium occurred on March 11, 2013 (vessel inception):
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
F-17
For the year ended December 31, 2013
171,717
99,571
18,805
1,600
79,166
1.04
1.01
$
$
$
$
$
$
$
Annual Report 2015 | Capital Product Partners L.P.
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)
On 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 ves-
sel, 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 2008 credit facility,
by $36,278 representing part of the net proceeds from the issuance of Partnership’s Class B Convertible Preferred Units in March 2013
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 in-
come in the Partnership’s consolidated statements of comprehensive income for the year ended December 31, 2013 was calculated as
follows:
Vessel
Above market acquired time charter
Identifiable assets
Purchase price
Gain from bargain purchase
• Purchase price allocation—Continued
As of March 27, 2013
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 consideration of all avail-
able 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, in accordance with ASC Subtopic 805-30 “Business Combinations, Goodwill or
Gain from Bargain Purchase, Including Consideration 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:
F-18
Capital Product Partners L.P. | Annual Report 2015
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) – Continued
Intangible assets
Above market acquired time charter
As of March 27, 2013
$ 19,768
Duration of time charter acquired
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 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-19
Annual Report 2015 | Capital Product Partners L.P.
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 CMTC which is a related party unit holder. The Partnership
and its subsidiaries have also related party transactions with the Manager, arising from certain terms of the following three different
types of management agreements.
1.
2.
3.
Fixed fee management agreement: At the time of the completion of its Initial Public Offering (“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 pay-
able 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 ma-
jors’ requirements, including vetting requirements;
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 com-
pensates its Manager for expenses and liabilities incurred on the Partnership’s behalf while providing the agreed services, includ-
ing, 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 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
Crude management agreement: On September 30, 2011, the Partnership completed the acquisition of Crude Carriers Corp. and
its subsidiaries (“Crude”). Three of the five crude tanker vessels, that the Partnership acquired at the time of the completion of
the merger with Crude, 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)
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/disposed by Crude; 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 management agreement and, under certain circumstances, could receive substantial
sums in connection with such termination. As of March 2015 this termination fee had been adjusted to $9,760.
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, 2015, 2014
and 2013 such fees amounted to $489, $840 and $644, respectively. The 2013 charge includes the amount of $330 that reflects the claim
proceeds the Partnership received for the M/T Aristofanis.
F-20
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
4. Transactions with Related Parties – Continued
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 its general partner, Capital GP L.L.C. (the “CGP”)
for all expenses which are necessary or appropriate for the conduct of the Partnership’s business. The Partnership reimburses the Man-
ager 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 and administrative expenses in the consolidated statements of comprehensive income.
Balances and transactions with related parties consisted of the following:
Consolidated Balance Sheets
Assets:
Hire receivable (c)
Due from related parties
Advances for vessels under construction (f)
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
As of December 31, 2015
As of December 31, 2014
$
—
$
$
$
$
—
18,172
18,172
21,264
890
22,154
4,253
26,407
$
$
$
$
55
55
66,641
66,696
$ 16,517
980
17,497
6,020
23,517
Consolidated Statements of Income
2015
Revenues (c)
Voyage expenses
Vessel operating expenses
General and administrative expenses (d)
$
63,731
411
11,708
2,569
For the year ended December 31,
$
2014
72,870
338
13,315
2,996
$
2013
54,974
314
17,039
3,052
(a) Manager—Payments on Behalf of the Partnership: 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, 2015 and 2014 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 that were in place between the Partnership
and CMTC and its subsidiaries during 2015 and 2014.
F-21
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
4. Transactions with Related Parties – Continued
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 Alkiviadis
M/T Amore Mio II
M/T Amore Mio II
M/T Avax
M/T Akeraios
M/T Akeraios
M/T Apostolos
M/T Apostolos
M/T Anemos I
M/T Anemos I
M/T Aristotelis
M/T Aristotelis
M/T Amoureux
M/T Amoureux
M/T Aias
M/T Aias
M/T Assos
M/T Atrotos
M/T Atrotos
M/T Miltiadis M II
M/T Active
M/T Amadeus
Time
in years
Charter (TC)
1 TC
1 TC
1 TC
1 TC
1 TC
1 TC
1.2 TC
1 TC
1 TC
1 to 1.2 TC
1 TC
1.5 TC
2 TC
1.2 to 1.5 TC
2 TC
1.2 to 1.5 TC
1 TC
1.5 to 2 TC
1.1 to 1.3 TC
1+1 TC
1 TC
1+1 TC
1 TC
1 TC
1 TC
1 TC
0.6 TC
2 TC
2 TC
Commencement
of Charter
Termination or
earliest expected
redelivery
09/2013
09/2014
09/2015
06/2013
07/2014
11/2013
12/2014
07/2013
12/2013
04/2015
09/2014
07/2013
03/2015
10/2013
04/2015
12/2013
06/2015
12/2013
12/2015
10/2011
01/2014
11/2011
12/2013
06/2014
05/2014
05/2015
09/2015
04/2015
06/2015
09/2014
09/2015
08/2016
07/2014
06/2015
12/2014
01/2016
09/2014
04/2015
09/2015
06/2015
03/2015
02/2017
04/2015
01/2016
06/2015
01/2016
12/2015
01/2017
01/2014
04/2015
12/2013
02/2015
04/2015
05/2015
12/2015
03/2016
06/2015
05/2017
Gross (Net)
Daily
Hire Rate
$14.3 ($14.1)
$14.3 ($14.1)
$14.5 ($14.3)
$14.8 ($14.6)
$14.8 ($14.6)
$14.3 ($14.1)
$15.0 ($14.8)
$14.3 ($14.1)
$17.0 ($16.8)
$27.0($26.7)
$14.8 ($14.6)
$15.0 ($14.8)
$15.6 ($15.4)
$14.9 ($14.7)
$15.6 ($15.4)
$14.9 ($14.7)
$17.3 ($17.0)
$17.0 ($16.8)
$19.0 ($18.8)
$20.0+$24.0
$19.8+$23.7)
$24.0 ($23.7)
$20.0+$24.0
($19.8+$23.7)
$24.0 ($23.7)
$14.8 ($14.6)
$14.8 ($14.6)
$15.3 ($15.1)
$35.0 ($34.6)
$17.0 ($16.8)
$17.0 ($16.8)
(d) General and administrative expenses: This line item mainly includes internal audit, investor relations and consultancy fees.
(e)
Deferred Revenue: As of December 31, 2015 and 2014 the Partnership had received cash in advance for charterhire relating to
revenue earned in a subsequent period from CMTC.
(f)
Advances for vessels under construction: As of December 31, 2014 this line item includes the advances of $30,224 the Partner-
ship paid to CMTC for the acquisition of the five vessels according to the Master Agreement and the fair value of $36,417 from
the reset of the incentive distribution rights (the “IDRs”) (Notes 5, 12). As of December 31, 2015 this line item includes the re-
maining vessel’s advance of $7,921 the Partnership paid to CMTC and the fair value of $10,251 from the reset of the IDRs which
was applicable to this vessel.
F-22
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
5. Fixed assets
(a) Advances for vessels under construction – related party
An analysis of advances for vessels under construction – related party is as follows:
Balance as at January 1, 2014
Additions
Balance as at December 31, 2014
Additions
Transfer to vessels
Balance as at December 31, 2015
Advances for vessels under
construction – related party
—
$
66,641
66,641
—
(48,469)
18,172
$
$
On July 24, 2014, the Partnership entered into a Master Agreement with CMTC to acquire five vessel owning companies that owned five under
construction vessels (the “new buildings”) with attached time charters subject to the amendment of the partnership agreement to reset the target
distributions to holders of the IDRs (Note 12). As the reset of the IDRs was a pre-condition for the acquisition of the vessels, the amount of $ 36,417,
representing the difference between the fair value of $347,917 of the respective new buildings at the time of the approval of this transaction in August
2014 at the Partnership’s annual general meeting and the contractual cash consideration of $ 311,500, is considered to be the deemed equity contri-
bution and thus the fair value of the reset of the IDRs. The fair value of the IDRs reset has been accounted for in Partner’s capital and is presented as
“Excess between the fair value of the contracted vessels and the contractual cash consideration” in the consolidated statements of changes in partners’
capital and in “Advances for vessels under construction – related party” in the Partnership’s consolidated balance sheets as of December 31, 2014. The
fair value of the new buildings amounting to $ 347,917 was based on the average of three valuations obtained from three independent shipbrokers.
Two of these five vessels are 50,000 dwt product carriers and the remaining three are 9,100 TEU post-panamax container carriers. Following the suc-
cessful follow-on offering in September 2014 (Note 12), the Partnership made on September 10, 2014, an advance payment to CMTC of $30,224 in
connection with the above acquisitions, and is presented as “Advances for vessels under construction – related party” in the Partnership’s consolidated
balance sheets. According to the Master Agreement the Partnership has also the right of first refusal to acquire six additional new building product
tanker vessels with expected delivery dates in 2016. In September 2015, CMTC extended the right of first refusal to another two newbuilding product
tanker vessels, with expected delivery dates in 2017.
During 2015 the Partnership acquired from CMTC the shares of the four out of the five vessels owning companies. As a result as at December 31, 2015,
the amount of $18,172 consisted of advances totaling $7,921 that the Partnership paid to CMTC for the acquisition of the remaining vessel owning com-
pany and the fair value from the reset of the IDRs of $10,251 which was applicable to this vessel, and is presented as “Advances for vessels under construc-
tion–related party” in the Partnership’s consolidated balance sheets as of December 31, 2015. This vessel is expected to be delivered in February 2016.
(b) Vessels, net
An analysis of vessels is as follows:
Balance as at January 1, 2014
Acquisition and improvements
Depreciation for the period
Balance as at December 31, 2014
Acquisitions and improvements
Transfer from Advances for vessels
under construction – related party
Depreciation for the period
Balance as at December 31, 2015
F-23
Vessel Cost
Accumulated depreciation
$
$
$
1,396,552
183
—
1,396,735
208,523
48,469
—
1,653,727
$
$
$
(219,733)
—
(56,932)
(276,665)
—
—
(61,577)
(338,242)
Net book value
1,176,819
$
183
(56,932)
1,120,070
208,523
$
48,469
(61,577)
1,315,485
$
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
5. Fixed assets – Continued
(b) Vessels, net – Continued
All of the Partnership’s vessels as of December 31, 2015 have been provided as collateral to secure the Partnership’s credit
facilities.
On March 31, June 10, June 30 and September 18, 2015, the Partnership acquired the shares of the vessel owning companies of
the M/T Active, the M/V Akadimos (renamed to “CMA CGM Amazon”), the M/T Amadeus and M/V Adonis (renamed to “CMA
CGM Uruguay”) for a total consideration of $230,000 which was funded by loan drawdowns of $115,000 from the Partnership’s
2013 credit facility and the remaining balance of $115,000 through the Partnership’s available cash. The Partnership accounted
for the acquisition of the vessel owning companies of the M/T Active, the M/V Akadimos, M/T Amadeus and M/V Adonis as
acquisition of assets based on the absence of processes attached to the inputs. Other than the new buildings and the attached time
charters, no other inputs and no processes were acquired. The Partnership considered whether any value should be assigned to
the attached charter party agreements acquired and concluded that the contracted daily charter rates approximated market rates
on the transaction completion dates and therefore, the total consideration was allocated in total to vessel cost. Thus these vessels
were recorded in the Partnership’s financial statements at their cost of $256,166. As of December 31, 2014 the Partnership had
paid advances of $22,303 to CMTC for the acquisition of the shares of these vessel owning companies. The difference of $26,166
between the vessels’ cost of $256,166 and the total consideration of $230,000 was part of the excess of $36,417 that the Partner-
ship had recorded in its financial statements in August 2014 upon the approval of the Master Agreement and the IDRs reset at
the Partnership’s annual meeting.
During 2015, M/T Agisilaos, M/T Avax, M/T Akeraios, M/T Apostolos, M/V Archimidis and M/V Agamemnon underwent improve-
ments during their scheduled special survey respectively. The costs of these improvements for these vessels amounted to $826 and were
capitalized as part of the vessels’ cost.
During 2014, M/T Ayrton II and M/T Amore Mio II underwent improvements during their scheduled special survey, respectively. The
costs of these improvements for both vessels amounted to $183 and were capitalized as part of the vessels’ cost.
6. Above market acquired charters
For the years ended December 31, 2015, 2014 and 2013 revenues included a reduction of $14,864, $16,000 and $13,594 as amortization
of the above market acquired charters, respectively.
An analysis of above market acquired charters is as follows:
Above market
acquired charters
Carrying amount as
at January 1, 2014
Amortization
Carrying amount as
at December 31, 2014
Amortization
Carrying amount as
M/V Cape M/T
M/V
Agamemnon Assos Agamemnon Archimidis Premium Paramount Prestige
M/V
Hyundai Hyundai Hyundai Hyundai Hyundai
Platinum
Privilege
M/V
M/V
M/V
M/V
M/V
Total
$ 34,814
(5,357)
$ 612
(612)
$ 1,363
(863)
$ 1,432
(796)
$ 18,396
(1,668)
$ 18,528
(1,670)
$ 18,575
(1,693)
$ 18,816
(1,672)
$ 18,846
(1,669)
$ 131,382
(16,000)
$ 29,457
(5,357)
$ —
—
$ 500
(500)
$ 636
(636)
$ 16,728
(1,668)
$ 16,858
(1,669)
$ 16,882
(1,692)
$ 17,144
(1,673)
$ 17,177
(1,669)
$ 115,382
(14,864)
at December 31, 2015
$ 24,100
$ —
$ —
$ —
$ 15,060
$ 15,189
$ 15,190
$ 15,471
$ 15,508
$ 100,518
F-24
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
6. Above market acquired charters – Continued
As of December 31, 2015 the remaining carrying amount of unamortized above market acquired time charters was $100,518 and will
be amortized in future years as follows:
M/V
For the twelve month
Cape
period ended
Agamemnon
December 31,
5,372
$
2016
5,357
2017
5,357
2018
5,357
2019
2,657
2020
Thereafter
—
24,100
Total
M/V
Hyundai
Paramount
1,670
$
1,670
1,670
1,670
1,670
6,839
15,189
M/V
Hyundai
Premium
$ 1,668
1,668
1,668
1,668
1,668
6,720
$ 15,060
M/V
Hyundai
Platinum
$ 1,674
1,669
1,669
1,669
1,674
7,153
$ 15,508
M/V
Hyundai
Privilege
$ 1,676
1,672
1,672
1,672
1,676
7,103
$ 15,471
M/V
Hyundai
Prestige
$ 1,697
1,693
1,693
1,693
1,697
6,717
$ 15,190
Total
$ 13,757
13,729
13,729
13,729
11,042
34,532
$ 100,518
$
$
7. Long-Term Debt
Long-term debt consists of the following:
(i)
(ii)
(iii)
(iv)
Bank Loans
Issued in April, 2007 maturing in December, 2019 - $370,000
credit facility (the “2007 credit facility”)
Issued in March, 2008 maturing in December, 2019 - 2008
credit facility
Issued in June 2011 maturing in March 2018 - $25,000
credit facility (the “2011 credit facility”)
Issued in September 2013 maturing in December 2020 - 2013
credit facility
Total long-term debt
Less: Deferred loan issuance costs
Total long-term debt, net
Less: Current portion of long-term debt
Add: Current portion of deferred loan issuance costs
Long-term debt, net
As of
December 31,
2015
As of
December 31,
2014
Margin
$
$
$
$
$
$
$
185,975
$
250,850
3.00 %
181,641
$
233,065
3.00 %
14,000
190,000
571,616
3,806
567,810
12,957
1,035
555,888
$
$
$
$
$
19,000
3.25 %
3.50 %
75,000
577,915
3,242
574,673
5,400
821
570,094
In April 2015, the Partnership entered into three amendments to its 2007, 2008 and 2011 credit facilities providing for:
•
the prepayments made on April 30, 2015, and funded by the proceeds of the April 2015 offering of common units (Note 12),
of the scheduled four quarterly amortization payments in 2016 and the first quarter of 2017 in the respective aggregate amounts of
$64,875, $46,024 and $5,000;
•
the deferral, following the prepayments, of any further scheduled amortization payments until November 2017 for the 2007 and
2008 credit facilities and until December 2017 for the 2011 credit facility;
F-25
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
7. Long-Term Debt – Continued
•
an extension of the final maturity date to December 31, 2019 for the 2007 and 2008 credit facilities; and
•
an increase of the interest rate under the 2007 credit facility to 3.0% over LIBOR from 2.0% over LIBOR.
All other terms in our existing credit facilities remained unchanged.
During 2015, the Partnership had drawn down the amount of $115,000 from the Tranche B of the 2013 credit facility in order
to partly finance the acquisition of the shares of the vessel owning companies of the M/T Active, the M/V Akadimos (renamed
to “CMA CGM Amazon”), the M/T Amadeus and M/V Adonis (renamed to “CMA CGM Uruguay”), respectively (Note 5). As
of December 31, 2015 the Partnership had undrawn long term borrowings of $35,000 under the tranche B of its 2013 credit
facility.
The Partnership’s credit facilities contain customary ship finance covenants, including restrictions as to: changes in manage-
ment and ownership 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. As of December 31, 2015 and
2014, restricted cash amounted to $17,000 and $15,000, respectively and is presented under other non-current assets. 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, 2015 and 2014 the Partnership was in compli-
ance with all financial debt 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
thirty four vessel-owning companies, and mortgage interest insurance.
For the years ended December 31, 2015, 2014 and 2013, the Partnership recorded interest expense of $17,856, $16,480 and
$14,982, which is included in “Interest expense and finance cost” in the consolidated statements of comprehensive income,
respectively. As of December 31, 2015 and 2014 the weighted average interest rate of the Partnership’s loan facilities was 3.65%
and 2.81% respectively.
The required annual loan payments to be made subsequent to December 31, 2015 are as follows:
2016
2017
2018
2019
2020
Total
2007 Credit
Facility (i)
—
$
12,975
51,900
121,100
—
$ 185,975
2008 Credit
Facility (ii)
—
$
9,205
36,819
135,617
—
$ 181,641
2011 Credit
Facility (iii)
—
$
1,000
13,000
—
—
14,000
$
2013 Credit
Facility (iv)
12,957
$
12,957
12,957
12,957
138,172
$ 190,000
Total
$
12,957
36,137
114,676
269,674
138,172
$ 571,616
According to the retrospectively adoption of ASU 2015-03 (Note 2s) the fees paid to lenders for obtaining new loans or refinancing
existing loans are presented in the balance sheet as a direct deduction from the carrying amount of that debt and amortized as “Interest
expense and finance cost” over the term of the respective loan using the effective interest rate method.
F-26
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
8. Financial Instruments
The Partnership had entered into fourteen interest rate swap agreements in order to mitigate the exposure from interest rate fluctua-
tions. During the year ended December 31, 2013, the Partnership’s remaining interest rate swap agreements expired. During the years
ended December 31, 2015 and 2014, the Partnership did not enter into any interest rate swap agreement.
The table below shows the effective portion of the hedging relationship of the Partnership’s derivatives designated as hedging instru-
ments recognized in Other Comprehensive Income (“OCI”), the realized losses from net interest rate settlements transferred from OCI
into the Partnership’s consolidated statements of comprehensive income and the amounts recognized in the consolidated statements
of comprehensive income arising from the hedging relationships not qualifying for hedge accounting for the year ended December 31,
2013, as for the years ended December 31, 2015 and 2014 there were no such transactions:
Derivatives
designated in
cash flow
hedging
relationships Change in Fair Value
recognized
in OCI
(Effective
Portion)
Interest
rate swaps
of Hedging
instrument
recognized in OCI
(Effective Portion)
2015 2014 2013
— —
(4)
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)
2015 2014 2013
2015 2014 2013
Location of
Gain/(loss)
Recognized in
the consolidated
statements of
comprehensive
/income
(ineffective
portion)
Amount of
Gain/(Loss)
recognized in the
consolidated
statements
of comprehensive /
income
2015 2014 2013
Interest expense
and finance cost
— —
(466)
— —
462
— —
4
The Partnership follows the accounting guidance for financial instruments that establishes a framework for measuring fair value under
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 a 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 carrying value of cash and cash equivalents and restricted cash, which are considered Level 1 items as they represent liquid
assets with short-term maturities, trade receivables, due from related parties, due to related parties, trade accounts payable and ac-
crued liabilities approximates their fair value. The fair values of long-term variable rate bank loans approximate the recorded values,
due to their variable interest being the LIBOR 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, 2015. LIBOR rates are observable at commonly quoted intervals for the full terms
of the loans and hence bank loans are considered Level 2 items in accordance with the fair value hierarchy. When the Partnership
enters into interest swaps agreements the respective interest rate swaps are recorded at fair value on the consolidated balance sheet.
The fair value of the Partnership’s interest rate swaps was 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.
F-27
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
10. Voyage Expenses and Vessel Operating Expenses
Voyage expenses and vessel operating expenses consist of the following:
Annual Report 2015 | Capital Product Partners L.P.
2015
$ 1,226
4,520
1,188
938
$ 7,872
As of December 31,
2014
$ 189
2,696
2,159
592
$ 5,636
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 (Note 4)
Vetting, insurances, spares and repairs (Note 4)
Other operating expenses
Total
11. Income Taxes
For the years ended December 31,
2014
2013
2015
$ 4,421
1,753
259
457
$ 6,890
$ 31,788
5,004
11,521
7,790
11,219
489
2,522
$ 70,333
$ 3,597
1,802
166
680
$ 6,245
$ 28,945
4,502
6,710
6,535
12,475
840
2,022
$ 62,029
2,742
2,473
226
649
6,090
21,154
3,780
6,545
5,022
16,395
644
1,783
55,323
Under the laws of the Marshall Islands and Liberia, 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 accompa-
nying consolidated statements of comprehensive income.
F-28
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
11. Income Taxes – Continued
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 vessel-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, 2015, 2014 and 2013 and the ship-owning subsidiaries are exempt
from United States federal income taxation with respect to U.S.-source shipping income.
12. Partners’ Capital
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.
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 antici-
pated 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 agree-
ments and in all cases are used solely for working capital purposes or to pay distributions to partners.
General Partner Interest and Incentive Distribution Rights (“IDRs”): The general partner has a 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, 2015, 2014 and 2013 holds the incentive distribution rights.
According to the partnership agreement 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 Distributions” are the percentage interests of the unitholders and general partner
in any available cash from operating surplus that is being distributed up to and including the corresponding amount in the
column “Total Quarterly Distribution Target Amount,” until available cash from operating surplus the Partnership distributes
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.
F-29
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
12. Partners’ Capital
Minimum Quarterly Distribution
First Target Distribution
Second Target Distribution
Third Target Distribution
Thereafter
Marginal Percentage
Interest
in Distributions
Total Quarterly Distribution
Target Amount per Unit
$0.3750
up to $0.4313
above $0.4313 up to $0.4688
above $0.4688 up to $0.5625
above $0.5625
Unitholders
98 %
98 %
85 %
75 %
50 %
General
Partner
2 %
2 %
15 %
25 %
50 %
General Partner Interest and Incentive Distribution Rights (“IDRs”) – Continued
On August 21, 2014, the Fourth Amendment to the Second Amended and Restated Agreement of Limited Partnership of the Partner-
ship was approved, by the Partnership’s annual general meeting, so as to revise the target distributions to holders of IDRs.
The Fourth Amendment resets the thresholds for the IDRs as follows:
Minimum Quarterly Distribution
First Target Distribution
Second Target Distribution
Third Target Distribution
Thereafter
Marginal Percentage
Interest
in Distributions
Total Quarterly Distribution
Target Amount per Unit
$0.2325
up to $0.2425
above $0.2425 up to $0.2675
above $0.2675 up to $0.2925
above $0.2925
Unitholders
98 %
98 %
85 %
75 %
65 %
General
Partner
2 %
2 %
15 %
25 %
35 %
Following the annual general meeting, CMTC unilaterally notified the Partnership that it has decided to waive its rights to receive
quarterly incentive distributions between $0.2425 and $0.25. This waiver effectively increases the First Threshold and the lower band of
the Second Threshold (as referenced in the table above) from $0.2425 to $0.25.
Distributions of Available Cash From Operating Surplus: Our partnership agreement requires that we will make distributions of avail-
able 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.
During 2012 and 2013 the Partnership issued in total 24,655,554 Class B Convertible Preferred Units to a group of investors
including CMTC according to two separate Class B Convertible Preferred Unit Subscription Agreements (“the Agreements”)
that the Partnership had entered with this group of investors in 2012 and 2013. The holders 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 in the Agreements.
F-30
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
12. Partners’ Capital – Continued
Commencing on May 23, 2015, in the event the 30-day volume-weighted average trading price (“VWAP”) and the daily VWAP
of the Common 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 (following 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 re-
ceive, 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 the Agreements
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.
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 Partner-
ship, including any agreement relating 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 pay-
able 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 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 Con-
vertible 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 en-
titled 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 payment 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 Agreements 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 these Agreements.
During 2015, 2014 and 2013 various holders of Class B Convertible Preferred Units including CMTC converted 1,240,404,
4,698,484 and 5,733,333 Class B Convertible Preferred Units into common units respectively. As a result in the Partnership’s
Consolidated Statements of Changes in Partners’ Capital the Partnership’s Limited Partners-Preferred decreased by $10,642,
$40,287 and $50,318 and Partnership’s Limited Partners-Common increased by $10,642, $40,287 and $50,318, respectively for
the years ended December 31, 2015, 2014, and 2013. The convertion rate was one common unit per one class B convertible
preferred unit.
F-31
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
12. Partners’ Capital – Continued
During 2015, 2014 and 2013 CMTC converted 315,908, 358,624 and 349,700 common units into general partner units respec-
tively, in order for CGP to maintain its 2% interest in the Partnership. As a result in the Partnership’s Consolidated Statements of
Changes in Partners’ Capital the Partnership’s Limited Partners-Common decreased by $2,742, $3,696 and $3,060 and General
Partner increased by $2,742, $3,696 and $3,060, respectively for the years ended December 31, 2015, 2014 and 2013.
In December 2015, the Partnership issued 850,000 common units under its Omnibus Incentive Compensation Plan (Note 13).
In April 2015, the Partnership completed successfully a follow-on equity offering of 14,555,000 common units, including 1,100,000
common units sold to CMTC and 1,755,000 common units representing the overallotment option at a net price of $9.53 per common
unit, receiving proceeds of $133,327 after the deduction of the underwriters’ commissions. After the deduction of expenses relating to
this equity offering, the net proceeds amounted to $132,588.
In December 2014 CMTC acquired 332,040 Partnership’s common units.
In September 2014, the Partnership completed successfully a follow-on equity offering of 17,250,000 common units, includ-
ing 2,250,000 common units representing the overallotment option which was fully exercised, at a net price of $10.53 per
common unit, receiving proceeds of $173,932 after the deduction of the underwriters’ commissions. After the deduction of
expenses relating to this equity offering the net proceeds of this offering amounted to $173,504. The Partnership used an
amount of $60,000 of the net proceeds to acquire common units from CMTC at a price per unit equal to the offering price (net
of underwriting discount). The number of units acquired was equal to an aggregate of 5,950,610 common units which were
cancelled immediately, in accordance with the terms of the offering. Furthermore, the Partnership used an additional amount
of $30,224 of the net proceeds of the offering as an advance payment to CMTC in connection with the acquisition of the five
new buildings as described in the Master Agreement (Note 5). The remaining balance of the net proceeds of the offering was
used by the Partnership to partly finance the acquisition cost of $311,500, of the new buildings from CMTC and for general
Partnership purposes.
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 this offering amounted to $119,811.
As of December 31, 2015 and 2014 our partners’ capital included the following units:
Common units
General partner units
Preferred units
Total partnership units
As of December 31, 2015
120,409,456
2,439,989
12,983,333
135,832,778
As of December 31, 2014
104,079,960
2,124,081
14,223,737
120,427,778
F-32
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
13. Omnibus Incentive Compensation Plan
a. Partnership’s Omnibus Incentive Compensation Plan
On April 29, 2008, the board of directors approved the Partnership’s Plan according to which the Partnership may issue a limited num-
ber 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 which was then increased to 1,650,000 common units on August 21, 2014, at the annual general
meeting of the Partnership’s unit holders. 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, administrative and professional
employees of the Manager, or CMTC, or other eligible persons (collectively, “key persons”) as the general partner, in its sole discre-
tion, shall select based upon such factors as it deems relevant. Members of the board of directors and officers of the general partner 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 December 23, 2015 the Partnership awarded 240,000 and 610,000 unvested units to Employees and Non-Employees, respectively.
Awards granted to certain Employees and Non Employees will vest in three equal annual installments. The remaining awards will vest
on December 31, 2018. As of December 31, 2015 the unvested units did not accrue any distributions.
All unvested units are 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 are retained by the custodian of the Plan until the vesting date
at which they were payable to the grantee. As unvested unit grantees accrued distributions on awards that are expected to vest, such
distributions are 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 em-
ployees of Crude’s affiliates and other eligible persons under this plan were not considered to be employees of Crude (“Non-Employ-
ees”). Awards granted to certain Employees vest in three equal annual installments. The remaining awards vested on August 31, 2013.
The following table contains details of our plan:
Employee equity compensation
Unvested Units
Unvested on January 1, 2015
Granted
Unvested on December 31, 2015
Units
—
240,000
240,000
Grant-date fair
value
$
$
—
1,325
1,325
Non-Employee equity compensation
Award-date fair
value
Units
—
610,000
610,000
$
$
—
3,367
3,367
For the year ended December 31, 2015, 2014, and 2013 the equity compensation expense that has been charged in the consolidated
statements of comprehensive income was $10, $0 and $1,216 for the Employee awards and $24, $0 and $2,312 for the Non-Employee
awards, respectively. This expense has been included in general and administrative expenses in the consolidated statements of compre-
hensive income for each respective year.
As of December 31, 2015 the total compensation cost related to non vested awards is $4,658 and is expected to be recognized over a
weighted average period of three years. The Partnership uses the straight-line method to recognize the cost of the awards.
F-33
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
14. Net Income Per Unit
The general partner’s and common unit holders’ 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 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 12), which is a contractually-defined term that generally means all cash on hand at
the end of each quarter after establishment of cash reserves determined 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 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 con-
sidered 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 incentive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for
each reporting period.
Under the partnership agreement, the holder of the incentive distribution rights in the Partnership, which is currently CGP, as-
suming that there are no cumulative arrearages on common unit distributions, has the right to receive an increasing percentage
of cash distributions (Note 12). The Partnership excluded the dilutive effect of the 12,983,333 and 14,223,737 Class B Convert-
ible Preferred Units in calculating dilutive EPU as of December 31, 2015 and 2014, respectively as they were anti-dilutive. As of
December 31, 2013 no Class B Convertible Preferred Units were excluded as they were dilutive.
As of December 31, 2015, the Partnership excluded the dilutive effect of 850,000 non-vested unit awards in calculating dilutive
EPU for its common unitholders as they were anti-dilutive. As of December 31, 2014 and 2013 there were no non-vested units.
The non-vested units are participating securities because they received distributions from the Partnership and these distribu-
tions do not have to be returned to the Partnership if the non-vested units are forfeited by the grantee.
Excluding the non-cash gain from bargain purchase for the year ended December 31, 2013, as it was not distributed to the Part-
nership’s unit holders, the Partnership’s net income for the years ended December 31, 2015, 2014 and 2013 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 calculate CGP’s interest in net income.
The two class method used to calculate EPU is as follows:
BASIC
Numerators
Partnership’s net income
Less:
Preferred unit holders’ interest in Partnership’s net income
General Partner’s interest in Partnership’s net income
Partnership’s net income allocable to unvested units
Common unit holders’ interest in Partnership’s net income
Denominators
Weighted average number of common units outstanding, basic
Net income per common unit:
Basic
2015
55,410
$
11,334
879
8
43,189
$
2014
$
44,012
$
14,042
593
—
29,377
$
$
2013
99,481
18,805
1,598
678
78,400
115,030,879
93,353,168
75,645,207
$
0.38
$
0.31
$
1.04
F-34
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
14. Net Income Per Unit – Continued
DILUTED
Numerators
Partnership’s net income
Less:
Preferred unit holders’ interest in Partnership’s net income
General Partner’s interest in Partnership’s net income
Partnership’s net income allocable to unvested units
Add:
Preferred unit holders’ interest in Partnership’s net income
Partnership’s net income allocable to unvested units
Denominators
Weighted average number of common units outstanding, basic
Dilutive effect of preferred units
Dilutive effect of unvested shares
Weighted average number of common units outstanding, diluted
Net income per common unit:
Diluted
15. Gain on sale of claim
2015
55,410
$
2014
2013
$
44,012
$
99,481
11,334
879
8
—
—
43,189
$
115,030,879
—
—
115,030,879
14,042
593
—
—
—
29,377
$
18,805
1,574
678
18,805
678
97,907
$
93,353,168
—
—
93,353,168
75,645,207
21,069,664
654,265
97,369,136
$
0.38
$
0.31
$
1.01
On November 14, 2012, Overseas Shipholding Group Inc (“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 Chemical/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, including, 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 Agree-
ments, 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 subsidiaries’ claims against each charterer party to the original three charter agreements and each
respective guarantor thereof.
F-35
Annual Report 2015 | Capital Product Partners L.P.
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
15. Gain on sale of claim – Continued
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 would be
$644 which was presented under “Accrued liabilities” in the Partnership’s consolidated Balance Sheets.
Consequently, the Partnership had 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. On February 19, 2014 the Partnership paid the amount of $644 to
Deutsche Bank.
16. Commitments and Contingencies
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the or-
dinary 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 consoli-
dated 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
conditions 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.
(a) Vessels Purchase Commitment
Pursuant to the Master Agreement, the Partnership has outstanding purchase commitment relating to the acquisition of the last out of
the five new buildings of $73,579 that is payable in February 2016.
(b)
Lease Commitments: 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, 2015 were:
Year ended December 31,
2016
2017
2018
2019
2020
Thereafter
Total
Amount
213,385
165,329
123,761
97,619
75,599
221,123
896,816
$
$
F-36
Capital Product Partners L.P. | Annual Report 2015
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
17. Subsequent Events
(a)
Dividends: On January 20, 2016, the board of directors of the Partnership declared a cash distribution of $0.2385 per common
unit for the fourth quarter of 2015. The fourth quarter common unit cash distribution was paid on February 12, 2016, to unit
holders of record on February 5, 2016.
(b)
Dividends: On January 20, 2016, the board of directors of the Partnership declared a cash distribution of $0.21975 per Class B
unit for the fourth quarter of 2015. The cash distribution was paid on February 10, 2016, to Class B unit holders of record on
February 3, 2016.
F-37
C ORPOR ATE INFORMATION
EXECUTIVE OFFICERS & DIRECTORS
Ioannis E. Lazaridis
Chairman of the Board and Director
Jerry Kalogiratos
CEO/CFO and Director
Evangelos G. Bairactaris
Director and Secretary
Abel Rasterhoff*
Director
Keith Forman*
Director
Pierre de Demandolx Dedons*
Director
Dimitris P. Christacopoulos*
Director
Nikolaos Syntychakis
Director
* Member Audit & Conflict Committees
TAX INFORMATION FOR U.S. INVESTORS
• Capital Product Partners is a publicly traded partnership that has
elected to be taxed as a C-Corporation 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 reg-
istered 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 nec-
essary to be included in tax returns.
STOCK EXCHANGE LISTING
Listed: NASDAQ Global Market
Symbol: CPLP
Limited Partnership Common Units: 120,409,456
Class B Convertible Preferred Units: 12,983,333
(As of March 31, 2016)
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
Email: cplp@capitallink.comt
FORwARD-LOOKING STATEMENTS
The statements in this document that are not historical facts, including, among other things, cash generation, our ability to re-
pay external debt, future earnings, our expectations regarding employment of our vessels, redelivery dates and charter rates, fleet
growth, as well as market and charter rate expectations, charterers’ performance, and our expectations or objectives regarding fu-
ture distribution amounts, our ability to pursue growth opportunities and grow our distributions, are forward-looking statements
(as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended). These forward-looking statements
involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated.
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.
We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or state-
ment about the performance of our units.
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