3 Iassonos St., Piraeus 18537, Greece
Tel: +30 210 458 4950
Fax: +30 210 428 4285
info@capitalpplp.com
www. capitalpplp.com
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7
ANNUAL REPORT
2017
CORPORATE INFORMATION
EXECUTIVE OFFICERS & DIRECTORS
Keith Forman*
Chairman of the Board and Director
Jerry Kalogiratos
Chief Executive Officer and Director
Nikolaos Kalapotharakos
Chief Financial Officer
Gerasimos Ventouris
Chief Operating Officer
Dimitris P. Christacopoulos*
Director
Gurpal Grewal
Director
Rory Hussey*
Director
Abel Rasterhoff*
Director
Eleni Tsoukala
Director
* Member Audit & Conflict Committees
STOCK EXCHANGE LISTING
Listed: NASDAQ Global Select Market
Symbol: CPLP
Limited Partnership Common Units: 127,246,692
Class B Convertible Preferred Units: 12,983,333
(As of July 5, 2018)
TRANSFER AGENT
Computershare
480 Washington Boulevard
Jersey City, New Jersey 07310-1900, USA
INDEPENDENT AUDITORS
Deloitte Certified Public Accountants S.A.
Fragkokklisias 3A, Marousi 151 25, 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.com
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 return of capital to the extent of a U.S. unitholder’s
tax basis in its common units on a dollar-for-dollar basis, and thereafter as capital gain.
• Capital Product Partners intends to provide, annually, to each registered U.S. unitholder of
record, a Form 1099 that will indicate the amount of the unitholder’s annual distributions
that are treated as dividends for U.S. federal tax purposes and other information necessary
to be included in tax returns.
NOTE REGARDING FORWARD LOOKING STATEMENTS: This Annual Report contains forward-looking statements (as defined in Section 21E of the
Securities Exchange Act of 1934, as amended) which reflect management’s current assumptions and expectations with respect to expected future
events and performance. All statements, other than statements of historical facts, including, among others, statements regarding: our expected
cash flows and annual growth, the expected redelivery of our charters, our expected charter coverage ratio for 2018 and 2019, employment of our
vessels and future dealings with oil majors; as well as statements regarding market and industry trends including future refining capacity and ton
mile development and our expectations and objective regarding distributions (including quarterly guidance and distribution growth objectives) and
the Partnership’s ability to pursue growth opportunities, are forward-looking statements. Such statements are subject to a number of assump-
tions, risks and uncertainties, many of which are beyond our control, and undue reliance should not be placed upon them. Many factors could
cause forecasted and actual results to differ materially from those anticipated or implied in these forward-looking statements. Stated competitive
positions are based on management estimates supported by information provided by specialized external agencies. For a more comprehensive
discussion of the risk factors affecting our business please see our Annual Report on Form 20-F for the year ended December 31, 2017, filed
with the U.S. Securities and Exchange Commission, a copy of which can also be found on our website www.capitalpplp.com. Unless required by
law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new
information, a change in our views or expectations, to conform them to actual results or otherwise. Neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance
of our common units or our Class B Convertible Preferred Units.
M/T AGISILAOS
CAPITAL PRODUCT PARTNERS L.P.
Capital Product Partners L.P. (Nasdaq: CPLP) is an international, diversified shipping company and
leader in the seaborne transportation of a wide range of cargoes, including 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 potential 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
reputable diversified shipping company.
M/T AGISILAOS
“
WE BELIEVE THAT
THE REFINANCING
OF OUR DEBT
CONCLUDED IN
2017 REPRESENTS
AN IMPORTANT
MILESTONE FOR
THE PARTNERSHIP”
Dear Unitholders,
Having just completed our 10th year in the public markets we are pleased to present another profit-
able year for the Partnership, despite the challenging market environment throughout 2017. We are
also pleased to have completed a major milestone for the Partnership with the refinancing of sub-
stantially all of the Partnership’s indebtedness at the beginning of the fourth quarter 2017, providing
to our unitholders enhanced visibility on our financial position and significantly reducing our indebted-
ness. Importantly, with the refinancing transaction behind us, we turned our focus towards growing
our fleet with the acquisition of an eco-type crude tanker, the M/T ‘Aristaios’, and the replacement of
M/T ‘Aristotelis’ with a younger, eco MR product tanker, the M/T ‘Anikitos’. Both acquisitions came
with long term employment in place.
Debt Refinancing
During 2017, we entered into a new senior secured $460.0 million credit facility that we used, together
with available cash, to refinance substantially all of the Partnership’s indebtedness during the fourth
quarter 2017.
As I previously stated, there are a number of benefits to the completed refinancing. First, the refi-
nancing provides our unitholders with enhanced visibility on our financial position and the maturity
profile of our indebtedness, as our new credit facility does not mature until the fourth quarter of 2023.
Second, the refinancing has significantly reduced our indebtedness, with our debt to capitalization ratio
amounting to 28.0% as of December 31, 2017 compared to 31.3% at the end of 2016. Additionally, we
believe that the structure of our new facility mitigates refinancing risk in the future, as the projected net
book value of the collateralized vessels is expected to exceed by almost six times the bullet payment
upon maturity of our new facility, assuming depreciation and amortization in line with our accounting
policies and no write-offs through 2023.
2
M/T ANIKITOS
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 M/V AGAMEMNON
M/T ATROTOS
M/V CAPE AGAMEMNON
Fleet Growth
Shortly after completing our refinancing, we acquired the eco-type crude tanker ‘Aristaios’ for a total consid-
eration of $52.5 million from our sponsor, Capital Maritime. The ‘Aristaios’ came with a long term time charter
to Andeavor (formerly Tesoro). Moreover, towards the end of the fourth quarter, we took advantage of an
opportunity in the second-hand market to sell the 2013 product tanker M/T ‘Aristotelis’ to an unaffiliated third
party and replaced her with a younger, second generation eco MR product tanker, the M/T ‘Anikitos’. We be-
lieve that this was an excellent trade for the Partnership as we replaced the sold vessel with a younger, more
sophisticated product tanker with long-term employment in place with a net cash outflow approx. $2 million.
Together with the acquisition of the M/T ‘Aristaios’, this trade further contributed towards our long
term goal of renewing our fleet. Going forward, we continue to have access to a range of acquisition
opportunities from Capital Maritime and we aim, subject to market conditions and the availability of
financing, to take advantage of these opportunities with the objective of further increasing the long-
term distributable cash flow of the Partnership and our common unit distributions.
Charter Coverage
The Partnership’s charter coverage for the remainder of 2018 and 2019 stands at 68% and 48%, respec-
tively, with an average remaining charter duration of 4.8 years. We have eight product tankers and
four Suezmaxes that we will need to re-charter until year-end. The crude market rates remain very
vulnerable as a result of the oil production cut agreement between OPEC and non-OPEC oil producers
and a high number of new building vessels entering the market, which has resulted in low liquidity
in the period market. At the same time, the product tanker period market has been more robust but
fundamentals have been challenging since the beginning of 2018.
Product & Crude Tanker Markets
MR product tanker spot freight rates remained at historically low levels in 2017 on the back of unfa-
vorable supply and demand dynamics that prevailed for the most part of the year. On the supply side,
tonnage availability was at high levels, as the product tanker fleet recorded growth of 4.2% in 2017,
3
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 M/T AXIOS
M/T ALEXANDROS II
M/T ALKIVIADIS
M/V ARCHIMIDIS
4
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 adding to the 6.2% growth seen in 2016. Demand on the other hand was supported by strong U.S.
product exports, which reached new record levels during the year, and also increased intra-Asia trade.
Nevertheless, these positive developments were partly offset by high oil product stocks and products
inventories destocking and lack of arbitrage opportunities. At the same time, the orderbook for MR
product tankers as a percentage of the fleet has decreased to historical low levels, while the product
tanker dwt supply growth is projected to slow to 1.4% in 2018, effectively the lowest rate since 2000.
Adding to the positive outlook, refinery capacity East of Suez is expected to continue to grow in 2018,
while oil product inventories have been decreasing and have presently retreated below the five-year
average in OECD countries, which could potentially have a positive effect on long term demand for
product tankers.
The Suezmax crude tanker market was particularly weak in 2017, as spot rates for the segment de-
clined to historically low levels. Accordingly, the time charter market for Suezmaxes was highly illiq-
uid and period rates remained at low levels during the year. The weakness in the market was mainly
attributed to the record Suezmax newbuilding deliveries and the high deliveries in the wider crude
tanker segment over the course of the year. Concurrently, the oil production cut agreement between
OPEC and non-OPEC oil producers that came into effect in 2017 and crude inventories drawdowns
negatively affected demand for Suezmax tonnage. The pressure on rates was partly offset by Chinese
crude oil imports which maintained a positive momentum. Furthermore, the market was supported
by increasing long-haul exports from the Atlantic basin, and particularly the U.S. amid growing crude
oil production. Looking ahead, the market is expected to remain under pressure in the short term, as
it has already been evidenced in the first half of 2018. However, strong Chinese crude imports, firm
world oil demand growth of 1.4%, inventories normalization, longer trading distances and supply ra-
tionalization are expected to gradually lead to a sustainable market recovery.
Finally, it is worth highlighting that 11.1 million dwt of tankers were scrapped in 2017, compared with
the 2.5 million dwt demolished in 2016. This positive trend has accelerated sharply in the first half of
2018, with total tanker demolition amounting to 14.4 million dwt including 13 Suezmax vessels. This
represents the highest demolition level on record for this period of time.
Neo-Panamax Container Market
The container charter market experienced a significant improvement in 2017, with rates in most sec-
tors recording strong gains over the year, bolstered by firm demand growth. It is estimated that global
box trade grew by 5.4% in 2017, driven in part by firm expansion on Transpacific, North-South and
intra-Asian trades. The idle container fleet dropped to approximately 2% as a percentage of the fleet,
compared to 7% at the end of 2016. In 2018, growth is expected to remain robust, at 4.8%, against a
backdrop of improving global economic conditions, but without taking into account a protracted trade
war. While mainlane trade growth may ease slightly, growth on non-mainlane routes is expected to
remain firm, supported in part by positive economic conditions in the Indian Sub-Continent and Latin
America. On the supply side, containership deliveries are projected to continue at a relatively moder-
ate rate in 2018, with the orderbook having declined to 12.2% presently, the lowest on record.
Concluding this Letter
While we continue to face challenging tanker markets, which affect a large part of our fleet, we believe
that the refinancing of our debt concluded in 2017 represents an important milestone for the Partner-
ship and positions us well to seek ways to restore equity value for the Partnership going forward.
Jerry Kalogiratos
Chief Executive Officer,
Date: July 5, 2018
M/T ACTIVE
M/T AIAS
M/T AMOR
5
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
STRONG CHARTER COVERAGE
CHARTER PROFILE
VESSEL TYPE
VESSEL NAME
EXPIRY OF CURRENT CHARTERS
GROSS RATE
Jul-18
Jul-19
Jul-20
Jul-21
Crude tanker
Product tanker
Crude tanker
Product tanker
Crude tanker
Product tanker
Product tanker
Product tanker
Product tanker
Product tanker
Product tanker
Product tanker
Crude tanker
Product tanker
Product tanker
Product tanker
Product tanker
Product tanker
Product tanker
Containership
Product tanker
Containership
Containership
Product tanker
Product tanker
Product tanker
Product tanker
Dry Bulk
Containership
Product tanker
Containership
Crude tanker
Containership
Containership
Containership
Containership
Containership
Amore Mio II
Amor
Amoureux
Assos
Aias
Avax
Axios
Arionas
Alkiviadis
Aiolos
Atlantas II
Active
Miltiadis M II
Atrotos
Aktoras
Agisilaos
Apostolos
Anemos I
Akeraios
Agamemnon
Amadeus
Archimidis
CMA CGM Amazon
Alexandros II
Ayrton II
Aristotelis II
Anikitos
Cape Agamemnon
CMA CGM Uruguay
Aris II
CMC CGM Magdalena
Aristaios
Hyundai Prestige
Hyundai Premium
Hyundai Paramount
Hyundai Privilege
Hyundai Platinum
Spot
Spot
Spot
Spot
Spot
$15,400
$15,400
$10,750
$12,750
$11,000 +50/50 PS
$11,000 +50/50 PS
$15,5501
$18,000 +50/50 PS above $22,000
$17,750
$13,500
$19,000
$17,750
$17,750
$17,750
$20,000
$14,500/$14,750
$18,000
$39,250
$14,700
$14,700
$14,700
$15,300
$42,200
$39,250
$14,7003
$39,250
$26,400
$29,3502
$29,3502
$29,3502
$29,3502
$29,3502
Revenue Weighted Average Remaining Charter Duration: 4.8 Years
1 M/T ‘Active’ fixed for 50-90 days at $15,550pd or 6+6 months at $15,000 / $16,000pd. Option to be declarable by charterer in July 2018. 2 $23,480pd be-
tween July 18, 2016 to December 31, 2019. 3 $6,600pd through mid July under a Bareboat charter.
6
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 MODERN HIGH-SPECIFICATION FLEET
FLEET PROFILE
FLEET AGE
10.9 Years1
8.5 Years
10
1
4
1
21
•SUEZMAX TANKERS •MR TANKERS
•AFRAMAX TANKERS •BULKERS •CONTAINERS
DIVERSIFIED CUSTOMER BASE
CPLP
INDUSTRY
37 Vessels - 2.8mm DWT (~70k TEUs)
8.5 Years Weighted Average Fleet Age
1Industry average age data from Clarksons as of June 2018 weighted by dwt for the composition of the CPLP fleet.
7
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 FLEET IN PROGRESS (DWT)
•PRODUCT TANKER •CRUDE TANKER
•CAPESIZE BULK CARRIER •CONTAINER VESSEL
Quarter, year
DWT
Number of vessels
CMA CGM Magdalena
CMA CGM Magdalena
CMA CGM Uruguay
CMA CGM Magdalena
CMA CGM Uruguay
CMA CGM Amazon
CMA CGM Uruguay
CMA CGM Amazon
Agamemnon
CMA CGM Amazon
Agamemnon
Archimidis
Agamemnon
Archimidis
Hyundai Platinum
Archimidis
Hyundai Platinum
Hyundai Privilege
Agamemnon
Hyundai Platinum
Hyundai Privilege
Hyundai Prestige
Archimidis
Hyundai Privilege
Hyundai Prestige
Hyundai Paramount
Hyundai Platinum
Hyundai Prestige
Hyundai Paramount
Hyundai Premium
Hyundai Privilege
Hyundai Paramount
Hyundai Premium
Cape Agamemnon
Cape Agamemnon
Hyundai Prestige
Hyundai Premium
Cape Agamemnon
Miltiadis M II
Alexander The Great
Achilleas
Hyundai Paramount
Hyundai Premium
Cape Agamemnon
Miltiadis M II
Amoureux
Miltiadis M II
Amoureux
Aias
Miltiadis M II
Cape Agamemnon
Amoureux
Aias
Amore Mio II
Amoureux
Miltiadis M II
Aias
Amore Mio II
Aristaios
Aias
Amoureux
Amore Mio II
Amore Mio II
Aias
Amore Mio II
Aris II
Assos
Aris II
Aristotelis II
Aristotelis II
Aristofanis
Aristofanis
Amore Mio II
Aristotelis
Assos
Aris II
Amadeus
Active
Amor
Amadeus
Active
Aristotelis
Aristotelis
Assos
Aris II
Assos
Aris II
Anikitos
Amor
Amadeus
Active
Assos
Aris II
Amore Mio II
Alexandros II
Alexandros II
Aristotelis II
Aristotelis II
Aristotelis II
Aristotelis II
Alexandros II
Anemos I
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
Agamemnon II
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2010
910,748
19
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Agamemnon II
Avax
Axios
Alkiviadis
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2012
2,221,166
26
Alexandros II
Alexandros II
Alexandros II
Alexandros II
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Avax
Axios
Alkiviadis
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Avax
Axios
Alkiviadis
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Avax
Axios
Alkiviadis
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
Q1, 2014
2,136,307
30
Q1, 2016
2,593,601
35
Q1, 2017
2,643,600
36
Anemos I
Apostolos
Akeraios
Ayrton II
Atrotos
Avax
Axios
Alkiviadis
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas II
Q1, 2018
2,755,767
37
Assos
Avax
Axios
Arionas
Agisilaos
Aiolos
Aktoras
Atlantas
IPO Fleet
327,307
8
8
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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:
OR
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:
Title of each class
Common units representing limited partnership interests
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 covered
by the annual report.
127,246,692 Common Units | 2,439,989 General Partner Units | 12,983,333 Class B Convertible Preferred Units
9
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ¨ NO x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
YES NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or an emerging growth company. See definitions of “accelerated filer,” “large accelerated filer,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨
Emerging growth company ¨
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting
Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in
this filing:
U.S. GAAP x
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 registrant 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 x
10
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
TABLE OF CONTENTS
Forward Looking Statements .................................................................................................................................. 12
Page
Identity of Directors, Senior Management and Advisors .................................................................................... 14
Offer Statistics and Expected Timetable ................................................................................................................. 14
Key Information .......................................................................................................................................................... 14
Information on the Partnership ............................................................................................................................... 57
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Unresolved Staff Comments .................................................................................................................................... 80
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
PART II
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
PART III
Item 17.
Item 18.
Item 19.
Operating and Financial Review and Prospects ................................................................................................... 80
Directors, Senior Management and Employees .................................................................................................. 93
Major Unitholders and Related-Party Transactions ............................................................................................. 99
Financial Information ...............................................................................................................................................106
The Offer and Listing ................................................................................................................................................114
Additional Information .............................................................................................................................................115
Quantitative and Qualitative Disclosures About Market Risk ..........................................................................133
Description of Securities Other than Equity Securities .....................................................................................133
Defaults, Dividend, Arrearages and Delinquencies ...........................................................................................134
Material Modifications to the Rights of Security Holders and Use of Proceeds ...........................................134
Controls and Procedures ........................................................................................................................................134
Audit Committee Financial Expert ........................................................................................................................136
Code of Ethics ............................................................................................................................................................136
Principal Accountant Fees and Services ..............................................................................................................136
Exemptions from the Listing Standards for Audit Committees .....................................................................137
Purchases of Equity Securities by the Issuer and Affiliated Purchasers ......................................................137
Change in Registrant’s Certifying Accountant .....................................................................................................137
Corporate Governance .............................................................................................................................................137
Financial Statements ...............................................................................................................................................138
Financial Statements ...............................................................................................................................................138
Exhibits .......................................................................................................................................................................139
Signatures
......................................................................................................................................................................................142
11
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
This annual report on Form 20-F (this “Annual Report”) should be read in conjunction with our audited consolidated financial statements
and accompanying notes included herein. In this Annual Report, the “Partnership,” “CPLP,” “we,” “us” or “our” refer to Capital Product
Partners L.P. and, unless the context otherwise requires, its consolidated subsidiaries; “Capital Maritime” or “CMTC” refer to Capital Mari-
time & Trading Corp., our sponsor; “General Partner” refers to Capital GP L.L.C., our general partner; and “Capital Ship Management” 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 rep-
resentatives 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,” “likely,” “intend,” “forecast,” “believe,” “estimate,” “project,” “predict,”
“propose,” “potential,” “continue,” “seek” or the negative of these terms or other comparable terminology. Although these statements are based
upon assumptions we believe to be reasonable based upon available information, including projections of revenues, operating margins, earnings,
cash flows, working capital and capital expenditures, they are subject to risks and uncertainties that are described more fully in this Annual Report
in “Item 3.D: 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 cash available for distribution 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 shar-
ing arrangements, and required levels of reserves;
• future levels of operating surplus, reserves and levels of distributions, as well as our future cash distribution policy;
• future charter hire rates and vessel values;
• the carrying values of our vessels and the potential for any asset impairments;
• anticipated future acquisitions of vessels from Capital Maritime and from third parties, including any of the five Samsung eco medium
range product tankers in respect of 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 service, refinance or repay our debt under the current terms of our credit facilities and settle any hedging arrangements
we may have;
• the ability of our charterers to meet their obligations under the terms of our charter agreements, including the timely payment of the
hire or freight rates under the agreements;
• the financial condition, viability and sustainability of our charterers, 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;
• 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;
12
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • 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 major com-
modity traders, 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 re-charter 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 limitation,
stricter requirements adopted by international organizations, such as the International Maritime Organization (also referred to as the
IMO), a United Nations agency that issues international trade standards for shipping, and the European Union, or by individual countries
or charterers and actions taken by regulatory authorities overseeing such areas as safety and environmental compliance;
• the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards,
including with new environmental regulations and standards being introduced, as well as with standard regulations imposed by our
charterers applicable to our business;
• the impact of heightened regulations and the actions of regulators and other government authorities, including anti-corruption laws
and regulations, as well as sanctions and other governmental actions;
• our anticipated general and administrative expenses and our costs and expenses under the management agreements and the admin-
istrative services agreement with our Manager, and for reimbursement for fees and costs of our General Partner;
• increases in costs and expenses, including but not limited to crew wages, insurance, provisions, spares, 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 most 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, con-
tainer and drybulk vessels in particular;
• the expected lifespan and condition of our vessels;
• the ability of our General Partner and Manager to employ and retain key employees;
• our General Partner’s and Manager’s track records, 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 charterers, governments and others, as well as changes
in maritime regulations and standards;
• expected financial flexibility to pursue acquisitions and other expansion opportunities;
• anticipated funds for liquidity needs and the sufficiency of cash flows;
• the performance and expected cost savings of the vessels we have acquired, or may acquire in the future from CMTC and from third
parties and any new technologies incorporated into such vessels, at least some of which may be untested; 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 dis-
cussed in “Item 3.D: Risk Factors” below. The risks, uncertainties and assumptions involve known and unknown risks and are inherently
subject to significant uncertainties and contingencies, many of which are beyond our control. We caution that forward-looking statements
are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
Unless required by law, we expressly disclaim any obligation to update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge
from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on
our 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.
13
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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, 2017, and as of December 31,
2017 and 2016, 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, 2014 and 2013 and as of December 31, 2015, 2014 and
2013 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 administra-
tive 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 Condition 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.
14
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 on sale of vessels to third parties
Vessel depreciation and amortization
Impairment of vessel
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
Partnership’s net income
Class B unit holders’ interest in our
net income
General partner’s interest in our net income
Common unit holders’ interest in our
Year ended December 31,
2017
2016
2015
2014
2013
$
$
204,462
44,653
249,115
$
205,594
36,026
241,620
$
156,613
63,731
220,344
$
119,907
72,870
192,777
15,165
—
74,516
11,629
6,234
—
73,993
3,282
184,819
64,296
—
—
(26,605)
—
792
9,920
360
66,637
10,866
6,253
—
71,897
—
165,933
75,687
—
—
(24,302)
—
1,104
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
116,520
54,974
171,494
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
$
38,483
$
52,489
$
55,410
$
44,012
$
99,481
11,101
522
11,101
818
11,334
879
14,042
593
18,805
1,598
net income
26,860
40,570
43,197
29,377
79,078
$
Net income 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)(4)(7)(8)(10)(11)
Total assets (3)(4)(7)(8)(10)(11)(12)(13)
Total long-term liabilities (3)(4)(7)(9)(10)(11)(13)
Total partners’ capital (3)(4)(5)(6)(8)(9)(11)(12)
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
Net cash used in investing activities
Net cash (used in) / provided by financing activities
$
$
0.22
0.22
0.34
0.34
0.38
0.38
0.31
0.31
1.04
1.01
123,845,345
119,803,329
115,030,879
93,353,168
75,645,207
123,845,345
119,803,329
115,030,879
93,353,168
97,369,136
1,265,196
1,466,216
409,740
933,405
142,670,014
127,246,692
12,983,333
2,439,989
0.32
0.86
$
$
$
1,367,731
1,598,605
578,652
927,757
137,517,955
122,094,633
12,983,333
2,439,989
0.46
0.86
$
$
$
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
$
$
$
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
$
$
$
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
126,974
(2,038)
(168,317)
155,086
(91,782)
(46,816)
134,209
(209,937)
1,719
125,277
(30,327)
5,277
129,576
(335,346)
226,191
15
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
(1) Voyage expenses primarily consist of commissions, port ex-
penses, canal dues and bunkers.
Vessel operating expenses consist of management fees
payable to our Manager pursuant to the terms of our three
separate management agreements and actual operating
expenses such as crewing, repairs and maintenance, insur-
ance, stores, spares, lubricants and other operating expens-
es incurred in respect of our vessels.
(8)
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 drawdown under our former $350.0 million credit
facility entered 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 owning 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 under-
writers’ overallotment option of 1,785,000 common units, and
received net proceeds of $119.8 million after deducting ex-
penses related to the offering. The net proceeds, together with
a $75.0 million drawdown under our former $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 com-
panies, each owning 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 then 2% in-
terest in us. In 2015 and 2014, our sponsor converted 315,908
and 358,624 common units, respectively, into general partner
units and delivered such units to our General Partner in order
for it to maintain its then 2% interest in us. Currently our Gen-
eral Partner holds a 1.71% general partner interest in us.
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 in 2013, Hyun-
dai Mipo Dockyard Ltd, South Korea). The acquisition price
of $38.0 million was funded from the sale proceeds of the
M/T Agamemnon II and available cash. The M/T Aristotelis
replaced the M/T Agamemnon II as a security under our
former $370.0 million credit facility entered into in 2007 (as
amended, the “2007 credit facility”).
In September 2014, we completed an equity offering of
17,250,000 common units, which included the full exercise of
the underwriters’ overallotment option of 2,250,000 common
units, receiving net proceeds of $173.5 million after deduct-
ing expenses related to the offering. The net proceeds were
used to repurchase from Capital Maritime 5,950,610 com-
mon units at an aggregate 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 ad-
vance payment to Capital Maritime in connection with the ac-
quisition of five new vessels acquired from Capital Maritime,
our sponsor, comprising three newbuild Daewoo 9,160 TEU
eco-flex containerships and two newbuild Samsung eco-
medium range product tankers (the “Dropdown Vessels”),
four of which were delivered between March and September
2015. The fifth Dropdown Vessel was delivered in February
2016. The total acquisition cost for these five vessels was
$311.5 million. The remaining proceeds of the offering were
used for general partnership purposes.
(9)
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 received net proceeds before expenses of $133.3
million. The net proceeds were used to prepay the quarterly
instalments scheduled for 2016 and the first quarter of 2017
under our former 2007 and 2008 credit facilities and our for-
mer $25.0 million credit facility entered into in 2011(the “2011
credit facility”), and to pay related fees and expenses and for
general partnership purposes.
(2)
(3)
(4)
(5)
(6)
During 2013, certain 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 agree-
ment. 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, re-
spectively, in accordance with the terms of the partnership
agreement.
(10) On March 31, June 10, June 30 and September 18, 2015, we
acquired the shares of the companies owning four of the
Dropdown Vessels, namely the M/T Active, the M/V Akadi-
mos (renamed the “CMA CGM Amazon”), the M/T Amadeus
and the M/V Adonis (renamed the “CMA CGM Uruguay”) for
a total consideration of $230.0 million, which was funded by
drawdowns under our former 2013 credit facility for a total of
$115.0 million and from cash on hand.
(7)
In November 2013, we sold the M/T Agamemnon II (51,238
dwt IMO II/III chemical product tanker built in 2008, STX Ship-
building & Offshore, South Korea) at a price of $33.5 million
(11) On February 26, 2016, we acquired from Capital Maritime
the shares of the company owning the M/V Anaxagoras (re-
named the “CMA CGM Magdalena”), the last of the five Drop-
16
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 down Vessels. We funded the acquisition by drawing under
our former 2013 credit facility and using available cash. On
October 24, 2016, we acquired from Capital Maritime the
shares of the company owning the M/T Amor, an eco-type
MR product tanker, for a total consideration of $16.9 million
consisting of $16.0 million in cash and the issuance of 283,696
new common units to Capital Maritime, reflecting the fair
value of the vessel of $31.6 million and the fair value of the
time charter attached to the vessel of $1.1 million, less the
assumption of a $15.8 million term loan under a credit facility
previously arranged by Capital Maritime with ING Bank N.V.
(the “2015 credit facility”).
(12) In September 2016, the Partnership entered into an equity
distribution agreement with UBS Securities LLC (“UBS”)
under which the Partnership may sell, from time to time
through UBS, as its sales agent, new common units hav-
ing an aggregate offering amount of up to $50.0 million (the
“ATM offering”). During the period between the launch of the
ATM offering and December 31, 2016, we issued 1.4 million
new common units in total translating into net proceeds of
$4.5 million after payment of sales agent commission but
before offering expenses. During the year ended December
31, 2017, we issued 5.2 million new common units in total
translating into net proceeds of $17.8 million after payment
of sales agent commission but before offering expenses.
(13) On September 6, 2017, we entered into a loan agreement for
a new senior secured term loan facility (the “2017 credit facil-
ity”) for an aggregate principal amount of up to $460.0 million.
On October 2, 2017, we repaid $14.0 million outstanding un-
der the 2011 credit facility through available cash. On October
4, 2017 (the “Drawdown Date”), we drew the full amount of
$460.0 million under the 2017 credit facility and, together with
available cash of $102.2 million, fully repaid total indebted-
ness of $562.2 million.
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.
17
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 sub-
stantially from those discussed in such forward-looking statements. For more information, please read “Forward-Looking Statements” above.
RISKS RELATING TO THE TANKER INDUSTRY
Changes to global economic conditions and oil and oil product demand, prices and supply could result in decreased demand for our
vessels and services, materially affect our ability to re-charter our vessels at favorable rates and have a material adverse effect on our
business, financial position, results of operations, cash flows and ability to make cash distributions and service or refinance our debt.
Global economic growth is a significant driver in the demand for oil and, as a result, the demand for shipping. The past several years
were marked by major economic slowdowns, which have had a significant impact on the global economy and demand for oil. There is
still significant uncertainty over long-term economic growth prospects.
Furthermore, there is a general global trend towards energy efficient technologies and alternative sources of energy. In the long term,
oil demand may 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 over carbon emissions or high oil prices, which has the potential to significantly decrease demand
for oil and shipping.
We expect emerging markets, which historically have had more volatile economies, to be a key driver in future oil demand and a
slowdown in these economies, such as China or India, could severely affect global demand for oil and may result in protracted, reduced
consumption of oil products and a decreased demand for our vessels and lower charter rates.
If global economic conditions deteriorate or oil prices increase and, as a result, demand for oil and oil products contracts or increases
more slowly, we may not be able to operate our vessels profitably or employ our vessels at favorable charter rates as they come up for
re-chartering. Furthermore, the market value of our vessels may decline as a result of such events, which may cause us to recognize
losses upon disposition of the vessels or record impairments and affect our ability to comply with our loan covenants.
In addition, reduced global supply of oil due to coordinated action, such as the production cuts recently agreed by OPEC members and
other oil producing nations, or other circumstances may adversely affect demand for the transportation of crude oil and oil tankers.
A deterioration of the current economic conditions or changes in oil demand and supply and the product and crude tanker markets
would have a material adverse effect on our business, financial position, results of operations, cash flows and ability to make cash dis-
tributions and service or refinance our debt.
Charter rates for tanker vessels are highly volatile and may decrease in the future, which may adversely affect our earnings and our ability
to make cash distributions, as we may not be able to re-charter our vessels or we may not be able to re-charter them at competitive rates.
The shipping industry is cyclical. As a result, charter hire rates and vessel values have historically been volatile. We are particularly
exposed to fluctuations in the product and crude tanker markets as the majority of our vessels are tankers. Therefore, as our charters
expire, we may only be able to re-charter our tankers at reduced or unprofitable rates, or we may not be able to re-charter our tankers
at all. We expect 20 of our charters to expire in the coming 12 months compared to 12 charter expirations in 2017. 18 of these charter
expirations relate to tanker vessels compared to ten tanker charter expirations in 2017.
18
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
The demand for period charters may remain stagnant or decrease. Even if we secure employment for our tankers under period char-
ters, our charterers may go bankrupt, fail to perform their obligations under the charter agreements, delay payments or suspend pay-
ments altogether, terminate the charter agreements prior to the agreed-upon expiration date or attempt to renegotiate the terms of the
charters.
Depending on market conditions, we may be forced to deploy our tankers in the spot market, which is cyclical and highly volatile. In the
past, there have been periods during which spot rates have declined below the operating cost of tankers. If we deploy our tankers in the
spot markets, we may be unable to obtain profitable spot charters or minimize the time spent waiting for charters or traveling to pick up
cargo. Furthermore, as charter rates for spot charters are fixed for a single voyage of up to several weeks, we may experience delays
in realizing the benefits from increases in spot charter rates.
The factors affecting supply and demand for product and crude tankers are outside our control and the nature, timing, direction and
degree of changes in industry conditions are difficult to predict with confidence. Some of the factors that may affect charter hire rates and
the market value of tankers include the following:
• the supply for oil and oil products, which is influenced by, among other things, 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;
• decreases in the consumption of oil due to increases in its price relative to other energy sources, other factors making consumption
of oil less attractive or energy conservation measures;
• 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;
• regional availability of refining capacity;
• prevailing economic conditions in the market in which the tanker trades;
• availability of credit to charterers and traders in order to finance expenses associated with the relevant trades;
• regulatory change;
• increases in the supply of vessel capacity; and
• the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in
applicable environmental or other regulations or standards, or otherwise.
If we have to re-charter our tankers when charter hire rates are low or are unable to re-charter our tankers, our business, financial
condition, results of operations, cash flows and ability to make distributions and service or refinance our debt could be adversely affected.
The market values of tanker vessels are highly volatile and may decrease further in the future which may cause us to recognize losses
if we sell our tankers or record impairments and affect our ability to comply with our loan covenants and refinance our debt.
The market value of tankers is influenced, among other factors, by the prevailing charter market, replacement costs, the residual value
of the vessels, expectations with regard to asset prices, availability of tankers for sale, as well as the ability of buyers to access financing
and capital. If we sell a vessel at a time when its market value has fallen, the sale price may be less than the vessel’s carrying amount,
resulting in a loss. In December 2017, we agreed to sell the M/T Aristotelis. In this connection, we recorded an impairment charge of $3.3
million representing the difference between the vessel’s carrying amount and its selling price, net of estimated sale expenses. Please
also see Note 5 to our financial statements included herein. In addition, we may be required to record an impairment charge as a result
of a decrease in the future charter rates or market values of our vessels. A decline in the market value of our vessels could also lead to a
default under our credit facilities, affect our ability to refinance our existing credit facilities and limit our ability to obtain additional financing
and service or refinance our debt. If any of these circumstances were to happen, our business, financial condition, results of operation,
cash flows and ability to make distributions may be materially and adversely affected.
An oversupply of tanker vessels or an expansion of the capacity of newly built tankers may lead to reductions in charter hire rates,
vessel values and profitability.
The 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.
Newly built tankers were delivered in significant numbers starting at the beginning of 2006 through 2017. In addition, as of December
19
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 31, 2017, the newbuilding order book was estimated to equal approximately 11.7% of the existing world tanker fleet and may increase in
proportion to the existing fleet. Furthermore, if newly built tankers have more capacity than the tankers being scrapped or lost, tanker
capacity overall will expand. If the supply of tankers or their capacity increases over time but demand for tanker vessels does not grow
correspondingly, charter rates and vessel values will materially decline. If that happens, as our charters expire, we may only be able to
re-charter our vessels at reduced or unprofitable rates, or we may not be able to charter our vessels at all. A reduction in charter rates
and the value of our vessels may have a material adverse effect on our business, financial condition, results of operations, cash flows
and ability to make cash distributions and service or refinance our debt.
Over the last five years, a number of vessel owners have ordered and taken delivery of so-called “eco-type” vessel designs, which offer
substantial bunker savings as compared to older designs. Increased demand for and supply of “eco-type” vessels could reduce de-
mand for certain of our vessels that are not classified as such and expose us to lower vessel utilization and/or decreased charter rates.
We estimate that a significant proportion of newbuilding orders are based on new vessel designs, which purport to offer material bun-
ker savings compared to older designs, such as a significant proportion of our tanker vessels. See “Item 4.B: Business Overview—Our
Fleet.” New vessel designs could result in a substantial reduction of bunker cost for charterers. As the supply of “eco-type” tankers ex-
pands, if charterers prefer those vessels over our tankers that are not classified as such, this may reduce demand for our non-“eco-type”
tankers, impair our ability to re-charter such tankers at competitive rates or at all and have a material adverse effect on our business,
financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance our debt.
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 the various risks af-
fecting the drybulk shipping industry, which is cyclical with attendant volatility in charter rates, vessel values and profitability, with wide
disparities across different classes of drybulk carriers.
After reaching historical highs in mid-2008, charter hire rates for drybulk carriers, such as the M/V Cape Agamemnon, have declined
significantly and reached historically low levels in 2016. Capesize charter rates remained below historical averages in 2017. The M/V
Cape Agamemnon is currently deployed on a period time charter until June 2020. In the future, we may be forced to re-charter the M/V
Cape Agamemnon pursuant to short-term time charters, and may be exposed to changes in the spot market and short-term charter
rates for capesize drybulk carriers, all of which may affect our earnings and the value of the M/V Cape Agamemnon.
The factors affecting supply and demand for drybulk vessels are outside our control and the nature, timing, direction and degree of
changes in industry conditions are difficult to predict with confidence. Some of the factors that may influence demand for drybulk carriers
include the following:
• 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.
Some of the factors that may influence the supply of vessel capacity for drybulk carriers include the following:
• the number of deliveries of newly built vessels, which among other factors depend upon the ability of shipyards to meet contracted
delivery dates and the ability of purchasers to finance such new acquisitions;
• the scrapping rate of older vessels;
• the number of vessels that are in or out of service, including as a result of vessel casualties;
20
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • 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 char-
ter rates, will be dependent, among other things, upon the rate of economic growth in the global economy, including the world’s developing
economies, such as China, India, Brazil and Russia, seasonal and regional changes in demand, changes in the capacity of the global drybulk
vessel fleet and the sources and supply of drybulk cargo to be transported by sea. A decline in demand for commodities transported in dry-
bulk 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, results of operations, cash flows and ability to make cash distributions and service or repay our debt.
The market values of drybulk vessels have declined and may further decline, which may cause us to recognize a loss if we sell the
Cape Agamemnon or record impairments and affect our ability to comply with our loan covenants and service or refinance our debt.
The market values of drybulk vessels have generally experienced high volatility. The market value of drybulk vessels may continue to
fluctuate depending on a number of factors, including:
• prevailing level of charter rates;
• general economic and market conditions affecting the shipping industry;
• types, sizes and ages of vessels;
• supply of and demand for vessels;
• other modes of transportation;
• cost of newbuildings;
• governmental or other regulations;
• the need to upgrade vessels as a result of charterer requirements, technological advances in vessel design or equipment or other-
wise; and
• competition from other shipping companies and other modes of transportation
If the market value of the Cape Agamemnon deteriorates significantly, we may be required to record an impairment charge in our finan-
cial statements. Furthermore, if the current charter expires or is terminated, we may be unable to re-charter the vessel at an acceptable
rate and, rather than continuing to incur costs to maintain the vessel, we may seek to dispose of it. Our inability to dispose of the vessel at
a reasonable price however could result in a loss. A decline in the market value of the Cape Agamemnon could also lead to a default un-
der our credit facilities, limit our ability to obtain additional financing and service or refinance our debt. If any of these circumstances were
to happen, our business, financial condition, results of operation, cash flows and ability to make distributions may be adversely affected.
The M/V Cape Agamemnon is currently chartered at rates that are at a substantial premium to the spot and period markets. 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 ten-year time charter to COSCO Bulk Carrier Co. Ltd. (“COSCO”) a member of the China
Ocean Shipping (Group) Company (“COSCO Group”) and one of the largest drybulk charterers globally. The charter commenced in July
2010 and was amended in November 2011. The earliest expiry date under the charter is June 2020. Since the charter was amended in
November 2011, the gross charter rate is a flat rate of $42,200 per day.
We currently maintain insurance to protect us against the loss of income that would result from COSCO’s failure or refusal to pay hires
under the time charter agreement. Under our revenue protection insurance, our insurer has agreed to pay us a maximum amount of
$25,000 per day for each day of loss, defined as the difference between the hire contractually payable under the charter and the replace-
ment hire earned or that could be earned by us during the policy period expiring on July 30, 2020. Replacement hires are defined as the
greater of the actual hires earned during the policy period and the average hire rate that the M/V Cape Agamemnon is capable of earning,
as determined by three independent shipbrokers. The revenue protection insurance is renewed annually. There is no guarantee that we
will be able to renew and maintain this insurance.
COSCO Group has faced financial difficulties. Its listed affiliate China COSCO Holdings announced a profit of Rmb 3.4bn (approximately
$0.5bn) for the first six months of 2017, compared with a loss of Rmb 6.7bn in the same period last year. We could lose this charterer or
the benefits of the charter if, among other things:
• the charterer is unable or unwilling to perform its obligations under the charter, including the payment of the agreed rates in a timely
manner;
21
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • the charterer faces financial difficulties forcing it to declare bankruptcy, to restructure its operations or to default under the charter;
• the charterer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
• the charterer 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 charterer exercises certain rights to terminate the charter;
• the charterer 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 charterer, including war or political unrest, prevents us from performing services for
that charterer; or
• the charterer 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 re-charter the vessel at the then
prevailing charter rates. If that were to happen and insurance cover were to be unavailable or insurance payout were to be insufficient
to cover our loss for any reason, this could materially and adversely affect our business, financial condition, results of operations, cash
flows and our ability to make distributions and service or refinance our debt.
A negative change in the economic conditions in Asia, especially in China, Japan or India, including as a result of slowdowns in the
United States or Europe, could reduce drybulk trade and demand, which would affect charter rates and have a material adverse effect
on our business, financial condition, results of operations, cash flows and ability to make cash distribution and service or refinance
our debt.
A significant number of the port calls made by Capesize bulk carriers involve the loading or discharging of raw materials in ports in Asia,
particularly China, Japan and India. 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 force driving demand for drybulk vessels. If economic growth declines in China, Japan,
India and other countries in Asia, we may face decreases in drybulk trade and demand. For example, the recent slowdown of the Chinese
economy has adversely affected demand for capesize bulk carriers. Moreover, slowdowns in the United States or the economies of the
European Union, as have occurred recently, may adversely affect economic growth in China, Japan, India and other Asian countries. A
negative change in economic conditions in any Asian country, particularly China, Japan or India, could reduce demand for capesize bulk
carriers and, as a result, charter rates and affect our ability to re-charter the M/V Cape Agamemnon at a profitable rate or at all and have
a material adverse effect on our business, financial position, results of operations, cash flows and ability to make cash distribution and
service or refinance our debt.
An oversupply of drybulk vessel capacity may lead to reductions in charter rates and profitability.
The number of drybulk vessels on order as of December 2017 was estimated by market sources to be approximately 9.3% of the then-
existing global drybulk fleet in dwt terms, with deliveries expected mainly during the next 24 months, although available data with regard
to cancellations of existing newbuild orders or delays in newbuild deliveries are not always accurate or may not be readily available.
An oversupply of drybulk vessel capacity will likely result in protracted weakness in drybulk charter hire rates. Upon the expiration of
the current charter period in June 2020, if we cannot enter into a new period time charter for the M/V Cape Agamemnon on acceptable
terms, we may have to secure charters in the spot market, where charter rates are more volatile and revenues are, therefore, less
predictable, or we may not be able to charter the vessel at all.
The international drybulk shipping industry is highly competitive, and with only one drybulk vessel in our fleet, we may not be able to
compete successfully for charters with established companies with greater resources. As a result, we may not be able to successfully
operate the vessel.
We employ the M/V Cape Agamemnon in the highly competitive drybulk market, which is capital intensive and highly fragmented. Compe-
tition arises primarily from other vessel owners, some of which have substantially larger fleets of drybulk vessels or greater resources than
we currently have or will have in the future. Competition for the transportation of drybulk cargo by sea is intense and depends on price, char-
terer 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 competitors with greater resources, may be able to offer lower charter rates than
ours, which could have a material adverse effect on our ability to charter out the M/V Cape Agamemnon and, accordingly, its profitability.
22
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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, results of operations, cash flows and ability to make distribu-
tions and service or refinance our debt.
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 bulldoz-
ers. 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, results of operations, cash flows and ability to make distributions and service or refinance our debt.
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.
Since December 2012, we have acquired ten container vessels from Capital Maritime and have become subject to the risks affecting the
container shipping industry.
The ocean-going container shipping industry is both cyclical and volatile in terms of charter rates and profitability and demand for our
vessels depends on a range of factors, including demand for the shipment of cargoes in containers. Containership charter rates peaked
in 2005 but have declined sharply since then. Container charter rates remained at or close to historical lows in the beginning of 2017 and
have since experienced modest improvement but remain overall below historical averages.
Since the second half of 2011, liner companies have experienced a substantial downturn in container shipping activity, resulting in de-
pressed average freight rates, which has caused financial distress at a number of liner companies, including our charterers, and could
further impact them. In a number of instances, charterers have not performed under, or have requested modifications of, existing time
charters.
Containership charter rates depend upon a range of factors, including changes in the supply and demand for ship capacity and changes
in the supply and demand for major products transported by containerships. Demand for containerships and profitability of the container
business have been affected negatively by a large order book of new containership vessels, including “ultra 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. The percentage of the worldwide fleet remaining idle
reached 7.1% at the end of 2016. Since then, the percentage of the idle container fleet has gradually reduced to 2.0% as of the end of 2017.
Furthermore, the decline in the containership market has adversely affected the value of container vessels, which follow the trends of
freight rates and containership charter rates, and resulted in a less active secondhand market for the sale of vessels.
The factors affecting the supply and demand for products shipped in containers and for containerships are outside our control and the
nature, timing, direction and degree of changes in industry conditions are difficult to predict with confidence. Some of the factors that
influence demand for containerships include:
• supply and demand, including consumer 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;
• developments in the market for exports of containerized goods from emerging markets, including China;
• global and regional economic and political conditions;
• developments in international trade;
• trends in the market for imports of raw materials to emerging markets, such as India and China;
23
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • the relocation of regional and global manufacturing facilities from Asian and emerging markets to developed economies in Europe
and the United States;
• environmental and other regulatory developments;
• currency exchange rates;
• weather; and
• cost of bunkers.
Some of the factors that influence the supply of containerships include the following:
• 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.
If the charter market is depressed when time charters for our containerships expire, we may be forced to re-charter our containerships
at reduced or even unprofitable rates, or we may not be able to re-charter them at all, which may reduce or eliminate our earnings or
make our earnings volatile and materially and adversely affect our business, financial condition, results of operations, cash flows and
ability to make cash distributions and service or refinance our debt.
An oversupply of containership capacity may prolong or 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 the con-
tainer order-book declined compared to previous years, the order-book still represented 13.4% of the existing fleet as at the end of 2017.
Deliveries of vessels ordered will significantly increase the size of the container fleet over the next two to three years.
An oversupply of newbuilding vessels and/or re-chartered or idle containership capacity entering the market, combined with any further
decline in the demand for containerships, may further depress charter rates and may decrease our ability to re-charter our containerships
other than for reduced rates or unprofitable rates or to re-charter our containerships at all, which may materially and adversely affect our
business, financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance our debt.
A number of vessel owners have ordered and taken delivery of so-called “eco-type” vessel designs, which offer substantial bunker
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.
The majority of new orders of container vessels are based on new vessel designs, which purport to offer material bunker savings com-
pared to older designs and higher container intakes. 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 or other equipment and/or modifications. As the supply of “eco-type”
vessels 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 re-charter such vessels at competitive rates or to re-charter such vessels at all, and have a material
adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions and service or
refinance our debt. See “Item 4.B: Business Overview—Our Fleet” for more information about the vessels in our fleet.
If our container carrier vessel charterers do not fulfill their obligations to us, or if they are unable to honor their obligations, our busi-
ness, financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance our debt may
be adversely affected.
24
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Our ten container carrier vessels are currently under charters with Hyundai Merchant Marine Co. Ltd. (“HMM”), CMA CGM Group (“CMA
CGM”) and Pacific International Lines (PTE) Ltd Singapore (“PIL”). Currently we have only short-term charters at market rates with PIL.
Many liner companies, including our charterers, are highly leveraged. In recent years, a combination of factors, including, among other
things, unavailability of credit, volatility in financial markets, overcapacity, competitive pressure, declines in world trade and depressed
freight rates, have severely affected the financial condition of liner companies and their ability to make charter payments, which has
resulted in a material increase in the credit and counterparty risks to which we are exposed and our ability to re-charter our vessels at
competitive rates.
Furthermore, the surplus of containerships available at lower charter rates and lack of demand for our charterers’ liner services could
negatively impact our charterers’ willingness to perform their obligations under our time charters that provide for charter rates above
current market rates.
HMM, the charterer of five of our container vessels, completed a financial restructuring in July 2016. Our subsidiaries owning vessels
under charter with HMM agreed a reduction of the charter rate payable under their respective charters by 20% to $23,480 per day (from a
gross daily rate of $29,350) for a three and a half year period starting in July 2016 and ending in December 2019. The charter restructuring
agreement entered into with HMM provides that at the end of the charter reduction period, the charter rate under the respective charter
parties will be restored to the original gross daily rate of $29,350 until the expiry of each charter in 2024 and 2025. There can however be
no assurance that the financial restructuring of HMM will prove sufficient to ensure the financial viability of HMM, which still has a high
level of indebtedness, and continued charter payments to us.
CMA-CGM, the charterer of three of our container vessels, was under financial stress in 2016, in part following its acquisition of Neptune
Orient Lines Limited (NOL) and reported a $427.4 million net loss for the twelve-month period ended December 31, 2016.
If one of our charterers defaults on our time charters for any reason, we may be unable to redeploy the vessel previously employed by
such charterer on similarly favorable or on competitive terms or at all. Also, we will incur expenses to maintain and insure the vessel
but will not receive any revenue if a vessel remains idle before being re-chartered. A variety of factors, including containership overca-
pacity and the expected increase in the world containership fleet over the next few years, may make it difficult for us to secure substitute
employment, and any new charter arrangements may be at significantly lower rates.
A failure of our charterers to comply with the terms of their respective charters, and our inability to replace such charters at minimum
charter rates and maintain minimum financial ratios may result in an event of default under our credit facilities. The loss of our charter-
ers or a decline in payments under our time charters could have a material adverse effect on our business, financial condition, results
of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
Many of our container vessels are under time charters at rates that are at a substantial premium to the spot and period markets, and
our charterers’ failure to perform under our time charters could result in a significant loss of expected future revenues and cash flows.
Our five container vessels that are chartered to HMM are each currently employed under 12-year time charters. Following HMM’s finan-
cial restructuring that was completed in July 2016, the charter rate payable under the respective charter parties was reduced to $23,480
per day (from a gross daily rate of $29,350) from July 2016 to December 2019. Our container vessels that are chartered to CMA CGM are
each employed under time charters for a minimum of five years, at a gross charter rate of $39,250 per day, all of which were entered
into in December 2013.
Given that the rates we charge under these time charters are significantly higher than the current spot and period rates, failure to per-
form by any of these charterers could result in a significant loss of revenues, which may materially and adversely affect our business,
financial condition, results of operation, cash flows and our ability to maintain cash distributions and service or refinance our debt. We
could lose these charterers or the benefits of the charters if, among other things:
• the charterer is unable or unwilling to perform its obligations under the charters, including the payment of the agreed rates in a timely
manner;
• the charterer continues to face financial difficulties forcing it to declare bankruptcy, further restructure its operations or default under
the charters;
• the charterer fails to make charter payments because of its financial inability or its inability to trade our and other vessels profitably or
due to the occurrence of losses due to the weaker charter markets;
25
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • the charterer fails to make charter payments due to distress, disagreements with us or otherwise;
• the charterer seeks to renegotiate the terms of the charter agreements due to prevailing economic and market conditions or due to
its continued poor performance;
• the charterer exercises certain rights to terminate the charters;
• the charterer terminates the charters because we fail to comply with the terms of the charters, the vessels are lost or damaged be-
yond 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 charterer, including war or political unrest, prevents us from performing services for
that charterer; or
• the charterer 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 or CMA CGM prior to their respective expiration date, we would have to re-
charter the vessels at the then prevailing charter rates. In such event, we may not be able to obtain competitive or profitable rates for
these vessels or we may not be able to re-charter these vessels at all and our business, financial condition, results of operation, cash
flows and ability to make distribution and service or refinance our debt may be materially and adversely affected.
A decrease in the level of export of goods, in particular from Asia, or an increase in trade protectionism globally, including from the
United States, could have a material adverse impact on our charterers’ business and, in turn, could cause a material adverse impact
on our business, financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance
our debt.
Our operations expose us to the risk that increased trade protectionism from the United States or other nations adversely affect our
business. Governments may turn to trade barriers to protect or revive their domestic industries in the face of foreign imports, thereby
depressing the demand for shipping. Restrictions on imports, including in the form of tariffs, could have a major impact on global trade
and demand for shipping. Trade protectionism in the markets that our charterers serve may cause an increase in the cost of exported
goods, the length of time required to deliver goods and the risks associated with exporting goods and, as a result, a decline in the volume
of exported goods and demand for shipping.
The new U.S. president was elected on a platform promoting trade protectionism. The results of the presidential election have thus cre-
ated significant uncertainty about the future relationship between the United States and China and other exporting countries, including
with respect to trade policies, treaties, government regulations and tariffs. On January 23, 2017, the U.S. President signed an executive
order withdrawing the United States from the Trans-Pacific Partnership, a global trade agreement intended to include the United States,
Canada, Mexico, Peru and a number of Asian countries. Protectionist developments, or the perception they may occur, may have a ma-
terial adverse effect on global economic conditions, and may significantly reduce global trade and, in particular, trade between the United
States and other countries, including China.
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 Asia to various overseas export markets, including the
United States and Europe. Increasing trade protectionism may cause an increase in (i) the cost of goods exported from regions globally,
particularly the Asia-Pacific region, (ii) the length of time required to transport goods and (iii) the risks associated with exporting goods.
Such increases may further reduce the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated
costs which may adversely affect the business of our charterers. Any reduction in or hindrance to the output of Asia-based exporters
could have a material adverse effect on the growth rate of Asia’s exports and on our charterers’ business, which may in turn affect their
ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us.
Furthermore, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-
made goods and containing capital outflows. These policies may have the effect of reducing the supply of goods available for exports and
the level of international trading and may, in turn, result in a decrease in demand for container shipping.
For example, starting in August 2014, China imposed a new tax for non-resident international transportation companies engaged in
the provision of services in and out of China using their own or 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 that
may become subject to Chinese corporate income tax on profits generated from international transportation services passing through
Chinese ports. This tax or other similar regulations by China may result in an increase in the cost of imports to China, as well as a de-
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 crease in the quantity of goods to be shipped by our charterers to China. This could have an adverse impact on our charterers’ business,
operating results and financial condition and could affect their willingness to renew or enter into their time charters with us.
In addition, reforms in China for a gradual shift to a “market economy” including with respect to the prices of certain commodities, are
unprecedented or experimental and may be subject to revision, change or abolition and if these reforms are reversed or amended, the
level of imports to and exports from China could be adversely affected.
Any new or increased trade barriers or restrictions on trade would have an adverse impact on our charterers’ business, operating re-
sults 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. Such adverse developments could in turn have a material adverse effect on our business,
financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
Containership values have been volatile over the last five years. Containership values may decrease and over time may fluctuate
substantially, which may cause us to recognize losses if we sell our container vessels or record impairments and affect our ability to
comply with our loan covenants or refinance our debt.
Containership values can fluctuate substantially over time due to a number of different factors, including:
• prevailing economic conditions in the markets in which containerships operate;
• reduced demand for containerships, including as a result of a substantial or extended decline in world trade;
• increases in the supply of containership capacity;
• prevailing charter rates and the cost of retrofitting or modifying existing ships to respond to technological advances in vessel design
or equipment;
• changes in applicable environmental or other regulations or standards, or otherwise;
• prevailing newbuilding prices for similar vessels;
• prevailing demolition prices for similar vessels;
• availability of capital for investment in containerships including ship finance and public equity; and
• supply of containerships in the market for sale including mass disposals of containerships controlled by financing institutions
In addition, fire sales of vessels by some of our competitors, other fleet-owners that may be in distress or commercial banks foreclosing
on collateral from time to time could, among other consequences, drive down vessel values.
If the market values of our vessels deteriorate further, we may be required to record an impairment charge in our financial statements.
Furthermore, if a charter expires or is terminated, we may be unable to re-charter the vessel at an acceptable rate and, rather than
continue to incur costs to maintain the vessel, we may seek to dispose of it. Our inability to dispose of one or more of the containerships
at a reasonable price however could result in a loss. A further decline in the market value of our vessels could also lead to a default
under our credit facilities and limit our ability to obtain additional financing and service or refinance our debt. If any of these circumstances
were to happen, our business, financial condition, results of operation, cash flows and ability to make distributions may be materially
and adversely affected.
Our growth and our ability to re-charter our containerships depend on, among other things, our ability to expand relationships with
existing charterers and develop relationships with new charterers, 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 related to the vessel owner, including, among other things:
• shipping industry relationships and reputation for charterer service and safety;
• container shipping experience and quality of vessel operations, including cost effectiveness;
• quality and experience of seafaring crew;
• the ability to finance containerships at competitive rates and the vessel 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 vessel according to charterer’s specifications;
• willingness to accept operational risks under the charter, such as allowing termination of the charter for force majeure events; and
• competitiveness of the bid in terms of overall price.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Competition for providing containerships for chartering purposes comes from a number of experienced shipping companies, including
direct competition from other independent charter owners and indirect competition from state-sponsored and other major entities with
their own fleets. Some of our competitors have significantly greater financial resources than we do and can operate larger fleets and
may be able to offer better charter rates. An increasing number of marine transportation companies have entered the containership
sector, including many with strong reputations and extensive resources and experience in the marine transportation industry. This in-
creased 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 charterers or to develop relationships with new charterers on a profitable basis, if at all, which could harm our
business, financial condition, results of operations, cash flows and ability to make cash distributions and to service or refinance our debt.
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 charterers 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 flows 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 flows 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 charterers may begin to pressure us to reduce our rates.
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, among other things,
our ability to:
• capitalize on opportunities in the crude and product tanker, drybulk and container markets by fixing period charters for our vessels at
attractive rates;
• obtain required financing for existing and new operations, including refinancing of indebtedness, and access to capital markets, includ-
ing equity and debt capital markets;
• identify businesses engaged in managing, operating or owning vessels for acquisitions or joint ventures;
• identify vessels and/or shipping companies for acquisitions;
• 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 newly built or secondhand vessels on favorable terms, which could impede our growth and negatively impact our financial
condition and ability to pay cash distributions. We may not be able to contract for newbuildings or locate suitable vessels or negotiate
acceptable construction or purchase contracts with shipyards and owners, or obtain financing for such acquisitions on economically ac-
ceptable 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. ”
Failure to effectively identify, purchase, develop, employ and integrate any vessels or businesses could negatively affect our competitive-
ness, which in turn could adversely affect our business, financial condition, results of operations, cash flows and our ability to make cash
distributions and service or refinance our debt.
The fees and expenses we pay to Capital Ship Management, a subsidiary of Capital Maritime, for services provided to us are substantial,
fluctuate, cannot be easily predicted and may reduce our cash available for distribution to our unitholders.
28
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 We have entered into three separate technical and commercial management agreements with Capital Ship Management, our Manager,
for the management of our fleet. These include a fixed fee management agreement, a 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 information on the main terms of our three management agreements.
Expenses incurred to manage our fleet 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 increased in the past and may continue to
increase in the future. Rises in any of these costs, to the extent charged to us, will reduce our earnings, cash flows and the amount of cash
available for distribution to our unitholders.
Furthermore, we expect that as the fixed fee management agreement expires for the two remaining vessels to which it currently ap-
plies or as we acquire new vessels, these vessels will be managed under floating fee management agreements on terms similar to
those currently in place. The level of our operating costs is likely to be more volatile under floating fee arrangements than under fixed fee
arrangements. In particular, any increase in the costs and expenses associated with the provision of our Manager’s services, by reason,
for example, of the condition and age of our vessels, costs of crews for our time chartered vessels and insurance, will be borne by us.
The payment of fees to Capital Ship Management and compensation for expenses and liabilities incurred on our behalf, as well as the costs
associated with future drydockings and/or intermediate surveys on our vessels, which can be significant, may adversely affect our business,
financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
We cannot assure you that we will pay any distributions on our units.
Our board of directors determines our cash distribution policy and the level of our cash distributions. Generally, our board of directors
seeks to maintain a balance between the level of reserves it takes to protect our financial position and liquidity against the desirability
of maintaining distributions on our limited partnership interests. We intend to review our distributions from time to time in the light of
a range of factors, including our ability to obtain required financing and access financial markets, the repayment or refinancing of our
external debt, the level of our capital expenditures, our ability to pursue accretive transactions, our financial condition, results of opera-
tions, prospects and applicable provisions of Marshall Islands law.
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 our Class B Units. As of December 31, 2017, there were 12,983,333 Class B
Units issued and outstanding. The minimum quarterly distribution on our Class B Units is $0.21375 per unit, which is equal to $0.86 per
unit per year, until May 22, 2022 and will thereafter increase to a rate that is 1.25 times the then applicable distribution rate on May 22, 2022,
and continue to increase quarterly at a rate of 1.25 times the prior quarterly distribution rate, subject to certain adjustments and a limit of
$0.33345 per Class B Unit, which is equal to $1.3338 per unit per year. Among other consequences, if we fail to pay the minimum Class B
Unit distribution for six or more quarters, the holders of the Class B Units will have the right to appoint a director to our board of directors
and, if such arrearages exist after March 1, 2018, to replace the directors appointed by our General Partner, in each case by the affirmative
vote of the holders of a majority of the Class B Units.
We may not have sufficient cash available each quarter to pay a minimum quarterly distribution on our common units following the pay-
ment of fees and expenses, the establishment by our board of directors of cash reserves, and the declaration of the minimum quarterly
distribution on our Class B Units. In April 2016, in the face of severely depressed trading prices for master limited partnerships, including
us, a significant increase in our cost of capital and potential loss of revenue, our board of directors took the decision to protect our liquidity
position by creating a capital reserve and setting distributions on our common units at a level that our board of directors believed to be
sustainable and consistent with the proper conduct of our business. We have paid significantly less than the minimum quarterly distri-
bution on our common units since the first quarter of 2016. The minimum quarterly distribution is a target set in our limited partnership
agreement. There is no requirement that we make a distribution in this amount.
Our distribution policy from time to time will depend on, among other things, shipping market developments and the charter rates we are
able to negotiate when we re-charter our vessels, our cash earnings, financial condition and cash requirements, and could be affected by a
variety of factors, including increased or unanticipated expenses, the loss of a vessel, required capital expenditures, reserves established by
our board of directors, refinancing or repayment of indebtedness, additional borrowings, compliance with our loan covenants, our anticipat-
ed future cost of capital, access to financing and equity and debt capital markets, including for the purposes of refinancing or repaying exist-
29
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 ing indebtedness, and asset valuations. Our distribution policy may be changed at any time, and from time to time, by our board of directors.
Our ability to make cash distributions is also limited under Marshall Islands law. A Marshall Islands limited partnership cannot make a
cash distribution to a partner to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the limited
partnership (other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors
is limited to specified property of the limited partnership) exceed the fair value of its assets. For purposes of this test, 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 such 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, we may not make cash distributions in certain periods even if we were to record a positive net income
in those periods. Conversely, we may make cash distributions during periods when we record losses.
In the light of the factors described above and elsewhere in this annual report, there can be no assurance that we will pay any distribu-
tions on our units.
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 and do not constitute indebtedness. Our common units rank junior to all indebtedness and other
non-equity claims on us with respect to the assets available to satisfy claims, including in a liquidation of the Partnership. Additionally,
holders of our 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. Therefore, we are prohibited from making distributions on our common units under 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 holders
of our common units. In addition, holders of the Class B Units have the right to convert all or a portion of their Class B Units at any time
into common units. As of December 31, 2017, there were 12,983,333 Class B Units issued and outstanding.
Any reduction in the amount of distributions made on our common units could materially and adversely affect the market price of the
common units.
Since 2011, our board of directors has elected not to deduct cash reserves for estimated replacement capital expenditures from our op-
erating surplus. If this practice continues, our asset base and the income generating capacity of our fleet may be significantly affected.
Our partnership agreement provides that our board of directors shall deduct from operating surplus cash reserves that it determines are
necessary to fund our future operating expenditures, including estimated maintenance capital expenditures. The amount of estimated
maintenance capital expenditures deducted from operating surplus is subject to review and change by our board of directors, provided
that any change must be approved by our conflicts committee.
Replacement capital expenditures are made in order to maintain our asset base and the income generating capacity of our fleet. We
have in the past incurred substantial replacement capital expenditures. Replacement capital expenditures may vary over time as a
result of a range of factors, including 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;
• 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.
Since 2011, our board of directors has elected not to deduct any cash reserves for estimated replacement capital expenditures from our operat-
ing surplus. We account for maintenance capital expenditures required to maintain the operating capacity of our vessels, including any amor-
tization of drydocking costs associated with scheduled drydockings, as part of our operating costs, which are reflected in our operating income.
As a result of this practice, we have become significantly more reliant on our ability to obtain required financing and access the financial
30
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 markets to fund our replacement capital expenditures from time to time. If this practice continues and external funding is not available
to us for any reason, our ability to acquire new vessels or replace a vessel in our fleet to maintain our asset base and our income gener-
ating capacity may be significantly impaired, which would negatively affect our business, financial condition, results of operations, cash
flows and ability to make cash distributions and service or refinance our debt.
As our vessels come up for their scheduled drydockings the number of off-hire days of our fleet will increase and we will incur ex-
penses related to the drydockings and as a result our cash available for distribution to our unitholders may decrease.
Once one of our vessels is drydocked, 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. None of our vessels
was drydocked in 2017. Five of our vessels are scheduled to be drydocked in 2018.
During the drydocking of our vessels, we may incur or may be obligated to reimburse our manager for certain costs, including, among
other things, the installation of the ballast water treatment system for vessels.Consequently, as scheduled drydockings for our vessels
approach, 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 at the time.
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.
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, which could negatively impact our business, financial condition, results of
operations, cash flows and ability to make cash distributions and service or refinance our debt.
Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the related off-hire period.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien
against a vessel for unsatisfied debts, claims or damages. In certain cases, maritime claimants may be entitled to a maritime lien
against a vessel for unsatisfied debts, claims or damages of its manager. In many jurisdictions, a maritime lienholder may enforce its
lien by “arresting” or “attaching” a vessel through foreclosure proceedings. 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. 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, which could adversely affect our business, financial condition, results of operations, cash
flows and ability to make cash distributions and service or refinance our debt.
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
31
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 control of a vessel and becomes the owner. A government could also requisition our vessels for hire. Requisition for hire occurs when a
government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a
period of war or emergency. Government requisition of one or more of our vessels could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to make cash distributions and service or refinance our debt.
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 recent years,
sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia 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 aspects of loss 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 and service or refinance our debt, as well as result in increased costs and decreased cash flows to our charter-
ers impairing their ability to make payments to us under our charters.
Increases in fuel prices could adversely affect our profits.
When our vessels are trading on period charters, our charterers are responsible for the cost of fuel in the form of bunkers. However if
we trade our vessels in the spot market or they are off-hire or during the vessels’ drydocking, we are responsible for the cost of bunkers
consumed, which can be a significant vessel expense. Spot charter arrangements generally provide that the vessel owner, or pool op-
erator where relevant, bear the cost of fuel. Because we do not intend to hedge our fuel costs, an increase in the price of fuel beyond our
expectations may adversely affect our profitability, cash flows and ability to pay cash distributions and service or refinance our debt. The
price and supply of fuel is unpredictable and fluctuates as a result of events outside our control, including geo-political developments,
supply and demand for oil and gas, actions by members of the Organization of the Petroleum Exporting Countries (also known as OPEC)
and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental
concerns and regulations. Changes in the actual price of fuel at the time the charter is to be performed could result in the charter being
performed at a significantly greater cost than originally anticipated and may result in losses or diminished profits.
In addition, the International Maritime Organization confirmed in October 2016 that a global 0.5% sulphur cap on marine fuels will come
into force on January 1, 2020, as stipulated in 2008 amendments to Annex VI to the International Convention for the Prevention of Pollution
from ships (“MARPOL”). See “—Risks Inherent in Our Operations— The maritime transportation industry is subject to substantial envi-
ronmental and other regulations and international standards, which may significantly limit our operations or increase our expenditures”. A
potential shortage of low sulphur marine fuels could drive prices upwards, which could adversely affect our profit margins if our vessels
are being chartered on the spot market or are off-hire or the profit margins of our charterers.
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, opera-
tional flexibility and physical life. Determining a vessel’s efficiency includes considering its speed and fuel economy, while flexibility consider-
ations 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 re-charter our vessels, the amount of charter-hire payments that we receive for our vessels once their current
charters expire and the resale value of our vessels. This could adversely affect our ability to service our debt or make cash distributions.
Matters Related to Investigations of Greek Professional Football (Soccer).
32
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Since 2011, Greek authorities have investigated allegations of match-fixing and other improprieties related to professional football in Greece. Mr.
Evangelos M. Marinakis, our former chairman and the founder and current chairman of Capital Maritime, together with a number of other individu-
als, were identified as subjects of these investigations. Mr. Marinakis has been the principal owner of Olympiacos, a Greek professional football
team, since January 2011 and has served as President of Olympiacos since December 2010. In June 2015, the judge in charge of the investigations
provisionally ordered Mr. Marinakis to report periodically to a police station, deposit €200,000 as security and refrain from football-related activities
pending determination of the charges. Mr. Marinakis has advised us that he cooperated with the investigations and denies any wrongdoing.
Mr. Marinakis has advised us that, in November 2017, the judicial council of the Court of Appeals (the “judicial council”) indicted him,
together with 27 other individuals, for the charge of match-fixing in respect of two soccer matches, as well as, together with seven other
individuals, for the attendant charge of joint criminal enterprise, while unanimously dropping all other charges that had previously been
investigated. The judicial council unanimously rejected imposing provisional custody on Mr. Marinakis; however, the provisional mea-
sures described above continue to apply. The judicial council’s decision was appealed by the Supreme Court deputy public prosecutor in
December 2017. If the appeal is successful the judicial council will re-examine all charges de novo . None of the potential sentences that
the charges carry would require Mr. Marinakis to dispose of his ownership interest in Capital Maritime or us.
Capital Maritime has advised us that it is unable to assess what, if any, reputational and other harm Capital Maritime and we may suffer
as a result of the proceedings described above. For more information on the risks arising from our relationship with Capital Maritime,
see “Item 3.D—Risk Factors—Risk inherent in our operations— 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 dam-
age 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. ”
The vessels that we have acquired or may acquire in the future, from Capital Maritime or third parties, may not meet our design or cost
savings expectations.
Since 2015 we have acquired or agreed to acquire eight vessels from our sponsor Capital Maritime, comprising three newbuild Daewoo
eco-flex containerships, one Aframax crude oil tanker and four newbuild Samsung eco medium range product tankers. These ves-
sels incorporate many technological and design features, such as new hull and propulsion designs, energy saving devices, de-rated
electronic engines and other equipment not previously tested on our other vessels. Certain of these vessels were also constructed at
shipyards and by vessel construction firms with which we have not previously worked. While we expect that 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 ex-
ample, 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 vessels and, in turn, our return on investment on such vessels. As a result, our business, financial condition, results of operations,
cash flows, and ability to make distributions and service or refinance our debt could be adversely affected.
We rely on information systems to conduct our business, and failure to protect these systems against security breaches could have a
material adverse impact on our business, financial condition, results of operations, cash flows and ability to make cash distributions
and service or refinance our debt.
The efficient operation of our business is dependent on information technology systems and networks, which are provided by our Man-
ager. Our operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and
networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety or operation of our
vessels, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of
our information technology systems could have a material adverse impact on our business, financial condition, results of operations,
cash flows and ability to make cash distributions and service or refinance our debt.
RISKS RELATING TO FINANCING ACTIVITIES
We are reliant on our ability to obtain required financing and access the financial markets. Therefore, we may be harmed by any limi-
tation in the availability of external funding, as a result of a contraction or volatility in bank debt or financial markets or for any other
reason. If we are unable to obtain required financing or access the capital markets, we may be unable to grow or maintain our asset
base, pursue other potential growth opportunities or refinance our existing indebtedness.
33
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 We are reliant on our ability to obtain required financing and access the financial markets to operate and grow our business.
However, asset impairments, financial stress, enforcement actions and credit rating pressures experienced in recent years by financial
institutions, in particular in the wake of the 2008 financial crisis, combined with a general decline in the willingness of financial institutions
to extend credit to the shipping industry due to depressed shipping rates and the deterioration of asset values that have led to losses
in many banks’ shipping portfolios, as well as changes in overall banking regulations (including, for example, Basel III) have severely
constrained the availability of credit supply for shipping companies such as us. For example, following heavy losses in its shipping
portfolio and at the EU Commission’s behest, one of our main lenders, state-backed HSH Nordbank AG (“HSH”), must be privatized or
mandatorily wound down.
In addition, our ability to obtain financing or access capital markets to issue debt or equity securities may be limited by (i) our financial
condition at the time of any such financing or issuance, (ii) adverse market conditions affecting the shipping industry, including weaker
demand for, or increased supply of, product tankers, drybulk and container vessels, whether as a result of general economic conditions
or the financial condition of charterers and operators of vessels, (iii) weaknesses in the financial markets, (iv) restrictions imposed by our
credit facilities, such as collateral maintenance requirements, which could limit our ability to incur additional secured financing and (v)
other contingencies and uncertainties, which may be beyond our control. Continued access to external financing and the capital markets
is not assured.
As a result, our ability to obtain financing to fund capital expenditures, acquire new vessels or refinance our existing indebtedness is and
may continue to be limited. If we are unable to obtain additional financing or issue further equity or debt securities, our ability to fund cur-
rent and future obligations may be impaired. In addition, restrictions in the availability of credit supply may result in higher interest costs,
which would reduce our available cash for distributions. Any failure to obtain funds for necessary future capital expenditures, to grow our
asset base or, in time, to refinance our existing indebtedness on terms that are commercially acceptable could have a material adverse
impact on our business, financial condition, results of operations, cash flows and our ability to make cash distributions and service or
refinance our debt, 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 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 prices
environment. A number of MLPs, including certain maritime MLPs and us, have reduced or eliminated their distributions to unitholders.
We rely on our ability to obtain financing and to raise capital in the equity and debt markets to fund our capital replacement, growth and
investment expenditures, and to refinance our debt. A protracted deterioration 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 service or refinance 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 political
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, cash flows and ability to make cash distribution
and service or refinance our debt.
We have incurred significant indebtedness, which could adversely affect our ability to finance our operations, refinance our existing
indebtedness, pursue desirable business opportunities, successfully run our business or make cash distributions.
As of December 31, 2017, our total debt was $475.8 million, consisting of (i) $460.0 million outstanding under our 2017 credit facility and (ii)
$15.8 million outstanding under the 2015 credit facility. Please see “Item 5.B. Liquidity and Capital Resources—Borrowings—Our Credit
Facilities” for further information on our existing facilities.
34
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Our 2017 credit facility is amortizing and is comprised of two tranches. Tranche A, amounting to $259.0 million, is secured by 11 of our
vessels and is required to be repaid in 24 equal quarterly instalments of $4.8 million in addition to a balloon instalment of $143.0 million,
which is payable together with the final quarterly instalment in the fourth quarter of 2023. Tranche B, amounting to $201.0 million, is
secured by 24 of our vessels and is required to be repaid fully in 24 equal quarterly instalments of $8.4 million with the final quarterly
instalment in the fourth quarter of 2023. The loans drawn under the 2017 credit facility bear interest at LIBOR plus a margin of 3.25%.
As of December 31, 2017, the principal repayment schedule under our existing credit facilities was as follows:
Facility
2017 Credit Facility(1)
2015 Credit Facility
Total
(Expressed in millions of United States Dollars)
2018
66.5
0.3
66.8
2019
51.7
1.3
53.0
2020
51.7
1.3
53.0
2021
51.7
1.3
53.0
2022
51.7
11.6
63.3
2023
186.7
—
186.7
Total
460.0
15.8
475.8
(1) The principal repayment schedule of the 2017 credit facility reflects the estimated partial prepayment of $14.8 million of Tranche A
in connection to the sale of the M/T Aristotelis in 2018.
On January 17, 2018, we acquired the eco-type crude tanker “Aristaios” for a total consideration of $52.5 million from Capital Maritime.
We funded the acquisition through available cash and the assumption of a $28.3 million term loan under a credit facility (the “Aristaios
credit facility”) previously arranged by Capital Maritime with Credit Agricole Corporate and Investment Bank and ING Bank NV. The term
loan bears interest at LIBOR plus a margin of 2.85% and is payable in twelve consecutive semi-annual instalments of approximately
$0.9 million beginning in July 2018, plus a balloon payment payable together with the last semi-annual instalment due in January 2024.
In addition, on January 22, 2018, we agreed to acquire, subject to the successful completion of the sale of the M/T Aristotelis, the eco-type MR
product tanker M/T Anikitos for a total consideration of approximately $31.5 million from Capital Maritime. We intend to fund the acquisition
of the M/T Anikitos with the net proceeds to be received from the sale of the M/T Aristotelis, available cash and the assumption of a term
loan under a credit facility previously arranged by Capital Maritime with ING Bank NV in a principal amount equal to approximately 50% of
the vessel’s charter free market value at the time of the dropdown. The term loan is non-amortizing for a period of two years from the an-
niversary of the dropdown with an expected final maturity date in June 2023 and bears interest at LIBOR plus a margin of 2.50%.
Our leverage and debt service obligations could have a significant impact on our operations, including the following:
• amortization expenses under our existing credit facilities may restrict our ability to pay cash distributions to our unitholders, to manage
ongoing business activities and to pursue new acquisitions, investments or capital expenditures;
• our indebtedness will have the general effect of reducing our flexibility to react to changing business and economic conditions and,
therefore, may pose substantial risks to our business and our unitholders;
• in the event that we are liquidated, any of our senior or subordinated creditors and any senior or subordinated creditors of our subsid-
iaries will be entitled to payment in full prior to any distributions to our unitholders;
• our ability to secure additional financing, or to refinance our credit facilities, may be substantially restricted by the existing level of our
indebtedness and the restrictions contained in our debt instruments;
While our leverage is significant, if future cash flows are insufficient to fund capital expenditures and other expenses or investments,
we may need to incur further indebtedness. See “Risks Related to Our Business and Operations— Since 2011, our board of directors has
elected not to deduct cash reserves for estimated replacement capital expenditures from our operating surplus. If this practice continues,
our asset base and the income generating capacity of our fleet may be significantly affected. ”
Any of the risks described above may have a material adverse effect on our business, financial condition, results of operations, cash
flows and ability to make cash distributions and to service or refinance our debt.
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.
Operating and financial restrictions and covenants under our credit facilities and 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 activi-
ties. For example, our credit facilities require the consent of our lenders to, or limit our ability to, among other things:
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
• incur or guarantee indebtedness;
• mortgage, charge, pledge or allow our vessels to be encumbered by any maritime or other lien or any other security interest of any
kind except in the ordinary course of business;
• 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 fees payable under
the management agreements.
Our credit facilities also require us to comply with the International Safety Management Code and to maintain valid safety manage-
ment certificates and documents of compliance at all times. In addition, our credit facilities require us to comply with certain financial
covenants:
• to maintain minimum free consolidated liquidity of at least $500,000 per collateralized vessel;
• to 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
• not to exceed a specified maximum leverage ratio in the form of a ratio of total net indebtedness to (fair value adjusted) total assets of
0.750 in the case of our 2017 credit facility and a ratio of total net indebtedness to the market value of the vessel of 0.725 (in the case of
the 2015 credit facility and the Aristaios facility).
In addition, our credit facilities require that we maintain a minimum security coverage ratio, usually defined as the ratio of the market value
of the collateralized vessels or vessel and net realizable value of additional acceptable security to our outstanding loans under the credit
facility. The security coverage ratio is 125% under our 2017 credit facility, 125% (as long as the vessel is under charter with Tesoro Far East
Maritime Company (“Tesoro”)) and 140% (at all other times) under the Aristaios credit facility and 120% under the 2015 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 (if any) 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 described above. The
global economic downturn that occurred within the past several years, depressed shipping markets, lack of capital in the industry and
prolonged overcapacity had an adverse effect on vessel values. If the estimated asset values of our vessels decrease, we may be obli-
gated to prepay part of our outstanding debt in order to remain in compliance with the relevant covenants in our credit facilities, which
could have a material adverse effect on our business, financial condition, results of operations, cash flows and our ability to make cash
distributions and service or refinance our debt.
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.
Under our credit facilities, we are required to make quarterly amortization payments and an additional balloon payment upon maturity. Please
see “Item 5.B. Liquidity and Capital Resources —Borrowings—Our Credit Facilities ” and “—Risks Relating to Financing Activities —We have
incurred significant indebtedness, which could adversely affect our ability to finance our operations, refinance our existing indebtedness, pursue
desirable business opportunities, successfully run our business or make cash distributions ” for further information on our credit facilities.
To the extent that cash flows are insufficient to make required service payments under our credit facilities or asset cover is inadequate
due to a deterioration in vessel values, we will need to refinance some or all of our credit facilities, replace them with alternate credit
36
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 arrangements or provide additional security. We may not be able to refinance or replace our credit facilities 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
on commercially acceptable terms, or if our operating results are not sufficient to service current or future indebtedness, or to make
relevant principal repayments if necessary, we may be forced to take actions such as reducing or eliminating distributions, reducing
or 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, if any, may terminate. This can adversely affect our ability to ex-
ecute 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 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, pursuant to their terms,
a significant portion of our obligations may become immediately due and payable, and our lenders’ commitment to make further loans
to us, if any, 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, 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 principal on our debt may 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 security coverage ratios or upon the
occurrence of any other event of default.
Events of default under our credit facilities include:
• failure to pay principal or interest when due;
• breach of certain undertakings, negative covenants and financial covenants contained in the credit facility, any related security docu-
ment or guarantee or the interest rate swap agreements, including failure to maintain unencumbered title to any of the vessel owning
subsidiaries or any of the assets of the vessel-owning subsidiaries and failure to maintain proper insurance;
• any breach of the credit facility, any related security document or guarantee or the interest rate swap agreements (other than breaches
described in the preceding two bullet points) if, in the opinion of the lenders, such default is capable of remedy and continues unrem-
edied following prior written notice of the lenders for a period of 14 days;
• any representation, warranty or statement made by us in the credit facility or any drawdown notice thereunder or related security docu-
ment or guarantee or the interest rate swap agreements is untrue or misleading when made;
• a cross-default of our other indebtedness of $5.0 million or greater;
• 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 $5.0 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 guaran-
tee 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, if we decide to enter into such agreements in the
future;
• termination of any interest rate swap agreements or an event of default thereunder that is not timely remedied, if we decide to enter
into such agreements in the future;
• invalidity of a security document in any material respect or if any security document ceases to provide a perfected first priority security interest;
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • failure by key charter parties, such as HMM, CMA CGM, Petrόleo Brasileiro S.A. (“Petrobras”), and Capital Maritime 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 interest rate
swap agreements.
Certain dealings in connection with sanctioned countries could also trigger a mandatory prepayment event. See “—Risk Inherent in Our
Operations— Our vessels may be chartered or sub-chartered to parties, or call on ports, located in countries that are subject to restrictions
and sanctions imposed by the United States, the European Union and other jurisdictions .”
We anticipate that any subsequent refinancing of our current debt or any new debt could have similar or more onerous restrictions. Please
see “Item 5.B. Liquidity and Capital Resources—Borrowings—Our Credit Facilities” for further information on our existing facilities.
RISKS INHERENT IN OUR OPERATIONS
We currently derive all of our revenues from a limited number of charterers and the loss of any charterer or charter or vessel could
result in a significant loss of revenues and cash flows.
We have derived, and expect that we will continue to derive, all of our revenues and cash flows from a limited number of charterers. For
the year ended December 31, 2017, our charterers who individually accounted for more than 10% of total revenues were Petrobras, Capi-
tal Maritime, HMM and CMA CGM who accounted for 19%, 18%, 18% and 17% of our revenues, respectively. For the year ended December
31, 2016, HMM, Petrobras, CMA CGM and Capital Maritime accounted for 19%, 18%, 17% and 15% of our revenues, respectively. For the
year ended December 31, 2015, Capital Maritime and HMM accounted for 29% and 21% of our revenues, respectively.
We could lose a charterer, including charterers who individually account for more than 10% of our total revenues or the benefits of some
or all of our charters, including in the following circumstances:
• the charterer is unable or unwilling to perform its obligations under the charters, including the payment of the agreed rates in a timely
manner;
• the charterer faces financial difficulties forcing it to declare bankruptcy or to restructure its operations or default under the charters;
• the charterer fails to make charter payments because of its financial inability or its inability to trade our and other vessels profitably or
due to the occurrence of losses due to the weaker charter markets;
• the charterer fails to make charter payments due to distress, disagreements with us or otherwise;
• the charterer seeks to renegotiate the terms of the charter agreement due to prevailing economic and market conditions or due to its
continued poor performance;
• the charterer exercises certain rights to terminate the charter or purchase the vessel;
• the charterer terminates the charter because we fail to comply with the terms of the charters, 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;
• a prolonged force majeure event affecting the charterer, including damage to or destruction of relevant production facilities, war or
political unrest prevents us from performing services for that customer; or
• the charterer 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.
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 addition, some of our char-
terers including HMM, Petrobras and CMA-CGM have been reported to be under significant financial pressure. Please read “Item 4B: Business
Overview—Our Charterers” and “—Our Charters” for further information on our charterers. See also “—Risks Related to the Container Carrier
Industry— Many of our container vessels are under time charters at rates that are at a substantial premium to the spot and period markets, and
our charterers’ failure to perform under our time charters could result in a significant loss of expected future revenues and cash flows. ”
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
38
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 to enter into costly and lengthy legal proceedings in order to reserve our rights. Until such time as the vessel is re-chartered, 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.
If a charterer 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. 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
charterers, time or bareboat charters or vessels, or a decline in payments under our charters, could have a material adverse effect on our
business, financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
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.
As of December 31, 2017, eight of our 36 vessels were under charter or were expected to commence charters with Capital Maritime. In
the future we may enter into additional contracts with Capital Maritime to charter our vessels as they become available for re-chartering.
Capital Maritime is subject to the same risks and market fluctuations as all other charterers. In the event that 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
business, financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
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 man-
agement of our vessels, class certifications, vessel maintenance and crewing, purchasing and insurance and shipyard supervision), as
well as administrative, financial and other support services to us. Please read “Item 4B: Business Overview—Our Management Agree-
ments” 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 that 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, this could adversely affect our business, financial condition, results of operations, cash flows and ability to make
cash distributions and service our debt.
Our ability to enter into new charters and expand our relationships with charterers 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, for
example, as a result of Capital Maritime or its owners, directors or employees failing to comply with applicable law or regulation or as
a result of the circumstances described in “—Risks Related to our Business and Operations— Matters Related to Investigations of Greek
Professional Football (Soccer) ,” it may harm our ability to:
• renew existing charters upon their expiration;
• obtain new charters;
• successfully interact with shipyards during periods of shipyard construction constraints;
• obtain financing on commercially acceptable terms or access capital markets; or
• maintain satisfactory relationships with suppliers and other third parties.
Finally, we may also contract with Capital Maritime for it to have newbuildings constructed on our behalf and to incur the construction-
related financing, and we would purchase the vessels on or after delivery based on an agreed-upon price. If Capital Maritime is unable
to meet the payments under any such contract we enter into, it could have a material adverse effect on our business, financial condition,
results of operations and cash flows and our ability to make cash distributions or service or refinance our debt.
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 de-
39
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 velop 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 assess-
ment reports. In the case of term charter relationships, additional factors are considered when awarding such contracts, including:
• office assessments and audits of the vessel operator;
• the operator’s environmental, health and safety record;
• compliance with the standards of the International Maritime Organization;
• compliance with heightened industry standards that have been set by several oil companies;
• shipping industry relationships, reputation for customer service, technical and operating expertise;
• compliance with oil majors’ codes of conduct, policies and guidelines, including transparency, anti-bribery and ethical conduct require-
ments and relationships with third parties;
• shipping experience and quality of ship operations, including cost-effectiveness;
• quality, experience and technical capability of crews;
• the ability to finance vessels at competitive rates and overall financial stability;
• relationships with shipyards and the ability to obtain suitable berths;
• construction management experience, including the ability to procure on-time delivery of new vessels according to customer speci-
fications;
• 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 business, financial condition,
results of operations, cash flows and ability to make cash distributions and service or refinance our debt. Please read “Item 4B: Business
Overview—Major Oil Company Vetting Process” for more information regarding this process.
As our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters, comply with
debt covenants or raise financing. In addition, if we purchase and operate second hand vessels, we will be exposed to increased operat-
ing costs, which could adversely affect our earnings.
Our fleet had an average age of approximately 8.4 years as of December 31, 2017. In general, the costs of maintaining 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. In addition, cargo insurance rates increase with the age of a vessel, making older
vessels less desirable to charterers. Older vessels might also require higher capital expenditure to comply with regulations that came
into force after their construction and their values might depreciate faster than more modern vessels. As a result, an ageing fleet might
affect our ability to remain in compliance with bank covenants and/or raise financing.
If we purchase secondhand vessels, we will not have the same knowledge about their condition as the knowledge we have about the
condition of the vessels that are built for and operated solely by us. Generally, we will not receive the benefit of warranties from the
builder for any secondhand vessel that we may acquire.
If we are unable to obtain profitable charters due to an aging fleet, this could adversely affect our business, financial condition, results of
operations, cash flows and ability to make cash distributions and service our debt.
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
and service or refinance our debt.
Our ability to expand the size of our fleet or maintain our asset base by replacing aging vessels in the future will depend on our ability to
acquire new vessels on favorable terms. Depending on our ability to obtain required finance and access financial markets, we expect to
enter into agreements with Capital Maritime or other third parties to purchase newly built vessels or other modern vessels (or interests
in vessel owning companies). See “—Risks Related to Our Financing Activities— We are reliant on our ability to obtain required financing
40
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 and access the financial markets. Therefore, we may be harmed by any limitation in the availability of external funding, as a result of a
contraction or volatility in bank debt or financial markets or for any other reason. If we are unable to obtain required financing or access the
capital markets, we may be unable to grow or maintain our asset base, pursue other potential growth opportunities or refinance our exist-
ing indebtedness and —Risk Related to Our Business and Operations— 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 asset base and income generating
capacity of our fleet may be significantly affected.”
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, cash flows and our ability to make cash distributions and service
or refinance our debt.
If we finance the purchase of any additional vessels or businesses we acquire in the future through cash from operations, by increasing
our indebtedness or by issuing debt or equity securities, our ability to make or increase our cash distributions may be diminished, our
financial leverage could increase or our unitholders could be diluted. In addition, if we expand the size of our fleet by directly contracting
newbuildings in the future, we will generally 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, 2017, our fleet consisted of 36 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 ad-
ditional equity securities. We also acquired additional vessels through the acquisition of Crude Carriers in 2011. If we issue additional
common units, Class B Units or other equity securities to finance the acquisition of a vessel or business, your ownership interest in us
may be diluted. Please read “Item 3.D: 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, depending on our ability to obtain required financing and access the financial markets, we determine to expand our fleet by enter-
ing 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 re-
duce cash available for distributions to unitholders. If we finance these acquisitions by issuing debt or equity securities, we will increase
the aggregate amount of interest payments or quarterly distributions we must make prior to 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
capital through the sale of debt or additional equity securities. Use of cash from operations will reduce cash available for distributions
to unitholders. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash
distributions to unitholders. Incurring additional debt may significantly increase our interest expense and financial leverage, and issuing
additional equity securities may result in significant unitholder dilution and would increase the aggregate amount of cash required to
fund our quarterly distributions to unitholders, which could have a material adverse effect on our ability to grow or make cash distribu-
tions. 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. ”
Political and government instability, terrorist or other attacks, war or international hostilities can affect the industries in which we oper-
ate, which may adversely affect our business.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 and service or refinance our debt may be adversely affected by the effects of political instability, terrorist or other at-
tacks, war or international hostilities. Terrorist attacks, such as the attacks on the United States on September 11, 2001 and recently in
Europe, the recent conflicts in Iraq, Afghanistan, Syria and Ukraine, other current and future conflicts, and the continuing response of
the Western countries to these attacks, as well as the threat of future terrorist attacks, continue to contribute to world economic instabil-
ity and uncertainty in global financial markets. 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 un-
certainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all.
In the past, political instability has also resulted in attacks on vessels, such as the attack on the M/T Limburg in October 2002, mining of
waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have
also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. In addition, oil facili-
ties, shipyards, vessels, pipelines and oil and gas fields could be targets of future terrorist attacks. Any such attacks could lead to, among
other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs,
and the inability to transport oil and other refined products to or from certain locations. Any of these occurrences or other events beyond
our control that adversely affect the distribution, production or transportation of oil and other refined products to be shipped by us could
entitle our charterers 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 and service or refinance our debt.
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 of these events or circum-
stances may interfere with the operation of our vessels, which could harm our business, financial condition, results of operations, cash
flows and ability to make cash distributions and service or refinance our debt. Our operations may also be adversely affected by expro-
priation of vessels, taxes, regulation, tariffs, trade embargoes, economic sanctions or a disruption of, or limit to trading activities, or other
adverse events or circumstances in or affecting the countries and regions where we operate or where we may operate in the future.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and anti-corruption laws in
other applicable jurisdictions.
As an international shipping company, we may operate in countries known to have a reputation for corruption. The U.S. Foreign Corrupt Prac-
tices 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 busi-
ness. 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 govern-
mental action”) and covers bribes and payments to private businesses as well as foreign public officials. We and our charterers may be subject
to these and similar anti-corruption laws in other applicable jurisdictions. Failure to comply with such legal requirements could expose us to
civil and/or criminal penalties, including fines, prosecution and significant reputational damage, all of which could materially and adversely af-
fect our business, including our relationships with our charterers, results of operations, cash flows and ability to make cash distributions and
service or refinance our debt. Compliance with the FCPA, the U.K. Bribery Act and other applicable anti-corruption laws and related regulations
and policies imposes potentially significant costs and operational burdens. Moreover, the compliance and monitoring mechanisms that we
have in place, including our Code of Business Conduct and Ethics, which incorporates our anti-bribery and corruption policy, may not adequately
prevent or detect possible violations under applicable anti-bribery and anti-corruption legislation.
Our vessels may be chartered or sub-chartered to parties, or call on ports, located in countries that are subject to restrictions and sanc-
tions 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 targeted by
economic sanctions and embargoes imposed by the United States, the European Union and other jurisdictions, and a number of those
countries, currently North Korea, 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.
42
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 With regard to Iran, significant sanctions relief was implemented in January 2016 in accordance with the agreement among the perma-
nent 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 Comprehensive
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 per-
sons and entities and transactions that implicate U.S. jurisdiction remain subject to sanctions.
Activities permissible under the JCPOA have not actually been repealed or permanently terminated by the United States at this time.
Rather, the U.S. government has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions
provisions; (2) committing to refrain from exercising certain discretionary sanctions authorities; (3) removing certain individuals and enti-
ties from sanctions lists; and (4) revoking certain Executive Orders and specified sections of Executive Orders. These sanctions will not be
permanently “lifted” under the current U.S. law until at least the earlier of October 18, 2023, and a report from the International Atomic En-
ergy Agency stating that all nuclear material in Iran is being used for peaceful activities. Upon the occurrence of either event, the United
States will remove additional Iranian parties from the sanctions lists, and will seek legislative action as may be appropriate to terminate
the statutory sanctions covered by the JCPOA. Today, while non-U.S. companies may engage in certain business or trade with Iran that
was previously sanctionable, the United States has the ability to re-impose sanctions against Iran if Iran does not comply with its obliga-
tions under the nuclear agreement or to impose new sanctions to address different conducts or threats that may be presented by Iran.
We are mindful of the restrictions contained in the various 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 coun-
tries and persons and entities. We believe that we are currently in compliance with all applicable economic sanctions laws and regulations.
We generally do not do business in sanctions-targeted jurisdictions unless an activity is authorized by the appropriate governmental
or other sanctions authority. Except as otherwise described below, we and our general partner and its affiliates have not entered into
agreements or other arrangements with the governments or any governmental entities of sanctioned countries, and we and our gen-
eral partner and its affiliates do not have any direct business dealings with officials or representatives of any sanctioned governments
or entities. In addition, our charter agreements include provisions that restrict trades of our vessels to countries or to sub-charterers
targeted by economic sanctions unless such trades involving sanctioned countries or persons are permitted under applicable economic
sanctions and embargo regimes. Although we have various policies and controls designed to help ensure our compliance with these
economic sanctions and embargo laws, it is nevertheless possible that third-party 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.
In order to help maintain our compliance with applicable sanctions and embargo 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. In 2017, our vessels under time or voyage charter
contracts made 1,888 total calls on worldwide ports. None of the vessels in our fleet made any port calls in Cuba, Syria, Crimea or North Korea.
In 2017, vessels owned by CPLP and chartered under time charter parties to Product & Crude Tanker Chartering Inc. (“PCTC”), a subsidiary of
CMTC, our sponsor and the sole member of our general partner, made the following port calls to Iran and Sudan: four port calls to Iran to load
crude oil, three port calls to Iran to discharge vegetable oils and two port calls to Sudan to discharge palm and vegetable oils. In addition, in 2017,
our vessel, the M/T Aiolos, made a port call to Sudan to discharge fuel oil while employed under a voyage charter to an unaffiliated third party.
These port calls represented approximately 0.5% of the total port calls made by all the vessels owned by CPLP in 2017. They each occurred
while the respective vessel was chartered out to an unaffiliated charterer or sub-charterer under the instructions of such charterer or sub-
charterer. With respect to the vessels chartered out to PCTC, as the vessel owner, we earned revenues at the agreed daily charter rates
from PCTC under the applicable time charters. PCTC in turn earned revenues at the agreed freight or hire rate from the sub-charterers
that employed the vessels. CPLP’s aggregate revenue attributable to the number of days that our vessels under time charters remained
in ports in Iran or Sudan and the port call made by the M/T Aiolos in Sudan described above was approximately $1.5 million, representing
approximately 0.6% of our total revenues during the year ended December 31, 2017. We do not attribute profits to specific voyages.
Further, in 2017, vessels owned or chartered-in by CMTC (including the vessels chartered-in from CPLP by PCTC under time charters as
described above) made the following port calls to Iran and Sudan: 12 port calls to Iran to load crude oil, five port calls to Iran to discharge
vegetable oils, one port call to Sudan to load molasses and two port calls to Sudan to discharge palm and vegetable oils.
These port calls represented 1.7% of the total port calls made by all the vessels owned or chartered-in by CMTC in 2017. They each oc-
43
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 curred while the respective vessel was chartered out to an unaffiliated charterer or sub-charterer under the instructions of such char-
terer or sub-charterer. The aggregate revenue attributable to the number of days that the vessels under time charters remained in ports
in Iran or Sudan and port calls in Iran and Sudan made by vessels under voyage charters to unaffiliated charterers or sub-charterers
was approximately $35.2 million, representing approximately 10.0% of CMTC’s total revenues during the year ended December 31, 2017.
CMTC does not attribute profits to specific voyages.
As part of the voyage charter arrangements between CMTC and third-party charterers or sub-charterers, CMTC 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
or sub-charterer, which in 2017 did not include any payments for refueling or bunkers for the vessels making such port calls.
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. See also “Item 4B: Business Overview—Regulation” for informa-
tion on the port calls made by certain our vessels and those of our affiliates to Iran.
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 seek 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.
Should one of our charterers engage in actions that involve us or our vessels and that may, if completed, represent material violations of
economic sanctions and embargo laws or regulations, we would rely on our monitoring and control systems, including documentation,
such as bills of lading, regular check-ins with the crews of our vessels and electronic tracking systems on our vessels to detect such
actions on a prompt basis and seek to prevent them from occurring.
Notwithstanding the above, it is possible that new, 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 inves-
tors 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 oth-
erwise amended. Any violation of sanctions or engagement 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 or our affiliates may do business with charterers or sub-charterers that do business in sanctioned
countries, or because of port calls of our vessels to ports of sanctioned countries, which could have a negative effect on the price of our
common units or our ability to make distributions on our common units. Moreover, our charterers may violate applicable sanctions and
embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively
affect our 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 vessels from making any calls at certain ports, which potentially could have a nega-
tive impact on our business and results of operations.
Finally, under our 2017 credit facility, if revenues we derive from business or transactions in connection with Cuba, Iran, Myanmar
(Burma), North Korea, Sudan, Crimea-Sevastopol and/or Syria in any given year exceed 20% of our aggregate revenues (unless such
revenues are less than 25% of our aggregate revenues and are forecasted to be less than 20% of our aggregate revenues for the fol-
lowing year) or the aggregate number of port calls to those countries represent more than 5% of our total port calls, our 2017 credit
facility may be terminated at the option of the lenders. If that were to happen, we would be required to repay immediately the total debt
outstanding under our 2017 credit facility and any other loans which may, as a result, be accelerated.
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.
44
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Our vessels and their cargoes are at risk of being damaged or lost because of events such as:
• marine disasters;
• bad weather;
• mechanical failures;
• grounding, fire, explosions and collisions;
• piracy;
• human error; and
• war and terrorism.
An accident involving any of our vessels could result in any of the following:
• environmental damage, including liabilities and costs to recover spilled oil or other petroleum products, and to pay for environmental
damage and ecosystem restoration where the spill occurred;
• death or injury to persons, or loss of property;
• delays in the delivery of cargo;
• loss of revenues from, or termination of, charter contracts;
• governmental fines, penalties or restrictions on conducting business;
• higher insurance rates; and
• damage to our reputation and customer relationships generally.
Any of these results could have a material adverse effect on our business, financial condition, operating results and ability to make cash
distributions and to service or refinance our debt.
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our net cash
flows and net income.
The hull and machinery of every commercial vessel must be certified as being “in class” by a classification society authorized by its
country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and
regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may
be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. We expect
our vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also
required to be drydocked every two to three years for inspection of its underwater parts.
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 and to service or refinance our debt.
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 have contracted revenue protection insurance for
the MV ‘Cape Agamemnon’ but we otherwise do not currently maintain off-hire insurance covering loss of revenue during extended
vessel off-hire periods such as may occur while a vessel is under repair. Accordingly, any extended vessel off-hire due to an accident or
otherwise could have a materially adverse effect on our business, financial condition, operating results and ability to make cash distri-
butions and to service or refinance our debt. 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 3.D: Risk
Factors—Risks Inherent in Our Operations— We will be subject to funding calls by our protection and indemnity associations, and our as-
sociations 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 .”
45
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 subsidiaries of International Seaways, Inc. (“INSW”) which was spun off
from Overseas Shipholding Group Inc. (“OSG”) on November 30, 2016. 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, financial condition, results of operations, cash flows, and ability to make cash
distributions and service or refinance our debt. 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 ob-
tain. In addition, the insurance that may be available to us may be significantly more expensive than our existing coverage.
We will be subject to funding calls by our protection and indemnity associations, and our associations may not have enough resources
to cover claims made against them, resulting in potential unbudgeted supplementary liability to fund claims made upon 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 expenditures.
Our operations are affected by extensive and changing international, national and local environmental protection laws, regulations, trea-
ties, conventions and standards in force in international waters, the jurisdictional waters of the countries in which our vessels operate,
as well as the countries of our vessels’ registration. Many of these requirements are designed to reduce the risk of oil spills, 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
clean up 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 dam-
age claims and natural resource damages relating to the release of, or exposure to, hazardous materials associated with our current or
historic operations. Violations of or liabilities under environmental requirements also can result in substantial penalties, fines and other
sanctions including, in certain instances, seizure or detention of our vessels.
MARPOL Annex VI
Under MARPOL Annex VI, all ships trading in designated emission control areas are required to use fuel oil on board with a sulfur content
of no more than 0.10%, while the current limit for sulfur content of fuel oil outside emission control areas is 3.50%. In October 2016, the
International Maritime Organization confirmed that a global 0.5% sulphur cap on marine fuels will come into force on January 1, 2020,
as stipulated in amendments to Annex VI adopted in 2008. Annex VI sets progressively stricter regulations to control sulphur oxides
(SOx) and nitrous oxides (NOx) emissions from ships, which present both environmental and health risks. The 0.5% sulphur cap marks
a significant reduction from the current global sulphur cap of 3.5%, which has been in force since January 1, 2012.
To satisfy the new requirements of Annex VI, vessel owners who continue to use fuel types which exceed the 0.5% sulphur limit will
be required to retrofit an approved exhaust gas cleaning system (also known as a “scrubber”) to remove sulphur from exhaust, which
46
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 may require substantial capital expenditure and prolonged off-hire of the vessel. Alternatively, vessel owners may use petroleum fuels,
such as marine gasoil (“MGO”), which meet the 0.5% sulphur limit. According to Clarksons Shipping Intelligence Network, the premium
of MGO over 380 CST 3.5% bunker fuel in Rotterdam has averaged US$244 per ton over the last five years. Depending on the vessel type
and size, this could translate into a substantial increase in the cost of bunkers. Bunker cost could further increase if the refining sector is
unable to cope with the higher distillate demand, resulting in a tight distillate market and wider spread between high sulfur fuel oil and
MGO. Retrofitting vessels for the consumption of alternative fuels, such as LNG, methanol, biofuels or liquefied petroleum gas (“LPG”),
would involve a substantial capital expenditure and may be uneconomical or infeasible for most conventional vessel types in light of
current technology and design challenges. To the extent that we do not retrofit our vessels with approved exhaust gas cleaning systems
and, as a result, our charterers under time and bareboat charters are required to use more expensive fuels meeting the 0.5% sulphur
limit or we seek to pass on higher bunker costs to charterers under voyage charters, this may reduce demand for our vessels, impair
our ability to re-charter our vessels at competitive rates or to re-charter our vessels at all, and have a material adverse effect on our
business, financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance our debt.
Ballast Water Management
The IMO ballast water management convention (the “BWM convention”) came into force on September 8, 2017. The BMW convention
requires vessels constructed before September 8, 2017 to fit ballast water treatment systems (“BWTS”) before their first International
Oil Pollution Prevention Certificate (IOPP Certificate) renewal conducted after September 8, 2019. All vessels need to be certified in ac-
cordance with the BWM convention by September 8, 2024. This certification entails ballast water management plans to be approved by
the flag state and surveyors in attendance onboard for survey and issuance of ballast water management certificates. We expect to incur
additional expenditures for such certification.
In addition to the International Maritime Organization’s requirements, installation of BWTS will be required for vessels entering U.S.
jurisdictions as the U.S. Coast Guard (the “USCG”) requires the installation of BWTS at the first scheduled dry-docking conducted after
January 1, 2016. As BWTS have only recently been approved by the USCG and were not available in 2017, we have obtained extensions for
the majority of our vessels with dry-docking due dates up to and including 2018 to carry out installation of BWTS at the next dry-docking
survey after December 31, 2018.
As of December 31, 2017, only 12 of our 36 vessels were equipped with BWTS. While it is difficult to determine the costs of fitting BWTS
(including, among other things, design, equipment and installation costs), we currently estimate that total capital expenditure associated
with equipping our remaining vessels with BWTS will amount to approximately $20 million between 2019 and 2023.
International Convention for the Safety of Life at Sea
New requirements pursuant to the International Convention for the Safety of Life at Sea (“SOLAS”) necessitate installation of electronic
chart display and information system (“ECDIS”) equipment for certain types of vessels at the first radio survey carried out after July 1,
2015. For container vessels, this requirement comes into force for their first radio survey after July 1, 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
we may incur additional expenditure to comply with this regulation. Furthermore, recent rule changes to ECDIS performance standards
as from September 1, 2017, may necessitate replacement of ECDIS equipment in case their upgrade is not possible. If that happens, this
replacement might require increased capital expenditure for certain of our vessels.
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. The United States Oil Pollution Act of 1990 (“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. Cer-
tain coastal states in the United States, especially on the Pacific coast, have enacted their own stricter pollution prevention, liability and
response laws, many providing for strict or unlimited liability.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 In addition to complying with existing laws and regulations and those that may be adopted, ship-owners may incur significant additional
costs in meeting new maintenance, training and inspection requirements, in developing contingency arrangements for potential spills
and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental require-
ments, 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.
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 (“VGP”) from the USCG in compliance with the Federal Water Pollution Control Act (the “Clean Water Act”) regulating,
among other things, the discharge of ballast water and other discharges into U.S. waters. Permit holders must also comply with detailed
operational, maintenance, reporting and recordkeeping permit requirements.
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 expenditures. Additionally,
new environmental regulations with respect to greenhouse gas emissions and preservation of biodiversity among others, may arise out
of commitments made at international conferences such as periodic G8 and G20 summits through international environmental agree-
ments and United Nations Climate Change Conferences and through other multilateral or bilateral agreements.
Furthermore, as a result of marine accidents we believe that regulation of the shipping industry will continue to become more stringent
and more expensive for us and our competitors. 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, financial condi-
tion, operating results and ability to make cash distributions and to service or refinance our debt.
Please read “Item 4B: Business Overview—Regulation” for more information on 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, 2017, expires
on July 31, 2018. 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 success-
fully extend or renegotiate our collective bargaining agreement when it expires. If we fail to extend or renegotiate our collective bargain-
ing agreement, if disputes with our union arise, or if our unionized workers engage in a strike or other work stoppage or interruption,
we could experience a significant disruption of our operations, which could have a material adverse effect on our business, financial
condition, results of operations, cash flows and ability to pay cash distributions and service or refinance our debt.
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,
financial condition, results of operations, cash flows and ability to pay cash distributions and service or refinance our debt.
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 destination
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 charterers 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
48
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 business, financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance our debt.
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, financial condition, results of operations, cash flows and ability to make
distributions and service or refinance our debt.
RISKS INHERENT IN AN INVESTMENT IN US
Capital Maritime and its affiliates may engage in competition with us.
Pursuant to the amended and restated omnibus agreement that we and Capital Maritime have entered into, 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 greater than or equal to 30,000 dwt under time or bareboat charters with a remaining duration, excluding any extension op-
tions, of at least 12 months without the consent of our General Partner or our board of directors 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 the amended and restated omnibus agreement, without first offering such tanker vessel to Capital Maritime.
Furthermore, we granted Capital Maritime a right of first offer on the disposal of product and crude oil tankers with a carrying capacity under
30,000 dwt, whereas Capital Maritime granted us a right of first offer on any disposal or re-chartering of any product and crude oil tanker with
a carrying capacity greater than or equal to 30,000 dwt owned or acquired by Capital Maritime or any of its controlled affiliates (other than us).
The omnibus agreement contains significant exceptions that may allow Capital Maritime and its controlled affiliates to compete with us,
which could harm our business. It also does not apply to container and drybulk vessels. Please read “Item 7B: Related-Party Transac-
tions” for further information.
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 one of our largest charterers in revenue terms, with eight of our 36 ves-
sels chartered or expected to commence charters to Capital Maritime as of December 31, 2017. 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 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. 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. Any and
all elected directors may be removed with cause only by the affirmative vote of a majority of the other elected directors or at a properly
called meeting of the common unit holders by the affirmative vote of the holders of a majority of the outstanding common units.
The holders of the Class B Units have voting rights that are identical to the voting rights of the common units on an as converted basis
and will vote with the common units as a single class on all matters with respect to which our common units are entitled to vote, pro-
49
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 vided, however, that except in the circumstances where we are in arrears in the payment of the minimum quarterly distribution on the
Class B Units, holders of Class B Units have no right to vote for, elect or appoint any director, or to nominate any individual to stand for
election or appointment as a director. If we fail to pay the minimum Class B Unit distribution for six or more quarters, the holders of the
Class B Units will have the right to appoint a director to our board and, if and as long as such arrears exists after March 1, 2018, to replace
the directors appointed by our General Partner, in each case by the affirmative vote of the holders of a majority of the Class B Units,
subject to exceptions and conditions contained in our partnership agreement.
Furthermore, the partnership agreement contains provisions limiting the ability of 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, our Class B unitholders voting together as a single
class and a majority vote of our board of directors. Currently, 106,670,714 common units representing 83.8% of our common units and 12,983,333
Class B Convertible Preferred Units are owned by non-affiliated public unitholders, representing 83.9% interest in us on an as converted basis.
Our partnership agreement further restricts unitholders’ voting rights by providing that if any person or group, other than our General
Partner, its affiliates, their transferees and persons who acquired such units with the prior approval of our board of directors, 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 unitholders, calculating required
votes, except for purposes of nominating a person for election to our board, determining the presence of a quorum or for other similar
purposes, unless required by law. The voting rights of any such unitholders in excess of 4.9% will be redistributed pro rata among the
other unitholders of the same class holding less than 4.9% of the voting power of that class. As affiliates of our General Partner, Capital
Maritime and Crude Carriers Investments Corp. (“Crude Carriers Investments”) are not subject to such limitation and will be attributed
their pro rata share of any units reallocated as a result of such limitation. Further, this limitation does not apply to unitholders who ac-
quires more than 5% of any class of units then outstanding with the prior approval of our board of directors, which, for the avoidance of
doubt, includes the issuance of our Class B Units and the common units issued upon the conversion of our Class B Units.
As of December 31, 2017, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to beneficially
own on a fully converted basis a 16.1% interest in us (17.7% on a non-fully converted basis), through, among others, Capital Maritime,
which may be deemed to beneficially own a 13.8% interest in us, including 17,291,768 common units and a 1.7% interest in us (1.9% 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 2.3% interest in us.
Our General Partner and its affiliates own a significant interest in us and have conflicts of interest and limited fiduciary and contractual
duties, which may permit them to favor their own interests to your detriment.
Our General Partner is in charge of our day-to-day affairs consistent with policies and procedures adopted by and subject to the direction of our
board of directors. Our General Partner and its affiliates and our directors have a fiduciary duty to manage us in a manner beneficial to us and our
unitholders. Units owned by affiliates of our General Partner have the same rights as our other outstanding units of the same class (other than
the 5% limit on voting rights, which does not apply to our General Partner and its affiliates; see “— Unitholders have limited voting rights and our
partnership agreement restricts the voting rights of unitholders owning 5% or more of our units .”). However, the officers of our General Partner
have a fiduciary duty to manage our General Partner in a manner beneficial to Capital Maritime. Furthermore, all of the officers of our General
Partner and one of our directors are directors or officers of Capital Maritime and its affiliates, and as such they have fiduciary duties to Capital
Maritime that may cause them to pursue business strategies that disproportionately benefit Capital Maritime or which otherwise are not in the
best interests of us or our unitholders. Conflicts of 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 affili-
ates may favor their own interests over the interests of our unitholders. Please read “Item 3.D: 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 one 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;
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • our General Partner and our directors have limited their liabilities and restricted their fiduciary duties under the laws of the Republic of
the Marshall Islands, while also restricting the remedies available to our unitholders, and, as a result of purchasing our units, unithold-
ers are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our General
Partner and our directors, all as set forth in the partnership agreement;
• our General Partner and our board of directors will be involved in determining the amount and timing of our asset purchases and sales,
capital expenditures, borrowings, and issuances of additional partnership securities and reserves, each of which can affect the amount
of cash that is available for distribution to our unitholders;
• our General Partner may have substantial influence over our board of directors’ decision to cause us to borrow funds in order to permit
the payment of cash distributions, even if the purpose or effect of the borrowing is to make incentive distributions;
• our General Partner is entitled to reimbursement of all reasonable costs incurred by it and its affiliates for our benefit;
• our partnership agreement does not restrict us from paying our General Partner or its affiliates for any services rendered to us on
terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf; and
• our General Partner may exercise its right to call and purchase our outstanding units if it and its affiliates own more than 90% of our
common units.
Although a majority of our directors are elected by common unitholders, our General Partner has a substantial influence on decisions
made by our board of directors. Please read “Item 6: Directors, Senior Management and Employees.”
Generally, the vote of a majority of our common unitholders, including affiliates of our General Partner, is required to amend the terms
of our partnership agreement. Affiliates of our General Partner 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, subject to certain exceptions,
the votes of holders of Class B Units voting on an as-converted basis) is required in order to reach certain decisions or actions, including:
• amendments to the definition of available cash, operating surplus and adjusted operating surplus;
• elimination of the obligation to hold an annual general meeting;
• removal of any appointed director for cause;
• the ability of the board of directors to cause us to sell, exchange or otherwise dispose of all or substantially all of our assets;
• 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 out 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 necessary or ap-
propriate in connection with the authorization and issuance of any class or series of our securities.
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 (if any).
As of December 31, 2017, the Marinakis family, including Mr. Evangelos M. Marinakis, our former chairman, may be deemed to benefi-
cially own on a fully converted basis a 16.1% interest in us (17.7% on a non-fully converted basis), through, among others, Capital Mari-
time, which may be deemed to beneficially own a 13.8% interest in us, consisting of 17,291,768 common units and our General Partner’s
1.7% interest, and Crude Carriers Investments, which may be deemed to beneficially own a 2.3% interest in us.
Affiliates of our General Partner are not subject to the limitations on voting rights imposed on our other limited partners and would be
attributed their pro rata share of any units reallocated as a result of such limitations.
Affiliates of our General Partner may favor their own interests in any vote by our unitholders. These considerations may significantly im-
pact any vote under the terms of our partnership agreement and may significantly affect your rights under our partnership agreement.
Please also read “Item 3.D: Risk Factors—Risks Inherent in an Investment in Us— Unitholders have limited voting rights and our part-
51
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 nership agreement restricts the voting rights of unitholders owning 5% or more of our units” for 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, Chief Financial Officer and Chief Operating Officer
are also executive officers or employees of Capital Maritime or its affiliates. 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, financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance our debt.
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 restrict 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:
• permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner.
Where our partnership agreement permits, our General Partner may consider only the interests and factors that it desires, and in such cases, it
has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our unitholders. Decisions made by
our General Partner in its individual capacity will be made by its sole owner, Capital Maritime. Specifically, pursuant to our partnership agree-
ment, our General Partner will be considered to be acting in its individual capacity if it exercises its right to call and purchase limited partner
interests, including common units, preemptive rights or registration rights, consents or withholds consent to any merger or consolidation of
the partnership, appoints any directors or votes for the election of any director, votes or refrains from voting on amendments to our partnership
agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our
partnership agreement) or refrains from transferring its units, General Partner interest or 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 committee of our
board of directors and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided
to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolu-
tion 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 as-
signees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction de-
termining that our General Partner or directors or its officers or directors or those other persons engaged 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 partnership
agreement, including the provisions discussed above. Please read “Conflicts of Interest and Fiduciary Duties.”
Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove
our current management or our General Partner, and even if public unitholders are dissatisfied, they will be unable to remove our
General Partner without Capital Maritime’s consent unless Capital Maritime’s ownership share in us is below a specified threshold, all
of which could diminish the trading price of our units.
Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove
our current management or our General Partner:
• the unitholders will be unable to remove our General Partner without its consent so long as our General Partner and its affiliates own
sufficient units to be able to prevent such removal. The vote of the holders of at least 66 2 / 3 % of all outstanding units voting together
as a single class and a majority vote of our board of directors is required to remove the General Partner. As of December 31, 2017, the
Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to beneficially own on a fully converted
basis a 16.1% interest in us (17.7% on a non-fully converted basis), through, among others, Capital Maritime.
52
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • common unitholders elect five of the eight members of our board of directors. Our General Partner in its sole discretion has the right
to appoint the remaining three directors.
• election of the five directors elected by common unitholders is staggered, meaning that the members of only one of three classes of
our elected directors are selected each year. In addition, the directors appointed by our General Partner will serve for terms determined
by our General Partner.
• our partnership agreement contains provisions limiting the ability of unitholders to call meetings of unitholders, to nominate directors
and to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner
or direction of management.
• unitholders’ voting rights are further restricted by the partnership agreement provision providing that if any person or group, other
than our General Partner, its affiliates, their transferees and persons who acquired such units with the prior approval of our board of
directors, owns beneficially 5% or more of any class of units then outstanding,
• any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding
when sending notices of a meeting of unitholders, calculating required votes, except for purposes of nominating a person for election to our
board, determining the presence of a quorum or for other similar purposes, unless required by law. The voting rights of any such unitholders
in excess of 4.9% will be redistributed pro rata among the unitholders of the same class holding less than 4.9% of the voting power of that class.
• we have substantial latitude in issuing equity securities without unitholder approval.
One effect of these provisions may be to diminish the price at which our units will trade.
The control of our General Partner may be transferred to a third party without unitholder consent.
Our General Partner may transfer its General Partner interest to a third party in a merger or in a sale of all or substantially all of its assets
without the consent of the unitholders. In addition, our partnership agreement does not restrict the ability of the members of our General
Partner from transferring their respective membership interests in our General Partner to a third party. Any such change in control of
our General Partner may affect the way we and our operations are managed, which could have a material adverse effect on our busi-
ness, financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
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 anti-dilution protection provisions, we declare, order, pay or make a distribution (including any distribution of units or
other securities or property or rights or warrants to subscribe for our securities at a price per unit less than the fair market value of such
securities, by way of distribution or spin-off) on our common units, other than regular and customary quarterly distributions of available
cash. As of December 31, 2017, there were 12,983,333 Class B Units outstanding.
For more information on the rights and privileges of our Class B Units, read “Item 10B: Memorandum and Articles of Association—The
Partnership Agreement.”
We may issue additional equity securities without your approval, which would dilute your ownership interests.
Except for consent rights of the Class B Unit holders with respect to the issuance of interests senior to the Class B Units, we may, without the
approval of our unitholders, issue an unlimited number of additional units or other equity securities, including to Capital Maritime or its affiliates.
Since our initial public offering, we conducted a number of issuances:
• We have issued Class B Units, which are convertible into common units. As of December 31, 2017, there were 12,983,333 Class B Units
outstanding.
• We conducted multiple issuances of common units, including in the unit-for-share acquisition of Crude Carriers in 2011, in public of-
ferings on an SEC-registered basis or to our General Partner or Capital Maritime in private placements.
53
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • In August 2014, following approval obtained from our limited partners at our 2014 annual meeting, we amended and restated our Om-
nibus Incentive Compensation Plan, adopted in April 2008 (the “Plan”) to increase the maximum number of restricted units authorized
for issuance thereunder from 800,000 to 1,650,000. 850,000 restricted units were issued under the Plan in December 2015 of which
545,002 restricted units remained unvested as of December 31, 2017.
• In September 2016, we entered into an equity distribution agreement under which we may sell, from time to time, new common units hav-
ing an aggregate offering amount of up to $50.0 million. As of December 31, 2017, we had issued 6.6 million new common units under the
ATM offering translating into net proceeds of $22.3 million (before offering expenses). We may make additional 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 power 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 units of a class, 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 units of such class 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 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 obli-
gations to the same extent as a General Partner if a court determines that you “participated 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 addition, the limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been
clearly established in some jurisdictions in which we do business. Please read “Item 10B: Memorandum and Articles of Association—The
Partnership Agreement—Limited Liability” 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 bor-
rowings 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 units to decline.
An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular, for yield
based equity investments such as our units. Any such increase in interest rates or reduction in demand for our units resulting from other
relatively more attractive investment opportunities may cause the trading price or the market value of our units to decline.
Unitholders may have liability to repay distributions.
Under some circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under the Marshall
Islands Limited Partnership Act (the “MILPA”), we may not make a distribution if the distribution would cause our liabilities (other than
liabilities to partners on account of their partnership interest and liabilities for which the recourse of creditors is limited to specified
property of ours) to exceed the fair value of our assets, except that the fair value of property that is subject to a liability for which the
recourse of creditors is limited shall be included in our assets only to the extent that the fair value of that property exceeds that liability.
The MILPA provides that for a period of three years from the date of the impermissible distribution, limited partners who received the
distribution and who knew at the time of the distribution that it violated the MILPA will be liable to the limited partnership for the distribu-
tion amount. Assignees who become substituted limited partners are liable for the obligations of the assignor to make contributions to
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 ef-
fectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements,
which could result in a decrease in the value of our common units.
We completed our IPO on the Nasdaq Global 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 reporting on an annual basis and include in our
reports filed with the SEC our management’s assessment of the effectiveness of our internal control over financial reporting and a related at-
testation 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 company on a timely and reliable
basis. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our finan-
cial 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 re-
turns, investor relations, registrar and transfer agent’s fees, incremental director and officer liability insurance costs and director compensation.
Our organization as a limited partnership under the laws of the Republic of the Marshall Islands may limit the ability of our unitholders
to protect their interests.
Our affairs are governed by our partnership agreement and the MILPA. The provisions of the MILPA resemble provisions of the limited partnership
laws of a number of states in the United States, most notably Delaware. The MILPA also provides that, as it relates to nonresident limited partner-
ships, such as us, 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, there
have been few, if any, judicial cases in the Republic of the Marshall Islands interpreting the MILPA. For example, the rights and fiduciary responsi-
bilities 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 incorporated
or organized or where our assets or the assets of our subsidiaries are located (1) would enforce judgments of U.S. courts obtained in
actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2)
would impose, in original actions, liabilities against us or our subsidiaries based upon these laws.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 TAX RISKS
In addition to the following risk factors, you should read “Item 10E: Taxation” below for a more complete discussion of the expected mate-
rial 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 con-
sequences 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 in-
come,” or (y) at least 50% of the average value of the entity’s assets produce or are held for the production of those types of “passive income.”
For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property, and
rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or
business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. persons
who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC,
the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and projected method of operation, we believe that we are not currently a PFIC and we do not expect to become
a PFIC in the future. We intend to treat our income from spot and time chartering activities as non-passive income, and the vessels
engaged in those activities as non-passive assets, for PFIC purposes. However, no assurance can be given that the Internal Revenue
Service (the “IRS”) or a United States court will accept this position, and there is accordingly a risk that the IRS or a United States court
could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year
if there were to be changes in our assets, income or operations. See “Item 10E: Taxation—Material U.S. Federal Income Tax Consider-
ations—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 cor-
poration that is attributable to transportation that either begins or ends, but that does not both begin and end, in the United States is character-
ized 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. In addition, our conclusion
that we currently qualify for this exemption is based upon legal authorities that do not expressly contemplate an organizational structure
such as ours. Although we have elected to be treated as a corporation for U.S. federal income tax purposes, for corporate law purposes we
are organized as a limited partnership under Marshall Islands law. Our General Partner will be responsible for managing our business and
affairs and has been granted certain veto rights over decisions of our board of directors. Therefore, we can give no assurances that the IRS
will not take a different position regarding our qualification, or the qualification of any of our subsidiaries, for this tax exemption.
If we or our subsidiaries are not entitled to this exemption under Section 883 of the Code for any taxable year, we or our subsidiaries gen-
erally would be subject for those years to a 4% U.S. federal gross income tax on our U.S. source shipping income. The imposition of this
taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our unitholders.
You may be subject to income tax in one or more non-U.S. countries, including Greece, as a result of owning our units if, under the
laws of any such country, we are considered to be carrying on business there. Such laws may require you to file a tax return with and
pay taxes to those countries.
We intend that our affairs and the business of each of our subsidiaries will be conducted and operated in a manner that minimizes income
taxes imposed upon us and these subsidiaries or which may be imposed upon you as a result of owning our units. However, because we
are organized as a partnership, there is a risk in some jurisdictions that our activities and the activities of our subsidiaries may be attributed
to our unitholders for tax purposes and, thus, that you will be subject to tax in one or more non-U.S. countries, including Greece, as a result
of owning our units if, under the laws of any such country, we are considered to be carrying on business there. If you are subject to tax in
any such country, you may be required to file a tax return with and pay tax in that country based on your allocable share of our income. We
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 3.D: 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.
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 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.
We completed our IPO in April 2007. Upon our IPO, our fleet consisted of eight vessels, as compared to the 37 vessels currently in our
fleet, including the M/T Aristaios acquired in January 2018.
In February 2010, we completed the issuance of 5,800,000 common units at a public offering price of $8.85 per common unit. An addi-
tional 481,578 common units were subsequently sold at the same price following the partial exercise of the overallotment option granted
to the underwriters for the offering. The net proceeds from the offering were used to acquire one MR tanker at an acquisition price of
$43.0 million and for general partnership purposes.
In August 2010, we completed the issuance of 5,500,000 common units at a public offering price of $8.63 per common unit. An additional 552,254
common units were subsequently sold at the same price following the partial exercise of the overallotment option granted to the underwriters. The
net proceeds from the offering were used to acquire one MR tanker at an acquisition price of $43.5 million and for general partnership purposes.
In May 2011, we entered into a definitive agreement to merge with Crude Carriers Corp. (“Crude Carrier”), a corporation organized under
the laws of the Republic of Marshall Islands and managed by Capital Maritime, in a unit-for-share transaction. In September 2011, we
completed the merger, as a result of which Crude Carrier became our wholly owned subsidiary. In connection with the merger, we is-
sued 24,967,240 common units to holders of Crude Carriers’ shares.
In June 2011, we completed the acquisition of the company owning the M/V Cape Agamemnon and the attached charter from Capital Maritime. The
vessel is under a charter with COSCO for a ten-year period, which commenced in July 2010. The acquisition was funded through $1.5 million from
available cash and the incurrence of $25.0 million of debt under our 2011 credit facility. We also issued 6,958,000 common units to Capital Maritime.
In September 2011, pursuant to the terms of our merger agreement with Crude Carriers, we amended and restated the omnibus agree-
ment with Capital Maritime. Please read “Item 7.B: Related-Party Transactions—Omnibus Agreement with Capital Maritime.”
In June 2012, we issued 15,555,554 Class B Units to a group of investors, including Capital Maritime, at price of $9.00 per unit. The Class
B Units pay fixed quarterly cash distribution of $0.21375 per unit representing an annualized distribution yield of 9.5%. The net proceeds
of the transaction, together with part of our cash balances, were used to prepay debt in the amount of $149.6 million.
In connection with the issuance and sale of the Class B Units, we adopted an amendment to our partnership agreement, dated as of May
22, 2012 (the “Second Amendment to the Partnership Agreement”), which established and set forth the rights, preferences, privileges,
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
duties and obligations of the Class B Units. The Class B Units have not been registered under the Securities Act of 1933, as amended, and
may not be offered or sold in the United States absent a registration statement or exemption from registration.
In March 2013, we issued 9,100,000 Class B Units to a group of investors, including Capital Maritime, at a price of $8.25 per unit. In this
connection, we adopted a further amendment to our limited partnership agreement, dated as of March 19, 2013 (the “Third Amendment
to the Partnership Agreement”), which amended some of the rights, preferences and privileges of the Class B Units.
The net proceeds of the transaction, together with approximately $54.0 million from a former credit facility and part of our cash balances, were
used for the acquisition of two 5,023 TEU container vessels, the M/V ‘Hyundai Premium’ and M/V ‘Hyundai Paramount’, for a total consideration of
$130.0 million. The vessels were originally ordered by Capital Maritime and secured a 12-year time charter employment (+/- 60 days) with HMM.
Certain holders of Class B Units, including Capital Maritime, have since converted an aggregate of 11,672,221 Class B Units.
In November 2012, one of our charterers, OSG, and certain of its subsidiaries made a voluntary filing for relief under Chapter 11 of the U.S. Bank-
ruptcy Code. At the date of the filing, we had three IMO II/III Chemical/Product tankers (the M/T Alexandros II, the M/T Aristotelis II and the M/T Aris
II) on long term bareboat charter to OSG subsidiaries. These charters were scheduled to terminate, approximately, in November 2017, April 2018
and June of 2018, respectively. We agreed to enter into new charters with OSG on substantially the same terms as the prior charters, but at reduced
bareboat charter rate. In May 2013, we filed six claims for a total of $54.1 million against each of the three charterers and their respective three guar-
antors for damages resulting from the rejection of each of the prior charters. We sold our rights under these claims to Deutsche Bank Securities Inc.
In August 2013, we issued 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 at the same price following the full exercise of the overallotment option granted to the underwriters. Capi-
tal 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. The net proceeds from the offering, together with $75.0 million from our 2013 credit facility and part of
our cash balances, were used to acquire three 5,023 TEU container vessels, the M/V Hyundai Prestige, the M/V Hyundai Privilege and the
M/V Hyundai Platinum, from Capital Maritime for an aggregate purchase price of $195.0 million.
In August 2014, our unitholders approved an amendment to the partnership agreement to revise the target distribution to holders of
our IDRs as consideration for the acquisitions of the Dropdown Vessels at prices below current market value. This was subsequently
adopted as the fourth amendment to our partnership agreement, dated August 25, 2014 (the “Fourth Amendment”). Prior to the Fourth
Amendment, our General Partner was entitled 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:
• 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 Distribution”);
• 15% of all quarterly distributions until the holders of our common units had received $0.4688 per unit (the “Second Target Distribution”);
• 25% of all quarterly distributions until the holders of our common units had received $0.5625 per unit (the “Third Target Distribution”);
and
• 50% of all quarterly distributions in excess of $0.5625 per unit.
Pursuant to the Fourth Amendment, each of the minimum Quarterly Distribution, the First Target Distribution, the Second Target Distri-
bution and the Third Target Distribution was 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 was reduced to a right to receive 35% of such
cash distributions. Thereafter, Capital Maritime, after discussion with, and with the unanimous support of, the conflicts committee of our
board of directors, 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.
Further, in August 2014, our Omnibus Incentive Compensation Plan (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.
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 partner
units and delivered such units to our General Partner in order for it to maintain its then 2% interest in us. Net proceeds, after the deduction
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 of the underwriters’ commission but before expenses, relating to the offering were $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 $60.0 million, and to cancel such com-
mon units. The remaining proceeds were used to partially fund the $311.5 million aggregate purchase price for the Dropdown Vessels
and for general partnership purposes.
During 2014, certain holders of our Class B Units, including Capital Maritime, converted an aggregate of 4,698,484 Class B Units into com-
mon units in accordance with the terms of the partnership agreement.
Recent Developments
Agreement to Acquire the M/T Anikitos
On January 22, 2018, we agreed to acquire, subject to the successful completion of the sale of the M/T Aristotelis, the eco-type MR prod-
uct tanker M/T Anikitos (50,082 dwt IMO II/III chemical product tanker built in 2016, Samsung Heavy Industries (Ningbo) Co., Ltd.) for a
total consideration of approximately $31.5 million from Capital Maritime. The M/T Anikitos is ultimately employed by Petrobras through
a back-to-back charter with Curzon Maritime Limited, at a gross daily rate of $15,300 with earliest charter expiry in June 2020. The char-
terer has the option to extend the time charter for eighteen months (+/-30 days) at the same gross daily rate.
We intend to fund the acquisition of the M/T Anikitos with the net proceeds to be received from the sale of the M/T Aristotelis, available
cash and the assumption of a term loan under a credit facility previously arranged by Capital Maritime with ING Bank NV in a principal
amount equal to approximately 50% of the vessel’s charter-free market value at the time of the dropdown. The term loan is non-amor-
tizing for a period of two years from the anniversary of the dropdown with an expected final maturity date in June 2023 and bears interest
at LIBOR plus a margin of 2.50%. The term loan is subject to ship finance covenants similar to the covenants applicable under our exist-
ing facilities. We expect to take delivery of the M/T Anikitos in March 2018, following the delivery of the M/T Aristotelis to its new owner.
The agreement to acquire the M/T Anikitos was entered into on an arm’s length basis and was reviewed and unanimously approved by
the conflicts committee of our Board of Directors and our entire Board of Directors.
Acquisition of the M/T Aristaios
On January 17, 2018, we acquired from Capital Maritime the shares of the company owning the M/T Aristaios, an eco-type crude tanker
(113,689 dwt, Ice Class 1C, built in 2017, Daehan Shipbuilding Co. Ltd., South Korea), for a total consideration of $52.5 million. The M/T
Aristaios is currently employed under a time charter to Tesoro at a gross daily rate of $26,400. The Tesoro charter commenced in January
2017 with duration of five years +/-45 days. We financed the acquisition with $24.2 million in cash and the assumption of a $28.3 million
term loan under a credit facility previously arranged by Capital Maritime with Credit Agricole Corporate and Investment Bank and ING
Bank NV. The term loan bears interest at LIBOR plus a margin of 2.85% and is payable in 12 consecutive semi-annual instalments of
approximately $0.9 million beginning in July 2018, plus a balloon payment payable together with the last semi-annual instalment due in
January 2024. The term loan is subject to ship finance covenants similar to the covenants applicable under our existing facilities.
2017 Developments
Agreement to Sell M/T Aristotelis
On December 22, 2017, we entered into a memorandum of agreement for the sale of the M/T Aristotelis (51,604 dwt IMO II/III chemical
product tanker built in 2013, Hyundai Mipo Dockyard Ltd., South Korea) to an unaffiliated third party for the amount of $29.4 million. Upon
entering into the sale, we classified the M/T Aristotelis as “held for sale” and recorded an impairment charge of $3.3 million. Delivery of
the M/T Aristotelis to its buyer is expected in early March 2018.
Refinancing of External Debt
On May 22, 2017, we entered into a firm offer letter contemplating our 2017 credit facility for an aggregate principal amount of up to $460.0
million with a syndicate of lenders led by HSH and ING Bank N.V., as mandated lead arrangers and bookrunners, and BNP Paribas and
National Bank of Greece S.A., as arrangers. On September 6, 2017, we entered into the loan agreement documenting the 2017 credit
facility. On October 2, 2017, we repaid $14.0 million outstanding under the 2011 credit facility through available cash. On October 4, 2017
(the “Drawdown Date”), we drew the full amount of $460.0 million under the 2017 credit facility and, together with available cash of $102.2
million, fully repaid total indebtedness of $562.2 million consisting of (i) $186.0 million outstanding under the 2007 credit facility; (ii) $181.6
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 million outstanding under the 2008 credit facility and (iii) $194.6 million outstanding under the 2013 credit facility. Please see “Item 5.B.
Liquidity and Capital Resources—Borrowings—Our Credit Facilities” for further information on our 2017 credit facility.
At-the-market Offering
During the year ended December 31, 2017, we issued 5.2 million new common units in total translating into net proceeds of $17.8 million
after payment of sales agent commission but before offering expenses.
2016 Developments
Acquisition of the M/T Amor
On October 24, 2016, we acquired from Capital Maritime the shares of the company owning the M/T Amor for a total consideration of $16.9
million comprising $16.0 million in cash and the issuance of 283,696 new common units to Capital Maritime, reflecting the fair value of M/T
Amor of $31.6 million and the fair value of the time charter attached to the vessel of $1.1 million, less the assumption of a $15.8 million
term loan under a credit facility previously arranged by Capital Maritime. The term loan is non-amortizing for a period of two years from
the anniversary of the delivery of the M/T Amor with an expected final maturity date in November 2022 and has an interest margin of 2.50%.
For further information on our existing facilities, please see “ Item 5.B. Liquidity and Capital Resources—Borrowings—Our Credit Facilities. ”
At-the-market Offering
In September 2016, the Partnership entered into an equity distribution agreement with UBS under which the Partnership may sell, from
time to time through UBS, as its sales agent, new common units having an aggregate offering amount of up to $50.0 million. We intend
to use the net proceeds from the sales of new common units, after deducting the sales agent’s commissions and our offering expenses,
for general partnership purposes, which may include, among other things, the acquisition of new vessels, the repayment or refinancing
of all or a portion of our outstanding indebtedness and funding of working capital requirements or capital expenditures. For the period
between the launch of the ATM offering and December 31, 2016, we issued an aggregate of 1.4 million new common units translating
into net proceeds of $4.5 million (before offering expenses).
HMM restructuring agreement & disposal of HMM Shares
HMM, the charterer of five of our container vessels and one of our largest counterparties in terms of revenue, completed a financial
restructuring in July 2016. In this connection, our subsidiaries owning vessels under charter with HMM entered into a charter restructur-
ing agreement with HMM on July 15, 2016. This agreement provides for the reduction of the charter rate payable under the respective
charter parties by 20% to $23,480 per day (from a gross daily rate of $29,350) for a three and a half year period starting in July 2016 and
ending in December 2019. The total charter rate reduction for the Charter Reduction Period is approximately $37.0 million. The charter
restructuring agreement further provides that at the end of the Charter Reduction Period, the charter rate under the respective charter
parties will be restored to the original gross daily rate of $29,350 until the expiry of each charter in 2024 and 2025. As compensation for
the charter rate reduction, we received approximately 4.4 million HMM common shares, which we sold on the Stock Market Division
of the Korean Exchange for aggregate consideration of $29.7 million in August 2016, which we accounted for as deferred revenue and
which is being amortized on a straight line basis over the remaining charter period.
Delivery of the M/V CMA CGM Magdalena
Pursuant to the Master Vessel Acquisition Agreement we entered into on July 24, 2014, the Partnership acquired on February 26, 2016 the
shares of the company owning the M/V CMA CGM Magdalena, the last of five Dropdown Vessels that we agreed to acquire from Capital
Maritime for a total consideration of $81.5 million. The M/V ‘CMA CGM Magdalena’ is chartered to CMA-CGM S.A. for five years at a gross
daily charter rate of $39,250.
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
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 offering were $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 offering
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 $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 Uru-
guay. 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. including M/T Amor which was delivered in October 2016.
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. Christodoulou re-
signed as a director of our board of directors and was replaced by Mr. Nikolaos Syntychakis.
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.
B.Business Overview
We are an international owner of tanker, container and drybulk vessels. As of December 31, 2017 our fleet consisted of 36 high specifica-
tion vessels (2.6 million dwt) with an average age of approximately 8.4 years comprising four Suezmax crude oil tankers, 21 MR tankers,
all of which are classed as IMO II/III vessels, ten neo-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, 2017, 33 vessels were
chartered under time and bareboat charters with a revenue weighted average remaining term of approximately 5.3 years to charterers
such as CMA CGM, Petrobras, PIL, subsidiaries of INSW, HMM, CSSA S.A. (Total S.A.), Empresa Publica Flota Petrolera Ecuatoriana EP
Flopec (“Flopec”), COSCO, Repsol Trading S.A. (“Repsol”), Shell Tankers Singapore Private Limited (“Shell”) and Capital Maritime. As of
December 31, 2017, 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 four of our 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 sharing is calculated. As of December
31, 2017, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to beneficially own on a fully
converted basis a 16.1% interest in us (17.7% on a non-fully converted basis), through, among others, Capital Maritime.
Business Strategies
Our primary business objective is to increase cash available for distributions while maintaining a strong financial position and an ap-
propriate level of liquidity for the proper conduct of our business, by executing the following business strategies:
• Maintain medium- to long-term fixed charters . We seek to enter into medium- to long-term, fixed-rate charters for a majority of our
fleet in an effort to, together with our cost efficient ship management operations under our agreements with Capital Ship Management,
provide visibility of revenues and cash flows in the medium- to long-term. As of December 31, 2017, 33 vessels were chartered under
61
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
time and bareboat charters with a revenue weighted average remaining term of approximately 5.3 years. As our vessels come up for
re-chartering, 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 diversified profile of our fleet, its average
age of approximately 8.4 years as of December 31, 2017, compared to the industry average of 10.8 years (adjusted for the composition
of our fleet) and the high specifications of our vessels, as well as our Manager’s ability to meet the rigorous vetting requirements of
some of the world’s most selective major international oil companies and major charterers in the tanker, drybulk and container sec-
tors 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
expand our relationships with current and new charterers and to take advantage of our charterers’ diverse shipping requirements.
We also believe that we can leverage our relationship with Capital Maritime and its ability to meet the rigorous vetting and selection
processes of leading oil companies, as well as 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. As of December 31, 2017, our fleet consisted of 36 vessels, with an
aggregate of 2.6 million deadweight tonnage, as compared to eight vessels with 0.3 million deadweight tonnage at the time of our IPO in
2007. Subject to our ability to obtain required financing and access financial markets, we intend to continue to evaluate potential acquisi-
tions of both newbuilds and second-hand vessels in order to make opportunistic acquisitions for our fleet while maintaining a strong bal-
ance sheet. We also intend to take advantage of opportunities afforded to us by our relationship with our sponsor, Capital Maritime. As of
December 31, 2017, Capital Maritime controlled a total of 23 vessels in the water, including five additional product tanker vessels for which
we have a right of first refusal pursuant to the Master Vessel Acquisition Agreement. For future acquisitions, we may consider moderate
increases in our overall leverage, provided that we are able to maintain low breakeven rates and deliver steady distributions to our unit-
holders. In addition, we may pursue opportunities for acquisitions of, or combinations with, other shipping businesses.
• Maintain a strong balance sheet. While we seek to finance our vessels and future vessel acquisitions through a mix of debt, equity
financing and current cash balances, we intend to maintain a moderate level of leverage over time. We have in the recent past taken
measures to retain internally generated cash to repay debt and together with a new amortizing $460.0 million credit facility, refinanced
most of our external debt in October 2017. Moreover, by maintaining moderate levels of leverage, we aim to retain greater flexibility
than more leveraged competitors, maintain lower breakeven rates and deliver sustainable distributions to our unitholders. In addition,
charterers have increasingly favored financially solid vessel owners, and we believe that maintaining a strong balance sheet will help
us 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 suc-
cessful 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 charterers with a high level of customer service and support.
Competitive Strengths
We believe that we are well-positioned to execute our business strategies because of the following competitive strengths:
• Well-established relationships with our charterers and with Capital Maritime. We have established longstanding relationships with
a number of major international oil companies and major charterers in the tanker, drybulk and container sectors, having chartered
our vessels over the last five years to well-known charterers such as AP Moller-Maersk AS, BP Shipping Limited, CMA CGM, COSCO,
HMM, Petrobras, Repsol, Shell and Total S.A. On this basis, 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 relation-
ship with Capital Maritime, our sponsor, which has a well-established reputation and safety and environmental track record within the
shipping industry, a sizeable, diversified fleet amounting to 3.1 million dwt 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 track record of meeting the rigorous vetting requirements of some of the world’s most selective
major international oil companies and other charterers in the drybulk and container sectors.
• Diversified revenue stream. Since our IPO in 2007, our fleet has grown from eight to 37 vessels following the acquisition of M/T Aristaios
in January 2018, comprising twenty one IMO II/III MR product tankers, ten neo-panamax container carrier vessels, four Suezmax crude oil
tankers, one Aframax crude oil tanker and one Capesize drybulk carrier. We believe that our exposure to the product, crude, container and
bulk shipping sectors provides us with a diversified revenue stream, with a view to enhancing the stability of our revenue and cash flows.
• 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. Also, many of our charters expire on a staggered basis, which contributes to the stabil-
ity of our cash flow generation. As our vessels come up for re-chartering, we seek to redeploy them under contracts that reflect our
62
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 expectations of prevailing market conditions. As of December 31, 2017, our average remaining charter duration was 5.3 years and our
charter coverage was 61% and 28% for 2018 and 2019, respectively.
• High specification fleet. Our vessels were primarily constructed by reputable Japanese and South Korean shipyards to high specifications and
have an average age of 8.4 years as of December 31, 2017. The twenty one 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 and the wide range in size and geographic
flexibility of our fleet is attractive to our charterers, providing them with a high degree of flexibility in the types of cargoes and variety in the trade
routes they may choose as they employ our fleet. We believe that these characteristics of our product tankers position us to take advantage of
the positive long-term demand fundamentals in the product tanker business. In addition, eight of our existing container vessels are ‘eco, wide
beam’ type and have an increased cargo intake and reduced bunker consumption as compared to older vessel designs, and are able to transit
the new Panama Canal locks. We believe that these characteristics make our containerships more attractive to charterers.
• Strong balance sheet, cost efficient operations and acquisition funding. We believe that we have maintained a strong balance sheet
and that, subject to market conditions, our financial strength positions us favorably to continue to make opportunistic acquisitions 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:
• CMA CGM , a French container transportation and shipping company.
• Petrobras , a publicly held Brazilian multinational energy corporation and a significant oil producer. Petrobras also owns oil refineries,
oil tankers, and is a major distributor of oil products.
• Hyundai Merchant Marine Co. Ltd, an integrated logistics company, operating around 130 vessels. HMM has worldwide global service
networks and diverse logistics facilities.
• International Seaways, Inc., a provider of ocean transportation services for crude oil and refined petroleum products (formerly known
as OSG International, Inc.). INSW was a wholly owned subsidiary of OSG prior to its spin-off in November 2016.
• 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.
• COSCO Bulk Carrier Co. Ltd. , a subsidiary of China COSCO Shipping Corporation Limited (COSCO Group), which is one of the largest
drybulk and container owners and operators globally.
• Repsol Trading S.A., a subsidiary of Repsol S.A., an oil and gas conglomerate.
• Pacific International Lines (PTE) Ltd., a containership operator offering container liner services and multi-purpose services.
• Empresa Publica Flota Petrolera Ecuatoriana EP Flopec, a company transporting oil and other natural strategic resources for the State of Ecuador.
• Tesoro Far East Maritime Company, a subsidiary of Andeavor an independent refiner and marketer of petroleum products headquar-
tered in San Antonio, Texas.
• Shell Tankers Singapore Private Limited, a subsidiary of Royal Dutch Shell PLC.
• 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 mar-
kets and the Partnership’s sponsor.
The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could harm
our business, results of operations, cash flows, financial condition and ability to make cash distributions and service or refinance our debt.
Our Management Agreements
We have entered into three separate technical and commercial management agreements with our Manager, 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
has agreed to provide us with certain commercial and technical management services for a fixed daily fee per managed vessel. The
fixed daily fee 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 drydock-
ing of each managed 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
63
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 under which we are charged ac-
tual expenses incurred by our Manager. Under the terms of this agreement, we compensate our Manager for expenses and liabilities
incurred on our behalf while providing the agreed services to us, including, but not limited to, crew, repairs and maintenance, insur-
ance, stores, spares, lubricants and other operating costs. Costs and expenses associated with a managed vessel’s next scheduled
drydocking are borne by us and not by our Manager. We also pay our Manager a daily technical management fee per managed vessel
that is revised annually based on the United States Consumer Price Index.
• Crude Carriers management agreement : In September 2011, we completed our merger with Crude Carriers. 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. Until December 31, 2016 we also paid 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.
Our Manager has agreed to waive the sale and purchase fee as well as the commercial services fee from January 1, 2017 onwards.
Our 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 re-
mains 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. In March 2017, this termination fee was adjusted to $10.1 million.
We expect that as the fixed fee management agreement expires for the two remaining vessels to which it currently applies, these ves-
sels will be managed under floating fee management agreements on terms similar to those currently in place. We expect that new
acquisitions we may make in the future will also be managed under similar floating fee management agreements. Under the terms of
all three agreements, Capital Ship Management may either provide these services directly to us or subcontract them to other entities,
including other Capital Maritime subsidiaries.
Our Fleet
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 expanded in terms of
both number of vessels and carrying capacity. As of December 31, 2017, our fleet consisted of 36 vessels, of various sizes with an aver-
age age of approximately 8.4 years and average remaining term under our charters of approximately 5.3 years.
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 4.A.: History and Development 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 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 omnibus agreement we have entered into with Capital Maritime in connec-
tion 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 of 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, 2017 about the vessels in our fleet, as well as their delivery date or expected de-
livery date to us and their employment, including earliest possible redelivery dates of the vessels and relevant charter rates. The table also includes
the daily management fee and approximate expected termination date of the respective management agreement with Capital Ship Management
with respect to each vessel. Sister vessels, which are vessels of similar specifications and size typically built at the same shipyard, are denoted by
the same letter in the table. We believe that sister vessels provide a number of efficiency advantages in the management of our fleet.
64
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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, 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.
VESSELS IN OUR FLEET AS OF DECEMBER 31, 2017
Vessel name
Sister
Vessels
(1)
Year
built
DWT -
TEU (15)
OPEX
(per day) (2)
Management
Agreement
Expiration
Charter
Duration/
Type (3)
Expiry of
Charter
(4)
Daily
Charter
Rate (Net)
Profit
Share
(5)
Charterer (6)
Description
PRODUCT TANKERS
Atlantas II (18)
Aktoras (7)
Aiolos (7)
Agisilaos (11)
Arionas (11)(12)
Axios
Avax
Akeraios
Anemos I
Apostolos
Alexandros II (8)
Aristotelis II (8)
Aris II (8)
Ayrton II
Atrotos
Alkiviadis
Assos
Aristotelis (13)
Active (17)
Amadeus (16)
Amor (10)
CRUDE TANKERS
Miltiadis M II
Amoureux
Aias
Amore Mio II
DRYBULK VESSEL
A
A
A
A
A
B
B
B
B
B
C
C
C
C
B
A
B
B
J
J
J
F
D
D
E
2006
2006
2007
2006
2006
2007
2007
2007
2007
2007
2008
2008
2008
2009
2007
2006
2006
2013
2015
2015
2015
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
49,999
Fixed- $
Fixed- $
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
250
250
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Sep 2021
Mar 2022
Mar 2022
Dec 2021
Aug 2021
Jun 2022
Apr 2022
Aug 2022
Dec 2022
Sep 2022
Dec 2022
June 2018
Aug 2018
Apr 2019
Apr 2019
Oct 2020
Apr 2019
Nov 2018
Mar 2020
Jun 2020
Oct 2021
VC
0.8-yr TC
0.8-yr TC
—
Jul 2018 $
Jul 2018 $
3-yr TC Nov 2018 $
1-yr TC
Feb 2018 $
3-yr TC May 2018 $
3-yr TC May 2018 $
3-yr TC Mar 2019 $
3-yr TC Dec 2018 $
3-yr TC Dec 2018 $
—
10-yr BC Apr 2018 $
10-yr BC
Jun 2018 $
Feb 2018 $
2-yr TC
3-yr TC Nov 2018 $
1-yr TC
Jul 2018 $
3-yr TC Mar 2018 $
Feb 2018 $
1-yr TC
—
—
Oct 2018 $
1-yr TC
Jan 2018 $
0.2-yr TC
VC
—
—
10,863 CMTC
10,863 CMTC
18,288
10,863
15,015
15,015
17,306
17,306
17,306
—
6,600
6,600
17,775
17,306
12,591
15,015
13,578
—
14,210
13,825 CMTC
FLOPEC
CMTC
PETROBRAS
PETROBRAS
PETROBRAS
PETROBRAS
PETROBRAS
—
INSW
INSW
CMTC
PETROBRAS
CSSA
PETROBRAS
CMTC
—
REPSOL
2006
162,397
Crude
Dec 2020
0.8-yr TC Aug 2018 $
18,000 CMTC
2008
2008
2001
149,993
150,393
159,982
Crude
Crude
Floating
Dec 2020
Dec 2020
May 2019
1-yr TC Mar 2018 $
Jan 2018 $
3-yr TC
—
VC
22,000
25,506
—
CMTC
REPSOL
—
Cape Agamemnon (19)
G
2010
179,221
Floating
Jun 2021
10-yr TC Jun 2020
$
40,090
COSCO
CONTAINER CARRIER VESSELS
Archimidis (14)
Agamemnon (14)
Hyundai Prestige (9)
Hyundai Premium (9)
Hyundai Paramount (9)
Hyundai Privilege (9)
Hyundai Platinum (9)
CMA CGM Amazon
CMA CGM Uruguay
CMA CGM Magdalena
H
H
I
I
I
I
I
K
K
K
2006
2007
2013
2013
2013
2013
2013
2015
2015
2016
108,892 –
8,266 TEU
108,892 –
8,266 TEU
63,010 –
5,023 TEU
63,010 –
5,023 TEU
63,010 –
5,023 TEU
63,010 –
5,023 TEU
63,010 –
5,023 TEU
115,534 –
9,288 TEU
115,639 –
9,288 TEU
115,639 –
9,288 TEU
TOTAL FLEET DWT:
2,643,600 – 69,511 TEU
Floating
Dec 2022
1-yr TC Mar 2018
$
8,147
Floating
Dec 2022
1-yr TC Apr 2018
$
8,147
PIL
PIL
Floating
Sep 2018
12-yr TC Dec 2024
$
23,010
HMM
Floating
Apr 2018
12-yr TC Jan 2025
$
23,010
HMM
Floating
Apr 2018
12-yr TC Feb 2025
$
23,010
HMM
Floating
Sep 2018
12-yr TC Mar 2025
$
23,010
HMM
Floating
Sep 2018
12-yr TC Apr 2025
$
23,010
HMM
Floating
Jun 2020
5-yr TC May 2020
$
38,759
Floating
Sep 2020
5-yr TC Aug 2020
$
38,759
CMA
CGM
CMA
CGM
Eco-Flex, Wide
Beam Container
Floating
Feb 2021
5-yr TC Jan 2021
$
38,759
CMA CGM
65
Ice Class
1A IMO II/III
Chem./Prod.
IMO II/III
Chem./Prod.
Ice Class
1A IMO II/III
Chem./Prod.
Eco IMO II/III
Chem./Prod.
Ice Class 1A Crude
Oil Suezmax
Crude Oil
Suezmax
Cape Size
Dry Cargo
Container Carrier
Eco Wide Beam
Container Carrier
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
(1)
(2)
Sister vessels and shipyards of origin are denoted in the ta-
bles by the following letters: (A) and (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 Shipbuild-
ing Corp., Ariake, Japan; (E) and (F) : these vessels were built
by Daewoo Shipbuilding and Marine Engineering Co., Ltd.,
South Korea; (G): this vessel was built by Sungdong Ship-
building & Marine Engineering Co., Ltd., South Korea; (H):
these vessels were built by Hyundai Heavy Industries Co. Ltd,
South Korea; (I): these vessels were built by Samsung Heavy
Industries (Ningbo) Co. Ltd.; (J): 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 are managed under the Crude man-
agement agreement entered into between Crude and our
Manager. Fixed: These vessels are managed under the fixed
fee management agreement entered into with our Manager.
For additional details regarding our management agree-
ments please see “Item 4B: Business Overview—Our Man-
agement Agreements” above.
(3)
TC: Time Charter; BC: Bareboat Charter; VC: Voyage Charter.
(4) Earliest possible redelivery date.
(5)
Product Tankers: 50/50 profit share on actual earnings set-
tled every six months.
(6)
(7)
BP: BP Shipping Ltd.; INSW: certain subsidiaries of Interna-
tional Seaways Inc.; 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. (Total S.A.); CMA CGM: CMA CGM; PETRO-
BRAS: Petroleo Brasileiro S.A.; REPSOL: Repsol Trading S.A.;
PIL: Pacific International Lines (PTE) Ltd Singapore; FLOPEC:
Empresa Publica Flota Petrolera Ecuatoriana – EP Flopec.
In March 2017, the M/T Aiolos (ex M/T British Emissary) and
the M/T Aktoras (ex M/T British Envoy) were delivered to us
from BP after completion of their respective bareboat char-
ters. In August 2017, the companies owning the M/T Aiolos
and the M/T Aktoras entered into time charters with CMTC for
a period of ten to twelve months at a net daily rate of $10,863
plus 50/50 profit share each. Both charters commenced in
September 2017. The M/T Aktoras was re-delivered to us on
January 4, 2018 from its current charter with CMTC, in or-
der to commence a charter with Shell for a period of twelve
months +/- 30 days at a net daily rate of $12,994. The charter-
er has the option to extend the time charter for an additional
twelve months +/-30 days at a net daily rate of $13,956. The
new charter commenced on January 14, 2018.
(8)
(9)
On November 14, 2012, Overseas Shipholding Group Inc
(“OSG”) filed for relief under Chapter 11 of the U.S. Bankrupt-
cy Code. In connection with the restructuring, we agreed to
enter into new charter contracts on substantially the same
terms as the prior charters but at a daily bareboat rate of
$6,250. OSG subsequently spun off INSW. We consented to
the assumption of the charters by INSW for an increase in
the net daily hire rate of the M/T Aristotelis II, the M/T Alexan-
dros II and the M/T Aris II from $6,250 to $6,600 commencing
on November 30, 2016 until the end of their respective bare-
boat charter agreements, which will expire in 2018 for the
M/T Aristotelis II and the M/T Aris II and expired in December
2017 for the M/T Alexandros II. As of December 31, 2017, the
M/T Alexandros II is trading under voyage charter.
Each of the companies owning the M/V Hyundai Prestige,
the M/V Hyundai Paramount, the M/V Hyundai Premium, the
M/V Hyundai Privilege and the M/V Hyundai Platinum en-
tered into a charter restructuring agreement with HMM on
July 15, 2016. This agreement provides for the reduction of
the charter rate payable under the respective charter parties
by 20% to a net daily rate of $23,010 (from a net daily rate of
$28,616) for a three and a half year period starting on July
18, 2016 and ending on December 31, 2019. The charter re-
structuring agreement further provides that at the end of the
charter reduction period, the charter rate under the respec-
tive charter parties will be restored to the original net daily
rate of $28,763 until the expiry of each charter.
(10) Since the expiration of the two-year time charter with Cargill
International S.A. in September 2017, the M/T Amor has been
employed by CMTC for an additional two months +/– 15 days
at a net daily rate of $13,825. The vessel was delivered to us
on January 3, 2018. As of December 31, 2017, the vessel is
trading under short term time charter.
(11) On July 2, 2016, the M/T Agisilaos replaced the M/T Arionas
under the charter party to Flopec at a net rate of $18,288 per
day, as the M/T Arionas underwent its scheduled special sur-
vey.
(12) In December 2016, the M/T Arionas was chartered to CMTC
for one year +/- 30 days at a net daily rate of $10,863. The
charterer has the option to extend the time charter for an ad-
ditional one year +/-30 days at a net daily rate of $13,578. The
charter commenced in January 2017.
(13) In December 2016, the M/T Aristotelis was chartered to CMTC
for one year +/- 30 days at a net daily rate of $13,578. The
charterer has the option to extend the time charter for an
additional one year +/-30 days at a net daily rate of $14,813.
The charter commenced in January 2017. We agreed to sell
the M/T Aristotelis in December 2017. We expect the sale to
complete in March 2018.
66
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 (14) The M/V Archimidis and the M/V Agamemnon are employed
on time charters with PIL for one year +/- 30 days at a net rate
of $8,147 per day.
(18) In January 2018, the M/T Atlantas II was chartered to CMTC
for a period of five to eight months at a net rate of $10,863 per
day. The charter commenced in January 2018.
(15) DWT: Dead Weight Ton, TEU: Twenty-foot Equivalent Unit.
(16) In August 2017, the M/T Amadeus was delivered to us from CMTC
after completion of its two-year time charter. In August 2017, the
company owning the M/T Amadeus entered into a one-year time
charter+/– 30 days with Repsol at a net daily rate of $14,210. The
charter commenced in November 2017. On December 29, 2017,
Repsol exercised its option to extend the time charter for one ad-
ditional year +/– 30 days at a net daily rate of $14,455.
(17) In May 2017, the M/T Active was delivered to us from Cargill
International S.A. after completion of its two-year time char-
ter. Following the date of its redelivery, the vessel has been
trading under short-term time charters.
(19) We currently maintain insurance to protect us against the
loss of income that would result from COSCO’s failure or re-
fusal to pay hire due under the time charter agreement. Un-
der our revenue protection insurance, our insurer has agreed
to pay us a maximum amount of $25,000 per day for each day
of loss, defined as the difference between the hire contractu-
ally payable under the charter party agreement with COSCO
and the replacement hire earned or that could be earned by
us during the policy period expiring on July 30, 2020. Replace-
ment hire is defined as the greater of the actual hire earned
during the policy period and the average hire rate that the M/V
Cape Agamemnon is capable of earning as determined by
three independent shipbrokers.
Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels
In “Item 5F: Contractual Obligations and Contingencies—Critical Accounting Policies—Vessel Lives and Impairment” below, we discuss
our policy for recording impairment of the carrying values of our vessels. During the past few years, market values of vessels have been
particularly volatile, 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 vessels’ carrying value, even though we would not record an impairment of their 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, 2017 and 2016; (ii) which of our vessels
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 compulsion
to buy. For purposes of this calculation, we have assumed that the vessels would be sold at a price that reflects our estimate of their
current basic market values.
Our estimates of basic market value assume that our vessels are all in good and seaworthy condition without need for repair and, if
inspected, would be certified in class without notations of any kind. Our estimates are based on the average of two estimated market
values for our vessels received from third-party independent shipbrokers approved by our banks. 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.
67
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Vessels
M/T Atlantas II
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
M/V CMA CGM Magdalena
M/T Amor
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
02/26/2016
10/24/2016
Carrying value as of
December 31, 2017
(in millions of United
States dollars) (1)
Carrying value as of
December 31, 2016
(in millions of United
States dollars)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
18.1*
22.9*
18.4*
19.0*
19.2*
21.5*
19.2*
21.8*
22.3*
22.3*
24.9*
24.9*
29.0*
42.8*
29.6*
29.9*
31.2*
20.3*
38.8*
38.0*
39.7*
39.6*
49.9*
52.9*
45.1*
44.3*
44.4*
45.2*
45.2*
—
32.5*
82.9*
32.9*
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
19.3*
24.4*
19.7*
20.2*
20.5*
22.9*
20.5*
23.2*
23.7*
23.8*
26.5*
26.5*
30.9*
47.2*
31.4*
31.7*
33.0*
21.7*
40.7*
40.5*
42.0*
42.0*
53.1*
55.5*
47.1*
46.3*
46.4*
47.2*
47.2*
33.6*
33.9*
86.4*
34.3*
$ 83.9*
82.4*
$
30.2*
$
1,265.2
$
$ 87.3*
85.7*
31.4*
1,367.7
$
* Indicates vessels for which we believe that, as of December 31, 2017 and 2016, the basic charter-free market value is lower than the
carrying value. We believe that the aggregate carrying value of these vessels, assessed separately, exceeded their aggregate basic
charter-free market value by approximately $262.4 million and $388.8 million as of December 31, 2017 and 2016, respectively. The
decrease of $126.4 million in 2017 as compared to 2016 is primarily due to the increase in value for our container vessels and bulk car-
rier vessel, as a consequence of an improvement in charter markets. As discussed in “Critical Accounting Policies—Vessel Lives and
Impairment,” we believe that the carrying values of our vessels as of December 31, 2017 and 2016 were recoverable as the undiscounted
projected net operating cash flows of these vessels exceeded their carrying value by a significant amount.
(1)
Does not include the carrying value of the M/T Aristotelis, which we agreed to sell in December 2017 and was classified as “asset
held for sale.”
68
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Our Charters
As of December 31, 2017, 33 vessels in our fleet were under time or bareboat charters with an average remaining term under our char-
ters of approximately 5.3 years. Under certain circumstances, we may operate our vessels in the spot market or certain of our vessels
may remain idle until they are fixed under appropriate medium- to long-term charters. As our vessels come up for re-chartering, de-
pending on the prevailing market rates, we may not be able to re-charter them at levels similar to their current charters, or at all, which
may affect our business, financial condition, results of operations, cash flows, and ability to make distributions and service or refinance
our debt. Please read “Item 4B: Business Overview—Our Fleet.” including the chart and accompanying notes, for more information on
our time and bareboat charters, including counterparties, expected expiration dates of the charters and daily charter rates.
Time Charters
A time charter is a contract for the use of a vessel for a fixed period of time at a specified daily rate. Under a time charter, the vessel’s
owner provides crewing and other services related to the vessel’s operation, the cost of which is included in the daily rate and the char-
terer 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. As of December 31, 2017, we had 33 vessels under time charter agreements, of which four 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
As of December 31, 2017, we had profit sharing arrangements in place for the M/T Aktoras, the M/T Aiolos, the M/T Amor and the M/T Miltiadis M
II, which were under time charter with Capital Maritime. These arrangements are based on the calculation of the vessel’s actual earnings and are
settled every six months. In the event that the 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 amounts received under profit-sharing arrangements are subject to the usual commissions payable to shipbrokers on gross char-
ter 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 speci-
fied daily rate, and the customer provides for all of the vessel’s expenses (including any commissions) and generally assumes all risk of op-
eration. In the case of the vessels under bareboat charter to BP Shipping Limited, we are responsible for the payment of any commissions.
The customer undertakes to maintain the vessel in a good state of repair and efficient operating condition and drydock the vessel during this
period at its cost and as per the classification society requirements. The basic rate hire is payable to us monthly in advance in U.S. Dollars.
As of December 31, 2017, we had two vessels under bareboat charter with subsidiaries of INSW. A third vessel, the M/T Alexandros II,
was previously under bareboat charter with a subsidiary of INSW but was redelivered to us in December 2017.
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 vari-
ous cargo handling terms. Under a typical voyage charter, the shipowner is paid on the basis of moving cargo from a loading port to a
discharge port. In voyage charters the shipowner generally is responsible for paying both vessel operating costs and voyage expenses,
and the charterer generally is responsible for any delay at the loading or discharging ports. Under a typical trip charter or short-term
69
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 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, inves-
tor 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 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. The aggregate management fees paid to Capital Ship Management for the years
ended December 31, 2017, 2016 and 2015 were $11.6 million, $10.9 million and $11.7 million, 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” and “Item 7B: Related Party
Transactions—Administrative and Executive Services Agreements with the Manager.”
Capital Ship Management operates under a safety management system in compliance with the International Maritime Organization’s ISM code
and certified by Lloyd’s Register. Capital Ship Management’s management systems also comply with the Quality Standard ISO 9001, the Environ-
mental Management Standard ISO 14001, the Occupational Health & Safety Management System 18001 and the Energy Management Standard
50001, all of which are certified by Lloyd’s. Capital Ship Management has furthermore implemented an “Integrated Management System Ap-
proach” verified by the Lloyd’s. Capital Ship Management also adopted “Business Continuity Management” principles in cooperation with Lloyd’s.
Capital Ship Management, recognizing sustainable transport as one of the biggest challenges of the 21st century, has adopted and imple-
mented 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 environment. Capital
Ship Management’s senior management team actively manages the risks inherent in our business and is committed to eliminating inci-
dents that threaten safety, such as groundings, fires, collisions and petroleum spills, as well as reducing emissions and waste generation.
In 2014, Capital Ship Management was successfully assessed by Lloyd’s 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 IMO Strategy for Sustainable Maritime Transport Systems. In particular, Capital
Ship Management has established a task force to implement specific actions, 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, en-
ergy supply for ships, finance, liability and insurance mechanisms, maritime traffic support and advisory systems, ocean governance.
On April 2016, The GREEN4SEA Excellence Award was awarded to Capital Ship Management for demonstrating environmental excellence
and performance above average. Our manager was distinguished for its strategy with a focus on environmental performance. During 2015
safety and environmental performance reached the highest level as all Key Performance Indicators were well superior to the industry
standard. In July 2016, the “Green Environmental Achievement Award” was presented, for a consecutive year, to Capital Ship Management
by the Port of Long Beach in Southern California, U.S.A. This award is being granted to operators that called the Port of Long Beach in 2015
and demonstrated that 90% or more of all their vessel trips complied with the Green Flag – Voluntary Vessel Speed Reduction Program.
In March 2017, Capital Ship Management completed the first accredited assessment of its MRV monitoring plan for the vessel M/T “Al-
70
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 kiviadis.” The assessment was performed by the world’s leading provider of professional assurance services, LRQA, which is a member
of the Lloyd’s Register group (LR). Also in March 2017, Capital Ship Management was awarded the “Best Vessel Operator – Europe” Sea
Transport Award 2017 by UK publication “Transport News” and AI Global Media Ltd. In April 2017, Capital Ship Management received a
Certificate of Appreciation by the Australian Government and the Australian Maritime Safety Authority (AMSA) for the participation in a
Maritime Winching exercise on M/V ‘Attikos‘, a 178,929 dwt Capesize bulk carrier.
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 (International Maritime Organization, SOLAS, 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 Inspection
Report Programme (“SIRE”) and (ii) the Tanker Management & Self-Assessment (“TMSA”) Program. The former is a physical ship in-
spection based upon a thorough vessel inspection questionnaire 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,
Philips 66 Inc., ExxonMobil Corporation, Royal Dutch Shell plc, Statoil ASA, Tesoro, Repsol 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 Maritime
for a number of years, Capital Ship Management has considerable experience in operating vessels in this configuration and has a pool
of certified and experienced crew members which we can access to recruit crew members for our vessels.
Classification, Inspection and Maintenance
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
of registry, as well as the international conventions of which that country has accepted and signed. In addition, where surveys are re-
quired 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.
71
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 (or up to 15 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 each two and a half years (or up to three years)
after completion of each class renewal survey. In the case of newbuildings and or vessels of up to 15 years of age, 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 to determine the thick-
ness of the steel structures. Should the thickness be found to be less than class requirements, the classification society will order steel renewals.
The classification society may grant a 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, depending 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. However, the CHS notation is not
valid for vessels that are subject to Enhanced Survey Program 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 identified during
the inspections need to be rectified either during the inspection or at a later stage if that is found to be appropriate based on its class.
The classification 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 by dry docking; however this is only applicable for certain ship types and for modern vessels of up to 15 years of age.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society
which is a member of the International Association of Classification Societies. All of our vessels are certified as being “in class” by Lloyd’s,
ABS and BV. All new and secondhand vessels that we may purchase must be certified prior to their delivery under our standard agree-
ments. If any vessel we contract to purchase is not certified as “in class” on the date of closing, under our standard purchase agreements,
we will have no obligation to take delivery of such vessel.
Risk Management and Insurance
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,
catastrophic liabilities. Although we believe our current insurance program is usual and comprehensive in our industry, we cannot in-
sure 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
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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, which covers loss of or damage to a vessel due to marine perils such as collisions, grounding and
heavy weather. 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, which enhances hull and machinery insurance cover by increasing the insured value of the vessels in the
event of a total loss casualty.
• Protection and indemnity insurance, which is the principal coverage for third-party liabilities and indemnifies against such liabilities incurred
while operating vessels, including injury to the crew, third parties, cargo or third-party property loss (including oil pollution) for which the ship-
owner 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, which covers such items as piracy and terrorism.
• Freight, Demurrage & Defense cover, which is a form of legal costs insurance covering certain costs of prosecuting or defending com-
mercial (usually uninsured operating) claims.
In addition, in relation to our vessel M/V Cape Agamemnon, we currently maintain insurance to protect us against the loss of income
that would result from the charterer’s failure or refusal to pay hires under the time charter agreement. Under our revenue protection
insurance, our insurer has agreed to pay us a maximum amount per day for each day of loss, defined as the difference between the hire
contractually payable under the charter and the replacement hire earned or that could be earned by us during the policy period where
replacement hire is defined as the greater of the actual hire earned and the average hire rate that the vessel is capable of earning.
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”. Except as described above with respect to the M/V Cape Agamemnon, 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, 2017:
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*
$1.958 billion
$510 million additional “total loss” coverage
$2.468 billion
Up to $1.0 billion per incident per vessel
* Our bareboat charterer is 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 domestic product, or GDP, and industrial
production correlate with peaks in demand for marine drybulk transportation services. A wide range of cargoes are transported by container
but most notably container transportation is responsible for the shipment of a diverse selection of manufactured and consumer goods in
unitized form. These cargoes are transported by container to end users in all regions of the world, and in particular, from key producing and
manufacturing regions to end users in the world’s largest consumer economies. Growth in global container trade is being driven by growth
in world merchandise trade, and the growing share in the containerized part thereof, along with the expansion in “containerization” of new
commodities and the trend towards globalization. Please read “Item 3.D: Risk Factors— Risks relating to the tanker industry ,” “Item 3.D: Risk
Factors — Risks related to the drybulk industry , and – Risks related to the container carrier industry .”
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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Demand for tankers and 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. Global oil demand returned to limited
growth in 2010 and has since been expanding at a modest pace, driven by a steady rise in Asia. According to the International Energy
Agency, global oil demand for 2017 is estimated to be 97.8 mb/day compared to 96.3 mb/day for 2016.
Tonnage of oil shipped is also influenced by transportation alternatives (such as pipelines) and the output of refineries. Over the past
few years, refinery output in the United States has increased significantly as a result of ample and growing domestic crude supply and
an abundance of cheap natural gas. In 2017, refinery runs in the United States reached new record levels, resulting in an increase in
petroleum product exports. The key markets for products from the United States were Latin America, including Mexico, Brazil, Chile
and Colombia among others, as well as Europe. Over the past few years, Asia and the Middle East have also experienced a significant
increase in their refinery capacity. It is estimated that refinery capacity in the Middle East and Asia combined increased by 4.1 mb/day over
the last five years. In 2018, a notable number of additional refineries are expected to start operations in Asia.
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. In general, although the
global container trade has grown at a multiple of GDP, that multiple appears to be gradually reducing as some of the trends driving it
begin to mature. It is estimated that demand for containerships grew at rate of 5% in 2017 compared to 4.1% in 2016.
Competition
We operate in a highly fragmented, highly diversified global market with many charterers, owners and operators of vessels. Competition
for charters in the tanker, drybulk and container markets can be intense. 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 char-
terer. 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 re-charter our vessels, especially as a number of our vessels
will come off charter during 2018. However, Capital Maritime is among a small number of ship management companies in the tanker
sector that has undergone and successfully completed office assessments by seven major international oil companies in the last few
years, including audits with BP, Chevron Corporation, Philips 66 Inc., ExxonMobil Corporation, Royal Dutch Shell plc, Statoil ASA, Tesoro,
Repsol 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 require-
ments, U.S. federal, state and local as well as non-U.S. health, safety and environmental protection laws and regulations, including OPA 90,
the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the U.S. Port and Tanker Safety Act, the Act to
Prevent Pollution from Ships, the U.S. Clean Air Act (“Clean Air Act”), the U.S. Clean Water Act, as well as regulations adopted by the Interna-
tional Maritime Organization and the European Union, air emission requirements, IMO/USCG/EPA pollution regulations and various 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 implementation of additional operating procedures.
We are also required by various governmental and quasi-governmental agencies and international organizations to obtain permits, li-
censes and certificates for our vessels, depending upon such factors as the country of registry, the cargo transported, the trading area, the
nationality of the vessel’s crew, the age and size of the vessel and our status as owner or charterer. Failure to maintain necessary permits,
licenses or certificates could require us to incur substantial costs or temporarily suspend 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 inspections by us, our vessels are
subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which may have unique require-
ments. These entities include the local port authorities (such as USCG, 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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 pre-
dict 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. USCG regulations limit OPA liability for environmental damages for double-hull vessels to the greater of $2,000 per gross ton or
$17,088,000 million per tanker that is over 3,000 gross tons (subject to possible adjustment for inflation), unless the incident is caused by
gross negligence, willful misconduct, or a violation of certain regulations, in which case, liability is unlimited. On November 19, 2015, USCG
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.
Certain coastal states have enacted additional pollution prevention, liability 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 pro-
vides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or 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 USCG, Certificates of Financial Responsibility, or COFRs, in the amount sufficient to meet the
maximum aggregate liability under OPA 90 and CERCLA. All of our vessels that need COFRs have them.
We insure each of our tankers with pollution liability insurance in the maximum commercially available amount of $1.0 billion per incident.
A catastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on our business.
OPA 90 requires that tankers over 5,000 gross ton calling at U.S. ports have double hulls. All of the vessels in our fleet have double hulls.
We believe that we are in material compliance with OPA 90, CERCLA and all applicable state and local 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 re-
sponding 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
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 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 will 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 implementation of equivalent standards agreed by the International Maritime
Organization. For trading in the U.S. waters, vessels are to be fitted with ballast water treatment systems approved by the USCG at the first bottom
survey after January 1, 2016. A number of BWTS technologies have Alternate Management System (“AMS”) extension approvals and a number of
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 other systems have recently received a USCG type BWTS approval. We have obtained extensions for the majority of our vessels with due date of
docking up to and including 2018 to carry out installation of BWTS at the next docking survey after December 31, 2018. Although future extensions
may still be granted, obtaining an extension due to lack of type approved systems will now be more difficult because owners must prove that none
of the recently approved systems are suitable for their vessels. Compliance with these requirements may impose substantial costs for retrofitting
our vessels with BWTS or otherwise restrict our vessels from performing certain operations in U.S. waters that involve discharging of ballast water.
The Clean Air Act requires the EPA to promulgate standards applicable to emissions of volatile organic compounds, hazardous air pol-
lutants and other air contaminants. The Clean Air Act also requires states to draft State Implementation Plans (“SIPs”) designed to attain
national health-based air quality standards, which have significant regulatory impacts in major metropolitan and/or industrial areas.
Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control
equipment. Individual states, including California, also regulate vessel emissions within state waters. California also has adopted fuel
content regulations that will apply to all vessels sailing within 24 miles of the California coastline or whose itineraries call for them to
enter any California ports, terminal facilities, or internal or estuarine waters. In addition, the International Maritime Organization desig-
nates areas 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 Sulphur Emission Control Areas under amendments to the Annex VI of MARPOL (discussed below). In addition,
regulatory initiatives to require cold-ironing (shore-based power while docked) or alternative emission reduction measures are under
consideration or in the process of adoption 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
In September 1997, the International Maritime Organization adopted Annex VI to the International Convention for the Prevention of Pollution from
Ships to address air pollution from ships. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits
deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of
fuel oil and allows for special sulphur emission control 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 re-
duces air pollution from vessels by, among other things (i) implementing a progressive reduction of sulfur oxide emissions from ships, and
(ii) establishing new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The
International Maritime Organization confirmed in October 2016 that a global 0.5% sulphur cap on marine fuels will come into force on January 1,
2020, as agreed in amendments adopted in 2008 for Annex VI to the MARPOL. Annex VI sets progressively stricter regulations to control sulphur
oxides (SOx) and nitrous oxides (NOx) emissions from ships, which present both environmental and health risks. The 0.5% sulphur cap marks
a significant reduction from the current global sulphur cap of 3.5%, which came into effect on January 1, 2012. When the 2020 sulphur cap was
decided upon in 2008, it was also agreed that a review should be undertaken by 2018 to assess whether there was sufficient compliant fuel
available to meet the 2020 effective date, failing which, the effective date could be deferred to 2025. That review was completed in July 2016 by
a consortium of consultants led by CE Delft, and submitted to the International Maritime Organization’s Marine Environment Protection Com-
mittee (MEPC) during their 70th session. The review concluded that sufficient compliant fuel would be available to meet the new requirement.
However, it remains uncertain if there will be sufficient refining capacity in 2020 to produce compliant marine fuels and installing alternative
sulphur emission control equipment on vessels entails significant cost and may be technically infeasible or uneconomic for some vessels.
Questions also remain as to how the sulphur cap will be enforced, as it is up to individual parties to MARPOL to enforce fines and sanctions.
Shipowners can meet the new requirements by continuing to use fuel types which exceed the 0.5% sulphur limit and retrofitting an ap-
proved Exhaust Gas Cleaning System (also known as scrubbers) to remove sulphur from exhaust, which might require a substantial capital
expenditure and prolonged offhire of the vessel during installation; or use petroleum fuels such as marine gasoil (MGO), which meet the
0.5% sulphur limit. According to Clarksons Shipping Intelligence Network, the premium of MGO over 380 CST 3.5% bunker fuel in Rotterdam
has averaged $244/mt over the last five years. Depending on the vessel type and size, this could mean a substantial increase in the cost of
bunkers for the vessel. This cost could increase further if the refining sector is unable to cope with the higher distillate demand, resulting in
a tight distillate market and wider spread between HSFOs and MGOs; or by retrofitting the vessel to handle alternative fuels, such as LNG,
methanol, biofuels, LPG etc. Retrofitting vessels for the consumption of these type of alternative fuels would involve a substantial capital
expenditure and might be uneconomical for most conventional vessel types given current technology and design challenges.
Additionally, as of January 1, 2015, more stringent sulfur emission standards apply in coastal areas designated as Sulphur Emission
Control Areas. We incur additional costs to comply with these revised standards. A failure to comply with Annex VI requirements could
result in a vessel not being able to operate. All of our vessels are subject to Annex VI regulations. We believe that our existing vessels
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 meet relevant Annex VI requirements. Nevertheless, as most existing vessels are not 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.
New SOLAS requirements necessitate installation of ECDIS equipment for certain types of vessels at the first radio survey carried out
after July 1, 2015. For container vessels, this requirement comes into force for their first radio survey after July 1, 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. Furthermore, recent rule changes to ECDIS per-
formance standards as from September 1, 2017, may necessitate replacement of ECDIS equipment in case their upgrade is not possible.
If that happens, this replacement might require increased capital expenditure for certain of our vessels.
The ISM code, promulgated by the International Maritime Organization, 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 unless its manager has
been awarded a document of compliance, issued by each flag state, under the ISM code. All of our ocean-going vessels are ISM certified.
Noncompliance with the ISM code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may
lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.
Many countries have ratified and follow the liability plan adopted by the International Maritime Organization and set out in the Interna-
tional Convention on Civil Liability for Oil Pollution Damage of 1969 (the “CLC”) (the United States, with its separate OPA 90 regime, is not
a party to the CLC). Under this convention and depending on whether the country in which the damage results is a party to the 1992
Protocol to the International Convention on Civil Liability for Oil Pollution Damage, a vessel’s registered owner is strictly liable for pollu-
tion 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 insurance covering the liability of the owner. In jurisdictions where the
International Convention on Civil Liability for Oil Pollution Damage has not been adopted, various legislative schemes or common law
regimes govern, and liability is imposed either on the basis of fault or in a manner similar to that convention. We believe that our P&I
insurance will cover the liability required under the plan adopted by the International Maritime Organization.
In 2001, the International Maritime Organization adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the
“Bunker Convention”), which imposes strict liability on ship owners for pollution damage caused by discharges of bunker oil in jurisdictional
waters of ratifying states. The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance for pol-
lution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding
the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). Our fleet has
been issued with a certificate attesting that insurance is in force in accordance with the insurance provisions of the convention.
IMO regulations also require owners and operators of vessels to adopt Shipboard Marine Pollution Emergency Plans (“SMPEPs”). Peri-
odic 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 Code (“IBCC”) 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 IBCC (implemented to meet recent revisions to SOLAS and
Annex II to MARPOL), some previously unrestricted vegetable oils, including animal fats and marine oils, must be transported in chemical tank-
ers 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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 Conven-
tion applies to vessels constructed prior to January 1, 2003 that have not been in drydock since September 17, 2008. Vessels of over 400
gross tons engaged in international voyages must obtain an International Anti-fouling System Certificate and must undergo a survey
before the vessel is put into service or when the anti-fouling systems are altered or replaced. We have obtained Anti-Fouling System
Certificates for all of our vessels that are subject to the Anti-Fouling Convention and do not believe that maintaining such certificates will
have a material adverse financial impact on the operation of our vessels.
Climate Change and Greenhouse Gas Regulation
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 countries
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. How-
ever, new treaties may be adopted in the future that include 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 addition, the EPA has begun regulating greenhouse gas emissions under the Clean Air Act and climate change
initiatives have been adopted by state and local jurisdictions and are being considered in the U.S. Congress. A consensus agreement
reached at the 2015 United Nations Climate Change Conference in Paris and ratified in October 2016 commits participating nations to
reduce greenhouse gas emissions with a goal of keeping 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 International Maritime Organization, 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 cer-
tainty 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. Increased concern over the effects of climate change may also affect energy strategies
and consumption patterns which could adversely affect demand for the marine transport of petroleum products.
Disclosure of activities pursuant to Section 13(r) of the U.S. Securities Exchange Act of 1934
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the U.S. Securities Exchange Act of
1934, as amended (the “Exchange Act”). Section 13(r) requires an issuer to disclose whether it or any of its affiliates knowingly engaged
in certain activities, transactions or dealings. Disclosure is required even where the activities, transactions or dealings are conducted in
compliance with applicable law. Provided in this section is information concerning the activities of CPLP and its affiliates that occurred in
2017 and which CPLP believes may be required to be disclosed pursuant to Section 13(r) of the Exchange Act.
In 2017, vessels owned by CPLP and chartered under time charter parties to PCTC, a subsidiary of CMTC, our sponsor and the sole mem-
ber of our General Partner, made four port calls to Iran to load crude oil and three port calls to Iran to discharge vegetable oils. These port
calls represented approximately 0.4% of the total port calls made by all the vessels owned by CPLP in 2017. They each occurred while the
respective vessel was sublet under voyage or time charter by PCTC to an unaffiliated sub-charterer under the instructions of such sub-
charterer. As the vessel owner, we earned revenues at the agreed daily charter rates from PCTC under the applicable time charter. PCTC
in turn earned revenues at the agreed freight or hire rate from the sub-charterers that employed the vessels. CPLP’s aggregate revenue
attributable to the number of days that our vessels under time charters remained in ports in Iran was approximately $0.5 million, repre-
senting approximately 0.2% of our total revenues for the year ended December 31, 2017. We do not attribute profits to specific voyages.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Further, in 2017, vessels owned or chartered-in by CMTC (including the vessels chartered-in from CPLP by PCTC under time charters as de-
scribed above) made 12 port calls to Iran to load crude oil and five port calls to Iran to discharge vegetable oils. These port calls represented
1.4% of the total port calls made by all the vessels owned or chartered-in by CMTC in 2017. They each occurred while the respective vessel
was chartered out to an unaffiliated charterer or sub-charterer under the instructions of such charterer or sub-charterer. The aggregate
revenue attributable to the number of days that the vessels under time charters remained in ports in Iran and to port calls made in Iran by
vessels under voyage charters to unaffiliated charterers and sub-charterers was approximately $32.0 million, representing approximately
9.0% of CMTC’s total revenues during the year ended December 31, 2017. CMTC does not attribute profits to specific voyages.
As part of the voyage charter arrangements between CMTC and third-party charterers or sub-charterers, CMTC 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
or sub-charterer, which in 2017 did not include any payments for refueling or bunkers for the vessels making such port calls.
CPLP and CMTC believe that all activities, transactions and dealings involving Iran were consistent with sanctions. CPLP and CMTC intend
to continue to charter their respective vessels to charterers and sub-charterers, including, as the case may be, Iran-related parties, who
may make, or may sublet the vessels to sub-charterers who may make, port calls to Iran, so long as the activities continue to be permis-
sible and not sanctionable under applicable U.S. and EU and other applicable laws.
C. Organizational Structure
Capital Maritime & Trading Corp. (Sponsor)
17,291,768 Common Units
100% Membership Interest
Capital GP L.L.C
(General Partner)
2,439,989 GP Units
1.9% General Partner Interest
(1.7% on a fully converted basis)
Public Unitholders
109,954,924 Common Units(1)
12,983,333 Class B Units
12.1% Limited Partner Interest
86.2% 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
(1) Crude Carriers Investments Corp. owns 3,284,210 common units as of the date of this Annual Report.
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, 2017.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
D. Property, Plants and Equipment
Other than our vessels, we do not have any material property. For further details regarding our vessels, including any environmental
issues that may affect our utilization of these assets, please read “Item 4B: Business Overview—Our Fleet” and “—Regulation.” 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.”
ITEM 4A. UNRESOLVED STAFF COMMENTS.
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated
Financial Statements for the years ended December 31, 2017, 2016, and 2015 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 tanker, container and drybulk vessels. We were 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 as of December 31, 2017
consisted of 36 high specification vessels with an average age of approximately 8.4 years. Our fleet is comprised of four Suezmax crude
oil tankers (0.6 million dwt), 21 medium range product tankers (0.9 million dwt), ten neo-panamax container carrier vessels (0.9 million
dwt) and one Capesize bulk carrier (0.2 million 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 quarterly distribution per unit and increase our distributions over time, subject to shipping and
charter market developments and our ability to obtain required financing and access financial markets.
We seek to rely on medium- to long-term, fixed-rate period charters and Capital Ship Management’s cost-efficient management of
our vessels to provide visibility of revenues, earnings and distributions in the medium- to long-term. As our vessels come up for re-
chartering, we seek to redeploy them on terms that reflect our expectations of the market conditions prevailing at the time.
We intend to further evaluate potential opportunities to acquire both newly built and second-hand vessels from Capital Maritime or third
parties (including, potentially, through the acquisition of, or combination with, other shipping businesses) in a prudent manner that is
accretive to our unitholders and long-term distribution growth, subject to approval of our board of directors, overall market conditions
and our ability to obtain required financing and access financial markets.
Consistent with this strategy, we currently have a right of first refusal to acquire five additional product tanker vessels from Capital
Maritime. , as further described in “Item 4.A: History and Development of the Partnership—2015 Developments—Delivery of Dropdown
Vessels.”
We generally rely on external financing sources, including bank borrowings and, depending on market conditions, the issuance of debt
and equity securities, to fund the acquisition of new vessels. See “—B. Liquidity and Capital Resources” below.
As of December 31, 2017, the Marinakis family, including Evangelos M. Marinakis, our former chairman, may be deemed to beneficially
own on a fully converted basis a 16.1% interest in us (17.7% on a non-fully converted basis), through, among others, Capital Maritime and
Crude Carriers Investments.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Our Charters
We generate revenues by charging our charterers for the use of our vessels. Historically, we have provided services to our charterers
under time or bareboat charter agreements. As of December 31, 2017, 33 of our vessels were either trading in the period market or were
expected to commence period employment.
Our vessels are currently under contracts with INSW, HMM, CSSA S.A. (Total S.A.), COSCO, Repsol, Flopec, PIL, Petrobras, Shell, CMA
CGM and Capital Maritime. In 2017, we re-chartered a total of thirteen vessels.
For the year ended December 31, 2017, Petrobras, Capital Maritime, HMM and CMA CGM accounted for 19%, 18%, 18% and 17% of our
revenues, respectively. For the year ended December 31, 2016, HMM, Petrobras, CMA CGM and Capital Maritime accounted for 19%, 18%,
17% and 15% of our revenues, respectively. For the year ended December 31, 2015, Capital Maritime and HMM accounted for 29% and
21% of our revenues, respectively.
The loss of, default by or restructuring of any significant charterer or a substantial decline in the amount of services requested by a
significant charterer 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. For
information on the risks arising from a concentration of counterparties, see “Item 3. Key Information—D. Risk Factors—Risks Related to
Our Business and Operations—We currently derive all of our revenues from a limited number of charterers and the loss of any charterer
or charter or vessel could result in a significant loss of revenues and cash flows.”
See also “Item 4B: Business Overview—Our Fleet,” “—Our Charters” and “—Our Charters—Profit Sharing Arrangements” for additional
information on our charters.
HMM Restructuring
HMM, the charterer of five of our container vessels and one of our largest counterparties in terms of revenue, completed a financial re-
structuring in July 2016. We entered into a charter restructuring agreement with HMM on July 15, 2016. This agreement provides for the
reduction of the charter rate payable under the respective charter parties by 20% to $23,480 per day (from a gross daily rate of $29,350) for
a three and a half year period starting in July 2016 and ending in December 2019. The total charter rate reduction for the charter reduction
period is approximately $37.0 million. The charter restructuring agreement further provides that at the end of the charter reduction pe-
riod, the charter rate under the respective charter parties will be restored to the original gross daily rate of $29,350 until the expiry of each
charter in 2024 and 2025. As compensation for the charter rate reduction, we received approximately 4.4 million HMM common shares,
which we sold on the Stock Market Division of the Korean Exchange for an aggregate consideration of $29.7 million in August 2016.
Accounting for Acquisitions
In October 2016, we acquired the shares of the company owning the M/T Amor, an eco-type MR product tanker, with time charters at-
tached expiring in October 2017 (at the earliest). We accounted for this transaction as an acquisition of a business based on the existence
of an integrated set of activities (inputs and processes that generate outputs). Therefore, we recorded the identifiable assets acquired
and liabilities assumed, consisting of the vessel, the time charter attached to the vessel and a term loan assumed on acquisition, in our
financial statements at their fair values of $31.6 million, $1.1 million and $15.8 million, respectively.
In February 2016, we acquired the shares of the company owning the M/V CMA CGM Magdalena, the last of the five vessels we agreed
to acquire from Capital Maritime pursuant to the Master Vessel Acquisition Agreement (to which we refer herein as the Dropdown
Vessels), with time charter attached expiring in January 2021 (at the earliest). We accounted for this transaction as an acquisition of an
asset. As we estimated that the daily charter rate of the time charter attached to the vessel was above market rates as of the transaction
completion date, we allocated the total consideration for this acquisition to the vessel cost in the amount of $88.5 million and to the above
market acquired charter in the amount of $3.2 million.
In July 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 $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 on the acquisition of the Dropdown Vessels. During 2015, we acquired four of the five Drop-
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 down Vessels which we accounted for as acquisitions of assets. For more information, please read Note 5 (Fixed Assets) and Note 12
(Partners’ Capital) in our Financial Statements included herein.
Industry Developments and Outlook
In 2017, the tanker charter market, where the majority of our fleet operates and where we expect the vast majority of our renewals will
occur in the next couple of years, was overall weaker due to, among other factors, high oil inventories and increased supply of vessels.
As a result, we secured employment for a number of our vessels at reduced rates on average in 2017. Oil demand growth is estimated
by the International Energy Agency (“IEA”) at 1.6% for 2017 and 1.3% for 2018. However global oil inventories remained at above five-year
average levels at the end of 2017 and as a result might adversely affect demand for tankers into 2018. In addition, according to Clarksons
Shipping Intelligence Network, the total tanker orderbook stood at 11.7% of the current worldwide fleet with 56% of this expected to be
delivered within 2018.
In 2017, in the container market, certain key routes have seen a resurgence in demand as compared to 2016, which has led to a decrease
in the idle fleet of approximately 2% by year end and an overall increase in container charter rates and asset values. However, charter
rates still remain below historical averages. 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 significant financial stress, to honor their commitments. For further informa-
tion, see “Item 3.D Risks Factors—Risks Related to the Container Carrier Industry— If our container carrier vessel charterers do not fulfill
their obligations to us, or if they are unable to honor their obligations, our business, financial condition, results of operations, cash flows and
ability to make cash distributions and service or refinance our debt can be adversely affected .”
After reaching historical highs in mid-2008, charter hire rates for capesize drybulk carriers, such as the M/V Cape Agamemnon, have
declined to historically low levels. In 2017, the drybulk market experienced some recovery in charter rates and asset values compared to
2016. The M/V Cape Agamemnon is currently deployed on a period time charter which is expected to expire on June 2020 (at the earliest).
In the future, we may be forced to re-charter the M/V Cape Agamemnon pursuant to short-term time charters, and may be exposed
to changes in the spot market and short-term charter rates for capesize drybulk carriers, all of which may affect our earnings and the
value of the M/V Cape Agamemnon. For further information, see “Item 3.D Risks Factors—Risks Related to the Drybulk Industry— We
are exposed to various risks in the international drybulk shipping industry, which is cyclical and volatile .”
Factors Affecting Our Future Results of Operations
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 upheavals in recent history. In addition, credit supply has been con-
strained and financial markets have been particularly turbulent for master limited partnerships such as us. Protectionist trends, global growth
and demand for the seaborne transportation of goods, including oil, oil products and dry and containerized goods, and overcapacity and deliver-
ies of newly built vessels may affect the shipping industry in general and our business, financial condition, results of operations and cash flows.
We are exposed to the tanker market to a significant extent as (a) the majority of our vessels are either crude or product tankers and (b)
most of the charters that have expired over the previous 12 months or we expect will expire in the coming 12 months are product or
crude tanker charters. We expect 20 of our charters to expire in the coming 12 months compared to 12 charter expirations in 2017. 18 of
these charter expirations relate to tanker vessels compared to ten tanker charter expirations in 2017.
Some of the key factors that we expect may affect our business, future financial condition, results of operations and cash flow include
the following:
• levels of oil product demand and inventories;
• supply and demand for crude oil, oil products raw materials, dry cargo and containerized goods;
• charter hire levels (under time and bareboat charters) and our ability to re-charter our vessels at competitive rates as their current
charters expire;
• developments in vessel values, which might affect our ability to comply with certain covenants under our credit facilities and/or refi-
nance our debt;
• 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;
• our access to debt and equity, and the cost of such capital, required to acquire additional vessels and/or to implement our business strategy;
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • supply and orderbook of vessels, including tankers, container vessels and drybulk vessels;
• the ability to increase the size of our fleet and make additional acquisitions that are accretive to our unitholders;
• the ability of Capital Maritime’s commercial and chartering operations to successfully employ our vessels at economically attractive
rates, particularly as our charters expire and our fleet expands;
• the continuing demand for goods from China, India, Brazil and Russia and other emerging markets;
• our ability to comply with new maritime regulations and the more restrictive regulations for the transport of certain products and
cargoes and the increased costs associated therewith;
• the increased costs associated with the renewal of our technical management agreement and the full 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;
• 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 in the spot market;
• 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 3.D: 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 2017, the weighted average number of our vessels increased by 0.97 vessels compared to the year 2016, as
we took delivery of the M/V Anaxagoras (renamed to “CMA CGM Magdalena”) and the M/T Amor on February 26, 2016 and October 24,
2016, respectively. As our fleet grows or as we dispose of our vessels, our results of operations reflect the contribution to revenue of,
and the expenses associated with, a varying number of vessels over time, which may affect the comparability of our results year-on-
year. Please see “—Overview—Accounting for Acquisitions” for information on the accounting treatment of vessel acquisitions for the
period under review and 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 agree-
ments with Capital Ship Management for the management of our fleet: the fixed fee management agreement, the floating fee man-
agement agreement and, with respect to the vessels acquired as part of the merger with Crude Carriers, the Crude Carriers manage-
ment agreement. Each agreement has a different operating expenses structure. In 2017, three vessels, which were previously man-
aged under the fixed fee management agreement and were employed under bareboat charter agreements transitioned to a floating
fee arrangement and incurred operating expenses. We expect that the remaining two vessels in our fleet that are still managed under
the fixed fee management agreement and are currently employed under bareboat charter agreements, will over time transition to
floating fee arrangements and that newly acquired vessels will also be managed under floating fee management arrangements. For
information on our management agreements and the fees we pay to our Manager, please read “Item 4B: Business Overview—Our
Management Agreements.”
Results of Operations
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Our results of operations for the years ended December 31, 2017 and 2016 differ primarily due to:
• the increase in the weighted average number of our vessels as we took delivery of the M/V Anaxagoras (renamed to “CMA CGM Mag-
dalena”) and the M/T Amor on February 26, 2016 and October 24, 2016, respectively;
• lower charter rates as a result of weaker market conditions for product and crude tankers on the back of increased tonnage availability,
high oil and oil product inventories and OPEC/Non-OPEC oil production cuts, a trend that we expect to continue at least for the short
term and that we anticipate may further affect our earnings as a significant number of our charters will expire in 2018;
• the increase in the number of vessels in our fleet incurring operating expenses following the redelivery by their charterer of the M/T
Atlantas II in September 2016 and the M/T Aiolos and the M/T Aktoras in March 2017, which were previously employed on bareboat
charters; and
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • higher interest costs incurred as a result of an increase in the LIBOR weighted average interest rate during the year ended December
31, 2017 compared to the year ended December 31, 2016.
Total Revenues
Total revenues, consisting of time, voyage and bareboat charter revenues, amounted to $249.1 million for the year ended December 31,
2017 compared to $241.6 million for the year ended December 31, 2016.
The increase of $7.5 million was primarily attributable to the increase in vessel operating days as the weighted average size of our fleet
expanded by 0.97 vessels in 2017 and the decrease in the number of off-hire days incurred by our vessels during the year 2017, partly
offset by lower charter rates earned by certain of our vessels compared to the average charter rates earned during the year 2016 as
result of, among other factors, weaker market conditions for product and crude tankers. For the year ended December 31, 2017, related
party revenues increased to $44.7 million, compared to $36.0 million for the year ended December 31, 2016 as the average number of
vessels chartered by Capital Maritime increased by 2.7 vessels. Time, voyage and bareboat charter revenues are mainly comprised of
the charter hires received from unaffiliated third-party charterers and Capital Maritime, and are generally affected by the number of ves-
sel operating days, the average number of vessels in our fleet and the charter rates.
For the year ended December 31, 2017, Petrobras, Capital Maritime, HMM and CMA CGM accounted for 19%, 18%, 18% and 17% of our total
revenues, respectively. For information on the risks arising from a concentration of counterparties, see “Item 3. Key Information—D.
Risk Factors—Risks Inherent in Our Operations— We currently derive all of our revenues from a limited number of charterers and the
loss of any charterer or charter or vessel could result in a significant loss of revenues and cash flows. ”
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
Total voyage expenses amounted to $15.2 million for the year ended December 31, 2017, compared to $10.3 million for the year ended
December 31, 2016. The increase of $4.9 million was primarily attributable to the increase in the number of voyage charters under
which certain of our vessels were employed during the year 2017, compared to the year 2016. Voyage expenses primarily consist of
bunkers, port expenses, canal dues and commissions. Commissions are paid to shipbrokers for negotiating and arranging charter
party agreements on our behalf. Voyage expenses incurred during time and bareboat charters are paid for by the charterer, except for
commissions, which are paid for by us. Voyage expenses incurred during voyage charters are paid for by us. Please also refer to Note
10 (Voyage Expenses and Vessel Operating Expenses) to the financial statements included herein for information on the composition of
our voyage expenses.
Vessel Operating Expenses
For the year ended December 31, 2017, our total vessel operating expenses amounted to $86.1 million compared to $77.5 million for
the year ended December 31, 2016. The $8.6 million increase in total vessel operating expenses primarily reflects the expansion in the
weighted average size of our fleet and the increase in the number of vessels in our fleet incurring operating expenses, following the
redelivery of the M/T Atlantas II, the M/T Aktoras and the M/T Aiolos, which were previously employed under bareboat charters.
Total vessel operating expenses for the year ended December 31, 2017 include expenses of $11.6 million incurred under the manage-
ment agreements we have with our Manager, compared to $10.9 million during the year ended December 31, 2016.
See Note 10 (Voyage Expenses and Vessel Operating Expenses) to the financial statements included herein for information on the com-
position of our vessel operating expenses.
General and Administrative Expenses
General and administrative expenses amounted to $6.2 million for the year ended December 31, 2017, compared to $6.3 million for the
year ended December 31, 2016. General and administrative expenses include board of directors’ fees and expenses, audit and certain
legal fees, and other fees related to the expenses of the publicly traded partnership.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Vessel Depreciation and Amortization
Depreciation and amortization amounted to $74.0 million for the year ended December 31, 2017, compared to $71.9 million for the year
ended December 31, 2016. The increase was due to the increase in the average number of vessels in our fleet.
Depreciation is expected to increase if the average number of vessels in our fleet increases.
Impairment of vessel
Impairment of vessel amounted to $3.3 million for the year ended December 31, 2017 and represents the difference between the carry-
ing and the fair market value of the M/T Aristotelis, which we agreed to sell on December 22, 2017. The vessel was classified as held for
sale and written down to its fair value less estimated sale costs. The fair value of the M/T Aristotelis was based on its transaction price,
as the sale price was agreed with an unaffiliated third party.
Please see Note 5 (Fixed assets and assets held for sale) and Note 8 (Financial Instruments) to our Financial Statements included herein
for more information on impairment charges.
Total Other Expense, Net
Total other expense, net for the year ended December 31, 2017 amounted to $25.8 million, compared to $23.2 million for the year ended
December 31, 2016. The increase of $2.6 million reflects higher interest costs incurred mainly as a result of the increase in the LIBOR
weighted average interest rate for the year ended December 31, 2017 compared to the year ended December 31, 2016.
Interest expense and finance costs include interest expense, amortization of financing charges, commitment fees and bank charges.
The weighted average interest rate on the loans outstanding under our credit facilities for the year ended December 31, 2017 was 4.29%,
compared to 3.73% for the year 2016. Please also refer to Note 7 (Long Term Debt) to the Financial Statements included herein.
Net Income
Net income for the year ended December 31, 2017 amounted to $38.5 million compared to $52.5 million for the year ended December 31, 2016.
For a list of factors which we believe are important to consider when evaluating our results, please refer to the discussion under “—Fac-
tors to Consider When Evaluating Our Results” and “—Factors Affecting our Results of Operations.”
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Our results of operations for the years ended December 31, 2016 and 2015 differ primarily due to the expansion of our fleet and the result-
ing increase in the weighted average number of vessels.
On February 26 and October 24, 2016, we took delivery of the M/V CMA CGM Magdalena and the M/T Amor, respectively. On March 31,
June 10, June 30 and September 18, 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, respectively.
Total Revenues
Total revenues, consisting of time, voyage and bareboat charter revenues, amounted to $241.6 million for the year ended December 31,
2016 compared to $220.3 million for the year ended December 31, 2015. The increase of $21.3 million was primarily attributable to the
increase in vessel operating days as the weighted average size of our fleet expanded by 2.9 vessels, partly offset by lower charter rates
earned by certain of our vessels compared to the average charter rates earned during the year 2015. For the year ended December 31,
2016, related party revenues decreased to $36.0 million, compared to $63.7 million for the year ended December 31, 2015 as the average
number of vessels chartered by Capital Maritime decreased by 5.3 vessels. Time, voyage and bareboat charter revenues are mainly
comprised of the charter hires received from unaffiliated third-party charterers and Capital Maritime, and are generally affected by the
number of operating days, the weighted average number of vessels in our fleet and the charter rates.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Voyage Expenses
Total voyage expenses amounted to $10.3 million for the year ended December 31, 2016, compared to $6.9 million for the year ended December
31, 2015. The $3.4 million increase in voyage expenses was primarily attributable to the expansion of our fleet, voyage expenses incurred by the
M/T Arionas, which traded in the spot market from July to December 2016, bunkers consumed during idle periods and ballast voyages performed
by certain of our vessels during the year relating primarily to their scheduled drydocking, as well as certain crew expenses of Brazilian crew we
are required to employ pursuant to the time charter agreements we entered into with Petrobras and which are included in our voyage expenses.
Vessel Operating Expenses
For the year ended December 31, 2016 our total vessel operating expenses amounted to $77.5 million compared to $70.3 million during
the year ended December 31, 2015. The $7.2 million increase in total vessel operating expenses was primarily attributable to the increase
in the weighted average size of our fleet by 2.9 vessels during the year 2016 compared to the year 2015. Total vessel operating expenses
for the year ended December 31, 2016 included expenses of $10.9 million, incurred under the management agreements we have with
our Manager, compared to $11.7 million during the year ended December 31, 2015.
General and Administrative Expenses
General and administrative expenses amounted to $6.3 million for the year ended December 31, 2016, compared to $6.6 million for the
year ended December 31, 2015. General and administrative expenses include board of directors’ fees and expenses, audit and certain
legal fees, and other fees related to the expenses of the publicly traded partnership.
Vessel Depreciation and Amortization
Depreciation and amortization amounted to $71.9 million for the year ended December 31, 2016, compared to $62.7 million for the year
ended December 31, 2015. The increase was due to the expansion of our fleet.
Total Other Expense, Net
Total other expense, net for the year ended December 31, 2016 amounted to $23.2 million, compared to $18.4 million for the year ended
December 31, 2015. The increase of $4.8 million mainly reflects the higher interest expense and finance costs of $24.3 million incurred
during the year ended December 31, 2016, compared to $20.1 million during the year ended December 31, 2015, driven by an increase in
the weighted average interest rate and principal amounts outstanding under our credit facilities.
The weighted average interest rate on the loans outstanding under our credit facilities for the year ended December 31, 2016 was 3.73%,
compared to 3.18% for the year 2015. Please also refer to Note 7 (Long Term Debt) to the Financial Statements included herein.
Net Income
Net income for the year ended December 31, 2016 amounted to $52.5 million compared to $55.4 million for the year ended December
31, 2015.
B. Liquidity and Capital Resources
As of December 31, 2017, total cash and cash equivalents were $63.3 million, and restricted cash (under our credit facilities) amounted to
$18.0 million. As of December 31, 2017, there were no undrawn amounts under the terms of our credit facilities.
Generally, our primary sources of funds have been cash from operations, bank borrowings and securities offerings.
Depending on the prevailing market rates when our charters expire, we may not be able to re-charter our vessels at levels similar to
their current charters, which may affect our future cash flows from operations. Cash flows from operations may be further affected by
other factors described elsewhere in this Annual Report. See “Item 3. Key Information—D. Risk Factors.” We expect 20 of our charters
to expire in the coming 12 months compared to 12 charter expirations in 2017. 18 of these charter expirations relate to tanker vessels
compared to ten tanker charter expirations in 2017.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Because we distribute all of our available cash (a contractually defined term, generally referring to cash on hand at the end of each
quarter after provision for reserves), we generally rely upon external financing sources, including bank borrowings and securities offer-
ings, to fund replacement, expansion and investment capital expenditures, and to refinance or repay outstanding indebtedness under
our credit facilities. Since 2011, our board of directors has elected not to provision cash reserves for estimated replacement capital
expenditures. Therefore, our ability to maintain and grow our asset base, including through further dropdown opportunities from Capi-
tal Maritime or acquisitions from third parties, and to pay or increase our distributions as well as to maintain a strong balance sheet
depends on, among other things, our ability to obtain required financing, access financial markets and refinance part or all of our existing
indebtedness on commercially acceptable terms.
On May 22, 2017, we entered into a firm offer letter contemplating the 2017 credit facility for an aggregate principal amount of up to $460.0
million with a syndicate of lenders led by HSH and ING, as mandated lead arrangers and bookrunners, and BNP Paribas and National
Bank of Greece S.A., as arrangers. On September 6, 2017, we entered into the loan agreement documenting the 2017 credit facility. On
October 2, 2017, we repaid $14.0 million outstanding under our 2011 credit facility through available cash. On October 4, 2017 (or the Draw-
down Date), we drew the full amount of $460.0 million under the 2017 credit facility and, together with available cash of $102.2 million,
fully repaid total indebtedness of $562.2 million consisting of (i) $186.0 million under our 2007 credit facility, (ii) $181.6 million under our
2008 credit facility and (iii) $194.6 million under our 2013 credit facility.
The 2017 credit facility is comprised of two tranches. Tranche A, amounting to $259.0 million, is secured by 11 of our vessels and is required
to be repaid in 24 equal quarterly instalments of $4.8 million in addition to a balloon instalment of $143.0 million, which is payable together
with the final quarterly instalment in the fourth quarter of 2023. Tranche B, amounting to $201.0 million, is secured by 24 of our vessels and
is required to be repaid fully in 24 equal quarterly instalments of $8.4 million with the final quarterly instalment in the fourth quarter of 2023.
The first quarterly instalments under both tranches A and B were paid on January 4, 2018. The loans drawn under the 2017 credit facility bear
interest at LIBOR plus a margin of 3.25%. The covenants under the credit facility are substantially similar to the covenants of our refinanced
credit facilities and do not contain any restrictions on distributions to our unit holders in the absence of an event of default.
The table below presents our principal repayment schedule under our 2017 credit facility and the credit facility originally arranged by
Capital Maritime in 2015 and assumed by us in 2016 (the “2015 credit facility”) as of December 31, 2017:
Facility
2017 credit facility (1)
2015 credit facility
TOTAL
2018
66.5
0.3
66.8
2019
51.7
1.3
53.0
(In millions of U.S. Dollars)
2020
51.7
1.3
53.0
2021
51.7
1.3
53.0
2022
51.7
11.6
63.3
2023
Total
186.7
—
186.7
460.0
15.8
475.8
(1) The principal repayment schedule of the 2017 credit facility reflects the estimated partial prepayment of $14.8 million of Tranche A
in connection with the sale of the M/T Aristotelis in 2018.
In April 2016, in the face of severely depressed trading prices for master limited partnerships, including us, a significant deterioration in our
cost of capital and potential loss of revenue, our board of directors took the decision to protect our liquidity position by creating a capital re-
serve and setting distributions at a level that our board believes to be sustainable and consistent with the proper conduct of our business. We
used cash accumulated as a result of quarterly allocations to our capital reserve to partially prepay our indebtedness as part of our refinanc-
ing in October 2017. We expect to continue to reserve cash in amounts necessary to service our debt in the future, including to make quar-
terly amortization payments. Please see “Item 8A: How We Make Cash Distributions” for further information on our cash distribution policy.
In September 2016, we entered into an equity distribution agreement with UBS. See above “Item 4A: History and Development of the
Partnership—2016 Developments—At-the-market Offering.” For the period between the launch of the ATM offering and December 31,
2017, we issued 6.6 million new common units translating into net proceeds of $22.3 million (before offering expenses).
Subject to our ability to obtain required financing and access financial markets, we expect to continue to evaluate opportunities to acquire
vessels and businesses. Subject to the acquisition of the M/T Anikitos, which we expect to complete in March 2018, we currently have no
capital commitments to purchase or build additional vessels. Five of our vessels are scheduled to undergo their special survey during 2018.
Total partners’ capital as of December 31, 2017 amounted to $933.4 million compared to $927.8 million as of December 31, 2016, cor-
responding to an increase of $5.6 million. The increase primarily reflects net income of $38.5 million, net proceeds (after UBS’s com-
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
missions and offering expenses) of $17.6 million from the issuance of common units under our ATM offering and equity compensation
expense of $1.2 million partially offset by $51.6 million of distributions declared and paid during the year ended December 31, 2017.
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 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 below, in millions:
Net Cash Provided by Operating Activities
Net Cash Used in Investing Activities
Net Cash (Used in)/Provided by Financing Activities
Net Cash Provided by Operating Activities
2017
127.0
$
$
(2.0)
$ (168.3)
2016
$
$
$
155.1
(91.8)
(46.8)
2015
134.2
$
$ (209.9)
1.7
$
Net cash provided by operating activities was $127.0 million for the year ended December 31, 2017, compared to $155.1 million for the
year ended December 31, 2016. The decrease of $28.1 million was mainly attributable to (a) the decrease of $7.9 million in cash from op-
erations, which was attributable to, among other factors, lower charter rates affecting our revenues and an increase in our total expens-
es, including vessel voyage, operating and total other expenses, net, and (b) the negative effect of the changes in our operating assets
and liabilities amounting to $22.8 million, which were partially offset by a decrease of $2.5 million in dry-docking costs. Changes in our
operating assets and liabilities were driven mainly by a reduction in deferred revenue in the year ended December 31, 2017, compared
to the year ended December 31, 2016, which was primarily due to the receipt of the proceeds from the sale of HMM common shares in
2016, which is amortizing on a straight line basis within revenue, partially offset by (a) a reduction in the amounts we reimbursed to our
Manager for expenses paid on our behalf, (b) an increase in accrued liabilities, as accrued interest for the first period of interest under
our 2017 credit facility became payable in January 2018, and (c) an increase in trade accounts payable.
Net cash provided by operating activities increased to $155.1 million for the year ended December 31, 2016, compared to $134.2 million for
the year ended December 31, 2015. The increase of $20.9 million was attributable to the increase by $7.3 million in cash from operations
before changes to our operating assets and liabilities, mainly due to the expansion of our fleet, and the positive effect of the change in our
operating assets and liabilities between the two periods amounting to $15.1 million, primarily due to the proceeds from the sale of the
HMM common shares (see “Overview—Disposal of HMM shares”) partially offset by the increase in the amounts reimbursed by us to our
Manager for expenses paid by our Manager on our behalf. The increase in cash provided by operating activities was also partially offset by
a $1.6 million increase in drydocking costs paid during the year ended December 31, 2016 compared to the year ended December 31, 2015.
For an explanation of why our historical net cash provided by operating activities is not indicative of net cash provided by operating ac-
tivities to be expected in future periods, please refer to the discussion under “—Factors to Consider When Evaluating Our Results” and
“—Factors Affecting our Results of Operations.”
Net Cash Used in Investing Activities
Net cash used in investing activities refers primarily to cash used for vessel acquisitions and improvements.
Net cash used in investing activities for the year ended December 31, 2017 decreased to $2.0 million compared to $91.8 million during the
year ended December 31, 2016, principally because we acquired no vessels in 2017, compared with the acquisition of the shares of two
vessel-owning companies during the year 2016. Following the acquisitions that occurred during the year 2016, restricted cash increased
by $1.0 million. Cash consideration paid for vessel improvements during the year ended December 31, 2017 amounted to $2.0 million
compared to $1.2 million during the year ended December 31, 2016.
Net cash used in investing activities for the year ended December 31, 2016 amounted to $91.8 million compared to $209.9 million during
the year ended December 31, 2015. The decrease of $118.1 million in net cash flows used in investing activities was primarily attributable
to the lower number of vessels acquired in the year ended December 31, 2016 compared to the year ended December 31, 2015. We paid
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
$207.7 million for the acquisition of the shares of four vessel-owning companies during the year ended December 31, 2015, compared to
$89.6 million for the acquisition of the shares of two vessel-owning companies during the year ended December 31, 2016. Following the
acquisition of a lower number of vessels during the year ended December 31, 2016, restricted cash increased by $1.0 million compared
to an increase of $2.0 million during the year ended December 31, 2015. Cash consideration paid for vessels improvements for the year
ended December 31, 2016 increased by $1.0 million compared to the year ended December 31, 2015.
Net Cash (Used in)/Provided by Financing Activities
Net cash used in financing activities for the year ended December 31, 2017, was $168.3 million compared to $46.8 million for the year ended
December 31, 2016. The increase of $121.5 million in net cash used in financing activities during 2017 was mainly attributable to the amounts
prepaid in connection with the refinancing of our debt in October 2017 of $116.2 million and the decrease in proceeds from the issuance of
long-term debt principally because we acquired no additional vessels in 2017, compared to $35.0 million of proceeds from the issuance of
long term debt to partially finance the acquisition of CMA CGM Magdalena in 2016, partially offset by a decrease of $16.6 million in distribu-
tions paid to our unit holders and the increase of $13.8 million in net proceeds from the issuance of common units under our ATM offering
during the year 2017 compared to the year 2016. See “Overview—Quarterly Cash Distributions on our Common Units.”
Net cash used in financing activities for the year ended December 31, 2016, amounted to $46.8 million compared to net cash provided by financ-
ing activities for the year ended December 31, 2015 of $1.7 million. The decrease of $48.5 million was mainly attributable to the issuance of a
lower number of common units which were sold at prevailing market prices and resulted in net proceeds (after offering expenses) of $3.8
million in the year ended December 31, 2016, compared to net proceeds from the issuance of common units of $132.6 million in the year ended
December 31, 2015. In addition, proceeds from the incurrence of long-term debt to fund vessel acquisitions decreased by $80.0 million in the
year ended December 31, 2016 compared to the year ended December, 31, 2015. Lower proceeds from the incurrence of debt were offset by
a decrease of $103.9 million in debt principal amortization to $17.4 million in the year ended December 31, 2016 from $121.3 million in the year
ended December 31, 2015, where we used part of the net proceeds from the issuance of common units to prepay debt. In addition, during the
year ended December 31, 2016, distributions to our unit holders decreased by $54.6 million compared to the year ended December 31, 2015.
Borrowings
Our long-term third-party borrowings are reflected in our balance sheet as “Long-term debt, net” and as current liabilities in “Current
portion of long-term debt, net.”
As of December 31, 2017, our total borrowings were $475.8 million, consisting of (i) $460.0 million principal amount outstanding under
our 2017 credit facility and (ii) $15.8 million principal amount outstanding under the 2015 credit facility.
As of December 31, 2016, our total borrowings were $605.0 million, consisting of: (i) $186.0 million outstanding under our 2007 credit
facility; (ii) $181.6 million outstanding under our 2008 credit facility; (iii) $14.0 million outstanding under our 2011 credit facility; (iv) $207.6
million outstanding under our 2013 credit facility and (v) $15.8 million outstanding under the 2015 credit facility that was originally ar-
ranged by Capital Maritime.
On January 17, 2018, we acquired from Capital Maritime the shares of the company owning the M/T Aristaios, for a total consideration
of $52.5 million. We partially financed the acquisition with the assumption of a $28.3 million term loan under a credit facility previously
arranged by Capital Maritime.
Our Credit Facilities
The Aristaios credit facility
The term loan drawn under the Aristaios credit facility bears interest at LIBOR plus a margin of 2.85% and is payable in twelve consecu-
tive semi-annual instalments of approximately $0.9 million beginning in July 2018, plus a balloon payment payable together with the last
semi-annual instalment due in January 2024.
The 2017 credit facility
On September 6, 2017, we entered into a loan agreement of up to $460.0 million which we drew on October 4, 2017. The 2017 credit facility is
comprised of two tranches. Tranche A, amounting to $259.0 million, is secured by 11 of our vessels and is required to be repaid in 24 equal
quarterly instalments of $4.8 million in addition to a balloon instalment of $143.0 million, which is payable together with the final quarterly instal-
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 ment in the fourth quarter of 2023. Tranche B, amounting to $201.0 million, is secured by 24 of our vessels and is required to be repaid fully in 24
equal quarterly instalments of $8.4 million with the final quarterly instalment in the fourth quarter of 2023. The first quarterly instalments under
both tranches A and B were paid on January 4, 2018. The loans drawn under the 2017 credit facility bear interest at LIBOR plus a margin of 3.25%.
The 2015 credit facility
On October 24, 2016, in connection with the acquisition of the M/T Amor, we assumed a $15.8 million loan drawn under the 2015 credit
facility arranged by Capital Maritime. This loan bears interest at LIBOR plus a margin of 2.50% and is repayable in 17 equal quarterly
instalments starting in October 2018 plus a balloon payment due on its final maturity date in November 2022.
All our credit facilities contain customary ship finance covenants, including restrictions as to changes in management and ownership
of the mortgaged vessels, the incurrence of additional indebtedness and the mortgaging of vessels. Our credit facilities also contain
financial covenants (i) to maintain minimum free consolidated liquidity of at least $0.5 million per collateralized vessel, (ii) to 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 (iii) not
to exceed a specified maximum leverage ratio, in the form of a ratio of total net indebtedness to (fair value adjusted) total assets of 0.750
in the case of our 2017 credit facility and a ratio of total net indebtedness to the market value of the vessel of 0.725 (in the case of the 2015
credit facility and the Aristaios facility).
In addition, our credit facilities require that we maintain a minimum security coverage ratio, usually defined as the ratio of the market
value of the collateralized vessels or vessel and net realizable value of additional acceptable security to our outstanding loans under the
credit facility. The security coverage ratio is 125% under our 2017 credit facility, 125% (as long as the vessel is under charter with Tesoro)
and 140% (at all other times) under the Aristaios credit facility and 120% under the 2015 credit facility.
Under our credit facilities, the vessel owning companies may pay dividends or make distributions provided that no event of default has
occurred and the payment of such dividend or distribution does not result in an event of default, including a breach of any of the financial
covenants. Our 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 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,
2017, 2016, and 2015, we did not incur additional interest expense due to the “Market Disruption Clause.”
As of December 31, 2017, we were in compliance with all financial debt covenants. Our ability to comply with the covenants and restric-
tions 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 fund-
ing costs of our banks and changes in vessel earnings and vessel asset valuations. If market or other economic conditions deteriorate,
our ability to comply with these covenants may be impaired. If we are in breach of any of the restrictions, covenants, ratios or tests in
our credit facilities, we are unlikely to be able to make any distributions to our unitholders, a significant portion of our obligations may
become immediately due and payable and our lenders’ commitment to make further loans to us, if any, 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 breach the required ratios set out above. The global economic
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 compliance with the
relevant covenants in our credit facilities. A decline in the market value of our vessels could also affect our ability to refinance our credit
facilities and/or limit our ability to obtain additional financing. A decrease of 10% in 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 2017 C. Research and Development
Not applicable.
D. Trend Information
Our results of operations depend primarily on the charter hire rates that we are able to realize for our vessels, which depend on, among
other things, the demand and supply dynamics characterizing the tanker, container and drybulk markets at any given time. For other
trends affecting our business please see other discussions in “Item 5—Operating and Financial Review and Prospects—Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
E. Off-Balance Sheet Arrangements
As of December 31, 2017, we have not entered into any off-balance sheet arrangements.
F. Contractual Obligations and Contingencies
The following table summarizes our long-term contractual obligations as of December 31, 2017 (in thousands of U.S. Dollars).
Long-term Debt Obligations
Interest Obligations (1)
Management fee (2)
TOTAL
Payment due by period
Total
$ 475.8
94.9
35.1
$ 605.8
Less than
1 year
$ 66.8
22.1
11.2
$ 100.1
1-3 years
3-5 years
$ 106.0
38.4
16.3
$ 160.7
$ 116.3
27.3
7.6
$ 151.2
More than
5 years
$ 186.7
7.1
—
$ 193.8
(1)
(2)
For our 2017 and 2015 credit facilities, interest has been estimated based on the LIBOR Bloomberg forward rates and the margins
as of December 31, 2017 of 3.25% and 2.5%, 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 Con-
sumer Price Index for October 2017. The amount of $7.6 million for payments due between three and five years has been calculated
on the basis of the agreed expiration dates of our management agreements.
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 judgments
that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities
at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and which could potentially result in materially
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 State-
ments 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 resulting
slowdown in world trade. Charter rates for vessels have decreased and vessel values have been affected. We consider these market
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
developments as indicators of potential impairment of the carrying amount of our assets. We performed undiscounted cash flow tests
as of December 31, 2017 and 2016, 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 ten-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;
• commercial and technical management fees;
• a utilization rate of 98.8% 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 which are largely based on the historical performance of
our fleet, 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
re-charter our vessels based on market trends. We believe that the ten-year average historical Time Charter Equivalent is appropriate
(or less than ten years if appropriate data is not available) for the following reasons:
• 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;
• estimates of vessel utilization, including estimated off-hire time and the estimated amount of time our vessels may spend operating
on the spot market, based on the historical experience of our fleet;
• estimates of operating expenses and drydocking expenditures are based on historical operating and drydocking costs based on the
historical experience of our fleet and our expectations of future 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 deprecia-
tion calculations.
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, 2017 and 2016, we would begin recording impairment on the first vessel that will incur impairment by vessel
type for time charter declines from their ten-year historical averages as follows:
Percentage Decline from which Impairment would be Recorded
Year ended December 31, 2017
Year ended December 31, 2016
15.5%
13.1%
49.0%
36.1%
31.4%
41.0 %
24.6%
18.5%
59.6%
36.7%
40.2%
40.1 %
Vessel
Product tankers
Suezmax vessels
Cape vessel
Container vessels 5,000 TEU
Container vessels 8,000 TEU
Container vessels 9,000 TEU
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
As of March 5, 2018 and December 31, 2017, our current rates for time charters on average were above / (below) their ten-year historical
averages as follows:
Time Charter Rates as Compared with Ten-year Historical Average (as percentage above/(below))
As of March 5, 2018
As of December 31, 2017
Vessel
Product tankers
Suezmax vessels
Cape vessel
Container vessels 5,000 TEU
Container vessels 8,000 TEU
Container vessels 9,000 TEU
2.2%
(24.1)%
52.4%
35.3%
(69.9)%
43.1%
4.2%
(15.9)%
52.4%
35.3%
(69.9)%
43.1%
Based on the above assumptions we determined that the undiscounted cash flows support the vessels’ carrying amounts as of Decem-
ber 31, 2017 and 2016.
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 (q) (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 consists of seven persons, including two persons who are designated by our General Partner in its sole discretion
and five directors who are elected by the common unitholders.
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. 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 September 8, 2017, Rory Hussey was elected to act as a Class I Director until the
Partnership’s 2020 annual meeting of Limited Partners.
Vangelis Bairactaris resigned from his position as Class III Director and secretary with effect on February 28, 2018. The directors elected
by our common unitholders, being Messrs. Forman, Hussey, Rasterhoff and Christacopoulos, resolved unanimously to elect Eleni Tsou-
kala to fill the vacancy, with effect on February 28, 2018, in accordance with the procedure established by the Partnership Agreement. Ms.
Tsoukala will hold office as Class III Director until the Partnership’s 2019 annual meeting of the Limited Partners. Biographical informa-
tion concerning Ms. Tsoukala is included below.
The holders of the Class B Units have no right to vote for, elect or appoint any director, or to nominate any individual to stand for election
or appointment as a director. However, if we fail to pay the minimum Class B Unit distribution for six or more quarters, the holders of
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
the Class B Units will have the right to appoint a director to our board and, if such arrearages exist after March 1, 2018, to replace the
directors appointed by our General Partner, in each case by the affirmative vote of the holders of a majority of the Class B Units, subject
to exceptions and conditions contained in our partnership agreement.
Our General Partner intends to cause its officers to devote as much time as is necessary for the proper conduct of our business and af-
fairs. Our General Partner’s Chief Executive Officer, Gerasimos (Jerry) Kalogiratos, Chief Operating Officer, Mr. Gerasimos Ventouris, and
Chief Financial Officer, Mr. Nikolaos Kalapotharakos, 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 General
Partner or our directors. Please read “Item 3.D: 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 our General Partner’s executive officers as of March 5, 2018.
Name
Keith Forman (4)
Gerasimos (Jerry) Kalogiratos (1)
Gerasimos Ventouris
Nikolaos Kalapotharakos
Gurpal Grewal (1)
Rory Hussey (2)
Abel Rasterhoff (3)
Eleni Tsoukala (4)
Dimitris P. Christacopoulos (3)
Age
60
40
67
43
71
66
77
40
47
(1) Appointed by our General Partner.
(2) Class I director (term expires in 2020).
(3) Class II director (term expires in 2018).
(4) Class III director (term expires in 2019).
(5) Member of our audit committee and our conflicts committee.
Position
Director and Chairman of the Board (5)
Director and Chief Executive Officer of our General Partner
Chief Operating Officer of our General Partner
Chief Financial Officer of our General Partner
Director
Director (5)
Director (5)
Director
Director (5)
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.
KEITH FORMAN, DIRECTOR AND CHAIRMAN OF THE BOARD.
Mr. Forman is the chairman of our board of directors and a member of our conflicts committee and audit committee. Mr. Forman joined
our board on April 3, 2007. Mr. Forman has held a number of executive, director and advisory positions at investment companies and
master limited partnerships throughout his career. Since May 2012, Mr. Forman has been acting as a senior advisor to Industry Funds
Management, an Australian fund manager investing in infrastructure projects worldwide. Between December 2014 and December 2017,
Mr. Forman served as president and chief executive officer of the now discontinued Rentech, Inc. Mr. Forman also served as a direc-
tor of the general partner of CVR Partners between April 2016 and April 2017. Between November 2007 and March 2010, Mr. Forman
was a partner and chief financial officer of Crestwood Midstream Partners, a private equity-backed investment partnership active in the
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
midstream energy market. Prior to his tenure at Crestwood, Mr. Forman was senior vice president, finance for El Paso Corporation,
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 holds a B.A. degree in economics and political science from Vanderbilt University.
GERASIMOS (JERRY) KALOGIRATOS, DIRECTOR AND CHIEF EXECUTIVE OFFICER.
Mr. Kalogiratos was appointed as the Chief Executive and Chief Financial Officer of our General Partner on June 12, 2015 and remained
as Chief Financial Officer until February 28, 2018, when he was succeeded by Mr. Nikolaos Kalapotharakos. He joined our board of direc-
tors 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 com-
pleted 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.
NIKOLAOS KALAPOTHARAKOS, CHIEF FINANCIAL OFFICER.
Mr. Kalapotharakos was appointed as Chief Financial Officer of our General Partner on February 28, 2018. Mr. Kalapotharakos joined
Capital Maritime & Trading Corp. in January 2016 as deputy Chief Financial Officer. He started his professional career in 2001 at Price-
waterhouseCoopers (PwC) where he served as an external auditor specializing in shipping companies until 2007 before joining Globus
Maritime Limited, a Nasdaq listed owner of drybulk vessels, where he served as its financial controller until the end of 2015. Mr. Kala-
potharakos holds a BSc in Economics and Social studies in Economics from the University of Wales, Aberystwyth U.K. and an MSc in
Financial and Business Economics from the University of Essex U.K.
GURPAL GREWAL, DIRECTOR.
Mr. Gurpal Grewal joined our board of directors on November 16, 2017, replacing Mr. Nikolaos Syntychakis who resigned as an Appointed
Director of the Partnership. Mr. Gurpal Grewal currently serves as technical director of Capital Ship Management Corp., the Partnership’s
manager. Mr. Grewal is a chartered engineer and has over 35 years of experience in new building design, construction, and supervision of bulk
carriers, tankers, LPG and LNG vessels. He previously served as technical director for both Quintana Shipping Co. and Marmaras Navigation
Ltd. Between 2004 and 2008, Mr. Grewal was a member of the board of directors and conflicts committee of Quintana Maritime Co. Between
June 1998 and September 2005, Mr. Grewal served as technical director and principal surveyor for Lloyd’s Register of Shipping and Industrial
Services S.A. (“Lloyd’s Register”) in Greece. Mr. Grewal was also previously employed by Lloyd’s Register in London as a senior ship and en-
gineer surveyor in the Fleet Services Department. In addition, from 1996 to 1998, Mr. Grewal served as assistant chief resident superintendent
with John J. McMullen & Associates, New York, where he supervised the new building of product tankers in Spain. Prior to 1996, Mr. Grewal
served for ten years as senior engineer at Lloyd’s Register supervising the construction of new building vessels in a variety of shipyards.
RORY HUSSEY, DIRECTOR.
Mr. Rory Hussey joined our board of directors on September 8, 2017 and serves on our conflicts committee and our audit committee. Mr.
Hussey most recently served as a Managing Director of ING Bank N.V., in charge of ING’s ship finance business in Southern Europe and the
Middle East. Mr. Hussey retired from his position in July 2017. Mr. Hussey started his career with Citibank’s shipping team in 1974. He held
a variety of positions within Ship Finance at Citibank and worked for 20 years in Hong Kong, New York, Taipei, and Athens. After returning
to London, he headed Citi’s transportation finance syndications team. He joined ING Bank N.V. in 2001 in charge of shipping syndications
before becoming head of Sales for the London Syndications team. Mr. Hussey subsequently returned to ship finance and became Managing
Director of ING Bank in 2009. Mr. Hussey holds a M.Sc. (Econ) from the London School of Economics and Political Science.
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-
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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.
ELENI TSOUKALA, DIRECTOR AND SECRETARY.
Ms. Tsoukala was appointed to our board of directors on February 28, 2018. Ms. Tsoukala is the managing partner and founder of Tsoukala &
Partners Law Firm, a leading Greek business law firm. Her legal practice includes corporate advice in cross-border and domestic transactions.
Between 2004 and 2007, Ms. Tsoukala served as legal advisor to the Greek Deputy Minister of Finance. Between 2001 and 2003, Ms. Tsoukala
practiced at an international law firm in London. Ms. Tsoukala holds an LL.M. degree in International Business Law from University College
London and an LL.B. degree from the University of Oxford and is a qualified attorney-at-law admitted to the bar in England and Greece.
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 and he currently serves on our conflicts committee and our audit committee. Mr. Christacopoulos
currently serves as a Partner at Octane Management Consultants. He started his professional career as an analyst in the R&D Depart-
ment 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 expand-
ing its presence in ship and energy finance in the region. Mr. Christacopoulos has a diploma in chemical engineering from the National
Technical University of Athens and an MBA from Columbia Business School in New York.
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 career 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 compensa-
tion to our directors or our General Partner’s officers, nor accrued any obligations with respect to management incentive or retirement
benefits for our directors or our General Partner’s officers. The compensation of our General Partner’s Chief Executive Officer, Chief
Financial Officer, and Chief Operating Officer is set and paid by our General Partner, and we reimburse our General Partner for such costs
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
and related expenses under relevant executive service agreements. We do not have a retirement plan for our General Partner’s execu-
tive officers or directors. Officers and employees of our General Partner or its affiliates may participate in employee benefit plans and ar-
rangements 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 information.
For the year ended December 31, 2017, 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 its Chief Executive Officer and Chief Operating Officer,
if a change in control affecting us occurs, each of our General Partner’s 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. 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, 2017, our board of directors held eight meetings. Even if Board members are not able to attend 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 meet-
ings 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 direc-
tors 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 commit-
tees 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 Rasterhoff (chair), Rory Hussey, 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, 2017, on January 18, April 20, July 20 and October 19.
Conflicts Committee. The conflicts committee of our board of directors is composed of the same directors constituting the audit committee,
being Keith Forman (chair), Abel Rasterhoff, Rory Hussey and Dimitris Christacopoulos. The members of our conflicts committee may not be
officers or employees of our General Partner or directors, officers or employees of its affiliates, and must meet the independence standards
established by the Nasdaq Global Select Market to serve on an audit committee of a board of directors and certain other requirements. The con-
flicts committee reviews specific matters that the board believes may involve conflicts of interest and determines if the resolution of the conflict
of interest is fair and reasonable to us. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to
us, approved by all of our partners, and not a breach by our directors, our General Partner or its affiliates of any duties any of them may owe us
or our unitholders. The conflicts committee met three times during the year ended December 31, 2017, on March 16, August 24 and October 23.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 one of our directors also are executive officers, directors or employees of affiliates of Capital Maritime.
E. Share Ownership
As of December 31, 2017:
• 850,000 restricted common units had been issued under our Plan (described below) out of which 304,998 had vested as of December 31, 2017;
• Our director Keith Forman has owned a small number of common units since the date of our IPO. In addition, restricted common units
were also issued 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. A portion of shares
issued to our director Dimitris Christacopoulos, when he was a member of the board of directors of Crude Carriers, converted to com-
mon 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 Maritime
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 an Omnibus Incentive Compensation Plan, also referred to as the Plan in this Annual
Report, according to which we may issue a limited number of awards to our employees, consultants, officers, directors or affiliates, in-
cluding the employees, consultants, officers or directors 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 admin-
istered 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.
On August 31, 2010, we, either directly or through our General Partner, issued 795,200 (or 2% of our total units outstanding as of Decem-
ber 31, 2010) of the 800,000 units authorized under the Plan. Awards were issued to all members of our board of directors, to officers of
our General Partner, our Manager, Capital Maritime and to employees of certain key affiliates and other eligible persons, with the major-
ity vesting three years from the date of issuance, except for awards issued to certain members of our board of directors which vested in
equal annual installments over a three-year period.
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 in-
crease 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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
ITEM 7. MAJOR UNITHOLDERS AND RELATED-PARTY TRANSACTIONS.
As of December 31, 2017, our partners’ capital consisted of 127,246,692 common units, of which 106,670,714 were owned by non-affiliated
public unitholders, 12,983,333 Class B Units, no subordinated units and 2,439,989 general partner units. The Marinakis family, including
Evangelos M. Marinakis, our former chairman, may be deemed to beneficially own on a fully converted basis a 16.1% interest in us (17.7%
on a non-fully converted basis), through, among others, Capital Maritime, which may be deemed to beneficially own a 13.8% interest
in us, including 17,291,768 common units and a 1.7% interest in us (1.9% 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 2.3% 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
Number of Common
Units Owned
Percentage of Total
Common Units
Capital Maritime (1)(2)
Crude Carriers Investments (2)
All executive officers and directors as a group (8 persons) (3)
17,291,768
3,284,210
*
13.6%
2.6%
*
(1) Excludes the 1.9% general partner interest (1.7% on a fully converted basis) held by our General Partner, a wholly owned subsidiary
of Capital Maritime.
(2) 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.
(3) Our director Keith Forman has owned a small number of common units since the date of our IPO. In addition, restricted common
units were also issued in August 2010 to all members then-serving on our board of directors under the terms of our Plan, which
such members may be deemed to beneficially own, or to have beneficially owned. The shares issued to our director Dimitris Chris-
tacopoulos, when he was a member of the board of directors of Crude Carriers, converted to common units in us in the same man-
ner 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.
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 unitholders of the same class holding less
than 4.9% of the voting power of that class. 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 members of our board of
directors and to approve certain significant actions we may take, as well as its ownership of 13.6% 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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Omnibus Agreement with Capital Maritime
On September 30, 2011, we entered into an amended and restated Omnibus Agreement with Capital Maritime, Capital GP L.L.C and Capi-
tal Product Operating L.L.C., which governs the manner in which certain future tanker business opportunities will be offered by Capital
Maritime to us. The Omnibus Agreement does not apply to container and drybulk vessels.
Under the terms of the 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 greater than or equal to
30,000 dwt under time or bareboat charters with a remaining duration (excluding any extension options) of at least 12 months (calculated
by reference to the earliest of (a) the date the tanker to which such time or bareboat charter is attached is first acquired by Capital Mari-
time or any of its controlled affiliates and (b) the date on which a tanker owned by Capital Maritime or any of its controlled affiliates is put
under such time or bareboat charter) without the consent of our General Partner or our board of directors or without first offering such
tanker vessel to us. Similarly, we may not acquire, own or operate product or crude oil tankers with a carrying capacity under 30,000
dwt, other than vessels we had owned prior to the date of the Omnibus Agreement, without first offering such tanker vessel to Capital
Maritime.
Furthermore, we granted Capital Maritime a right of first offer on the disposal of product and crude oil tankers, whereas Capital Maritime
granted us a right of first offer on any disposal or re-chartering of any product and crude oil tanker with a carrying capacity greater than
or equal to 30,000 dwt owned or acquired by Capital Maritime or any of its controlled affiliates (other than us).
Administrative and Executive services agreements with the Manager
On April 4, 2007, we entered into an administrative services agreement with our Manager, pursuant to which our Manager has agreed
to provide certain administrative management services to the Partnership, such as accounting, auditing, legal, insurance, clerical, and
other administrative services. On the same date, we entered into an IT services agreement with our Manager pursuant to which our
Manager provides IT management services to CPLP. We also reimburse our Manager and our General Partner for reasonable costs and
expenses incurred in connection with the provision of these services pursuant to both agreements after the Manager submits to us an
invoice for such costs and expenses, together with any supporting detail that may be reasonably required.
In 2015, we entered into an executive services agreement (amended in 2016) with our General Partner according to which our General
Partner provides certain executive officers services for the management of the Partnership’s business as well as investor relation and
corporate support services to the Partnership.
Transactions entered into during the year ended December 31, 2017
1.
2.
Amendments to Management Agreements. On March 25, 2017 and December 1, 2017, we amended and restated the fixed fee man-
agement agreement with Capital Ship Management in its entirely to reflect, among other things, the vessels covered by such man-
agement agreement. On March 11, 2017, May 1, 2017, July 1, 2017 and December 1, 2017 we amended the floating rate management
agreement with Capital Ship Management to reflect, among other things, the vessels covered by such management agreement.
Please read “Item 4B: Business Overview—Our Management Agreements” for a detailed description of the terms of each manage-
ment agreement.
Charter Party Agreements with Capital Maritime. During 2017, each of the M/T Aktoras, M/T Aiolos, M/T Miltiadis M II and M/T Amou-
reux 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: Business
Overview—Our Fleet” and “—Our Charters” for a detailed description of these charters, including earliest possible redelivery dates
of the vessels and relevant charter rates.
Transactions entered into during the year ended December 31, 2016
1.
Amendments to Management Agreements. On March 1, 2016 and September 28, 2016, 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 February 26, 2016, September 1, 2016, September 28, 2016, October 24, 2016 and December 1, 2016,
we amended the floating rate management agreement with Capital Ship Management to reflect, among other things, the vessels
covered by such management agreement. Please read “Item 4B: Business Overview—Our Management Agreements” for a detailed
description of the terms of such management agreement.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 2.
3.
4.
Share Purchase Agreement for the acquisition of the vessel owning company of the M/T Amor, the assumption of the 2015 credit facility
and the time charter agreement with Cargill. On October 24, 2016, we entered into a share purchase agreement for the acquisition
of the shares of the company owning the M/T Amor, an eco-type MR product tanker (49,999 dwt IMO II/III chemical product tanker
built in 2015, Samsung Heavy Industries (Ningbo) Co., Ltd.) for a total consideration of $16.9 million comprising, $16.0 million in cash
and the issuance of 283,696 new common units to Capital Maritime. The M/T Amor is employed under a time charter by Cargill at a
gross daily rate of $17,500. On acquisition we assumed a term loan of a $15.8 million under a new credit facility with ING Bank N.V.
arranged by Capital Maritime. The term loan is non-amortizing for a period of two years from the anniversary of the dropdown of
the M/T Amor with an expected final maturity date in November 2022. The interest margin on the term loan is 2.50%. The term loan
is subject to ship finance covenants similar to the covenants applicable under our existing facilities. For further information on our
existing facilities, please see “Item 5.B.: Liquidity and Capital Resources—Borrowings—Our Credit Facilities.” The acquisition of the
M/T Amor was reviewed and unanimously approved by the conflicts committee of our board of directors and our entire board of
directors. Please also 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.
Share Purchase Agreement for the acquisition of the vessel owning company of the CMA CGM Magdalena. Pursuant to the Master
Vessel Acquisition Agreement dated July 24, 2014, we entered into a share purchase agreement on February 26, 2016 with Capital
Maritime for the acquisition of the shares of the company owning the M/V CMA CGM Magdalena, the last of five Dropdown Vessels
that we agreed to acquire from Capital Maritime. The $81.5 million purchase price for the M/V CMA CGM Magdalena was funded
through a drawdown under our former 2013 credit facility and from available cash. The M/V CMA CGM Magdalena was then char-
tered to CMA-CGM S.A. for five years at a gross daily charter rate of $39,250.
Charter Party Agreements with Capital Maritime. During 2016, each of the M/T Amore Mio II, M/T Miltiadis M II, M/T Aristotelis, M/T
Atlantas II and M/T Arionas entered into new or extended existing charter party agreements with Capital Maritime. These new char-
ters/extensions were unanimously approved by the conflicts committee of independent directors of our board of directors. Please
see “Item 4B: Business Overview—Our Fleet” and “—Our Charters” for a detailed description of these charters, including earliest
possible redelivery dates of the vessels and relevant charter rates.
Transactions entered into during the year ended December 31, 2015
1.
2.
3.
Amendments to Management Agreements. On July 1, 2015 and October 1, 2015, 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 such management
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 such management
agreement. Please read “Item 4B: Business Overview—Our Management Agreements” for a detailed description of the terms of
each management agreement.
Equity Offering. On April 21, 2015, we completed the issuance and sale of 14,555,000 common units representing limited partnership
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 transaction expenses amounted to
$133.3 and $132.6 million, respectively. Our sponsor 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.
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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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: Business Overview—Our Fleet” and
“—Our Charters” for a detailed description of these charters, including earliest possible redelivery dates of the vessels and relevant
charter rates.
CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a result of the relationships between our General Partner and its affiliates, includ-
ing Capital Maritime, on the one hand, and us and our unaffiliated limited partners, on the other hand. The officers of our General Partner
may have certain fiduciary duties to manage our General Partner in a manner beneficial to its owners. At the same time, our General
Partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders. Similarly, our board of directors has fiduciary
duties to manage us in a manner beneficial to us, our General Partner and our limited partners. Furthermore, one of our directors is
also a director and officer of Capital Maritime and as such he has fiduciary duties to Capital Maritime that may cause him to pursue busi-
ness strategies that disproportionately benefit Capital Maritime or which otherwise are not in the best interests of us or our unitholders.
Our partnership 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. We are not aware of any material differ-
ence in unitholder rights between the MILPA and the Delaware Revised Uniform Limited Partnership Act. The MILPA also provides that,
as it relates to nonresident limited partnerships, such as us, 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 certain Marshall Islands courts, the non-statutory law (or “case law”) of the State of Delaware is adopted as the
law of the Marshall Islands. There have been, however, few, if any, court cases in the Marshall Islands interpreting the MILPA, in contrast
to Delaware, which has a fairly well-developed body of case law interpreting its limited partnership statute.
Accordingly, we cannot predict whether Marshall Islands courts would reach the same conclusions as courts in Delaware. For example,
the rights of our unitholders and fiduciary responsibilities of our General Partner and its affiliates under Marshall Islands law are not
as clearly established as under judicial precedent in existence in Delaware. Due to the less-developed nature of Marshall Islands law,
our public unitholders may have more difficulty in protecting their interests in the face of actions by our General Partner, its affiliates or
controlling unitholders than would unitholders of a limited partnership organized in the United States.
Our partnership agreement contains provisions that modify and restrict the fiduciary duties of our General Partner and our directors to
the unitholders under Marshall Islands law. Our partnership agreement also restricts the remedies available to unitholders for actions
taken by our General Partner or our directors that, without those limitations, might constitute breaches of fiduciary duty.
Neither our General Partner nor our board of directors will be in breach of their obligations under the partnership agreement or their
duties to us or the unitholders if the resolution of the conflict is:
• approved by the conflicts committee, although neither our General Partner nor our board of directors are obligated to seek such approval;
• approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner or
any of its affiliates, although neither our General Partner nor our board of directors are obligated to seek such approval;
• on terms no less favorable to us than those generally being provided to or available from unrelated third parties, but neither our Gen-
eral Partner nor our directors are required to obtain confirmation to such effect from an independent third party; or
• fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions
that may be particularly favorable or advantageous to us.
Our General Partner or our board of directors may, but are not required to, seek the approval of such resolution from the conflicts com-
mittee of our board of directors or from the common unitholders. If neither our General Partner nor our board of directors seek approval
from the conflicts committee, and our board of directors determines that the resolution or course of action taken with respect to the
conflict of interest satisfies either of the standards set forth in the third and fourth bullet points above, then it will be presumed that, in
making its decision, the board of directors, including the board members affected by the conflict, acted in good faith, and in any proceed-
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 ing brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the
burden of overcoming such presumption. When our partnership agreement requires someone to act in good faith, it requires that per-
son to reasonably believe that he is acting in the best interests of the partnership, unless the context otherwise requires.
Conflicts of interest could arise in the situations described below, among others.
Actions taken by our board of directors may affect the amount of cash available for distribution to unitholders.
The amount of cash that is available for distribution to unitholders is affected by decisions of our board of directors regarding such matters as:
• the amount and timing of asset purchases and sales;
• cash expenditures;
• borrowings;
• the issuance of additional units; and
• the creation, reduction or increase of reserves in any quarter.
In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our General Partner or our directors to
our unitholders, including borrowings that have the purpose or effect of enabling our General Partner or its affiliates to receive incentive
distribution rights.
For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly distribution on our
units, our partnership agreement permits us to borrow funds, which would enable us to make this distribution on all outstanding units.
Our partnership agreement provides that we and our subsidiaries may borrow funds from our General Partner and its affiliates. Our
General Partner and its affiliates may not borrow funds from us or our subsidiaries.
Neither our partnership agreement nor any other agreement requires Capital Maritime to pursue a business strategy that favors us or
utilizes our assets or dictates what markets to pursue or grow. Capital Maritime’s directors and executive officers have a fiduciary duty
to make these decisions in the best interests of the stockholders of Capital Maritime, which may be contrary to our interests.
Because all of the officers of our General Partner and one of our directors are also directors, officers or employees of Capital Maritime or
its affiliates, such officers and director have fiduciary duties to Capital Maritime that may cause them to pursue business strategies that
disproportionately benefit Capital Maritime or which otherwise are not in the best interests of us or our unitholders.
Our General Partner is allowed to take into account the interests of parties other than us, such as Capital Maritime.
Our partnership agreement contains provisions that restrict the standards to which our General Partner would otherwise be held by Mar-
shall Islands fiduciary duty law. For example, our partnership agreement permits our General Partner to make a number of decisions in its
individual capacity, as opposed to in its capacity as our General Partner. This entitles our General Partner to consider only the interests and
factors that it desires, and it has no duty or obligations to give any consideration to any interest of or factors affecting us, our affiliates or any
unitholder. Decisions made by our General Partner in its individual capacity will be made by its sole owner, Capital Maritime. Specifically, our
General Partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights or registration rights,
consents or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the election of any
director, votes or refrains from voting on amendments to our partnership agreement that require a vote of the outstanding units, voluntarily
withdraws from the partnership, transfers (to the extent permitted under our partnership agreement) or refrains from transferring its units,
general partner interest or incentive distribution rights or votes upon the dissolution of the partnership.
We do not have any officers and rely solely on officers of our General Partner.
Affiliates of our General Partner conduct businesses and activities of their own in which we have no economic interest. If these separate
activities are significantly greater than our activities, there could be material competition for the time and effort of the officers who provide
services to our General Partner and its affiliates. The officers of our General Partner are not required to work full-time on our affairs but
may be required to devote time to the affairs of Capital GP L.L.C. and its affiliates, and we reimburse their employers for the services
they render to us and our subsidiaries. Our General Partner’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer
are also executive officers or employees of Capital Maritime or its affiliates.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 We will reimburse our General Partner and its affiliates for expenses.
We will reimburse our General Partner and its affiliates for costs incurred in managing and operating us, including costs incurred in
rendering corporate staff and support services to us. Our partnership agreement provides that our General Partner will determine the
expenses that are allocable to us in good faith.
Common unitholders will have no right to enforce obligations of our General Partner and its affiliates under agreements with us.
Any agreements between us, on the one hand, and our General Partner and its affiliates, on the other, will not grant to the unitholders,
separate and apart from us, the right to enforce the obligations of our General Partner and its affiliates in our favor.
Contracts between us, on the one hand, and our General Partner and its affiliates, on the other, will not be the result of arms’- length
negotiations.
Neither our partnership agreement nor any of the other agreements, contracts and arrangements between us and our General Partner
and its affiliates are or will be the result of arms’-length negotiations. Our partnership agreement generally provides that any affiliated
transaction, such as an agreement, contract or arrangement between us and our General Partner and its affiliates, must be:
• on terms no less favorable to us then those generally being provided to or available from unrelated third parties; or
• “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions
that may be particularly favorable or advantageous to us).
Our General Partner may also enter into additional contractual arrangements with any of its affiliates on our behalf; however, there is no
obligation of our General Partner and its affiliates to enter into any contracts of this kind, and our General Partner will determine, in good
faith, the terms of any of these transactions.
Common units are subject to our General Partner’s limited call right.
Our General Partner may exercise its right to call and purchase limited partner interests, including common units, as provided in the
partnership agreement and may assign this right to one of its affiliates (including us). Our General Partner may use its own discretion,
free of fiduciary duty restrictions, in determining whether to exercise this right. As a result, a common unitholder may have common units
purchased from the unitholder at an undesirable time or price. Please read “Item 10B: The Partnership Agreement—Limited Call Right.”
We may choose not to retain separate counsel for ourselves or for the holders of common units.
The attorneys, independent accountants and others who perform services for us have been retained by our board of directors. Attorneys,
independent accountants and others who perform services for us are selected by our board of directors or the conflicts committee and
may perform services for our General Partner and its affiliates. We may retain separate counsel for ourselves or the holders of common
units in the event of a conflict of interest between our General Partner and its affiliates, on the one hand, and us or the holders of common
units, on the other, depending on the nature of the conflict. We do not intend to do so in most cases.
Our General Partner’s affiliates, including Capital Maritime, may compete with us.
Our partnership agreement provides that our General Partner will be restricted from engaging in any business activities other than
acting as our general partner and those activities incidental to its ownership of interests in us. In addition, our partnership agreement
provides that our General Partner, for so long as it is general partner of our partnership, will cause its affiliates not to engage in, by
acquisition or otherwise, certain businesses described in the omnibus agreement. Similarly, under the omnibus agreement, Capital
Maritime agreed and agreed to cause it affiliates to agree, for so long as Capital Maritime controls our partnership, not to engage in
certain businesses. Except as provided in our partnership agreement and the omnibus agreement, affiliates of our General Partner are
not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us.
Fiduciary Duties
Our General Partner and its affiliates are accountable to us and our unitholders as fiduciaries. Fiduciary duties owed to unitholders by
our General Partner and its affiliates are prescribed by law and the partnership agreement. The MILPA provides that Marshall Islands
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 partnerships may, in their partnership agreements, restrict or expand the fiduciary duties owed by our General Partner and its affiliates
to the limited partners and the partnership. Our directors are subject to the same fiduciary duties as our General Partner, as restricted
or expanded by the partnership agreement.
In addition, we have entered into services agreements, and may enter into additional agreements with Capital Maritime and certain of
its subsidiaries, including Capital Ship Management. In the performance of their obligations under these agreements, Capital Maritime
and its subsidiaries are not held to a fiduciary standard of care but rather to the standards of care specified in the relevant agreement.
Our partnership agreement contains various provisions restricting the fiduciary duties that might otherwise be owed by our General
Partner or by our directors. We have adopted these provisions to allow our General Partner and our directors to take into account the
interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary
because the officers of our General Partner have fiduciary duties to manage our General Partner in a manner beneficial both to its owner,
Capital Maritime, as well as to you. These modifications disadvantage the common unitholders because they restrict the rights and rem-
edies that would otherwise be available to unitholders for actions that, without those limitations, might constitute breaches of fiduciary
duty, as described below. The following is a summary of:
• the fiduciary duties imposed on our General Partner and our directors by the MILPA;
• material modifications of these duties contained in our partnership agreement; and
• certain rights and remedies of unitholders contained in the MILPA.
Marshall Islands law fiduciary duty standards
Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The
duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a
General Partner and the directors of a Marshall Islands limited partnership to refrain from engaging in grossly negligent
or reckless conduct, intentional misconduct or a knowing violation of law. The duty of loyalty, in the absence of a provision
in a partnership agreement providing otherwise, would generally require that a partner refrain from dealing with the
limited partnership in the conduct or winding up of the limited partnership business or affairs as or on behalf of a party
having an interest adverse to the limited partnership, refrain from competing with the limited partnership in the conduct
of the limited partnership’s business or affairs before the dissolution of the limited partnership, and to account to the
limited partnership and hold as trustee for it any property, profit or benefit derived by the partner in the conduct or winding
up of the limited partnership’s business or affairs or derived from a use by the partner of partnership property, including
the appropriation of a limited partnership opportunity. In addition, although not a fiduciary duty, a partner shall discharge
the duties to the limited partnership and exercise any rights consistently with the obligation of good faith and fair dealing.
Partnership agreement modified standards
Our partnership agreement contains provisions that waive or consent to conduct by our General Partner and its affiliates
and our directors that might otherwise raise issues as to compliance with fiduciary duties under the laws of the Marshall
Islands. For example, Section 7.16 of our partnership agreement provides that when our General Partner is acting in its
capacity as our General Partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to
any other standard under the laws of the Marshall Islands. In addition, when our General Partner is acting in its individual
capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the
unitholders whatsoever. These standards reduce the obligations to which our General Partner and our board of directors
would otherwise be held. Our partnership agreement generally provides that affiliated transactions and resolutions of
conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of our board
of directors must be:
• on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
• “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including
other transactions that may be particularly favorable or advantageous to us).
If our board of directors does not seek approval from the conflicts committee, and our board of directors determines that
the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth
in the bullet points above, then it will be presumed that, in making its decision, our board of directors acted in good faith.
These standards reduce the obligations to which our board of directors would otherwise be held.
In addition to the other more specific provisions limiting the obligations of our General Partner and our directors, our
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
partnership agreement further provides that our General Partner and its officers and our directors, will not be liable for
monetary damages to us for errors of judgment or for any acts or omissions unless there has been a final and non-
appealable judgment by a court of competent jurisdiction determining that our General Partner or its officers or our
directors acted in bad faith or engaged in actual fraud or willful misconduct or, in the case of a criminal matter, acted with
knowledge that the conduct was unlawful.
Rights and remedies of unitholders
The provisions of the MILPA resemble the provisions of the limited partnership act of Delaware. For example, like
Delaware, the MILPA favors the principles of freedom of contract and enforceability of partnership agreements and
allows the partnership agreement to contain terms governing the rights of the unitholders. The rights of our unitholders,
including voting and approval rights and the ability of the partnership to issue additional units, are governed by the terms
of our partnership agreement. Please read “The Partnership Agreement.”
As to remedies of unitholders, the MILPA permits a limited partner or an assignee of a partnership interest to bring action
in the High Court in the right of the limited partnership to recover a judgment in the limited partnership’s favor if general
partners with authority to do so have refused to bring the action or if effort to cause those general partners to bring the
action is not likely to succeed.
In order to become one of our limited partners, a common unitholder is deemed to agree to be bound by the provisions in the partnership
agreement, including the provisions discussed above. The failure of a limited partner or transferee to sign a partnership agreement does
not render the partnership agreement unenforceable against that person.
Under the partnership agreement, we must indemnify our General Partner and its officers and our directors to the fullest extent permitted
by law, against liabilities, costs and expenses incurred by our General Partner or these other persons. We must provide this indemnification
unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons engaged in
actual fraud or willful misconduct. We also must provide this indemnification for criminal proceedings when our General Partner or these other
persons acted with no reasonable cause to believe that their conduct was unlawful. Thus, our General Partner and its officers and our directors
could be indemnified for their negligent acts if they met the requirements set forth above. To the extent that these provisions purport to include
indemnification for liabilities arising under the Securities Act, in the opinion of the Securities and Exchange Commission such indemnification is
contrary to public policy and therefore unenforceable. Please read “Item 10B: The Partnership Agreement—Indemnification.”
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 contemplated to be brought
against us. We maintain insurance policies with insurers in amounts and with coverage and deductibles as our board of directors believes are
reasonable and prudent. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if
lacking merit, could result in the expenditure of significant financial and managerial resources and regardless of the final outcome of any such
proceedings could lead to significant reputational damage which could materially affect our business and operations.
In December 2017, one of our subsidiaries reached a settlement with the U.S. Department of Justice (“DOJ”) regarding the M/T Amou-
reux for oil record book violation. Under the terms of the agreement, the subsidiary pled guilty to oil record book violation with respect
to the M/T Amoureux. The subsidiary paid $700,000 in fine and was placed on probation for three years. If, during the term of probation,
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
the subsidiary fails to adhere to the terms of the plea agreement, the DOJ may withdraw from the plea agreement and would be free
to prosecute the subsidiary on all charges arising out of its investigation, including any charges dismissed pursuant to the terms of the
plea agreement, as well as potentially other charges. Our subsidiary is also required to implement a comprehensive environmental
compliance plan in connection with the settlement.
HOW WE MAKE CASH DISTRIBUTIONS
Distributions of Available Cash
General
Within approximately 45 days after the end of each quarter, subject to legal limitations, we distribute all of our available cash to unithold-
ers of record on the applicable record date.
Definition of Available Cash
Available cash means, for each fiscal quarter, all cash and cash equivalents 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 our business (including reserves for future capital expenditures and for our anticipated credit needs);
• comply with applicable law, any of our debt instruments, or other agreements; or
• to the extent permitted under our partnership agreement, provide funds for distributions to our unitholders and to our General Partner
for any one or more of the next four quarters; provided, however, that our board of directors may not establish such cash reserves in
respect of the Class B Units if, as a result, we are unable to distribute the minimum quarterly distribution on our Class B Units in cash,
plus any arrearages on all Class B Units nor may our board of directors establish such cash reserves in respect of our common units
if, as a result, we are unable to distribute the minimum quarterly distribution on all Class B Units and the minimum quarterly distribu-
tion on all common units, plus any arrearage on all common units;
• plus all additional cash and cash equivalents on hand on the date of determination of available cash for the quarter resulting from
working capital borrowings made after the end of the quarter. Working capital borrowings are generally borrowings that are made
under our credit agreement and in all cases are used solely for working capital purposes or to pay distributions to partners.
Minimum Quarterly Distribution
Our partnership agreement provides that the minimum quarterly distribution on our common units is $0.2325 per unit, which is equal to
$0.93 per unit per year. You should note that there is no guarantee that we will pay the minimum quarterly distribution on the common
units in any quarter. Failure to distribute the minimum quarterly distribution on the common units results in our inability to establish certain
cash reserves (see “—Definition of Available Cash” above). See information on current distribution levels elsewhere in this annual report.
The minimum quarterly distribution on our Class B Units is $0.21375 per unit, which is equal to $0.855 per unit per year. Distributions on
our Class B Units are cumulative in that they shall accumulate whether or not any restrictions (such as arising out of our indebtedness)
prohibit the authorization, declaration and payment of such distributions, whether or not there is sufficient available cash for the payment
of such distributions and whether or not such distributions are authorized by our board of directors.
If the Class B Units do not receive the full amount of the distribution for such period in cash, no distributions can be made on our com-
mon units. If we do not have the available cash to pay the minimum quarterly distribution on our Class B Units in any quarter, then the
amount due per Class B Unit will accrue at 11.5% per annum for such quarter and, if such distribution has been authorized by our board
of directors for such quarter, shall be paid, to the extent of such shortfall, by issuing a number of common units calculated based on the
lesser of the 30-day volume weighted average price (or VWAP) of our common unit and the 90-day VWAP of our common units.
In the event we experience a change of control, the minimum quarterly distribution rate on our Class B Units will equal 1.25 times the
then applicable distribution rate. Upon the occurrence of a cross default or certain defaults on the payment of cash distributions on Class
B Units, the distribution rate will equal 1.25 times the then applicable distribution rate, and on each subsequent payment date, the then
applicable distribution rate will further increase to a rate that is 1.25 times the then applicable distribution rate as of the close of business
on the day immediately preceding such distribution payment date, until the cross default or payment default is cured. The applicable
quarterly distribution rate for the Class B Units as a result of such increases however shall not exceed $0.33345 per Class B Unit.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 In any quarter where the distributions on common units is greater than the common unit minimum quarterly distribution rate, whether
as a result of an increase in the customary quarterly distribution or a special distribution on the common units, the corresponding distri-
bution on the Class B Units shall be increased pro rata (on an as converted basis) for the quarter by the amount that the actual distribution
on the common units exceeds the common unit minimum quarterly distribution rate.
Distribution Policy
Our cash distribution policy generally reflects a basic judgment that our unitholders are better served by us distributing our available
cash (after deducting expenses, including cash reserves) rather than retaining it. Because we believe that, subject to our ability to obtain
required financing and access financial markets, we will generally finance any expansion capital expenditures from external financing
sources, we believe that our investors are best served by us distributing all of our available cash. The board of directors seeks to main-
tain a balance between the level of reserves it takes to protect our financial position and liquidity against the desirability of maintaining
distributions on the limited partnership interests. We intend to review our distributions from time to time in the light of a range of factors,
including, among other things, our access to the capital markets, the repayment or refinancing of our external debt, the level of our
capital expenditures and our ability to pursue accretive transactions.
Even if our cash distribution policy is not modified or revoked, the decision to make any distribution and the amount thereof are deter-
mined by our board of directors, taking into consideration the terms of our partnership agreement. Our distribution policy is subject to
certain restrictions, including the following:
• Our common unitholders have no contractual or other legal right to receive distributions other than the right under our partnership
agreement to receive available cash on a quarterly basis. Our board of directors has broad discretion to establish reserves and other
limitations in determining the amount of available cash.
• While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including provisions
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 our
partnership agreement with the holders of Class B Units voting on an as-converted basis).
• 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 Marshall Islands Limited Partnership Act, we may not make a distribution if, after giving effect to the distribu-
tion, our liabilities (other than liabilities to partners on account of their partnership interest and liabilities for which the recourse of
creditors is limited to specified property of ours) would exceed the fair value of our assets, except that the fair value of property that is
subject to a liability for which the recourse of creditors is limited shall be included in our assets only to the extent that the fair value of
that property exceeds that liability.
• Our common units are subject to the prior distribution rights of any holders of our preferred units then 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. Furthermore, 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 or upon the occurrence of a cross default or
certain defaults on the payment of cash distributions on our Class B Units.
• We may lack sufficient cash to pay distributions on our common units due to, among other things, decreases in net revenues or
increases in operating expenses, principal and interest payments on outstanding debt, tax expenses, working capital requirements,
maintenance and replacement capital expenditures, anticipated cash needs or the payment of distributions on the Class B Units, which
our partnership agreement requires us to pay prior to distributions on our common units.
• Our distribution policy will be affected by restrictions on distributions under our credit facilities which contain material 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 distributions to our unitholders, notwithstanding
our stated cash distribution policy, would be materially adversely affected.
• If we make distributions out of capital surplus, as opposed to operating surplus, such distributions will constitute a return of capital
and will result in a reduction in the quarterly distribution and the target distribution levels. We do not anticipate that we will make any
distributions from capital surplus.
• If the ability of our subsidiaries to make any distribution to us is restricted by, among other things, the provisions of existing and future
indebtedness, applicable partnership and limited liability company laws or any other laws and regulations, our ability to make distribu-
tions to our unitholders may be restricted.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 according to our distribution policy, which has changed from time to time:
• 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 was our objective to increase our common and Class B distributions between 2% and 3% per an-
num for the foreseeable future. As a result, we 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 maintained the distribution level
for the fourth quarter at $0.2385, due to the severe pricing dislocation for MLPs observed at the end of 2015 and at the beginning of 2016.
• In April 2016, in the face of severely depressed trading prices for master limited partnerships, including us, a significant deterioration
in our cost of capital and potential loss of revenue, the board of directors made the decision to protect our liquidity position by creating
a capital reserve, provisioning further reserves and setting distributions at a level that the board believes to be sustainable and con-
sistent with the proper conduct of our business. The capital reserve, set by the board of directors at approximately $14.6 million per
quarter, was intended to address amortization requirements under our credit facilities through the end of 2018. Accordingly, our board
of directors issued a new quarterly distribution guidance of $0.075 per common unit. We made distributions on our common units in
accordance with this new guidance in May 2016, August 2016 and November 2016.
• In October 2016, considering the positive impact of the expansion of our asset base following the acquisition of the M/T Amor, our board
of directors decided to approve an increase of $0.005 in our quarterly distribution for the fourth quarter 2016 onwards to $0.08 per com-
mon unit. Our board of directors maintained this level of distribution through the fourth quarter of 2017.
• We used cash accumulated as a result of quarterly allocations to our capital reserve to partially prepay our indebtedness as part of our
refinancing in October 2017. We expect to continue to reserve cash in amounts necessary to service our debt in the future, including
to make quarterly amortization payments.
Operating Surplus and Capital Surplus
General
All cash distributed to unitholders will be characterized as either “operating surplus” or “capital surplus.” We treat distributions of avail-
able cash from operating surplus differently than distributions of available cash from capital surplus.
Definition of Operating Surplus
For any period, other than the quarter during which an event giving rise to our liquidation occurs (unless our unitholders have a right to
elect to continue our business and so elect), operating surplus generally means:
• an amount equal to two times the amount needed for any one quarter for us to pay a distribution on all of our units, the general partner
units and the incentive distribution rights at the same per-unit amount as was distributed in the immediately preceding quarter; plus
• all of our cash receipts, excluding cash from (1) borrowings, other than working capital borrowings, (2) sales of equity and debt securi-
ties, (3) sales or other dispositions of assets outside the ordinary course of business, (4) capital contributions; plus
• working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter; plus
• interest paid on debt incurred and cash distributions paid on equity securities issued, in each case, to finance all or any portion of the
construction, replacement or improvement of a capital asset such as vessels during the period from such financing until the earlier to
occur of the date the capital asset is put into service and the date that it is abandoned or disposed of; plus
• interest paid on debt incurred and cash distributions paid on equity securities issued, in each case, to pay the construction period inter-
est on debt incurred, or to pay construction period distributions on equity issued, to finance the construction projects described in the
immediately preceding bullet; less
• all of our operating expenditures after the repayment of working capital borrowings, but not (1) the repayment of other borrowings, (2)
actual maintenance and replacement capital expenditures or expansion capital expenditures or investment capital expenditures, (3)
transaction expenses (including taxes) related to interim capital transactions or (4) distributions; less
• estimated maintenance and replacement capital expenditures and the amount of cash reserves established by our board of directors
to provide funds for future operating expenditures; less
• all working capital borrowings not repaid within twelve months after having been incurred.
If a working capital borrowing, which increases operating surplus, is not repaid during the 12-month period following the borrowing, it will be
deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowing is in fact repaid,
it will not be treated as a reduction in operating surplus because operating surplus will have been previously reduced by the deemed repayment.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 As described above, operating surplus includes an amount up to two times the amount needed for any one quarter for us to pay a distribution
on all of our units (including the general partner units) and the incentive distribution rights at the same per unit amount as was distributed in the
immediately preceding quarter. This amount does not reflect actual cash on hand available to pay distributions to unitholders. Rather, it is a pro-
vision that will enable us, if we choose, to distribute as operating surplus up to this amount of cash we receive in the future from non-operating
sources, such as asset sales, issuances of securities and long-term borrowings, that would otherwise be distributed as capital surplus. In addi-
tion, the effect of including, as described above, certain cash distributions on equity securities or interest payments on debt in operating surplus
would be to increase operating surplus by the amount of any such cash distributions or interest payments. As a result, we may also distribute
as operating surplus up to the amount of any such cash distributions or interest payments of cash we receive from non-operating sources.
Capital Expenditures
For purposes of determining operating surplus, maintenance and replacement capital expenditures are those capital expenditures
required to maintain over the long term the operating capacity of or the revenue generated by our capital assets, and expansion capital
expenditures are those capital expenditures that increase the operating capacity of or the revenue generated by our capital assets. To
the extent, however, that capital expenditures associated with acquiring a new vessel increase the revenues or the operating capacity of
our fleet, those capital expenditures would be classified as expansion capital expenditures.
Investment capital expenditures are those that are neither maintenance and replacement capital expenditures nor expansion capital
expenditures. Investment capital expenditures largely will consist of capital expenditures made for investment purposes.
Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of
equity securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures,
such as the acquisition of a capital asset for investment purposes.
Examples of maintenance and replacement capital expenditures include capital expenditures associated with drydocking, modifying an exist-
ing vessel or acquiring a new vessel to the extent such expenditures are incurred to maintain the operating capacity of or the revenue generated
by our fleet. Maintenance and replacement capital expenditures will also include interest (and related fees) on debt incurred and distributions on
equity issued to finance the construction of a replacement vessel and paid during the construction period, which we define as the period begin-
ning on the date that we enter into a binding construction contract and ending on the earlier of the date that the replacement vessel commences
commercial service or the date that the replacement vessel is abandoned or disposed of. Debt incurred to pay or equity issued to fund construc-
tion period interest payments, and distributions on such equity, will also be considered maintenance and replacement capital expenditures.
Our partnership agreement provides that an amount equal to an estimate of the average quarterly maintenance and replacement capital
expenditures necessary to maintain the operating capacity of or the revenue generated by our capital assets over the long term be sub-
tracted from operating surplus each quarter, as opposed to the actual amounts spent. In the partnership agreement, we refer to these
estimated maintenance and replacement capital expenditures to be subtracted from operating surplus as “estimated maintenance
capital expenditures.” The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is
subject to review and change by our board of directors at least once a year, provided that any change must be approved by our conflicts
committee. The estimate is made at least annually and whenever an event occurs that is likely to result in a material adjustment to the
amount of our maintenance and replacement capital expenditures, such as a major acquisition or the introduction of new governmental
regulations that will affect our fleet. For purposes of calculating operating surplus, any adjustment to this estimate is prospective only.
Our board of directors has elected not to deduct any replacement capital expenditures from our operating surplus since 2011.
Definition of Capital Surplus
Any available cash that is distributed after we distribute the operating surplus is capital surplus. Capital surplus generally is expected to
be generated by:
• borrowings other than working capital borrowings;
• sales of debt and equity securities; and
• sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary
course of business or non-current assets sold as part of normal retirements or replacements of assets.
Characterization of Cash Distributions
We will treat all available cash distributed as coming from operating surplus until the sum of all available cash distributed since we began opera-
tions equals the operating surplus as of the most recent date of determination of available cash. We will treat any amount distributed in excess
of operating surplus, regardless of its source, as capital surplus. As described above, operating surplus includes an amount up to two times the
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 amount needed for any one quarter for us to pay a distribution on all of our units (including the general partner units) and the incentive distribution
rights at the same per unit amount as was distributed in the immediately preceding quarter. This amount does not reflect actual cash on hand avail-
able to pay distributions to unitholders. Rather, it is a provision that will enable us, if we choose, to distribute as operating surplus up to this amount
of cash we receive in the future from non-operating sources, such as asset sales, issuances of securities and long-term borrowings, that would
otherwise be distributed as capital surplus. We have not yet made any distributions from capital surplus and do not anticipate doing so in the future.
Distributions of Available Cash From Operating Surplus
We make quarterly distributions of available cash from operating surplus in the following manner, after payment of any amounts owed
on the Class B Units and subject to applicable law:
• 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 “—Incentive Distribution Rights” below.
The preceding paragraph is based on the assumption that our General Partner maintains its 2.0% general partner interest.
Incentive Distribution Rights
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. Our General Partner
currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to
restrictions in the partnership agreement. Any transfer by our General Partner of the incentive distribution rights would not change the
percentage allocations of quarterly distributions with respect to such rights.
If for any quarter:
• we have paid to the holders of our Class B units the minimum quarterly amount we have promised to them, and all arrearages;
• we have paid to the holders of any other outstanding units that are senior in right of distribution to our common units the agreed
amount of distribution; and
• we have distributed available cash from operating surplus to the common unitholders in an amount equal to the minimum quarterly distribution,
• then, we will distribute any additional available cash from operating surplus for that quarter among the unitholders and our General
Partner in the following manner:
• first, 98% to all unitholders, pro rata, and 2.0% to our General Partner, until each unitholder receives a total of $0.2425 per unit for
that quarter (the “first target distribution”),
• second, 85% to all unitholders, pro rata, and 15% to our General Partner, until each unitholder receives a total of $0.2675 per unit for
that quarter (the “second target distribution”),
• third, 75% to all unitholders, pro rata, and 25% to our General Partner, until each unitholder receives a total of $0.2925 per unit for
that quarter (the “third target distribution”), and
• thereafter, 65% to all unitholders, pro rata, and 35% to our General Partner.
The percentage interests set forth above assume that our General Partner maintains its 2.0% general partner interest and has not trans-
ferred the incentive distribution rights and that we do not issue additional classes of equity securities.
Following discussion with, and with the unanimous support of, the conflicts committee of our board of directors, Capital Maritime per-
manently waived its rights to receive quarterly incentive distributions between $0.2425 and $0.25. This waiver effectively increases the
first target distribution and the lower bound of the second target distribution (as referenced in the table below) from $0.2425 to $0.25.
Arrearages on Class B Units do not accrue interest. In addition, holders of Class B Units are not entitled to any distributions, whether
payable in cash, property or partnership interests, in excess of the then arrearage plus the minimum quarterly distribution on the Class
B Units for the relevant quarter.
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
111
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 rights of the holders of our Class B Units. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage
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 dis-
tribute 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 dis-
tribution. The percentage interests shown for our General Partner assume that, upon conversion of its general partner units, our General
Partner maintains a 2.0% general partner interest and assume our General Partner has not transferred the incentive distribution rights.
Minimum Quarterly Distribution
First Target Distribution
Second Target Distribution
Third Target Distribution
Thereafter
Marginal Percentage
Interest in Distributions
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
Unitholders
98%
98%
85%
75%
65%
General
Partner
2%
2%
15%
25%
35%
(1)
As disclosed on our Current Report on Form 6-K furnished on August 26, 2014, Capital Maritime unilaterally notified the Partnership that it decid-
ed to waive its rights to receive quarterly incentive distributions between $0.2425 and $0.25. Capital Maritime permanently 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 referenced in the table above) from $0.2425 to $0.25.
Distributions From Capital Surplus
How Distributions From Capital Surplus Will Be Made
We will make distributions of available cash from capital surplus, if any, in the following manner:
• first, 100% to the Class B unitholders, pro rata, until we distribute in respect of each outstanding unit an aggregate amount of available
cash from capital surplus equal to the redemption value of the Class B Units, being the sum of (i) the per unit purchase price of $9.00,
plus (ii) arrearages in payment of the minimum quarterly distribution on the Class B units, plus (iii) the accrued minimum quarterly
distribution rate for the Class B units since the close of the last complete quarter; and
• second, 98% to the common unitholders, pro rata, and 2% to our General Partner, until we distribute for each common unit an aggregate
amount of available cash from capital surplus equal to the initial unit price of the common units issued in our initial public offering; and
• thereafter, we will make distributions of available cash from capital surplus as if they were from operating surplus.
The preceding paragraph is based on the assumption that our General Partner maintains a 2.0% general partner interest and that we do
not issue additional classes of equity securities.
Effect of a Distribution From Capital Surplus
The partnership agreement treats a distribution of capital surplus as a return of capital. Each time a distribution of capital surplus is made, the
minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the distribution had to the fair market
value of the common units prior to the announcement of the distribution. Because distributions of capital surplus will reduce the minimum
quarterly distribution, after any of these distributions are made, it may be easier for our General Partner to receive incentive distributions.
However, any distribution of capital surplus before the minimum quarterly distribution is reduced to zero cannot be applied to the pay-
ment of the minimum quarterly distribution or any arrearages.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we
combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:
• the minimum quarterly distribution; and
• the target distribution levels.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
For example, if a two-for-one split of the common and subordinated units should occur, the minimum quarterly distribution, the target
distribution levels would be reduced to 50% of its initial level. We will not make any adjustment by reason of the issuance of additional
units for cash or property.
In addition, if legislation is enacted or the official interpretation of any existing legislation is modified by a governmental taxing authority,
and as a result any of our subsidiaries becomes subject to taxation as an entity for U.S. federal, state, local or foreign tax purposes, our
partnership agreement specifies that the minimum quarterly distribution and the target distribution levels for each quarter will be re-
duced by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter and the denominator
of which is the sum of available cash for that quarter plus our board of directors’ estimate of our direct or indirect aggregate liability for
the quarter for such taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the
estimated tax liability for any quarter, the difference will be accounted for in subsequent quarters.
Distributions of Cash Upon Liquidation
If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called liquida-
tion. We will apply the proceeds of liquidation in the manner set forth below.
Holders of outstanding Class B Units will be entitled to receive, prior and in preference to any distribution to the holders of common units
(or any class or series of partnership interests ranking junior to the Class B Units) a sum of:
• the per unit purchase price of $9.00; plus
• arrearages in payment of the minimum quarterly distribution on the Class B units; plus
• the accrued minimum quarterly distribution rate for the Class B units since the close of the last complete quarter.
Once the Class B units have been paid the full liquidation value described above, the remaining proceeds will be distributed to common
unitholders as follows.
If, as of the date three trading days prior to the announcement of the proposed liquidation, the average closing price for our common
units for the preceding 20 trading days (or the current market price) is greater than the sum of:
• any arrearages in payment of the minimum quarterly distribution on the common units issued in our initial public offering for any prior
quarters during the subordination period (as described below); plus
• the initial unit price of the common units issued in our initial public offering (less any prior capital surplus distributions and any prior
cash distributions made in connection with a partial liquidation);
then the proceeds of the liquidation will be applied as follows:
• first, 98.0% to the common unitholders, pro rata, and 2.0% to our General Partner, until we distribute for each outstanding common unit
an amount equal to the current market price of our common units; and
• thereafter, 50.0% to all unitholders, pro rata, 48.0% to holders of incentive distribution rights and 2.0% to our General Partner.
If, as of the date three trading days prior to the announcement of the proposed liquidation, the current market price of our common units
is equal to or less than the sum of:
• any arrearages in payment of the minimum quarterly distribution on the common units issued in our initial public offering for any prior
quarters during the subordination period; plus
• the initial unit price of the common units issued in our initial public offering (less any prior capital surplus distributions and any prior
cash distributions made in connection with a partial liquidation);
then the proceeds of the liquidation will be applied as follows:
• first, 98.0% to the common unitholders, pro rata, and 2.0% to our General Partner, until we distribute for each outstanding common unit
an amount equal to such initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connec-
tion with a partial liquidation);
• second, 98.0% to the common unitholders, pro rata, and 2.0% to our General Partner, until we distribute for each outstanding common
unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters
during the subordination period; and
• thereafter, 50.0% to all unitholders, pro rata, 48.0% to holders of incentive distribution rights and 2.0% to our General Partner.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 The preceding paragraph is based on the assumption that our General Partner maintains its 2.0% general partner interest and has not
transferred the incentive distribution rights and that we do not issue additional classes of equity securities.
Subordination Period
The subordination period, which terminated on February 14, 2009, was a period during which the common units had the right to receive
available cash from operating surplus in an amount equal to the minimum quarterly distribution per quarter, plus any arrearages in the
payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from
operating surplus were made on the “subordinated units,” which were issued in addition to the common units in our initial public offer-
ing. Upon termination of the subordination period, the subordinated units were converted into common units on a one-for-one basis.
B. Significant Changes
Other than as described in “Item 4. Information on the Partnership—History and Development of the Partnership—Recent Develop-
ments” and below, no significant changes have occurred since the date of our Financial Statements included herein:
On January 17, 2018, we declared a cash distribution of $0.08 per common unit for the fourth quarter of 2017, which was paid on February
13, 2018 to unitholders of record on February 2, 2018.
On January 17, 2018, we declared a cash distribution of $0.21375 per Class B Unit for the fourth quarter of 2017, in line with our partner-
ship agreement. The fourth quarter Class B Unit cash distribution was paid on February 9, 2018, to Class B unitholders of record on
February 2, 2018.
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,
2017
2016
2015
2014
2013
Quarter Ended:
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
Month Ended:
February 28, 2018
January 31, 2018
December 31, 2017
November 30, 2017
October 31, 2017
September 30, 2017
August 31, 2017
114
High
Low
3.97
5.25
9.94
11.56
10.57
3.59
3.97
3.55
3.70
3.29
3.95
3.83
5.25
3.27
3.57
3.46
3.38
3.59
3.69
3.66
3.12
2.51
5.05
6.79
6.81
3.12
3.43
3.29
3.16
2.77
2.80
2.56
2.51
3.04
3.31
3.12
3.15
3.42
3.50
3.43
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
ITEM 10. ADDITIONAL INFORMATION.
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. The partnership agreement, as amended, is filed
as Exhibit I to our Current Report on Form 6-K dated February 24, 2010, as Exhibit I to our Current Report on Form 6-K dated September
30, 2011, as Exhibit II to our Current 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. We will provide prospective investors with
a copy of our limited partnership agreement and any amendments thereto upon request at no charge.
We summarize the following provisions of our partnership agreement elsewhere in this annual report:
• with regard to distributions of available cash, please read “Item 8: Financial Information—How We Make Cash Distributions,” and
• with regard to the fiduciary duties of our General Partner and our directors, please read “Item 7.B: Related Party Transactions—Con-
flicts of Interest and Fiduciary Duties.”
Organization and Duration
We were organized on January 16, 2007 and have perpetual existence.
Purpose
Our purpose under the partnership agreement is to engage in any business activities that may lawfully be engaged in by a limited part-
nership pursuant to the MILPA.
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. Our General Partner, subject to the direction and supervision of our board of directors, manages our business and
affairs and carry out our purpose.
Power of Attorney
Each limited partner, and each person who acquires a unit from another unitholder grants to our General Partner and, if appointed, a liq-
uidator, a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution.
The power of attorney also grants our General Partner the authority to make consents and waivers under the partnership agreement.
Capital Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under “—Limited Liability.”
Voting Rights
Each outstanding common unit is entitled to one vote on matters subject to a vote of common unitholders.
The holders of the Class B Units have voting rights that are identical to the voting rights of the common units on an as converted basis
and will vote with the common units as a single class on all matters with respect to which each common unit is entitled to vote, provided,
however, that except in the circumstances described below, holders of Class B Units have no right to vote for, elect or appoint any direc-
tor, or to nominate any individual to stand for election or appointment as a director. Therefore, whenever we refer to a vote of the common
unit holders in this summary, you should be aware that the holders of the Class B Units will vote with the common unit holders on an as
converted basis as a single class, except on any election of a director on our board of directors.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
To preserve our ability to be exempt from U.S. federal income tax under Section 883 of the Code, if at any time, any person or group, other
than our General Partner or its affiliates, owns beneficially 5% or more of any class of units then outstanding, any 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 to vote on any matter (unless otherwise required by law),or calculating required votes, except for purposes of
nominating a person for election to our board, or determining the presence of a quorum or for other similar purposes under our partner-
ship agreement. 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 the same class of units entitled to vote. Our partnership agreement provides certain excep-
tions to such limitation, including when a person acquired securities directly from our General Partner or its affiliates or with the approval
of our board of directors, but only for so long as such exception would not jeopardize our tax exemption under Section 883 of the Code.
We will hold a meeting of the limited partners entitled to vote 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. The sole member of our General Partner, CMTC, has the right to
appoint three of the eight members of our board of directors with the remaining five directors being elected by our common unitholders.
Holders of the Class B Units do not have the right to elect directors, except upon the occurrence of certain triggering events. Among other
consequences, if we fail to pay the minimum Class B Unit distribution, as set out in our partnership agreement, for six or more quarters,
the holders of the Class B Units will have the right to appoint a director to our board and, if such arrearages exist on or after March 1,
2018, to replace the directors appointed by our General Partner, in each case by the affirmative vote of the persons holding a majority of
the Class B Units, subject to exceptions and conditions contained in our partnership agreement.
In voting their units, our General Partner and its affiliates will have no fiduciary duty or obligation whatsoever to us or limited partners,
including any duty to act in good faith or in the best interests of us and the limited partners.
The matters described in the table below require the unitholder vote specified below. Matters requiring the approval of a “unit majority”
require the approval of a majority of the common units and, as long as our Class B Units are outstanding, our Class B Units voting on
such matters with the common units as a single class on a converted basis (except for the election of directors on our board of directors).
You should note that our General Partner has approval rights in respect of certain of the matters described below.
Action
Unitholder Approval Required and Voting Rights
Issuance of additional units
No approval rights (although our General Partner has approval rights in certain instances).
Amendment of the partnership agreement
Amendment of the operating agreement of the
operating company (as defined in our limited
partnership agreement)
Merger of our partnership or the sale of all or
substantially all of our assets
Certain amendments may be made by our board of directors without the approval of
the unitholders if those amendments are also approved by our General Partner. Other
amendments generally require the approval of a unit majority and can only be proposed
by or with the written consent of our General Partner and our board of directors. Please
read “—Amendment of the Partnership Agreement.”
Unit majority if such amendment would adversely affect our limited partners in any mate-
rial respect.
Unit majority if such amendment would adversely affect our limited partners in any mate-
rial respect and approval of our General Partner and board of directors. Please read “—
Merger, Sale, or Other Disposition of Assets.”
Dissolution of our partnership
Unit majority and approval of our General Partner and our board of directors. Please read
“—Termination and Dissolution.”
Reconstitution of our partnership upon dissolution
Unit majority. Please read “—Termination and Dissolution.”
Election of five of the eight members of our board
of directors
A plurality of the votes of the holders of the common units.
Withdrawal of the General Partner
Our General Partner may withdraw without obtaining unitholder approval upon 90 days’
written notice to our board of directors. Please read “—Withdrawal or Removal of the
General Partner.”
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
Action
Unitholder Approval Required and Voting Rights
Removal of the General Partner
Transfer of the general partner interest in us
Not less than 66 2/3% of the outstanding units, including units held by our General Partner
and its affiliates, voting together as a single class and a majority vote of our board of direc-
tors. Please read “—Withdrawal or Removal of the General Partner.”
Our General Partner may transfer all or any part of its General Partner interest in us to
another person without the approval of the holders of our outstanding units. Please read
“—Transfer of General Partner Interest.”
Transfer of incentive distribution rights
The incentive distribution rights are freely transferable. Please read “—Transfer of Incen-
tive Distribution Rights.”
Transfer of ownership interests in the General
Partner
No approval required at any time. Please read “—Transfer of Ownership Interests in Gen-
eral Partner.”
Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the MILPA and that such limited
partner otherwise acts in conformity with the provisions of our partnership agreement, that partner’s liability under the MILPA will be
limited, subject to possible exceptions, to the amount of capital he or she is obligated to contribute to us for his or her units plus his or
her share of any undistributed profits and assets. If a court determined, however, that limited partners “participated in the control” of our
business for the purposes of the MILPA, then such limited partners could be held personally liable for our obligations under the laws of
Marshall Islands, to the same extent as our General Partner, to persons who transact business with us who reasonably believe, based
on the limited partner’s conduct, that the limited partner is a general partner. Neither our partnership agreement nor the MILPA specifi-
cally provides for legal recourse against our General Partner if a limited partner were to lose limited liability through any fault of our
General Partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of
a claim in Marshall Islands case law.
Under the MILPA, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited part-
nership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is
limited to specific property of the partnership, exceeds 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 MILPA provides that a limited partner who receives a distri-
bution and knew at the time of the distribution that the distribution was in violation of the MILPA shall be liable to the limited partnership
for the amount of the distribution for three years after the date of such distribution. Under the MILPA, a purchaser of units who becomes
a limited partner of a limited partnership is liable for the obligations of the transferor to make contributions to the partnership, except that
the transferee is not obligated for liabilities unknown to him at the time he became a limited partner and that could not be ascertained
from the partnership agreement.
Maintenance of our limited liability may require compliance with legal requirements in the jurisdictions in which we conduct business,
which may include qualifying to do business in those jurisdictions.
Issuance of Additional Securities
The partnership agreement authorizes us to issue an unlimited amount of additional partnership securities and rights to buy partner-
ship securities for the consideration and on the terms and conditions determined by our board of directors without the approval of the
unitholders. Our General Partner will have the right to approve issuances of additional securities that are not reasonably expected to be
accretive to equity within 12 months of issuance or which would otherwise have a material adverse impact on our General Partner or
its interest in us. However, as long as Class B Units are outstanding, we may not authorize, create or issue any equity interests senior
to the Class B Units or amend the provisions of an existing class of securities to make such class senior in priority to the Class B Units
without the affirmative vote or written consent of the holders of at least 75% of the outstanding Class B Units, voting separately as a class
based on one vote per unit.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
We intend to fund acquisitions through borrowings and the issuance of additional common units or other equity securities and the as-
sumption and/or the issuance of debt, subject to market conditions, as further described elsewhere herein . Holders of any additional
common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions of available
cash. In addition, the issuance of additional common units or other equity securities interests may dilute the value of the interests of the
then-existing holders of common units in our net assets.
In accordance with Marshall Islands law and the provisions of our partnership agreement, we may also issue additional partnership
securities interests that, as determined by our board of directors, have special voting rights to which the common units are not entitled.
Upon issuance of additional partnership securities, our General Partner will have the right, but not the obligation, to make additional
capital contributions to the extent necessary to maintain its General Partner interest in us, which is currently 1.71%. Our General Partner’s
interest in us will thus be reduced if we issue additional partnership securities in the future and our General Partner does not elect to
maintain its then-applicable General Partner interest in us. Our General Partner will have the right, which it may from time to time as-
sign in whole or in part to any of its affiliates, to purchase common units or other equity securities whenever, and on the same terms
that, we issue those securities to persons other than our General Partner and its affiliates, to the extent necessary to maintain its and its
affiliates’ percentage interest, including its interest represented by common units, that existed immediately prior to each issuance. Other
holders of common units will not have similar preemptive rights to acquire additional common units or other partnership securities.
Upon issuance of additional partnership interests that, with respect to distributions, rank pari passu with our Class B Units, holders of
Class B Units shall have the right to purchase their pro rata portion of such issuance.
Tax Status
The partnership agreement provides that the partnership will elect to be taxed as a corporation for U.S. federal income tax purposes.
Amendment of the Partnership Agreement
General
Amendments to our partnership agreement may be proposed only by or with the consent of our General Partner and our board of direc-
tors. However, neither our General Partner nor our board of directors will have a duty or obligation to propose any amendment and may
decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in
the best interests of us or the limited partners. In order to adopt a proposed amendment, other than the amendments discussed below,
approval of both our board of directors and our General Partner is required, as well as approval of the holders of the number of units
required to approve the amendment. Except as we describe below, an amendment must be approved by a unit majority.
Prohibited Amendments
Except as set forth below, no amendment may:
3.
2.
1.
increase the obligations of any limited partner without its consent, unless such increase is deemed to occur as a result of an amend-
ment approved in accordance with sub-paragraph (2) below:
have a material adverse effect on the rights or preferences of any class of partnership interests in relation to other classes of part-
nership interests unless approved by the holders of not less than a majority of the outstanding units of the class affected, voting
together as a single class;
increase the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimburs-
able or otherwise payable by us to our General Partner or any of its affiliates without the consent of the General Partner, which may
be given or withheld at its option;
4. change the term of our partnership;
5.
provide that our partnership is not dissolved upon an election to dissolve our partnership by our General Partner and our board of
directors that is approved by the holders of a unit majority; or
give any person the right to dissolve our partnership other than the right of our General Partner and our board of directors to dissolve
our partnership with the approval of the holders of a unit majority.
6.
The provision of our partnership agreement preventing the amendments having the effects described in clauses (1) through (6) above
can only be amended upon the approval of the holders of at least 90% of the outstanding units voting together as a single class (including
units owned by our General Partner and its affiliates).
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 No Unitholder Approval
Our board of directors may generally make amendments to our partnership agreement without the approval of any limited partner to
reflect:
4.
1. a change in our name, the location of our principal place of business, our registered agent or our registered office;
the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
2.
a change that our board of directors determines to be necessary or appropriate for us to qualify or to continue our qualification as a
3.
limited partnership or a partnership in which the limited partners have limited liability under the laws of any jurisdiction;
an amendment that is necessary, upon the advice of our counsel, to prevent us or our directors or our General Partner or its direc-
tors, officers, agents, or trustees from in any manner being subjected to the provisions of the U.S. Investment Company Act of 1940,
the U.S. Investment Advisers Act of 1940, or “plan asset” regulations adopted under the U.S. Employee Retirement Income Security
Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed;
an amendment that our board of directors and, if required by the terms of the partnership agreement, our General Partner determines
to be necessary or appropriate for the authorization of additional partnership securities or rights to acquire partnership securities;
5.
6. any amendment expressly permitted in the partnership agreement to be made by our board of directors acting alone;
7.
an amendment effected, necessitated, or contemplated by a merger agreement that has been approved under the terms of the
partnership agreement;
any amendment that our board of directors determines to be necessary or appropriate for the formation by us of, or our investment
in, any corporation, partnership or other entity, as otherwise permitted by the partnership agreement;
8.
9. a change in our fiscal year or taxable year and related changes;
10. certain mergers or conveyances as set forth in our partnership agreement; or
11. any other amendments substantially similar to any of the matters described in (1) through (10) above.
All amendments reflecting matters described in (1) through (11) above require the approval of our General Partner.
In addition, our board of directors may make amendments to the partnership agreement without the approval of any limited partner if
our board of directors determines that those amendments:
1. do not adversely affect the limited partners (or any particular class of limited partners) in any material respect;
2.
are necessary or appropriate to satisfy any requirements, conditions, or guidelines contained in any opinion, directive, order, ruling
or regulation of any Marshall Islands or other authority or contained in any statute;
are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or
requirement of any securities exchange on which the limited partner interests are or will be listed for trading;
are necessary or appropriate for any action taken by our board of directors relating to splits or combinations of units under the provi-
sions of the partnership agreement; or
are required to effect the intent expressed in the IPO registration statement or any future prospectus or the intent of the provisions
of the partnership agreement or are otherwise contemplated by the partnership agreement.
3.
4.
5.
All amendments reflecting matters described in (1) through (5) above require the approval of our General Partner.
Opinion of Counsel and Unitholder Approval
Neither our General Partner nor our board of directors will be required to obtain an opinion of counsel that an amendment will not result
in a loss of limited liability to the limited partners if one of the amendments described above under “—No Unitholder Approval” should
occur. No other amendments to our partnership agreement will become effective without the approval of holders of at least 90% of the
outstanding units voting as a single class unless we obtain an opinion of counsel to the effect that the amendment will not affect the
limited liability of any of our limited partners under applicable law.
In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or privileges of any type or
class of outstanding units in relation to other classes of units will require the approval of at least a majority of the type or class of units
so affected. Any amendment that reduces the voting percentage required to take any action must be approved by the affirmative vote of
limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced.
Action Relating to the Operating Subsidiaries
We effectively control our operating subsidiaries by being their sole member or shareholder, as applicable.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Merger, Sale, or Other Disposition of Assets
A merger or consolidation of us requires the approval of our board of directors and the prior consent of our General Partner. However, our
General Partner will have no duty or obligation to consent to any merger or consolidation and may decline to do so free of any fiduciary
duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited
partners. In addition, our partnership agreement generally prohibits our board of directors, without the prior approval of our General Partner
and the holders of units representing a unit majority, from causing us to, among other things, sell, exchange, or otherwise dispose of all or
substantially all of our assets in a single transaction or a series of related transactions, including by way of merger, consolidation, or other
combination, or approving on our behalf the sale, exchange, or other disposition of all or substantially all of the assets of our subsidiaries.
Our board of directors may, however, cause us to mortgage, pledge, hypothecate, or grant a security interest in all or substantially all of our
assets without the prior approval of the holders of units representing a unit majority, although it is required to obtain the prior approval of our
General Partner if any such mortgage, pledge or hypothecation is done for purposes other than securing indebtedness that does not result
in our over-leverage, taking into account customary industry leverage levels, our structure and our other assets and liabilities. Our General
Partner and our board of directors may also cause us to sell all or substantially all of our assets under a foreclosure or other realization upon
those encumbrances without the approval of the holders of units representing a unit majority.
If conditions specified in our partnership agreement are satisfied, our board of directors, with the consent of our General Partner, may
convert us or any of our subsidiaries into a new limited liability entity or merge us or any of our subsidiaries into, or convey some or all of
our assets to, a newly formed entity if the sole purpose of that merger or conveyance is to effect a mere change in our legal form into an-
other limited liability entity. The unitholders are not entitled to dissenters’ rights of appraisal under our partnership agreement or appli-
cable law in the event of a conversion, merger or consolidation, a sale of substantially all of our assets, or any other transaction or event.
Additionally, our board of directors is permitted, with the prior consent of our General Partner, to merge or consolidate the Partnership
with or into another entity in certain circumstances, provided that each unit outstanding immediately prior to the effective date of the
merger is to be an identical unit after the effective date of the merger and the number of units issued by the Partnership in such merger
does not exceed 20% of units outstanding immediately prior to the effective date of such merger.
Termination and Dissolution
We will continue as a limited partnership until terminated or converted under our partnership agreement. We will dissolve upon:
1.
2.
3.
4.
5.
the election of our General Partner and our board of directors to dissolve us, if approved by the holders of units representing a unit majority;
the sale, exchange, or other disposition of all or substantially all of our assets and properties and our subsidiaries;
the entry of a decree of judicial dissolution of us;
the withdrawal or removal of our General Partner or any other event that results in its ceasing to be our general partner other than by
reason of a transfer of its general partner interest in accordance with the partnership agreement or withdrawal or removal following
approval and admission of a successor; or
such time when there are no limited partners, unless we are continued without dissolution in accordance with the MILPA.
Upon a dissolution under clause (4), the holders of a unit majority may also elect, within specific time limitations, to continue our busi-
ness on the same terms and conditions described in the partnership agreement by appointing as general partner an entity approved
by the holders of units representing a unit majority, subject to our receipt of an opinion of counsel to the effect that the action would not
result in the loss of limited liability of any limited partner.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are continued as a new limited partnership, the liquidator authorized to wind up our affairs will, acting with all of
the powers of our General Partner that are necessary or appropriate, liquidate our assets and apply the proceeds of the liquidation as provided in
“How We Make Cash Distributions—Distributions of Cash Upon Liquidation.” The liquidator may defer liquidation or distribution of our assets for a
reasonable period or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to our partners.
Withdrawal or Removal of our General Partner
Our General Partner may withdraw as general partner without first obtaining approval of any unitholder or our board of directors by giving
90 days’ written notice. If that happens, such withdrawal will not constitute a violation of our partnership agreement. Please read “—Transfer
of General Partner Interests” and “—Transfer of Incentive Distribution Rights.”
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Upon withdrawal of our General Partner under any circumstances, other than as a result of a transfer by our General Partner of all or a
part of its general partner interest in us, the holders of a majority of the outstanding common units (and, as long as they are outstand-
ing, the Class B Units, voting on an as converted basis) may select a successor to that withdrawing General Partner. If a successor is
not elected, or is elected but an opinion of counsel regarding limited liability cannot be obtained, we will be dissolved, wound up and
liquidated, unless within a specified period of time after that withdrawal, the holders of a unit majority agree in writing to continue our
business and to appoint a successor general partner. Please read “—Termination and Dissolution.”
Our General Partner may not be removed unless that removal is approved by the vote of the holders of not less than 66 2/3% of the
outstanding units, including units held by our General Partner and its affiliates, voting together as a single class and a majority vote of
our board of directors, and we receive an opinion of counsel regarding limited liability. The ownership of more than 33 1/3% of the out-
standing units by our General Partner and its affiliates or controlling our board of directors would provide the practical ability to prevent
our General Partner’s removal. Any removal of our General Partner is also subject to the successor general partner being approved by
the vote of the holders of a majority of the outstanding common units, Class B Units, voting on an as converted basis (as long as they are
outstanding), and general partner units, voting as a single class.
Our partnership agreement also provides that if our General Partner is removed as our general partner under circumstances where
cause (as defined in our partnership agreement) does not exist and units held by our General Partner and its affiliates are not voted in
favor of that removal, our General Partner will have the right to convert its general partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests based on the fair market value of the interests at the time.
In the event of removal of our General Partner under circumstances where cause exists or withdrawal of our General Partner where
that withdrawal violates the partnership agreement, a successor general partner will have the option to purchase the general partner
interest and incentive distribution rights of the departing General Partner for a cash payment equal to the fair market value of those
interests. Under all other circumstances where our General Partner withdraws or is removed by the limited partners, the departing
general partner will have the option to require the successor general partner to purchase the general partner interest of the departing
general partner and its incentive distribution rights for their fair market value. In each case, this fair market value will be determined
by agreement between the departing general partner and the successor general partner. If no agreement is reached, an independent
investment banking firm or other independent expert selected by the departing general partner and the successor general partner will
determine the fair market value. If the departing general partner and the successor general partner cannot agree upon an expert, then
an expert chosen by agreement of the experts selected by each of them will determine the fair market value.
If the option described above is not exercised by either the departing general partner or the successor general partner, the departing
general partner’s general partner interest and its incentive distribution rights will automatically convert into common units equal to the
fair market value of those interests as determined by an investment banking firm or other independent expert selected in the manner
described in the preceding paragraph.
In addition, we will be required to reimburse the departing general partner for all amounts due to the departing general partner, includ-
ing, without limitation, any employee-related liabilities, including severance liabilities, incurred for the termination of any employees
employed by the departing general partner or its affiliates for our benefit.
Transfer of General Partner Interest
Our General Partner may transfer all or any part of its General Partner interest in us to another person without the approval of the holders
of our outstanding units. As a condition of this transfer, the transferee must, among other things, assume the rights and duties of the gen-
eral partner, agree to be bound by the provisions of the partnership agreement and furnish an opinion of counsel regarding limited liability.
Our General Partner and its affiliates may at any time transfer units to one or more persons, without unitholder approval.
Transfer of Ownership Interests in General Partner
At any time, the members of our General Partner may sell or transfer all or part of their respective membership interests in our General
Partner to an affiliate or a third party without the approval of our unitholders. However, this may trigger a “Change of Control” (as defined
in our limited partnership agreement) which, among other things, causes the minimum distribution rate of the Class B Units to increase
to 1.25 times the then applicable rate.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Transfer of Incentive Distribution Rights
The incentive distribution rights are freely transferable.
Change of Management Provisions
The partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove
Capital GP L.L.C. as our General Partner or otherwise change management. If any person or group other than our General Partner and
its affiliates acquires beneficial ownership of 5% or more of any class of units then outstanding, that person or group loses voting rights
on all of its units in excess of 4.9% of all units (subject to certain exceptions).
The partnership agreement also provides that if our General Partner is removed under circumstances where cause does not exist and
units held by our General Partner and its affiliates are not voted in favor of that removal, our General Partner will have the right to convert
its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests.
Limited Call Right
If at any time our General Partner and its affiliates hold more than 90% of the then-issued and outstanding limited partnership interests
of any class, our General Partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all,
but not less than all, of the remaining limited partnership interests of the class held by unaffiliated persons as of a record date to be se-
lected by the General Partner, on at least ten but not more than 60 days’ notice at the greater of (x) the average of the daily closing prices
of the limited partnership interests of such class over the 20 trading days preceding the date three days before the notice of exercise of
the call right is first mailed and (y) the highest price paid by our General Partner or any of its affiliates for limited partnership interests of
such class during the 90-day period preceding the date such notice is first mailed. Our General Partner is not obligated to obtain a fair-
ness opinion regarding the value of the limited partnership interests to be repurchased by it upon the exercise of this limited call right.
As a result of the General Partner’s right to purchase outstanding limited partnership interests, a holder of limited partnership interests
may have the holder’s limited partnership interests purchased at an undesirable time or price. The tax consequences to a unitholder of
the exercise of this call right are the same as a sale by that unitholder of units in the market. Please read “Material U.S. Federal Income
Tax Considerations—United States Federal Income Taxation of U.S. Holders—Sale, Exchange or Other Disposition of Common Units”
and “Material U.S. Federal Income Tax Considerations— United States Federal Income Taxation of Non-U.S. Holders—Disposition of
Common Units.”
Board of Directors
Under our partnership agreement, our General Partner delegates to our board of directors the authority to oversee and direct our opera-
tions, policies and management on an exclusive basis, and such delegation will be binding on any successor General Partner of the part-
nership. Our board of directors is comprised of eight persons, three of whom are appointed by our General Partner in its sole discretion
and five of whom are elected by the common unitholders. Three of the five elected directors (a) shall not be security holders, officers or
employees of our General Partner, directors, officers or employees of any affiliate of our General Partner or holders of any interest in the
partnership group (other than our common units) and (b) shall meet the required independence standards. Among other consequences,
if we fail to pay the minimum Class B Unit distribution, as set out in our partnership agreement, for six or more quarters, the holders of
the Class B Units will have the right to appoint a director to our board and, if such arrearages exist on or after March 31, 2018, to replace
the directors appointed by our General Partner, in each case by the affirmative vote of the holders of a majority of the Class B Units and
subject to exceptions and conditions contained in our partnership agreement.
Our board of directors nominates individuals to stand for election as elected board members on a staggered basis at an annual meeting
of our limited partners. In addition, any limited partner or group of limited partners that beneficially owns 10% or more of the outstanding
common units is entitled to nominate one or more individuals to stand for election as elected board members at the annual meeting by
providing written notice to our board of directors not more than 120 days nor less than 90 days prior to the meeting. However, if the date
of the annual meeting is not publicly announced by us at least 100 days prior to the date of the meeting, the notice must be delivered to
our board of directors not later than ten days following the public announcement of the meeting date. The notice must set forth:
• the name and address of the limited partner or limited partners making the nomination or nominations;
• the number of common units beneficially owned by the limited partner or limited partners;
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 • the information regarding the nominee(s) proposed by the limited partner or limited partners as required to be included in a proxy
statement relating to the solicitation of proxies for the election of directors filed pursuant to the proxy rules of the SEC;
• the written consent of the nominee(s) to serve as a member of our board of directors if so elected; and
• a certification that the nominee(s) qualify as “elected directors” within the meaning of the partnership agreement.
Our General Partner may remove an appointed board member, other than those appointed by the holders of Class B unitholders (if any),
with or without cause at any time. “Cause” generally means a court’s final, non-appealable judgment finding a person liable for actual
fraud or willful misconduct in his or her capacity as a director. Any board member appointed by the holders of Class B unitholders, if
applicable, may be removed with or without cause, by the affirmative decision of a majority of Class B unitholders. Any elected board
member may be removed at any time for cause by the affirmative vote of a majority of the other elected board members. Any elected
board member may be removed for cause at a properly called meeting of the limited partners by a majority of the outstanding units that
are entitled to vote in an election of elected directors. Any appointed board member, other than those appointed by the holders of Class
B unitholders, may be removed for cause at a properly called meeting of the limited partners by a majority of the outstanding units. If
any appointed board member is removed, resigns or is otherwise unable to serve as a board member, our General Partner may fill
the vacancy. If any board member elected by the common unitholders is removed, resigns or is otherwise unable to serve as a board
member, the vacancy may be filled by a majority of the other elected board members then serving. If any board member elected by the
Class B unitholders is removed, resigns or is otherwise unable to serve as a board member, the Class B unitholders will appoint an
individual to fill the vacancy.
Meetings; Voting
Except as described below regarding a person or group owning 5% or more of any class of units then outstanding, unitholders who are
record holders of units on the record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon
matters for which approvals may be solicited.
We will 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. Any action that is required or permitted to be taken by the unitholders may be
taken either at a meeting of the unitholders or, if authorized by our board of directors, without a meeting if consents in writing describing
the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting at which all lim-
ited partners were present and voted. Special meetings of the unitholders may be called by our General Partner, our board of directors or
by unitholders owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in
person or by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been
called, represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of
a greater percentage of the units, in which case the quorum will be the greater percentage; provided, however, that if any meeting has
been adjourned for a second time due to absence of a quorum, the act of the limited partners holding at least 25% of all outstanding units
and which are represented in person or by proxy at such meeting shall be deemed to constitute the act of all limited partners, unless a
greater or different percentage is required with respect to such action under the provisions of our partnership agreement.
Each record holder of a common unit may vote according to the holder’s percentage interest in us, subject to special voting rights at-
taching to certain limited partner interests having special voting rights. Please read “—Issuance of Additional Securities.” Units held in
nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner
unless the arrangement between the beneficial owner and his nominee provides otherwise. The holders of the Class B Units have voting
rights that are identical to the voting rights of the common units on an as converted basis and will vote with the common units as a single
class on all matters with respect to which each common unit is entitled to vote, provided, however, that holders of Class B Units have no
right to vote for, elect or appoint any director, or to nominate any individual to stand for election or appointment as a director, except. that
if we fail to pay the minimum Class B Unit distribution, as set out in our partnership agreement, for six or more quarters, the holders of
the Class B Units will have the right to appoint a director to our board and, if such arrearages exist on or after March 31, 2018, to replace
the directors appointed by our General Partner, in each case by the affirmative vote of the holders of a majority of the Class B Units and
subject to exceptions and conditions contained in our partnership agreement.
To preserve our ability to be exempt from U.S. federal income tax under Section 883 of the Code, if at any time, any person or group, other
than our General Partner and its affiliates, owns beneficially 5% or more of any class of units then outstanding, any 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 to vote on any matter (unless otherwise required by law), calculating required votes, except for purposes of
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 nominating a person for election to our board, determining the presence of a quorum or for other similar purposes under our partner-
ship agreement. 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 the same class of units entitled to vote. Our partnership agreement provides certain excep-
tions to such limitation, including when a person acquired securities directly from our General Partner or its affiliates or with the approval
of our board of directors, but only for so long as such exception would not jeopardize our tax exemption under Section 883 of the Code.
Any notice, demand, request report, or proxy material required or permitted to be given or made to record holders of units under the
partnership agreement will be delivered to the record holder by us or by the transfer agent.
Status as Limited Partner or Assignee
Except as described above under “—Limited Liability,” the common units and Class B Units will be fully paid, and unitholders will not be
required to make additional contributions. By transfer of common units or Class B Units in accordance with our partnership agreement,
each transferee of common units or Class B Units shall be admitted as a limited partner with respect to the common units or Class B
Units transferred when such transfer and admission is reflected in our books and records.
Indemnification
Under the partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by
law, from and against all losses, claims, damages or similar events arising as a result of such person’s service to the Partnership:
• our General Partner;
• any departing general partner;
• any person who is or was an affiliate of our general partner or any departing general partner;
• any person who is or was an officer, director, member, partner fiduciary or trustee of any entity described in (1), (2) or (3) above;
• any person who is or was serving as a director, officer, member, partner, fiduciary or trustee of another person at the request of our
General Partner or any departing general partner;
• any person designated by our board of directors; and
• the members of our board of directors.
Any indemnification under these provisions will only be out of our assets. Unless it otherwise agrees, our General Partner will not be
personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We
may purchase insurance against any liabilities that may be asserted against, and any expenses that may be incurred by, persons for
our activities or such person’s activities on our behalf, regardless of whether we would have the power to indemnify the person against
liabilities under the partnership agreement.
Reimbursement of Expenses
Our partnership agreement requires us to reimburse our General Partner for all direct and indirect expenses it incurs or payments it
makes on our behalf and all other expenses allocable to us or otherwise incurred by our General Partner in connection with operating
our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services
for us or on our behalf, and expenses allocated to our General Partner by its affiliates. Our General Partner and the members of our board
of directors are entitled to determine in good faith the expenses that are allocable to us. Members of our board of directors are entitled
to be reimbursed for out-of-pocket costs and expenses incurred in the course of their services to us.
Books and Reports
Our General Partner is required to keep appropriate books of our business at our principal offices. The books will be maintained for
financial reporting purposes on an accrual basis in accordance with U.S. GAAP. For tax and fiscal reporting purposes, our fiscal year is
the calendar year.
We will furnish or make available to record holders of units, within 120 days after the close of each fiscal year, an annual report contain-
ing audited financial statements, including a balance sheet and statement of operations, our equity and cash flows, and a report on those
financial statements by our independent chartered accountants. Except for our fourth quarter, we will also furnish or make available
summary financial information within 90 days after the close of each quarter.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 Right to Inspect Our Books and Records
The partnership agreement provides that a limited partner can, for a purpose reasonably related to his or her interest as a limited part-
ner, upon reasonable demand and at the limited partner’s own expense, have furnished to the limited partner:
• a current list of the name and last known addresses of each partner;
• information as to the amount of cash, and a description and statement of the agreed value of any other capital contribution or services
contributed or to be contributed by each partner and the date on which each became a partner;
• copies of the partnership agreement, the certificate of limited partnership of the partnership, related amendments and powers of at-
torney under which they have been executed;
• information regarding the status of our business and financial position; and
• any other information regarding our affairs as is just and reasonable.
Our board of directors may, and intends to, keep confidential from the limited partners trade secrets or other information the disclosure
of which our board of directors believes in good faith is not in our best interests or that we are required by law or by agreements with
third parties to keep confidential.
Registration Rights
Under our partnership agreement, we have agreed to register for resale under the Securities Act of 1933, as amended and applicable
state securities laws any common units, Class B Units or other partnership securities proposed to be sold by our General Partner or any
of its affiliates or their assignees if an exemption from the registration requirements is not otherwise available or advisable. These reg-
istration rights generally continue for two years following any withdrawal or removal of Capital GP L.L.C. as our general partner and for
so long thereafter as is required for our General Partner or its affiliates and assignees to sell all of the partnership securities with respect
to which it has requested during such two-year period, inclusion in a registration statement otherwise filed or that a registration state-
ment be filed. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions.
Transfer of Common Units
By acceptance of the transfer of common units in accordance with our partnership agreement, each transferee of common units:
• shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission
is reflected in our books and records;
• represents that the transferee has the capacity, power and authority to become bound by our partnership agreement;
• is bound by our partnership agreement; and
• grants the power of attorney and gives the consents and waivers contained in our partnership agreement.
A transferee will become a substituted limited partner of our partnership for the transferred common units automatically upon the
recording of the transfer on our books and records.
We may, at our discretion, treat the nominee holder of a common unit as the owner of such common units without further inquiry, except
as otherwise provided by law or stock exchange regulations. In that case, we expect that the beneficial holder’s rights will limited solely
to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common units are securities and are transferable according to the laws governing transfer of securities. In addition to other rights acquired
upon transfer, the transferor gives the transferee the right to become a limited partner in our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the unit as the owner
for all purposes, except as otherwise required by law or stock exchange regulations.
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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 January 17, 2018, with Capital Maritime to acquire the shares of the company owning the M/T Aristaios.
• Loan Agreement, dated September 6, 2017, between Capital Product Partners L.P. as Borrower, HSH Nordbank AG and ING Bank N.V.,
London Branch as Mandated Lead Arrangers and Bookrunners, BNP Paribas and National Bank of Greece S.A. as Arrangers and HSH
Nordbank AG as Agent and Security Trustee relating to a senior secured term loan facility of up to US$460.0 million.
• Loan Agreement between Asterias Crude Carriers S.A. and Scorpio Crude Carriers S.A. as borrowers and Crédit Agricole Corporate
and Investment Bank as Facility Agent and Security Trustee and ING Bank N.V. as Swap Bank dated January 2, 2017.
• Purchase Agreement, dated October 24, 2016, with Capital Maritime to acquire the shares of the vessel owning company of the M/T Amor.
• Equity Distribution Agreement, dated September 12, 2016, with UBS Securities LLC in connection with our ATM offering, filed on Sep-
tember 12, 2016 as Exhibit 1.1 to Form 6-K.
• Purchase Agreement, dated February 26, 2016, with Capital Maritime to acquire the shares of the vessel owning company of the M/V
CMA CGM Magdalena.
• 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, including M/T Amor delivered during October 2016.
• Loan Agreement between Filonikis Product Carrier S.A. the vessel-owning company of M/T Amor and Iason Product Carrier S.A. the
vessel owning company of M/T Anikitos, among other borrowers, and ING Bank N.V., London Branch as Facility Agent and Security
Trustee and ING Bank N.V. as Swap Bank, dated November 19, 2015.
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 securities
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 or transactions in the Marshall Islands (“non-resident holders”). Because we,
our subsidiaries and our controlled affiliates do not, and we do not expect that we, our subsidiaries 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 subsidiaries and our controlled affiliates do not, and we do not expect that we, our subsidiaries and our controlled af-
filiates will conduct business or operations in the Marshall Islands, under current Marshall Islands law neither we, our subsidiaries nor
our controlled affiliates will be subject to Marshall Islands income, capital gains, profits or other taxation, other than taxes or fees due to
(i) the continued existence of legal entities registered in the Republic of the Marshall Islands, (ii) the incorporation or dissolution of legal
entities registered in the Republic of the Marshall Islands, (iii) filing certificates (such as certificates of incumbency, merger, or redomicili-
ation) with the Marshall Islands registrar, (iv) obtaining certificates of goodstanding from, or certified copies of documents filed with, the
Marshall Islands registrar, or (v) compliance with Marshall Islands law concerning vessel ownership, such as tonnage tax. As a result,
distributions by our subsidiaries 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-
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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” (generally, for
investment purposes) and does not comment on all aspects of U.S. federal income taxation which may be important to particular com-
mon unitholders in light of their individual circumstances, such as unitholders subject to special tax rules (e.g., financial institutions, in-
surance companies, broker-dealers, tax-exempt organizations, or former citizens or long-term residents of the United States), persons
that will hold the common units as part of a straddle, hedge, conversion, constructive sale, wash sale or other integrated transaction for
U.S. federal income tax purposes, persons that own (actually or constructively) 10.0% or more of the total value of all classes of our units
or of the total combined voting power of all classes of our units entitled to vote, or U.S. Holders (as defined below) that have a functional
currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. If a
partnership or other entity classified as a partnership for U.S. federal income tax purposes holds our common units, the tax treatment of
a partner thereof will generally depend upon the status of the partner and upon the tax treatment of the partnership. If you are a partner
in a partnership holding our common units, you should consult your tax advisor.
No ruling has been or will be requested from the IRS regarding any matter affecting us or our common unitholders. The statements
made here may not be sustained by a court if contested by the IRS.
This discussion does not contain information regarding any U.S. state or local, estate or alternative minimum tax considerations 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 distributions received
from us and dispositions of common units, as described below. As a corporation, we may be subject to U.S. federal income tax on our in-
come 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 “Transportation Income”) includes
income derived from, or in connection with, the use (or hiring or leasing for use) of a vessel to transport cargo, or the performance of services
directly related to the use of any vessel to transport cargo, and thus includes spot charter, time charter and bareboat charter income.
Transportation Income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States
(or “U.S. Source International Transportation Income”) will be considered to be 50% derived from sources within the United States. Trans-
portation Income attributable to transportation that both begins and ends in the United States (or “U.S. Source Domestic Transportation
Income”) will be considered to be 100% derived from sources within the United States. Transportation Income attributable to transporta-
tion exclusively between non-U.S. destinations will be considered to be 100% derived from sources outside the United States. Transporta-
tion 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 activi-
ties 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
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 International Transportation Income and other forms of related income, such as gain from the sale of a vessel. As discussed below, we be-
lieve 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.
We will qualify for the Section 883 Exemption if, among other matters, we meet the following three requirements:
• We are organized in a jurisdiction outside the United States that grants an equivalent exemption from tax to corporations organized in
the United States (an “Equivalent Exemption”);
• We satisfy the “Publicly Traded Test” (as described below); and
• We meet certain substantiation, reporting and other requirements.
The Publicly Traded Test requires that the stock of a non-U.S. corporation be “primarily and regularly traded” on an established securi-
ties market either in the United States or in a jurisdiction outside the United States that grants an Equivalent Exemption. The Section 883
Regulations provide, in pertinent part, that equity interests in a non-U.S. corporation will be considered to be “primarily traded” on an
established securities market in a given country if the number of units of each class of equity relied upon to meet the “regularly traded”
test that are traded during any taxable year on all established securities markets in that country exceeds the number of units in each
such class that are traded during that year on established securities markets in any other single country. Equity of a non-U.S. corporation
will be considered to be “regularly traded” on an established securities market under the Section 883 Regulations if one or more classes
of equity of the corporation that, in the aggregate, represent more than 50% of the total combined voting power and value of the non-U.S.
corporation are listed on such market and certain trading volume requirements are met or deemed met as described below. For this
purpose, if one or more “5% Unitholders” (i.e., a unitholder holding, actually or constructively, at least 5% of the vote and value of a class
of equity) own in the aggregate 50% or more of the vote and value of a class of equity (the “Closely Held Block”), such class of equity will
not be counted towards meeting the “primarily and regularly traded” test (the “Closely Held Block Exception”).
We are organized under the laws of the Republic of the Marshall Islands. The U.S. Treasury Department has recognized the Republic of
the Marshall Islands as a jurisdiction that grants an Equivalent Exemption. Consequently, our U.S. Source International Transportation
Income (including, for this purpose, (i) any such income earned by our subsidiaries that have properly elected to be treated as partner-
ships 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 Select Market, which is considered
to be an established securities market, our common units will be deemed to be “primarily traded” on an established securities market.
We believe we meet the trading volume requirements of the Section 883 Exemption because the pertinent regulations provide that trading
volume requirements will be deemed to be met with respect to a class of equity traded on an established securities market in the United
States where, as will be the case for our common units, the units are regularly quoted by dealers who regularly and actively make offers,
purchases and sales of such units to unrelated persons in the ordinary course of business. Additionally, the pertinent regulations also pro-
vide that a class of equity will be considered to be “regularly traded” on an established securities market if (i) such class of stock is listed on
such market; (ii) such class of stock is traded on such market, other than in minimal quantities, on at least 60 days during the taxable year
or one sixth of the days in a short taxable year and (iii) the aggregate number of shares of such class of stock traded on such market during
the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year, or as appropriately
adjusted in the case of a short taxable year. We believe that trading of our common units has satisfied these conditions in the past, and we
expect that such conditions will continue to be satisfied. Finally, we believe that our common units represent more than 50% of our voting
power and value and accordingly we believe that our units should be considered to be “regularly traded” on an established securities market.
These conclusions, however, are based upon legal authorities that do not expressly contemplate an organizational structure such as
ours. In particular, although we have elected to be treated as a corporation for U.S. federal income tax purposes, for corporate law pur-
poses 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 part-
nership 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 such unitholders in excess of 4.9% will be redistributed pro rata among
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 described
above cease to be correct, our ability to satisfy the test will be compromised.
Taxation of Operating Income in the Absence of the Section 883 Exemption
If we earn U.S. Source International Transportation Income and the Section 883 Exemption does not apply, the U.S. source portion of such
income may be treated as effectively connected with the conduct of a trade or business in the United States (or “Effectively Connected
Income”) if we have a fixed place of business in the United States and substantially all of our U.S. Source International Transportation
Income is 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 transporta-
tion 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, how-
ever, 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 politi-
cal subdivisions and classified as a corporation for U.S. federal income tax purposes, an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
Distributions
Subject to the discussion of the rules applicable to PFICs below, any distributions made by us with respect to our common units to a U.S.
Holder generally will constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more
detail below, to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles.
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.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 com-
mon 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 disposi-
tion 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 taxable year produce, or are held for the production of, passive income.
Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By
contrast, rental income would generally constitute “passive income” unless we were treated under specific rules as deriving our rental
income in the active conduct of a trade or business. Based on our current and projected methods of operation, we believe that we are
not currently a PFIC, nor do we expect to become a PFIC. Although there is no legal authority directly on point, and we are not obtaining a
ruling from the IRS on this issue, we will take the position that, for purposes of determining whether we are a PFIC, the gross income we
derive or are deemed to derive from the time and spot chartering activities of our wholly owned subsidiaries constitutes services income,
rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly
owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels we or our subsidiaries
own that are subject to time charters, should not constitute passive assets for purposes of determining whether we were a PFIC.
As noted above, there is, however, no direct legal authority under the PFIC rules addressing our method of operation. Moreover, in a case
not specifically interpreting the PFIC rules, Tidewater Inc. v. United States , 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit held that the vessel
time charters at issue generated predominantly rental income rather than services income. However, the court’s ruling was contrary to the
position of the IRS that the time charter income should have been treated as services income. Additionally, the IRS later affirmed its position
in Tidewater , adding further that the time charters at issue would be treated as giving rise to services income under the PFIC rules.
No assurance, however, can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court
of law could determine we are or were a PFIC. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent
possible, being classified as a PFIC with respect to any taxable year, we cannot assure 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 taxation
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 rules depending on whether the U.S. Holder makes an election to treat us as a Qualified Electing Fund (a “QEF election”). As an alterna-
tive 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 undistributed income. Distributions
of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common
units and will not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange
or other disposition of our common units. A U.S. Holder would make a QEF election with respect to any year that we are a PFIC by filing
one copy of IRS Form 8621 with his U.S. federal income tax return and a second copy in accordance with the instructions to such form. If
contrary to our expectations, we determine that we are treated as a PFIC for any taxable year, we will attempt to provide each U.S. Holder
with all necessary information in order to make the QEF election described above.
Taxation of U.S. Holders Making a “Mark-to-Market” Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our common units were treated as “marketable stock,”
a U.S. Holder would be allowed to make a “mark-to-market” election with respect to our common units, provided the U.S. Holder completes
and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder
generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common units at the end of
the taxable year over such holder’s adjusted tax basis in the common units. The U.S. Holder would also be permitted an ordinary loss in respect
of the excess, if any, of the U.S. Holder’s adjusted tax basis in the common units over the fair market value thereof at the end of the taxable year,
but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in
his common units would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our
common units would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common units would
be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.
Taxation of U.S. Holders not making a timely QEF or mark-to-market election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market”
election for that year (a “Non-Electing Holder”) would be subject to special rules with respect to (1) any excess distribution (i.e., the portion
of any distributions received by the Non-Electing Holder on our common units in a taxable year in excess of 125% of the average annual
distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period
for the common units), and (2) any gain realized on the sale, exchange or other disposition of our common units. Under these special rules:
• the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common units;
• the amount allocated to the current taxable year and any year prior to the year we were first treated as a PFIC with respect to the Non-
Electing Holder would be taxed as ordinary income; and
• the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class
of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax
attributable to each such other taxable year.
These penalties would not apply to a qualified pension, profit sharing or other retirement trust or other tax-exempt organization that did
not borrow money or otherwise utilize leverage in connection with its acquisition of our common units. If we were treated as a PFIC for
any taxable year and a Non-Electing Holder who is an individual dies while owning our common units, such holder’s successor gener-
ally would not receive a step-up in tax basis with respect to such units.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common units (other than a partnership, including any entity or arrangement treated as a partnership for U.S.
federal income tax purposes) that is not a U.S. Holder is a Non-U.S. Holder.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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 in-
come 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 payments 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 withheld against his liability for U.S. federal
income tax (and a refund of any amounts withheld in excess of such liability) by filing a return with the IRS.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
We have filed with the SEC a registration statement on Form F-1, a registration statement on Form F-4 and one 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 prescribed
rates or from the SEC’s web site on the Internet at http://www.sec.gov free of charge. Please call the SEC at 1-800-SEC-0330 for further
information on public reference room. Our registration statements 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, 2017.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 mini-
mize 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, 2017, less than 5% of our
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, 2017. We have not hedged currency exchange risks and our operating results could be
adversely affected as a result.
Interest Rate Risk
The international tanker, container and drybulk 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 2017
credit facility bears an interest margin of 3.25% per annum over US$ LIBOR, the 2015 credit facility bears an interest margin of 2.50% per
annum over US$ LIBOR and the Aristaios credit facility bears an interest margin of 2.85% 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 2017 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 resulted
in an increase in our interest expense by approximately $5.8 million, $6.1 million and $5.7 million for the years ended December 31, 2017,
2016 and 2015 respectively, 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 equiva-
lents. We place our cash and cash equivalents, consisting mostly of deposits, with creditworthy financial institutions as rated by qualified
rating agencies. 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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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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, 2017, 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 reasonable,
not absolute, assurance that the objectives of the disclosure controls and procedures are met. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
the partnership have been detected. Further, in the design and evaluation of our disclosure controls and procedures our management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because
of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Based on this evaluation, the chief executive officer and chief financial officer of our General Partner concluded that, as of December
31, 2017, our disclosure controls and procedures, which include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to
management, including the chief executive officer and chief financial officer of our General Partner, as appropriate to allow timely deci-
sions 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 financial
reporting and the preparation and presentation of our Financial Statements for external purposes in accordance with accounting prin-
ciples 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 ac-
counting principles, and that our receipts and expenditures are being made in accordance with authorizations of management and the
directors of the 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 Commis-
sion. 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, 2017.
However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements even
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 Certified Public Accountants S.A. (“Deloitte”), our independent registered public accounting firm, has audited the Financial State-
ments included herein and our internal control over financial reporting and has issued an attestation report on the effectiveness of our
internal control over financial reporting which is reproduced in its entirety in Item 15(c) below.
C. Attestation Report of the Registered Public Accounting Firm.
To the Board of Directors and Unitholders of
Capital Product Partners L.P.
Majuro, Republic of the Marshall Islands.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Capital Product Partners L.P. and subsidiaries (the “Partnership”) as of December
31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended December 31, 2017 of the Partnership and our report dated March 5, 2018
expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over
Financial Reporting.” Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide rea-
sonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
March 5, 2018
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 of Ethics”) that ap-
plies to the Partnership and all of its employees, directors and officers, including its chief executive officer, chief financial officer, chief
accounting officer or controller, its agents and persons performing similar functions, including for the avoidance of doubt any employees,
officers or directors of Capital Ship Management, wherever located, as well as to all of the Partnership’s subsidiaries and other business
entities controlled by it worldwide. The Code of Ethics 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 of Ethics 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 of Ethics for the benefit of any of our directors
and executive officers within five business days of such waiver or amendment.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Our principal accountant for 2017 and 2016 was Deloitte. The following table shows the fees we paid or accrued for audit and tax services
provided by Deloitte for these periods (in thousands of U.S. Dollars).
Fees
Audit Fees (1)
Audit-Related Fees
Tax Fees (2)
TOTAL
2017
2016
$
$
458.4
—
25.8
484.2
$
$
405.2
—
26.6
431.8
(1) Audit fees represent fees for professional services provided in connection with the audit of our Financial Statements included herein,
review of our quarterly consolidated financial information, audit services provided in connection with other regulatory filings, issu-
ance of consents and assistance with and review of documents filed with the SEC.
(2) 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 2017 and 2016.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
In October 2016, we issued 283,696 new common units to Capital Maritime in connection with the acquisition of M/T Amor, at a price of
$3.21 per common unit.
In May 2016, Capital Maritime announced that it has acquired 459,799 common units in open market transactions and that it entered into a
Rule 10b5-1 trading plan (the “10b5-1 Plan”) with an independent broker-dealer for the further purchase of up to 5,000,000 common units,
subject to pre-determined pricing parameters. The 10b5-1 Plan expired. No further purchase of common units was made thereunder.
Following these transactions, Capital Maritime owned 17,291,768 common units, representing a 13.6% interest in us. As of December
31, 2017, the Marinakis family, including Evangelos M. Marinakis, may be deemed to beneficially own on a fully converted basis a 16.1%
interest in us (17.7% 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 committee
and a conflicts committee comprised solely of independent directors. Accordingly, we do not believe there are any significant differences
between our corporate governance practices and those that would typically apply to a U.S. domestic issuer that is a limited partnership
under the corporate governance standards of the Nasdaq Global Select Market. Please see “Item 6C: Board Practices” and “Item 10B:
Memorandum and Articles of Association” for more detail regarding our corporate governance practices.
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
PART III
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
CAPITAL PRODUCT PARTNERS L.P.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statement of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statement of Changes in Partners’ Capital for the years ended December 31, 2017, 2016 and 2015
Consolidated Statement of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
ITEM 19. EXHIBITS
The following exhibits are filed as part of this Annual Report:
EXHIBIT
DESCRIPTION
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
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 May 22, 2012 (14)
Third Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P.,
dated March 19, 2013 (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)
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)
Fifth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated October 2, 2009 (6)
Sixth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated June 30, 2010 (9)
Seventh Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated November 30, 2010 (9)
Eighth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated December 23, 2011 (13)
Ninth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated May 21, 2012 (14)
Tenth Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated November 4, 2013 (21)
Eleventh Supplemental Agreement to Revolving $370.0 Million Credit Facility, dated April 30, 2015 (21)
Revolving $350.0 Million Credit Facility, dated March 19, 2008 (2)
First Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated October 2, 2009 (6)
Second Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated June 30, 2010 (9)
Third Supplemental Agreement to Revolving $350.0 Million Credit Facility, dated May 21, 2012 (14)
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 (21)
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 (21)
Amended and Restated Loan Agreement with ING Bank N.V., HSH Nordbank AG, National Bank of Greece S.A. and
Skandinaviska Enskilda Banken AB (publ), dated December 27, 2013 (18)
Loan Agreement between Filonikis Product Carrier S.A. and others and ING Bank N.V., London Branch as Facility Agent
and Security Trustee, and ING Bank N.V., as Swap Bank, dated November 19, 2015 (23)
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CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
4.23
4.24
4.25
4.26
4.27
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
8.1
12.1
12.2
Guarantee Relating to Loan Agreement, dated 19 November 2015, between Capital Product Partners L.P as Guarantor
and ING Bank N.V., London Branch as Security Trustee, dated November 19, 2015 (23)
Loan Agreement with HSH Nordbank AG and ING Bank N.V., London Branch, as mandated lead arrangers and
bookrunners relating to a term loan facility of up to US$460,000,000, dated September 6, 2017 (24)
Loan Agreement, dated January 2, 2017 with ING Bank N.V. and Crédit Agricole Corporate and Investment Bank as
bookrunners and mandated lead arrangers related to a secured term loan facility of up to US$70,200,000
Guarantee, dated January 2, 2017, Relating to the Loan Agreement with ING Bank N.V. and Crédit Agricole Corporate
and Investment Bank as bookrunners and mandated lead arrangers related to a secured term loan facility of up to
US$70,200,000
Amended and Restated Omnibus Agreement, dated September 30, 2011 (8)
Amended and Restated Management Agreement with Capital Ship Management, dated March 25, 2017.
Floating Rate Management Agreement with Capital Ship Management Corp., dated June 10, 2011 (13)
Amendment No. 9 to the Floating Rate Management Agreement with Capital Ship Management Corp., dated January 22,
2013 (18)
Amendment No. 30 to the Floating Rate Management Agreement with Capital Ship Management Corp., dated January
17, 2018, amending and restating Schedule B in its entirety.**
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)
Waiver Letter, dated January 1, 2017, with respect to certain fees under Crude Carriers Management Agreement
Administrative Services Agreement with Capital Ship Management (1)
Amendment 1 to Administrative Services Agreement with Capital Ship Management Corp., dated April 2, 2012 (16)
IT Agreement, dated April 3, 2007, by and between Capital Ship Management Corp. and Capital Product Partners L.P.
Addendum No. 1 to IT Agreement, dated April 2, 2012.
Addendum No. 2 to IT Agreement, dated April 2, 2017.
Share Purchase Agreement for the M/T Active, dated March 31, 2015 (21)
Share Purchase Agreement for the M/V CMA CGM Amazon, dated June 10, 2015 (21)
Share Purchase Agreement for the M/T Amadeus, dated June 30, 2015 (21)
Share Purchase Agreement for the M/V CMA CGM Uruguay, dated September 18, 2015 (21)
Share Purchase Agreement for the M/V CMA CGM Magdalena, dated February 26, 2016 (23)
Share Purchase Agreement for the M/T Amor, dated October 24, 2016 (23)
Share Purchase Agreement for the M/T Aristaios, dated January 17, 2018
Memorandum of Agreement for sale of M/T Aristotelis, dated December 22, 2017.
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 Restricted Unit Award of Capital Product Partners L.P. (9)
Equity Distribution Agreement, dated September 12, 2016, with UBS Securities LLC in connection with at-the-market
offering (22)
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
140
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
13.1
13.2
Capital Product Partners L.P. Certification of Gerasimos (Jerry) Kalogiratos, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002*
Capital Product Partners L.P. Certification of Nikolaos Kalapotharakos, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002*
15.1
Consent of Deloitte Certified Public Accountants S.A.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
(2)
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.
(3)
Previously filed as an exhibit to the registrant’s Registration Statement on Form F-3 filed with the SEC on August 29, 2008.
(4)
Previously filed as a Current Report on Form 6-K with the SEC on April 30, 2008.
(5)
(6)
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.
(7)
Previously filed as a Current Report on Form 6-K with the SEC on February 24, 2010.
(8)
Previously filed as a Current Report on Form 6-K with the SEC on September 30, 2011.
(9)
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.
(10) 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.
(11) 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.
(12) Previously filed as a Current Report on Form 6-K with the SEC on May 9, 2011.
(13) 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.
(14) Previously furnished as a Current Report on Form 6-K with the SEC on May 23, 2012.
(15) Previously furnished as a Current Report on Form 6-K with the SEC on March 21, 2013.
(16) 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.
(17) Previously furnished as a Current Report on Form 6-K with the SEC on August 26, 2014.
(18) 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.
(19) Previously furnished as a Current Report on Form 6-K with the SEC on July 29, 2014.
(20) 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.
141
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
(21) Previously filed as an exhibit to the registrant’s Annual Report on Form 20-F for the year ended December 31, 2015 and filed with
the SEC on February 17, 2016.
(22) Previously filed as a Current Report on Form 6-K with the SEC on September 12, 2016.
(23) Previously filed as a an exhibit to the registrant’s Annual Report on Form 20-F for the year ended December 31, 2016.
(24) Previously filed as Exhibit II to a Current Report on Form 6-K with the SEC on September 12, 2017.
*
**
Furnished only and not filed
Amendments No. 1-8 and 10-29 to the Floating Rate Management Agreement are substantially identical to, or superseded by,
Amendment No. 30.
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
/s/ Gerasimos (Jerry) Kalogiratos
By:
Name: Gerasimos (Jerry) Kalogiratos
Title:
Chief Executive Officer of Capital GP L.L.C.
Dated: March 5, 2018
142
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capital Product Partners L.P. and subsidiaries (the “Partnership”) as
of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended Decem-
ber 31, 2017, 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) (PCAOB),
the Partnership’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 5, 2018 expressed an unqualified opinion on the Partnership’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the
Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regula-
tions of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
March 5, 2018
We have served as the Company’s auditor since 2006.
F-1
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 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
Prepayments and other assets
Inventories
Assets held for sale (Note 5)
Total current assets
Fixed assets
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)
Liability associated with vessel held for sale (Notes 5, 7)
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 (127,246,692 and 122,094,633 units issued and
outstanding at December 31, 2017 and 2016, respectively)
Limited Partners - Preferred (12,983,333 Class B units issued and
outstanding at December 31, 2017 and 2016)
Total partners’ capital
TOTAL LIABILITIES AND PARTNERS’ CAPITAL
As of December 31,
2017
As of December 31,
2016
$
$
$
$
63,297
4,772
3,046
5,315
29,027
105,457
1,265,196
1,265,196
75,035
1,519
18,000
1,009
1,360,759
1,466,216
50,514
9,631
14,234
15,111
18,800
14,781
123,071
403,820
5,920
409,740
532,811
16,427
806,472
110,506
933,405
1,466,216
$
$
$
$
106,678
2,497
3,943
4,761
—
117,879
1,367,731
1,367,731
90,243
4,154
18,000
598
1,480,726
1,598,605
39,568
8,686
16,095
7,861
19,986
—
92,196
562,619
16,033
578,652
670,848
16,685
800,566
110,506
927,757
1,598,605
The accompanying notes are an integral part of these consolidated financial statements.
F-2
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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)
For the years ended December 31,
2016
2015
2017
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)
Vessel depreciation and amortization (Note 5)
Impairment of vessel (Notes 5, 8)
Operating income
Other income / (expense), net:
Interest expense and finance cost (Note 7)
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 and diluted
Weighted-average units outstanding:
• Common units, basic and diluted
Total Partnership’s comprehensive income:
$
$
$
$
$
$
$
204,462
44,653
249,115
15,165
—
74,516
11,629
6,234
73,993
3,282
64,296
(26,605)
792
(25,813)
38,483
11,101
522
26,860
0.22
123,845,345
38,483
$
$
$
$
$
$
$
205,594
36,026
241,620
9,920
360
66,637
10,866
6,253
71,897
—
75,687
(24,302)
1,104
(23,198)
52,489
11,101
818
40,570
0.34
119,803,329
52,489
$
$
$
$
$
$
$
156,613
63,731
220,344
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
115,030,879
55,410
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(In thousands of United States Dollars)
Balance at December 31, 2014
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)
Balance at December 31, 2015
Balance at December 31, 2015
Distributions declared and paid (distributions of $0.46
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)
Balance at December 31, 2016
Balance at December 31, 2016
Distributions declared and paid (distributions of $0.32
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)
Balance at December 31, 2017
General
Partner
$
15,602
Common
Unitholders
735,547
$
Preferred
Unitholders
121,412
$
Total
$
872,561
(2,225)
879
—
—
2,742
16,998
$
(109,027)
43,197
132,588
34
7,900
810,239
$
(11,521)
11,334
—
—
(10,642)
110,583
$
(122,773)
55,410
132,588
34
—
937,820
$
General
Partner
$
16,998
Common
Unitholders
810,239
$
Preferred
Unitholders
110,583
$
Total
$
937,820
(1,131)
818
—
—
16,685
$
(55,884)
40,570
4,567
1,074
800,566
$
(11,178)
11,101
—
—
110,506
$
(68,193)
52,489
4,567
1,074
927,757
$
General
Partner
$
16,685
Common
Unitholders
800,566
$
Preferred
Unitholders
110,506
$
Total
$
927,757
(780)
522
—
—
16,427
(39,749)
26,860
17,639
1,156
806,472
$
(11,101)
11,101
—
—
110,506
$
(51,630)
38,483
17,639
1,156
933,405
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of United States Dollars)
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)
Amortization and write off of deferred financing costs
Amortization of above market acquired charters (Note 6)
Equity compensation expense (Note 13)
Impairment of vessel (Notes 5, 8)
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
Dry docking costs paid
Net cash provided by operating activities
Cash flows from investing activities:
Vessel acquisitions and improvements including time charter agreements (Notes 5, 6)
Increase in restricted cash
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
Proceeds from issuance of long-term debt (Note 7)
Payments of long-term debt (Note 7)
Deferred financing costs paid
Dividends paid (Note 12)
Net cash (used in) / 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
Capital expenditures included in liabilities
Offering expenses included in liabilities
Deferred financing costs included in liabilities
Capitalized dry docking costs included in liabilities
Assumption of loan regarding the acquisition of the shares of Filonikis Product Carrier
S.A. (“Filonikis”) (Notes 3, 7)
Units issued to acquire Filonikis (Note 3)
$
$
$
$
$
$
$
For the year ended December 31,
2016
2017
2015
38,483
73,993
1,262
15,208
1,156
3,282
(2,275)
—
486
(719)
2,764
(1,861)
7,624
(11,299)
(1,130)
126,974
(2,038)
—
(2,038)
17,815
(247)
—
(129,262)
(4,993)
(51,630)
(168,317)
(43,381)
106,678
63,297
19,646
312
35
79
11
—
—
52,489
71,897
1,250
14,542
1,074
—
183
—
(600)
(354)
(595)
(6,059)
662
24,267
(3,670)
155,086
(90,782)
(1,000)
(91,782)
4,546
(784)
35,000
(17,354)
(31)
(68,193)
(46,816)
16,488
90,190
106,678
23,763
1,383
106
—
1,141
15,750
911
$
$
$
$
$
$
$
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
(207,937)
(2,000)
(209,937)
133,327
(739)
115,000
(121,299)
(1,797)
(122,773)
1,719
(74,009)
164,199
90,190
16,759
769
—
—
1,687
—
—
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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. was formed on January 16, 2007, under the laws of the Marshall Islands. The Partnership is an interna-
tional shipping company. As of December 31, 2017, its fleet of thirty six vessels comprises four suezmax crude oil tankers, twenty-one
modern medium range tankers, all of which are classed as IMO II/III chemical/product carriers, ten post-panamax container carrier ves-
sels 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 Capital Product Partners, L.P. and the following vessel-owning companies, intermediate
holding company and operating companies (collectively the “Partnership”) which were all incorporated or formed under the laws of the
Marshall Islands and Liberia.
Subsidiary
Capital Product Operating LLC
Crude Carriers Corp.
Crude Carriers Operating Corp.
Shipping Rider Co.
Canvey Shipmanagement Co.
Date of
Incorporation
01/16/2007
10/29/2009
01/21/2010
09/16/2003
03/18/2004
Name of Vessel Owned by
Subsidiary
—
—
—
M/T Atlantas II
M/T Assos
Centurion Navigation Limited
08/27/2003
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.
10/10/2003
11/10/2003
02/10/2004
09/12/2003
02/10/2004
02/11/2004
02/03/2004
05/26/2004
07/08/2004
12/29/2003
02/07/2006
05/29/2007
02/03/2004
02/07/2006
01/24/2006
07/14/2006
07/14/2006
06/22/2004
06/17/2008
04/06/2006
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 Akeraios
M/T Apostolos
M/T Anemos I
M/T Attikos
M/T Alexandros II
(M/T Overseas Serifos)
M/T Amore Mio II
M/T Aristofanis
M/T Aristotelis II
(M/T Overseas Sifnos)
M/T Aris II
(M/T Overseas Kimolos)
M/T Agamemnon II
M/T Ayrton II
M/T Alkiviadis
M/V Cape Agamemnon
M/T Miltiadis M II
F-6
Deadweight
“DWT”
Date acquired
by the
Partnership
Date acquired
by Capital
Maritime &
Trading Corp.
(“CMTC”)
—
—
—
04/26/2006
05/17/2006
07/12/2006
—
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
08/16/2006
11/02/2006
01/12/2007
03/02/2007
04/04/2007
03/01/2010
05/08/2007
07/13/2007
09/20/2007
09/28/2007
09/24/2007
01/29/2008
02/28/2007
05/08/2007
07/13/2007
09/20/2007
09/28/2007
01/20/2005
01/29/2008
—
—
—
36,760
47,872
36,759
36,760
36,725
47,834
36,725
47,872
47,786
47,781
47,782
47,782
12,000
51,258
159,982
12,000
51,226
03/27/2008
04/30/2008
06/17/2008
07/31/2007
06/02/2005
06/17/2008
51,218
08/20/2008
08/20/2008
51,238
51,260
36,721
179,221
162,397
04/07/2009
04/13/2009
06/30/2010
06/09/2011
09/30/2011
11/24/2008
04/10/2009
03/29/2006
01/25/2011
04/26/2006
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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
Subsidiary
Amoureux Carriers Corp.
Aias Carriers Corp.
Agamemnon Container Carrier Corp.
Archimidis Container Carrier Corp.
Aenaos Product Carrier S.A.
Anax Container Carrier S.A
Hercules Container Carrier S.A.
Iason Container Carrier S.A
Thiseas Container Carrier S.A.
Cronus Container Carrier S.A.
Miltiadis M II Corp.
Dias Container Carrier S.A
Poseidon Container Carrier S.A
Isiodos Product Carrier S.A
Titanas Product Carrier S.A
Atrotos Container Carrier S.A
Date of
Incorporation
Name of Vessel Owned
by Subsidiary
Deadweight
“DWT”
Date acquired
by the
Partnership
Date acquired
by CMTC
04/14/2010 M/T Amoureux
04/14/2010 M/T Aias
04/19/2012 M/V Agamemnon
04/19/2012 M/V Archimidis
10/16/2013 M/T Aristotelis
04/08/2011 M/V Hyundai Prestige
04/08/2011 M/V Hyundai Premium
04/08/2011 M/V Hyundai Paramount
04/08/2011 M/V Hyundai Privilege
07/19/2011 M/V Hyundai Platinum
08/28/2012
05/16/2013
—
M/V Akadimos
(renamed to “CMA
CGM Amazon”) (1)
M/V Adonis (renamed to
“CMA CGM
Uruguay”) (1)
05/31/2013 M/T Active (1)
05/31/2013 M/T Amadeus (1)
10/25/2013
05/16/2013
M/V Anaxagoras
(renamed to “CMA
CGM Magdalena”) (1)
149,993
150,393
108,892
108,892
51,604
63,010
63,010
63,010
63,010
63,010
—
115,534
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
—
—
06/28/2012
06/22/2012
—
02/19/2013
03/11/2013
03/27/2013
05/31/2013
06/14/2013
—
06/10/2015
115,639
09/18/2015
09/18/2015
50,136
50,108
115,639
03/31/2015
06/30/2015
02/26/2016
03/31/2015
06/30/2015
02/26/2016
Filonikis Product Carrier S.A
05/31/2013 M/T Amor
49,999
10/24/2016
09/30/2015
(1) Vessels that were acquired according to the terms of the Master Vessel Acquisition Agreement (“Master Agreement”) (Note 5).
F-7
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
2. Significant Accounting Policies
(a)
(b)
(c)
Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with account-
ing principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the legal entities com-
prising the Partnership as discussed in Note 1. Intra-group balances and transactions have been eliminated upon consolidation.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of revenues and expenses recognized during the reporting period.
Actual results could differ from those estimates.
Accounting for Revenue, Voyage and Operating Expenses: The Partnership generates its revenues from charterers for the charter
hire of its vessels. Vessels are chartered on time charters, bareboat charters or voyage charters. A time charter is a contract for the
use of a vessel for a specific period of time and a specified daily charter hire rate, which is generally payable monthly in advance.
Some of the Partnership’s time charters also include profit sharing provisions, under which the Partnership can realize additional
revenues in the event that spot rates are higher than the base rates in these time charters. A bareboat charter is a contract in which
the vessel owner provides the vessel to the charterer for a fixed period of time at a specified daily rate, which is generally pay-
able monthly in advance, and the charterer generally assumes all risk and costs of operation during the bareboat charter period.
A voyage charter is a contract, in which the vessel owner undertakes to transport 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 vessel owner is paid on
the basis of moving cargo from a loading port to a discharge port. In voyage charters the vessel owner is generally 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. 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 cancellable and voyage is deemed
to end upon the completion of discharge of the delivered cargo. Revenues under voyage charter agreements are recognized on a
pro-rata basis.
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 ratably
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 and other assets received in advance of being earned and deferred revenue resulting from straight-
line revenue recognition in respect of charter agreements that provide for varying charter rates. 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 brokerage commissions, port expenses, canal
dues and bunkers. Brokerage commissions are paid to shipbrokers for their time and efforts for negotiating and arranging charter party
agreements on behalf of the Partnership and 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 Ship Management Corp. (the “Manager” or “CSM”) under three differ-
ent 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.
(d)
Foreign Currency Transactions: The functional currency of the Partnership is the U.S. Dollar because the Partnership’s vessels operate in
F-8
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
international shipping markets that utilize the U.S. Dollar as the functional currency. The accounting records of the Partnership are main-
tained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates
in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in currencies
other than the U.S. Dollar, are translated into the functional currency using the exchange rate at those dates. Gains or losses resulting from
foreign currency transactions are included in other income in the accompanying consolidated statements of comprehensive income.
(e)
Cash and Cash Equivalents: The Partnership considers highly-liquid investments such as time deposits and certificates of deposit
with an original maturity of three months or less to be cash equivalents.
(f)
Restricted cash: For the Partnership to comply with debt covenants under its credit facilities, it must maintain minimum cash de-
posits. Such deposits are considered by the Partnership to be restricted cash.
(g)
(h)
(i)
Trade Accounts Receivable: 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, 2017 and 2016 there were no write off.
Inventories: Inventories consist of consumable bunkers, lubricants, spares and stores and are stated at the lower of cost and net
realizable value. Net realizable value is the estimated selling prices less reasonably predictable costs of disposal and transporta-
tion. The cost is determined by the first-in, first-out method.
Vessels Held for Sale: The Partnership classifies vessels as being held for sale when the following criteria are met: (i) management is
committed to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) an active program to locate a buyer
and other actions required to complete the plan to sell the asset have been initiated; (iv) the sale of the asset is probable, and transfer
of the asset is expected to qualify for recognition as a completed sale within one year; (v) the asset is being actively marketed for sale
at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made or that the plan will be withdrawn.
Vessels classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell. These vessels are
not depreciated once they meet the criteria to be classified as held for sale.
In the case that a plan to sell a vessel is cancelled, the Partnership reclassifies the vessel as held for use and re-measures it at the lower of
(i) its carrying amount before the vessel was classified as held for sale, adjusted for any depreciation expense that would have been recog-
nized if the vessel had been continuously classified as held and used and (ii) its fair value at the date of the subsequent decision not to sell.
(j)
(k)
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 during the construction
period). Vessels acquired through acquisition of businesses are recorded at their acquisition date fair values. The cost of each of
the Partnership’s vessels is depreciated; beginning when the vessel is ready for its intended use, on a straight-line basis over the
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.
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. If the carrying value of the asset, including any related intangible assets and liabili-
ties, exceeds its undiscounted future net cash flows, the carrying value is reduced to its fair value. Various factors including future
charter rates and vessel operating costs are included in this analysis.
F-9
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(k)
Impairment of Long-lived Assets: – Continued
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 long-lived assets. The Partnership has per-
formed an undiscounted cash flow test based on U.S. GAAP as of December 31, 2017 and 2016, determining undiscounted projected net
operating cash flows for the vessels and comparing them to the carrying values of the vessels, and any related intangible assets and
liabilities. 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
vessels held for use and their related intangible assets and liabilities were not impaired as of December 31, 2017 and 2016.
(l)
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. The Part-
nership 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.
(m) Intangible assets: The Partnership records all identified tangible and intangible assets or any liabilities associated with the acquisi-
tion of a business or an asset at fair value. When a vessel or a business that owns a vessel is acquired 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 Aver-
age 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.
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 distribu-
tion rights) and net income allocable to unvested units, by the weighted-average number of common units outstanding 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.
Segment Reporting: The Partnership reports financial information and evaluates its operations by charter revenues and not by the
length, type of vessel or type of ship employment for its customers, i.e. time or bareboat charters. The Partnership does not use
discrete financial information to evaluate the operating results for each such type of charter or vessel. Although revenue can be
identified for these types of charters or vessels, management cannot and does not identify expenses, profitability or other financial
information for these various types of charters or vessels. As a result, management, including the chief operating decision maker,
reviews operating results solely by revenue per day and operating results of the fleet, and thus the Partnership has determined that
it operates as one reportable segment. Furthermore, when the Partnership charters a vessel to a charterer, the charterer is free to
trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable.
Omnibus Incentive Compensation Plan: Equity compensation expense represents vested and unvested units granted to employees
and to non-employee directors, for their services as directors, as well as to non-employees and are included in general and admin-
istrative expenses in the consolidated statements of comprehensive income. Units granted to employees are measured at their fair
value equal to the market value of the Partnership’s common units on the grant date. Unvested units granted to non-employees are
initially and subsequently measured at their then current fair value as of the financial reporting dates. The units that contain a time-
based service 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).
(n)
(o)
(p)
F-10
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(q)
Recent Accounting Pronouncements: In January 2017, the Financial Accounting Standards Board (“FASB”) issued the Accounting
Standard Update (“ASU”) 2017-01 Business Combinations to clarify the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses.
Under current implementation guidance the existence of an integrated set of acquired activities (inputs and processes that generate
outputs) constitutes an acquisition of business. This ASU provides a screen to determine when a set of assets and activities does
not constitute a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed
of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This update is
effective for public entities with reporting periods beginning after December 15, 2017, including interim periods within those years.
The amendments of this ASU should be applied prospectively on or after the effective date. Early adoption is permitted, including
adoption in an interim period 1) for transactions for which the acquisition date occurs before the issuance date or effective date of the
ASU, only when the transaction has not been reported in financial statements that have been issued or made available for issuance
and 2) for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance
date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been
issued or made available for issuance. The Partnership will adopt this update from January 1, 2018 and believes that the adoption
of this update will not have any material impact on its financial statements.
In November 2016 the FASB issued the ASU 2016-18 – Restricted cash. This ASU requires that a statement of cash flows explains the
change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash
equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.
This update is effective for public entities with reporting periods beginning after December 15, 2017, including interim periods within
those years and is required to be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The imple-
mentation of this update affects the presentation in the statement of cash flows as currently changes in restricted cash are included
within investing activities and has no impact on the Partnership’s balance sheet and statement of comprehensive income. The Partner-
ship has not elected early adoption.
In August 2016, the FASB issued the ASU 2016-15 – classification of certain cash payments and cash receipts. This ASU addresses
certain cash flow issues with the objective of reducing the existing diversity in practice. This update is effective for public entities with
reporting periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted, including
adoption in an interim period. It must be applied retrospectively to all periods presented but may be applied prospectively from the earli-
est date practicable, if retrospective application would be impracticable. The Partnership evaluated the impact of this ASU on its financial
statements and determined that there is no impact as the classification of the related cash payments and cash receipts has always been
reported as described in the ASU.
In March 2016, the FASB issued the ASU No 2016-09, Stock Compensation, which is intended to simplify several aspects of the ac-
counting for share-based payment award transactions. The guidance was effective for the fiscal year beginning after December 15,
2016, including interim periods within that year. During 2017 the Partnership adopted this ASU with no material impact on its financial
statements.
In February 2016, the FASB issued the ASU 2016-02, Leases (Topic 842). The main provision of this ASU is the recognition of lease as-
sets and lease liabilities by lessees for those leases classified as operating leases. Accounting by lessors will remain largely unchanged
from current U.S. GAAP but require the lessors to separate lease and non-lease components. The requirements of this standard include
an increase in required disclosures. The Partnership expects that its time charter arrangements will be subject to the requirements of
the new Leases standard as the Partnership will be regarded as the lessor. The new leases standard requires a modified retrospective
transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition re-
lief. This update is effective for public entities with reporting periods beginning after December 15, 2018, including interim periods within
those years. Early adoption is permitted. The Partnership is currently evaluating the impact, if any, of the adoption of this new standard
and will evaluate any amendments that may be issued.
F-11
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(q) Recent Accounting Pronouncements – Continued
In July 2015, the FASB issued the 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 was effective for public entities with reporting periods beginning after December 15, 2016 and early adoption
was permitted. During 2017 the Partnership adopted this ASU with no material impact on its financial statements.
On May 28, 2014, the FASB issued the ASU No 2014-09 Revenue from Contracts with Customers. ASU 2014-09, as amended, outlines a
single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most
current revenue recognition guidance, including industry-specific guidance. The standard is effective for annual periods beginning after
December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-
effect adjustment as of the date of adoption. The Partnership adopted this ASU for the reporting period commencing on January 1, 2018.
The Partnership elected to use the modified retrospective transition method for the implementation of this standard. As a result of the
adoption of this standard revenues generated under voyage charter agreements will be recognized on a pro-rata basis from the date
of loading to discharge of cargo. Prior to the adoption of this standard, revenues generated under voyage charter agreements were
recognized on a pro-rata basis over the period of the voyage which was deemed to commence upon the later of the completion of
discharge of the vessel’s previous cargo or upon vessel’s arrival to the agreed upon port, and deemed to end upon the completion of
discharge of the delivered cargo. The financial impact on the Partnership’s financial statements will derive from voyage charters which
do not commence and end in the same reporting period due to the timing of recognition of revenue, as well as the timing of recognition
of certain voyage related costs. As voyage charters represent 5.8% of the Partnership’s revenues for the year ended December 31, 2017,
and only three vessels of the Partnership had voyage charters that were in progress as of December 31, 2017, we expect the effect of
implementation to be insignificant.
3. Acquisition of Filonikis Product Carrier S.A. (M/T Amor)
On October 24, 2016, following the unanimous recommendation of the conflicts committee and the unanimous approval of the board of
directors, the Partnership acquired the shares of Filonikis, the owning company of the M/T Amor from CMTC for a total consideration of
$16,911. The Partnership also assumed, on the acquisition date, CMTC’s guarantee with respect to the outstanding balance of $15,750 of
the loan that Filonikis had entered into and was arranged by CMTC (Note 7). The vessel at the time of her acquisition by the Partnership
was fixed on a two-year time charter with Cargill International S.A. (“Cargill”) ending October 2017, with the option to terminate 30 days
earlier, and immediately thereafter with CMTC for a two-month period time charter.
The Partnership accounted for the acquisition of Filonikis as an acquisition of a business. All assets and liabilities of Filonikis except the
vessel, necessary permits, the time charter agreements and the loan, were retained by CMTC. The purchase price of the acquisition has
been allocated to the identifiable assets acquired and liabilities assumed.
• Purchase Price
The total purchase consideration of $16,911 was funded by $16,000 from the Partnership’s cash and the issuance of 283,696 new Partner-
ship’s common units at a price of $3.21 per unit as quoted on the Nasdaq Stock Exchange on October 24, 2016 the day of the acquisition
of Filonikis (Note 12).
• Acquisition related costs
Acquisition related costs of $264 are included in general and administrative expenses in the Partnership’s consolidated statements of
comprehensive income for the year ended December 31, 2016.
• Purchase price allocation
The allocation of the purchase price to acquired identifiable assets and liabilities assumed was based on their estimated fair values at the
date of acquisition. The fair value allocated to each class of identifiable assets acquired and liabilities assumed of Filonikis was calculated
as follows:
F-12
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
3. Acquisition of Filonikis Product Carrier S.A. (M/T Amor) – Continued
Vessel
Above market acquired time charters
Identifiable assets
Loan
Net assets acquired
Purchase price
As of October 24, 2016
31,600
1,061
32,661
(15,750)
16,911
(16,911)
$
$
$
$
$
$
The Partnership concluded that its measurements for the assets acquired appropriately reflect consideration of all available information
that existed as of the acquisition date. The fair value of the vessel of $31,600 was quoted by independent ship brokers at the time of her
acquisition by the Partnership and the fair value of the loan of $15,750 was determined to be its face value.
• Identifiable intangible assets
The following table sets forth the component of the identifiable intangible asset acquired on the purchase of Filonikis 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 October 24, 2016
$ 1,061
Duration of time charters acquired
1 year
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 and the market rate for comparable charters as provided by independent ship brokers on the business combination
date discounted at a WACC of approximately 7.5%.
Total revenues and net income of Filonikis since its acquisition by the Partnership were $980 and $222 respectively and are included in
the Partnership’s consolidated statement of comprehensive income for the year ended December 31, 2016.
• Unaudited 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 years ended December 31, 2016 and 2015
• Pro forma results of operations of Filonikis for the period from the vessel’s delivery from the shipyard on September 30, 2015 (vessel inception) to
December 31, 2015 and from January 1, 2016 to October 24, 2016 as if the vessel was operating under post acquisition revenue and cost structure.
The combined results do not purport to be indicative of the results of the operations which would have resulted had the acquisition been
effected at beginning of the applicable period noted above, or the future results of operations of the combined entity.
The following table summarizes total net revenues; net income and net income per common unit of the combined entity had the acquisi-
tion of Filonikis occurred on September 30, 2015 (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 and diluted
For the year ended December 31,
2016
2015
$
$
$
$
$
$
245,825
53,677
11,101
850
41,726
0.35
$
$
$
$
$
$
221,638
55,430
11,334
881
43,215
0.38
F-13
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 payable under
the management agreement, the Manager is entitled to supplementary compensation for additional fees and costs (as defined in
the agreement) of any direct and indirect additional expenses it reasonably incurs in providing these services, which may vary from
time to time. For the years ended December 31, 2017, 2016 and 2015 management fees under the fixed fee management agree-
ment amounted to $488, $981 and $3,221, respectively. 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 compli-
ance with the oil majors’ 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. Under the terms of this agreement, the Partnership compensates its Manager for expenses
and liabilities incurred on the Partnership’s behalf while providing the agreed services, including, but not limited to, crew, repairs
and maintenance, insurance, stores, spares, lubricants and other operating costs. Costs and expenses 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. For
the years ended December 31, 2017, 2016 and 2015 management fees under the floating fee management agreement amounted
to $10,100, $8,865 and $7,477, respectively; 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. For the years
ended December 31, 2017, 2016 and 2015 management fees under the crude management agreement amounted to $1,041, $1,020
and $1,010, respectively. Prior to January 1, 2017 the Partnership paid 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.
Effective from January 1, 2017 the Manager agreed to waive going forward (i) the sale and purchase fee equal to 1% of the gross pur-
chase or sale price upon the consummation of any purchase or sale of the three vessels and (ii) the commercial services fee equal
to 1.25% of all gross charter revenues generated by each of the three vessels for commercial services rendered. For the years ended
December 31, 2016 and 2015, such commercial services amounted to $360 and $411, respectively, and are included in “Voyage expenses
– related party” in the accompanying consolidated statements of comprehensive income.
The Manager has the right to terminate the Crude management agreement and, under certain circumstances, could receive substantial
sums in connection with such termination. In March 2017 this termination fee was adjusted to $10,124 from $9,858.
F-14
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
4. Transactions with Related Parties – Continued
All the above three agreements constitute the “Management Agreements” and the related management fees are included in “Vessel
operating expenses – related party” in the accompanying consolidated statements of comprehensive income.
On April 4, 2007, the Partnership entered into an administrative services agreement with the Manager, pursuant to which the Manager
has agreed to provide certain administrative management services to the Partnership such as accounting, auditing, legal, insurance,
IT, clerical, and other administrative services. Also the Partnership reimburses the Manager and its general partner, Capital GP L.L.C.
(the “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. In January
2016, the Partnership amended the executive services agreement with CGP according to which CGP provides certain executive officers
services for the management of the Partnership’s business as well as investor relation and corporate support services to the Partner-
ship. For the years ended December 31, 2017, 2016 and 2015 such fees amounted to $1,688, $1,688 and $1,624, respectively, and 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
Liabilities:
Manager – payments on behalf of the Partnership (a)
Management fee payable to CSM (b)
Due to related parties
Deferred revenue – current (e)
TOTAL LIABILITIES
Consolidated Statements of Income
Revenues (c)
Voyage expenses
Vessel operating expenses
General and administrative expenses (d)
As of
December 31,
2017
As of
December 31,
2016
$
$
$
13,218
1,016
14,234
2,829
17,063
$
$
$
15,126
969
16,095
2,925
19,020
For the year ended December 31,
2016
2017
2015
$
44,653
$
36,026
$
—
11,629
1,983
360
10,866
2,076
63,731
411
11,708
2,569
(a) Manager—Payments on Behalf of the Partnership: This line item represents the amount outstanding for payments for operating and
voyage expenses 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, 2017 and 2016 represents the management fee pay-
able 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 2017 and 2016.
F-15
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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 Arionas
M/T Arionas
M/T Amore Mio II
M/T Akeraios
M/T Apostolos
M/T Anemos I
M/T Aristotelis
M/T Aristotelis
M/T Ayrton II
M/T Miltiadis M II
M/T Miltiadis M II
M/T Miltiadis M II
M/T Amadeus
M/T Atlantas II
M/T Amoureux
M/T Aktoras
M/T Aiolos
M/T Amor
Time
Charter (TC)
in years
1.0
1.2
1.0
0.9
2.0
2.0
1.0
1.1 to 1.3
1.0
2.0
0.6
0.9
0.8 to 1.0
2.0
1.0
1.0
0.8 to 1.0
0.8 to 1.0
0.2
Commencement
of
Charter
09/2015
12/2014
01/2017
08/2016
03/2015
04/2015
06/2015
12/2015
01/2017
02/2016
09/2015
08/2016
10/2017
06/2015
10/2016
04/2017
09/2017
09/2017
09/2017
Termination or
earliest expected
redelivery
06/2016
01/2016
02/2018
09/2017
04/2016
01/2016
01/2016
12/2016
02/2018
02/2018
05/2016
08/2017
08/2018
08/2017
12/2017
03/2018
01/2018
07/2018
01/2018
Gross (Net) Daily
Hire Rate
$14.5 ($14.3)
$15.0 ($14.8)
$11.0 ($10.9)
$21.0 ($20.7)
$15.6 ($15.4)
$15.6 ($15.4)
$17.3 ($17.0)
$19.0 ($18.8)
$13.8 ($13.6)
$18.0 ($17.8)
$35.0 ($34.6)
$25.0 ($24.7)
$18.0 ($18.0)
$17.0 ($16.8)
$13.0 ($12.8)
$22.0 ($22.0)
$11.0 ($10.9)
$11.0 ($10.9)
$14.0 ($13.8)
(d) General and administrative expenses: This line item mainly includes fees relating to internal audit, investor relations and consultancy fees.
(e) Deferred Revenue: As of December 31, 2017 and 2016 the Partnership had received cash in advance for charter hire relating to rev-
enue earned in a subsequent period from CMTC.
F-16
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
5. Fixed assets and assets held for sale
(A) ADVANCES FOR VESSELS UNDER CONSTRUCTION – RELATED PARTY
An analysis of advances for vessels under construction – related party is as follows:
Balance as at December 31, 2015
Additions
Transfer to vessels
Balance as at December 31, 2016
Advances for vessels under
construction – related party
$
$
18,172
—
(18,172)
—
On July 24, 2014, the Partnership entered into a Master Agreement with CMTC to acquire five companies that owned five vessels under
construction (the “new-buildings”) with attached time charters, subject to the amendment of the partnership agreement to reset the target
distributions to holders of the Incentive Distribution Rights (the “IDRs”) (Note 12). As the reset of the IDRs was a pre-condition for the acquisi-
tion 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 consider-
ation of $311,500, was considered to be the deemed equity contribution and thus the fair value of the reset of the IDRs. 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 Twenty Feet Equivalent Units (“TEU”) post-
panamax container carriers.
During 2015 the Partnership acquired from CMTC the shares of four out of the five vessel owning companies. As a result, as of Decem-
ber 31, 2015, the amount of $18,172 consisted of advances totalling $7,921 that the Partnership paid to CMTC for the acquisition of the
remaining vessel owning company and the fair value from the reset of the IDRs of $10,251 which was attributable to this vessel, and is
presented as “Advances for vessels under construction–related party” in the Partnership’s consolidated balance sheet as of December
31, 2015. On February 26, 2016 the Partnership acquired the company owning the M/V CMA CGM Magdalena, which was the last out of
the five vessel owning companies the Partnership agreed to acquire from CMTC according to the terms of the Master Agreement. As a
result there were no “Advances for vessels under construction–related party” as of December 31, 2016.
(B) VESSELS, NET
An analysis of vessels is as follows:
Balance as at January 1, 2016
Acquisitions and improvements
Transfer from Advances for vessels under construction-related party
Depreciation for the period
Balance as at December 31, 2016
Acquisitions and improvements
Depreciation for the period
Impairment of vessel
Classification as asset held for sale
Balance as at December 31, 2017
$
$
$
Vessel Cost
1,653,727
103,790
18,172
—
1,775,689
967
—
(3,282)
(34,859)
1,738,515
Accumulated
depreciation
(338,242)
—
—
(69,716)
(407,958)
—
(71,358)
—
5,997
(473,319)
$
$
$
Net book value
1,315,485
$
103,790
18,172
(69,716)
1,367,731
967
(71,358)
(3,282)
(28,862)
1,265,196
$
$
All of the Partnership’s vessels as of December 31, 2017 have been provided as collateral to secure the Partnership’s credit facilities.
F-17
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
5. Fixed assets and assets held for sale – Continued
(B) VESSELS, NET – CONTINUED
On October 24, 2016, the Partnership acquired the shares of the company owning the M/T Amor (Note 3). The Partnership accounted for
this acquisition as an acquisition of business based on the existence of an integrated set of activities (inputs and processes that generate
outputs). The vessel was recorded in the Partnership’s financial statements at its fair value of $31,600 as quoted by independent ship
brokers at the time of its acquisition by the Partnership.
On February 26, 2016, the Partnership acquired the shares of the company owning the M/V CMA CGM Magdalena for a total consideration
of $81,500 which was funded by loan drawdown of $35,000 from the Partnership’s 2013 credit facility (Note 7) and the remaining balance
of $46,500 by the Partnership’s cash. The Partnership accounted for this transaction as acquisition of an asset based on the absence of
processes attached to the inputs. Other than the new-building and the attached time charter, no other inputs and no processes were
acquired. The Partnership considered whether any value should be assigned to the attached charter party agreement acquired and
concluded that the contracted daily charter rate was above the market rates on the transaction completion date and therefore, the total
cost of $91,751, which comprised the purchase consideration of $81,500 and the fair value from the reset of the IDRs of $10,251,which
was attributable to this vessel (Note 5a), was allocated to the vessel cost and the above market acquired charter. Thus the vessel was
recorded in the Partnership’s financial statements at a cost of $88,545 and the above market acquired charter at a cost of $3,206 (Note 6).
During 2017, the M/V Agamemnon, the M/T Amore Mio II, the M/T Miltiadis M II, the M/T Ayrton II, the M/T Axios, the M/T Arionas, the M/T
Avax, the M/T Assos, the M/T Amoureux and the M/T Atrotos underwent improvements. The costs of these improvements amounted to
$967 and were capitalized as part of the vessels’ cost.
During 2016, the M/T Alkiviadis, the M/V Archimidis, the M/T Anemos I, the M/T Amore Mio II, the M/T Miltiadis M II and the M/T Arionas
underwent improvements. The costs of these improvements amounted to $1,817 and were capitalized as part of the vessels’ cost.
(C) ASSETS HELD FOR SALE
An analysis of assets held for sale is as follows:
Balance as at January 1, 2016
Vessel held for sale
Inventories
Balance as at December 31, 2017
Assets held for sale
—
28,862
165
29,027
On December 22, 2017 the Partnership entered into a Memorandum of Agreement (the “Agreement”) with an unrelated party for the
disposal of the M/T Aristotelis at a price of $29,400. The Partnership decided to enter into this Agreement after receiving the Buyer’s
purchase enquiry which was opportunistic in nature. Under this agreement the vessel can be delivered to its Buyer by latest March 11,
2018. Upon entering the agreement the Partnership considered that M/T Aristotelis met the criteria to be classified as held for sale, as
described in note 2(i), and measured the vessel at the lower of its carrying amount and fair value less the cost associated with the sale.
In this respect, the Partnership recognized an impairment charge of $3,282 in its consolidated statement of comprehensive income for
the year ended December 31, 2017. No assets were classified as held for sale as of December 31, 2016.
F-18
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
6. Above market acquired charters
On October 24, 2016 the Partnership acquired the shares of the company owning the M/T Amor from CMTC with outstanding time char-
ters to Cargill and CMTC. The time charter with Cargill was above the market rate for equivalent time charters prevailing at the time of
acquisition. The present value of the above market acquired time charter was estimated by the Partnership at $1,061 and recorded as an
asset in the consolidated balance sheet as of the acquisition date (Note 3). The time charter with CMTC was equal to the market rate for
equivalent time charters prevailing at the time of acquisition.
On February 26, 2016 the Partnership acquired the shares of the company owning the M/V CMA CGM Magdalena from CMTC with
outstanding time charter to CMA-CGM S.A., which was above the market rate for equivalent time charters prevailing at the time of
acquisition. The present value of the above market acquired time charter of $3,206 was determined as the difference between the time
charter rate at which the vessel was fixed at and the market rate for comparable charters as provided by independent third parties on
the acquisition date discounted at a WACC of approximately 7.5% and was recorded as an asset in the consolidated balance sheet as of
the acquisition date.
For the years ended December 31, 2017, 2016 and 2015 revenues included a reduction of $15,208, $14,542 and $14,864 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, 2016
Acquisitions
Amortization
Carrying amount as at December 31, 2016
Amortization
Carrying amount as at December 31, 2017
Book Value
100,518
$
4,267
$
(14,542)
$
90,243
$
(15,208)
$
75,035
$
As of December 31, 2017 the remaining carrying amount of unamortized above market acquired time charters was $75,035 and will be
amortized in future years as follows:
For the twelve month period ended December 31,
2018
2019
2020
2021
2022
Thereafter
TOTAL
Amount
$
$
$
$
$
$
$
14,381
14,381
11,695
8,418
8,372
17,788
75,035
F-19
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
7. Long-Term Debt
Long-term debt consists of the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Bank loans
Issued in September 2017 maturing in October 2023
(the “2017 credit facility”)
Assumed in October 2016 maturing in November 2022
(the “2015 credit facility”)
Issued in March 2007 repaid in October 2017
(the “2007 credit facility”)
Issued in March 2008 repaid in October 2017
(the “2008 credit facility”)
Issued in June 2011 fully repaid in October 2017
(the “2011 credit facility”)
Issued in September 2013 repaid in October 2017
(the “2013 credit facility”)
Total long-term debt
Less: Deferred loan issuance costs
Less: loan associated with vessel held for sale
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,
2017
As of December 31,
2016
Margin
460,000
15,750
—
—
—
—
475,750
6,635
14,781
454,334
52,057
1,543
403,820
$
$
$
—
3.25%
15,750
2.50%
185,975
3.00%
181,641
3.00%
14,000
3.25%
3.50%
207,646
605,012
2,825
—
602,187
40,534
966
562,619
On September 6, 2017, the Partnership entered into a new senior secured term loan facility for an aggregate principal amount of up to
$460,000 with a syndicate of lenders led by HSH Nordbank AG and ING Bank N.V. On October 2, 2017, the Partnership fully repaid $14,000
outstanding under its 2011 credit facility, through available cash. On October 4, 2017, the Partnership fully repaid total indebtedness of
$102,246 and the then outstanding indebtedness of the 2007 credit facility, the 2008 credit facility and the 2013 credit facility amounting to
$460,000 was replaced by the 2017 credit facility. The 2017 credit facility is comprised of two tranches. Tranche A amounts to $259,000, is
secured by 11 of the Partnership’s vessels and is required to be repaid in 24 equal quarterly instalments of $4,833 in addition to a balloon
instalment of $143,008, which is payable together with the final quarterly instalment in the fourth quarter of 2023. Tranche B amounts to
$201,000, is secured by 24 of the Partnership’s vessels and is required to be repaid fully in 24 equal quarterly instalments of $8,375. The
Partnership started paying quarterly instalments under both tranches A and B on January 4, 2018. The loans drawn under the 2017 credit
facility bear interest at LIBOR plus a margin of 3.25%.
During 2017, the Partnership classified the M/T Aristotelis as vessel held for sale (Note 5c). As of December 31, 2017, the part of the
Tranche A of the 2017 credit facility which was associated with this vessel amounted to $14,781, is expected to be repaid in March 2018,
and is presented as “Liability associated with vessel held for sale” in the accompanying consolidated balance sheet.
On October 24, 2016, upon the completion of the acquisition of the shares of the company owning the M/T Amor (Notes 3, 5), the Part-
nership assumed CMTC’s guarantee with respect to the outstanding balance of $15,750 under the term loan that was entered into on
November 19, 2015 with ING Bank N.V. The term loan is payable in 17 consecutive equal quarterly instalments starting two years after
the vessel’s acquisition plus a balloon payment with expected maturity date in November 2022. The term loan bears interest at LIBOR
plus a margin of 2.50%.
On February 23, 2016, the Partnership drew the amount of $35,000 from its 2013 credit facility in order to partly finance the acquisition of
the shares of the company owning the M/V CMA CGM Magdalena (Note 5).
F-20
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
7. Long-Term Debt – Continued
During 2017 and 2016, the Partnership repaid the amount of $13,016 and $17,354, respectively, in line with the amortization schedule of
its 2013 credit facility.
The Partnership’s credit facilities contain customary ship finance covenants, including restrictions as to changes in management and
ownership of the mortgaged vessels, the incurrence of additional indebtedness and the mortgaging of vessels and requirements such
as, the ratio of EBITDA to Net Interest Expenses to be no less than 2:1, a minimum cash requirement of $500 per vessel, the ratio of net
Total Indebtedness to the Total Assets of the Partnership adjusted for the Market Value of the fleet not to exceed 0.75:1 for the 2017 credit
facility and the ratio of net Total Indebtedness to the aggregate Market Value of the fleet not to exceed 0.725:1 for the 2015 credit facility. As
of December 31, 2017 and 2016, restricted cash amounted to $18,000 for each year and is presented under other non-current assets. The
credit facilities also contain a collateral maintenance requirement under which the aggregate fair market value of the collateral vessels
should not be less than 125% for the 2017 credit facility and 120% for the 2015 credit facility, 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, 2017 and
2016 the Partnership was in compliance with all financial covenants.
The credit facilities have a general assignment of the earnings, insurances and requisition compensation of the respective collateral ves-
sel or vessels. Each also requires additional security, such as pledge and charge on current accounts and mortgage interest insurance.
As of December 31, 2017 there were no undrawn amounts under the Partnership’s credit facilities.
For the years ended December 31, 2017, 2016 and 2015, the Partnership recorded interest expense of $24,782, $22,674 and $17,856 re-
spectively which is included in “Interest expense and finance cost” in the consolidated statements of comprehensive income. For the
years ended December 31, 2017 and 2016 the weighted average interest rate of the Partnership’s loan facilities was 4.29% and 3.73%
respectively.
The required annual loan payments to be made subsequent to December 31, 2017 are as follows:
2018
2019
2020
2021
2022
Thereafter
TOTAL
2017 Credit
Facility (i)
2015 Credit
Facility (ii)
$
$
66,510
51,729
51,729
51,729
51,729
186,574
460,000
$
$
328
1,313
1,313
1,313
11,483
—
15,750
Total
66,838
53,042
53,042
53,042
63,212
186,574
475,750
$
$
F-21
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
8. Financial Instruments
(A) FAIR VALUE OF FINANCIAL INSTRUMENTS
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, amounts due from related parties and due to related parties, trade accounts payable and
accrued liabilities approximates their fair value. The fair values of long-term variable rate bank loans approximate the recorded values,
due to their variable interest being the LIBOR and due to the fact the lenders have the ability to pass on their funding cost to the Partner-
ship 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, 2017. 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.
The following table summarizes the valuation of the Company’s assets measured at fair value on a non-recurring basis as of December
31, 2017:
Items Measured at Fair Value on a Nonrecurring Basis - Fair Value Measurements
Non – Recurring Measurements:
Long-lived assets classified as held for sale
Quoted prices
in active markets
for identical
assets
Level 1
—
$
Significant
other
observable
inputs
Level 2
29,400
$
Unobservable
Inputs
Level 3
—
$
Loss
3,282
$
As of December 22, 2017 the vessel M/T Aristotelis with a carrying amount of $32,144, was classified as vessel held for sale and written
down to its fair value of $29,400, less estimated costs to sell, resulting in a loss of $3,282 (Note 5c), which was included in the accompa-
nying consolidated statements of comprehensive income under impairment of vessel. The fair value of M/T Aristotelis was based on its
transaction price, as the sale price was agreed with an unaffiliated third party hence it is considered level 2.
(B) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Partnership to significant concentrations of credit risk consist principally of cash and
cash equivalents and trade accounts receivable. The Partnership places its cash and cash equivalents, consisting mostly of deposits,
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, 2017 Petroleo Brasileiro
S.A. (“Petrobras”), CMTC, Hyundai Merchant Marine Co Ltd (“HMM”) and CMA CGM accounted for 19%, 18%, 18% and 17% of the Partner-
ship’s total revenue, respectively. For the year ended December 31, 2016 HMM, Petrobras, CMA CGM and CMTC accounted for 19%, 18%,
17% and 15% of the Partnership’s total revenue, respectively. For the year ended December 31, 2015 CMTC and HMM accounted for 29%
and 21% of the Partnership’s total revenue, respectively.
F-22
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
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
As of December 31,
2017
2016
$
$
5,221
5,199
3,521
1,170
15,111
$
$
114
4,360
2,453
934
7,861
10. Voyage Expenses and Vessel Operating Expenses
Voyage expenses and vessel operating expenses consist of the following:
For the years ended December 31,
2016
2017
2015
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
$
$
$
$
4,440
4,726
3,593
2,406
15,165
43,699
5,035
12,731
7,937
11,491
138
5,114
86,145
$
$
$
$
4,816
2,601
892
1,971
10,280
37,342
5,772
11,688
8,203
10,661
205
3,632
77,503
$
$
$
$
4,421
1,753
259
457
6,890
31,788
5,004
11,521
7,790
11,219
489
2,522
70,333
11. Income Taxes
Under the laws of the Marshall Islands and Liberia, the country in which the vessel-owning subsidiaries were incorporated, these com-
panies are not subject to tax on international shipping income. However, they are subject to registration and tonnage taxes in the country
in which the vessels are registered and managed from, which have been included in vessel operating expenses in the accompanying
consolidated statements of comprehensive income.
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 “pri-
marily and regularly traded on an established securities market” in the United States and certain other requirements are satisfied (the
“Publicly-Traded Test”).
F-23
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
11. Income Taxes – Continued
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, 2017, 2016 and 2015 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 agreements and in
all cases are used solely for working capital purposes or to pay distributions to partners subject to certain exceptions set forth in the
limited partnership agreement.
General Partner Interest and IDRs: The general partner has a 1.71% interest in the Partnership and holds the IDRs. 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 general partner interest.
IDRs 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, 2017, 2016 and 2015 holds the IDRs.
According to the partnership agreement, as amended in 2014, 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 part-
ner 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 per Unit,” 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. The percentage
interests shown below assume that the Partnership’s general partner maintains a 2% general partner interest and that it has not trans-
ferred its incentive distribution rights.
F-24
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
12. Partners’ Capital – Continued
General Partner Interest and IDRs – Continued
Minimum Quarterly Distribution
First Target Distribution
Second Target Distribution
Third Target Distribution
Thereafter
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
Marginal Percentage
Interest in Distributions
Unitholders
General
Partner
98%
98%
85%
75%
65%
2%
2%
15%
25%
35%
Following the 2014’s 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 available
cash from operating surplus for any quarter after the subordination period in the following manner:
• first, 98% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding unit an amount equal to
the minimum quarterly distribution for that quarter; and
• thereafter, in the manner described in the above table.
Class B Convertible Preferred Units
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 described in the limited partnership agreement. 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 receive, when, as and if authorized by the Partnership’s board of directors or any duly authorized committee, out of le-
gally 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 Partnership, 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 payable whether or not any of
F-25
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
12. Partners’ Capital – Continued
the foregoing restrictions exist, whether or not there is sufficient Available Cash for the payment thereof and whether or not such distribu-
tions 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 Convertible Preferred Unit arrearage plus the minimum quarterly Class B Convertible Preferred Unit distribution rate
for such quarter. With respect to Class B Convertible Preferred Units that are converted into Common Units, the holder thereof shall not be
entitled to a Class B Convertible Preferred Unit distribution and a Common Unit distribution with respect to the same period, but shall be
entitled only to the distribution to be paid based upon the class of Units held as of the close of business on the record date for the distribu-
tion 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 the limited partnership agreement.
During 2015 various holders of Class B Convertible Preferred Units including CMTC converted 1,240,404 Class B Convertible Preferred
Units into common units. As a result in the Partnership’s Consolidated Statements of Changes in Partners’ Capital, the Partnership’s
Limited Partners-Preferred Unitholders decreased by $10,642 and Partnership’s Limited Partners-Common Unitholders, increased by
$10,642 for the year ended December 31, 2015. The conversion rate was one common unit per one Class B Convertible Preferred Unit.
During 2017 and 2016 no such conversion occurred.
Common Units
On October 24, 2016, the Partnership issued 283,696 common units according to the terms of the share purchase agreement that the
Partnership entered into with CMTC in order to partly finance the acquisition of the shares of the vessel owning company of M/T Amor
(Notes 3, 5).
In September 2016, the Partnership entered into an equity distribution agreement with UBS Securities LLC (“UBS”) under which the Partner-
ship may sell, from time to time, through UBS, as its sales agent, new common units having an aggregate offering amount of up to $50,000
(the “ATM offering”). The equity distribution agreement provides that UBS, when it is acting as the Partnership’s sales agent, will be entitled
to compensation of up to 2% of the gross sales price of the common units sold through UBS from time to time. During 2017 the Partnership
issued 5,152,059 new common units under the ATM offering resulting in net proceeds of $17,815 after the payment of commission to the
sales agent, but before offering expenses. For the year ended December 31, 2017, the Partnership recognized offering expenses of $176 in
connection with the ATM offering. Since the launch of the ATM offering until December 31, 2016, the Partnership issued 1,401,481 new com-
mon units resulting in net proceeds of $4,546 after the payment of commission to the sales agent, but before offering expenses. For the year
ended December 31, 2016, the Partnership recognized offering expenses of $890 in connection with the ATM offering.
During 2015 CMTC converted 315,908 common units into general partner units respectively, 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 Unitholders decreased by $2,742 and General Partner increased by $2,742 for the years ended December 31, 2015.
During 2017 and 2016 CMTC did not convert any common units into general partners units.
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 com-
mon 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.
F-26
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
12. Partners’ Capital – Continued
As of December 31, 2017 and 2016 our partners’ capital included the following units:
Common units
General partner units
Preferred units
Total partnership units
As of December 31,
2017
As of December 31,
2016
127,246,692
2,439,989
12,983,333
142,670,014
122,094,633
2,439,989
12,983,333
137,517,955
13. 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 number
of awards, not to exceed 500,000 units. The Plan was amended on July 22, 2010 increasing the aggregate number of restricted units issu-
able 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 discretion, 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, divi-
dend 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 annual instalments. The remaining awards will vest on
December 31, 2018.
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 accrue distributions as declared and paid which are retained by the custodian of the Plan until the vesting date at
which time they are payable to the grantee. As unvested unit grantees accrue distributions on awards that are expected to vest, such
distributions are charged to Partner’s capital. As of December 31, 2017 the unvested units accrued $427 of distributions.
The following table contains details of our plan:
Employee equity compensation
Unvested Units
Unvested on January 1, 2016
Vested
Unvested on December 31, 2016
Vested
Unvested on December 31, 2017
Units
240,000
33,332
206,668
36,666
170,002
$
$
$
Grant-date fair
value
1,325
184
1,141
202
939
Non-Employee equity compensation
Award-
date fair
value
Units
610,000
117,500
492,500
117,500
375,000
$
$
$
3,367
374
2,993
395
2,598
F-27
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
13. Omnibus Incentive Compensation Plan – Continued
For the years ended December 31, 2017, 2016, and 2015 the equity compensation expense that has been charged in the consolidated
statements of comprehensive income was $438, $439 and $10 for the Employee awards and $718, $635 and $24 for the Non-Employee
awards, respectively. This expense has been included in general and administrative expenses in the consolidated statements of com-
prehensive income for each respective year.
As of December 31, 2017 the total compensation cost related to non vested awards is $1,111 and is expected to be recognized over a
weighted average period of one year. The Partnership uses the straight-line method to recognize the cost of the awards.
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 distribu-
tion 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 considered in the calculation of earnings per unit
under the Two-Class Method.
The Partnership also considers whether the Partnership Agreement contains any contractual limitations concerning distributions to the
IDRs that would impact the amount of earnings to allocate to the IDRs for each reporting period.
Under the partnership agreement, the holder of the IDRs in the Partnership, which is currently CGP, assuming that there are no cumu-
lative arrearages on common unit distributions, has the right to receive an increasing percentage of cash distributions (Note 12). The
Partnership excluded the effect of the 12,983,333 Class B Convertible Preferred Units in calculating dilutive EPU as of December 31, 2017,
2016 and 2015, for each year as they were anti-dilutive.
As of December 31, 2017, 2016 and 2015 the Partnership excluded the effect of 545,002, 699,168 and 850,000, respectively, non-vested unit
awards in calculating dilutive EPU for its common unitholders as they were anti-dilutive. The non-vested units are participating securi-
ties because they received distributions from the Partnership and these distributions do not have to be returned to the Partnership if the
non-vested units are forfeited by the grantee.
The Partnership’s net income for the years ended December 31, 2017, 2016 and 2015 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.
F-28
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017 CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
14. Net Income Per Unit – Continued
The two class method used to calculate EPU is as follows:
BASIC AND 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
Common unit holders’ interest in Partnership’s net
income
Denominators
Weighted average number of common units outstanding,
basic and diluted
Net income per common unit:
Basic and Diluted
$
$
$
2017
2016
2015
38,483
$
52,489
$
55,410
11,101
522
135
11,101
818
285
11,334
879
8
26,725
$
40,285
$
43,189
123,845,345
119,803,329
115,030,879
0.22
$
0.34
$
0.38
15. HMM charters restructuring
HMM, the charterer of five of the Partnership’s vessels, namely Hyundai Prestige, Hyundai Premium, Hyundai Paramount, Hyundai Privi-
lege and Hyundai Platinum (the “HMM Vessels”), each under time charter expiring for Hyundai Prestige in 2024 and for the remaining four
vessels in 2025, experienced financial difficulties and pursued a financial restructuring involving various creditors and vessel owners.
As part of the various agreements that HMM reached with its creditors and vessel owners under its voluntary debt restructuring, the owning
companies of the HMM Vessels entered into a Charter Restructuring Agreement on July 15, 2016. This agreement provides for the reduction of
the gross charter rate payable under the respective charter parties by 20% to $23.5 per day from $29.4, for a three and a half year period starting
in July 2016 and ending in December 2019 (the “Charter Reduction Period”). As compensation the Partnership received 4,398,910 HMM common
shares on August 4, 2016, which the Partnership recognized as a “Trading asset” at the amount of $29,706 being the fair value of the shares with
a corresponding “Deferred revenue, current” and “Deferred revenue” to be amortized within revenue over the remaining duration of each time
charter. The shares were immediately sold on the Stock Market Division of the Korean Exchange for aggregate cash consideration of $29,706.
The Charter Restructuring Agreement further provides that at the end of the Charter Reduction Period, the charter rate under the respective
charter parties will be restored to the original daily rate of $29.4 until the expiry of each charter in 2024 and 2025.
16. Commitments and Contingencies
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course
of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers
relating to the operations of the Partnership’s vessels. The Partnership is not aware of any such claims or contingent liabilities, which
should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.
The Partnership accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is
able to reasonably estimate the probable exposure. Currently, the Partnership is not aware of any such claims or contingent liabilities,
which should be disclosed, or for which a provision should be established in the consolidated financial statements.
F-29
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CAPITAL PRODUCT PARTNERS L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars)
16. Commitments and Contingencies – Continued
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)
Lease Commitments: Future minimum charter hire receipts, excluding any profit share revenue that may arise, based on non-
cancellable long-term time and bareboat charter contracts, as of December 31, 2017 were:
Year ended December 31,
2018
2019
2020
2021
2022
Thereafter
TOTAL
17. Subsequent Events
Amount
156,343
106,422
87,617
54,584
53,564
111,647
570,177
$
$
(a)
Dividends: On January 17, 2018, the board of directors of the Partnership declared a cash distribution of $0.08 per common unit for
the fourth quarter of 2017. The fourth quarter common unit cash distribution was paid on February 13, 2018, to unit holders of record
on February 2, 2018.
(b)
Dividends: On January 17, 2018, the board of directors of the Partnership declared a cash distribution of $0.21375 per Class B unit for
the fourth quarter of 2017. The cash distribution was paid on February 9, 2018, to Class B unit holders of record on February 2, 2018.
(c)
Acquisition of vessels: On January 17, 2018 the Partnership acquired the eco-type crude tanker Aristaios (113,689 dwt, Ice Class 1C, built
2017, Daehan Shipbuilding Co. Ltd., S.Korea) for a total consideration of $52,500 from CMTC. The M/T Aristaios is currently employed
under a time charter to Tesoro Far East Maritime Company (‘Tesoro’) at a gross daily rate of $26.4. The Tesoro charter commenced in
January 2017 with duration of five years +/-45 days. The Partnership financed the acquisition with $24,167 in cash and the assumption
of a $28,333 term loan under a credit facility previously arranged by CMTC with Credit Agricole Corporate and Investment Bank and ING
Bank NV. The term loan bears interest at LIBOR plus a margin of 2.85% and is payable in twelve consecutive semi-annual instalments
of approximately $917 beginning in July 2018, plus a balloon payment payable together with the last semi-annual instalment due in
January 2024. The term loan is subject to ship finance covenants similar to the covenants applicable under our existing facilities.
On January 22, 2018, the Partnership agreed to acquire, conditional upon the successful completion of the sale of the M/T Aristotelis,
the M/T Anikitos an eco-type MR product tanker (50,082 dwt IMO II/III Chemical Product Tanker built 2016, Samsung Heavy Industries
(Ningbo) Co., Ltd.) for a total consideration of $31,500, from CMTC. The M/T Anikitos is currently employed under a time charter, at a gross
daily rate of $15.3 with earliest charter expiry in June 2020. The charterer has the option to extend the time charter for eighteen months
(+/-30 days) at the same gross daily rate. The Partnership intents to fund the acquisition through the net proceeds to be received from
the sale of M/T Aristotelis, available cash and the assumption of a term loan under our “2015 credit facility” (see Note 7), previously ar-
ranged by CMTC with ING Bank NV at an amount representing approximately 50% of the vessel’s charter free market value at the time
of the dropdown. The term loan is non-amortizing for a period of two years from the anniversary of the dropdown with an expected final
maturity date in June 2023 and bears interest at LIBOR plus a margin of 2.50%. The Partnership expects to take delivery of M/T Anikitos
in March 2018, following the delivery of the M/T Aristotelis to its new owner.
F-30
CAPITAL PRODUCT PARTNERS L.P. ANNUAL REPORT 2017
CORPORATE INFORMATION
EXECUTIVE OFFICERS & DIRECTORS
Keith Forman*
Chairman of the Board and Director
Jerry Kalogiratos
Chief Executive Officer and Director
Nikolaos Kalapotharakos
Chief Financial Officer
Gerasimos Ventouris
Chief Operating Officer
Dimitris P. Christacopoulos*
Director
Gurpal Grewal
Director
Rory Hussey*
Director
Abel Rasterhoff*
Director
Eleni Tsoukala
Director
* Member Audit & Conflict Committees
STOCK EXCHANGE LISTING
Listed: NASDAQ Global Select Market
Symbol: CPLP
Limited Partnership Common Units: 127,246,692
Class B Convertible Preferred Units: 12,983,333
(As of July 5, 2018)
TRANSFER AGENT
Computershare
480 Washington Boulevard
Jersey City, New Jersey 07310-1900, USA
INDEPENDENT AUDITORS
Deloitte Certified Public Accountants S.A.
Fragkokklisias 3A, Marousi 151 25, 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.com
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 return of capital to the extent of a U.S. unitholder’s
tax basis in its common units on a dollar-for-dollar basis, and thereafter as capital gain.
• Capital Product Partners intends to provide, annually, to each registered U.S. unitholder of
record, a Form 1099 that will indicate the amount of the unitholder’s annual distributions
that are treated as dividends for U.S. federal tax purposes and other information necessary
to be included in tax returns.
NOTE REGARDING FORWARD LOOKING STATEMENTS: This Annual Report contains forward-looking statements (as defined in Section 21E of the
Securities Exchange Act of 1934, as amended) which reflect management’s current assumptions and expectations with respect to expected future
events and performance. All statements, other than statements of historical facts, including, among others, statements regarding: our expected
cash flows and annual growth, the expected redelivery of our charters, our expected charter coverage ratio for 2018 and 2019, employment of our
vessels and future dealings with oil majors; as well as statements regarding market and industry trends including future refining capacity and ton
mile development and our expectations and objective regarding distributions (including quarterly guidance and distribution growth objectives) and
the Partnership’s ability to pursue growth opportunities, are forward-looking statements. Such statements are subject to a number of assump-
tions, risks and uncertainties, many of which are beyond our control, and undue reliance should not be placed upon them. Many factors could
cause forecasted and actual results to differ materially from those anticipated or implied in these forward-looking statements. Stated competitive
positions are based on management estimates supported by information provided by specialized external agencies. For a more comprehensive
discussion of the risk factors affecting our business please see our Annual Report on Form 20-F for the year ended December 31, 2017, filed
with the U.S. Securities and Exchange Commission, a copy of which can also be found on our website www.capitalpplp.com. Unless required by
law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new
information, a change in our views or expectations, to conform them to actual results or otherwise. Neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance
of our common units or our Class B Convertible Preferred Units.
M/T AGISILAOS
3 Iassonos St., Piraeus 18537, Greece
Tel: +30 210 458 4950
Fax: +30 210 428 4285
info@capitalpplp.com
www. capitalpplp.com
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A
L
R
E
P
O
R
T
2
0
1
7
ANNUAL REPORT
2017