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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Date of event requiring this shell company report:
For the transition period from to
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
Trading Symbol(s)
Name of each exchange on which registered
Common units representing limited partnership
interests
CPLP
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.
20,255,707 Common Units
566,239 Treasury Common Units
348,570 General Partner Units
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ☐ NO ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
YES ☐ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
YES ☒ 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 ☒
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 whether the registrant has filed a report on an attestation to it management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International
Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statements item the 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 ☒
CAPITAL PRODUCT PARTNERS L.P.
TABLE OF CONTENTS
Page
Part I
Item 1.
Identity of Directors, Senior Management and Advisors
5
Item 2.
Offer Statistics and Expected Timetable
5
Item 3.
Key Information
5
Item 4.
Information on the Partnership
37
Item 5.
Operating and Financial Review and Prospects
50
Item 6.
Directors, Senior Management and Employees
61
Item 7.
Major Unitholders and Related-Party Transactions
65
Item 8.
Financial Information
71
Item 9.
The Offer and Listing
77
Item 10. Additional Information
77
Item 11. Quantitative and Qualitative Disclosures about Market Risk
83
Item 12. Description of Securities Other than Equity Securities
84
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
85
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
85
Item 15. Controls and Procedures.
85
Item
16A.
Audit Committee Financial Expert
86
Item
16B.
Code of Ethics
86
Item
16C.
Principal Accountant Fees and Services
87
Item
16D.
Exemptions from the Listing Standards for Audit Committees
87
Item
16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
87
Item
16F.
Change in Registrant’s Certifying Accountant
88
Item
16G.
Corporate Governance
88
Item
16H.
Mine Safety Disclosure
88
Item 16I.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
88
Part III
Item 17. Financial Statements
89
Item 18. Financial Statements
89
Item 19. Exhibits
90
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ABOUT THIS REPORT
This annual report on Form 20-F (this “Annual Report”) should be read in conjunction with our audited consolidated balance sheets as of December 31, 2022
and 2021, 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, 2022, and the related notes included herein (the “Financial Statements”).
In this Annual Report, unless the context otherwise requires:
•
the “Partnership”, “CPLP”, “we”, “us” or “our” refer to Capital Product Partners L.P. and, unless the context otherwise requires, its consolidated
subsidiaries;
•
“CPLP PLC” refers to CPLP Shipping Holdings PLC, a public limited liability company and wholly owned subsidiary of CPLP, which issued €100.0
million and €150.0 million of senior unsecured bonds guaranteed by CPLP (the “Bonds”) listed on the Athens Stock Exchange in July 2022 and October
2021, respectively;
•
“Capital Maritime” or “CMTC” refer to Capital Maritime & Trading Corp., our sponsor;
•
“General Partner” refers to Capital GP L.L.C., our general partner;
•
“Capital-Executive” refers to Capital-Executive Ship Management Corp.
•
“Capital Ship Management” refers to Capital Ship Management Corp.
•
“Capital Gas” refers to Capital Gas Ship Management Corp.
•
the “Managers” refers to our managers, Capital-Executive , Capital Ship Management and Capital Gas;
•
“financing arrangements” refers to our debt financing arrangements as well as to our sale-leaseback financing arrangements, seller’s credit agreements
and the Bonds; and
•
“debt” includes indebtedness under the financing arrangements.
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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” within the meaning of the safe harbor provisions of the U.S.
Private Securities Litigation Reform Act of 1995. 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 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. Key Information—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;
•
our ability to increase our cash available for distribution over time;
•
expectations regarding global economic outlook and growth;
•
expectations regarding shipping conditions and fundamentals, including the balance of supply and demand, as well as trends and conditions in the newbuild
markets and scrapping of older vessels;
•
our current and future business and growth strategies and other plans and objectives for future operations; future acquisitions and deliveries of vessels from
Capital Maritime or third parties;
•
our continued ability to enter into medium- or long-term, fixed-rate time charters with our charterers and to re-charter our vessels at attractive rates as their
existing charters expire;
•
the relationships and reputations of our Managers and our General Partner in the shipping industry;
•
the financial condition, viability and sustainability of our charterers, including their ability to meet their obligations under the terms of our charter agreements;
•
developments with regard to the COVID-19 pandemic and its impact on the global economy, international trade and shipping markets;
•
our ability to maximize the use of our vessels;
•
our ability to access debt, credit and equity markets;
•
our ability to service, refinance or repay our financing under our financing arrangements and settle our hedging arrangements;
•
planned capital expenditures and availability of capital resources to fund capital expenditures;
•
the expected lifespan and condition of our vessels;
•
changes to the regulatory requirements applicable to the shipping industry, including, without limitation, stricter requirements adopted by international
organizations and the European Union (“EU”), or by individual countries or charterers and actions taken by regulatory authorities overseeing such areas as
safety and environmental compliance;
•
our ability to successfully operate exhaust gas cleaning systems (“scrubbers”) on certain or all of our vessels;
•
the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards, including new
environmental regulations and standards, as well as 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;
•
the adequacy of our insurance arrangements and our ability to obtain insurance and required certifications;
•
the anticipated taxation of our partnership and distributions to our common unitholders;
•
the ability of our General Partner to retain its officers and the ability of our Managers to retain key employees; and
•
anticipated funds for liquidity needs and the sufficiency of cash flows.
The preceding list is not intended to be an exhaustive list of all our forward-looking statements. These and other forward-looking statements are made based
upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and, therefore, involve a number of risks and
uncertainties, including those risks discussed in “Item 3. Key Information—D. Risk Factors” below, which could cause actual results to be materially different from
those contained in any forward-looking statement. 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.
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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 that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
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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.
[Reserved.]
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 risks described below relate to the industries and the countries in which we operate as of the date of this Annual Report. Please read “Item 4.
Information on the Partnership” for information on the current scope of our operations. While we currently own 22 vessels consisting of 11 neo-Panamax container
vessels, three Panamax container vessels, one drybulk vessel and seven LNG carriers, as well as one neo-Panamax container vessel that we have agreed to acquire and
that we expect will be delivered during the second quarter of 2023, we may in the future enter into additional markets. If that happens, we will be exposed to additional
risks.
Furthermore, we are organized as a limited partnership under the laws of the Republic of the Marshall Islands. Although many of the risks relating to our
business and operations 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 and involve additional risks.
If any of the following risks actually occurs, our business, financial condition, operating results and cash flow could be materially adversely affected. If that
happens, we might not be able to pay distributions on our common units, the trading price of our common units could decline and you could lose all or part of your
investment.
The risks described below include forward-looking statements and our actual results may differ substantially from those discussed in such forward-looking
statements. For more information, please read “Forward Looking Statements” above.
SUMMARY OF RISK FACTORS
The following is a summary of some of the principal risks we face. The list below is not exhaustive, and you should read this “Risk factors” section in full.
•
The ocean-going LNG, container and drybulk shipping industries are cyclical and volatile;
•
An oversupply of LNG carrier or containership capacity may depress current charter rates and adversely affect our ability to re-charter our vessels at profitable
rates or at all;
•
A decrease in the level of export and import of goods or LNG production and exports, as a result of trade protectionism, economic sanctions, changes in
commodity prices or other factors affecting global markets, could affect demand for shipping;
•
Vessel values may decrease and over time may fluctuate substantially, which may cause us to recognize losses if we sell our vessels or record impairments;
•
We may not be able to grow or to effectively manage our growth;
•
If our 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 may be adversely affected;
•
We currently derive a significant part 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;
•
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;
•
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; and
•
An increase in interest rates could increase our level of debt and the related interest expense, limit our ability to access debt and equity financing and increase
the cost of capital required to acquire additional vessels or to implement our business strategy.
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RISKS RELATED TO OUR INDUSTRY
We are exposed to various risks in the ocean-going LNG, container and drybulk shipping industries, which are cyclical and volatile.
We operate in the ocean-going LNG, container and drybulk shipping industries and our performance and future growth depend on continued demand in these
industries. Accordingly, we are exposed to various risks in these industries. Currently, we own seven LNG carriers, 14 container vessels and one drybulk vessel. As a
result, we are most exposed to risks in the ocean-going LNG and container shipping industries.
The LNG shipping industry is cyclical with attendant volatility in charter hire rates and profitability. Recently, the LNG charter market has recovered after
experiencing a prolonged period of historically low rates. The degree of charter hire rate volatility among different types of LNG vessels has varied widely, and time
charter and spot market rates for LNG vessels have in the past declined below operating costs of vessels.
The ocean-going container shipping industry is both cyclical and volatile in terms of charter rates and profitability and demand for our container vessels
depends on a range of factors, including changes in the supply and demand for ship capacity and changes in the supply and demand for shipment of cargoes in
containers. From the second half of 2020 onwards, as a result of the COVID-19 pandemic, changes in worldwide consumer behavior, reduced ports capacity due to
social distancing and quarantine measures imposed in various counties worldwide and dislocation of container boxes and containerized trade resulted in a rapid increase
in charter rates, which ultimately reached record levels in 2021 and the first half of 2022. Charter and freight rates in the container market in the first half of 2022
increased even further, reaching an all-time high in the first quarter of 2022. However, rates softened during the second half of 2022 and have declined, amid demand
headwinds, increased supply of vessels, easing in congestion and weaker economic sentiment. During 2022, demand in global container trade decreased by 5.3%
compared to the previous year in terms of Twenty-foot Equivalent Unit (“TEU”)/miles. The ongoing Russia-Ukraine conflict combined with inflationary pressures
across most major economies may lead to a global economic slowdown, which might in turn adversely affect demand for container vessels and containerized goods and
could negatively affect our results from operations. If the recent drop in freight rates continues, this could result in diminished profitability or losses, and could
adversely impact certain of our charterers, which could negatively affect our results from operations. For example, in a number of instances in the past, charterers have
not performed under, or have requested modifications of, existing time charters. See “—Risks Related to Our Business and Operations—Certain of our vessels may be
under time charters at rates that are at a substantial premium to the spot and period markets, and our charterers’ failure to perform under these time charters could result
in a significant loss of expected future revenues and cash flows.” and “—Risks Related to Our Business and Operations—If our 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 may be adversely affected.”
The drybulk shipping industry is cyclical with attendant volatility in charter rates, vessel values and profitability, with wide disparities across different classes of
drybulk carriers. Our sole drybulk carrier, the M/V Cape Agamemnon is currently deployed in the spot market, which is highly volatile and which may affect our
earnings and the value of that vessel. If we cannot enter into a period time charter for the M/V Cape Agamemnon on acceptable terms, we may have to continue 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.
See “—Risks Related to Our Business and Operations—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.”
The factors affecting the supply of LNG, products shipped in containers and drybulk cargoes and the demand for LNG carriers, containerships and/or drybulk
vessels are outside our control and the nature, timing, direction and degree of changes in industry conditions are difficult to predict.
Some of the factors that influence demand for LNG carriers, containerships and/or drybulk vessels include:
•
the price of LNG, which may be affected, among other things, by:
•
the prices and availability of crude oil, petroleum products and natural gas, including to the extent that natural gas prices are benchmarked to the price of
crude oil, which could negatively affect the economies of potential new LNG production projects;
•
the cost of natural gas derived from LNG relative to the cost of natural gas generally and the cost of alternative fuels, including renewables and coal, and the
impact of increases in the cost of natural gas derived from LNG on consumption of LNG; and
•
the impact of any adverse effects on the oil and gas industry relating to climate change, including growing public concern about the environmental impact of
climate change;
•
changes in the exploration, development, production or transportation of LNG, including the availability and allocation of capital by developers to new LNG
projects, events that may affect the availability of sufficient financing for LNG projects and the location of regional and global exploration, production and
manufacturing facilities;
•
the location of consuming regions for LNG and increases in the production of lower cost domestic natural gas in natural gas consuming markets, which could
further depress prices for natural gas in those markets;
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•
changes in global production of products transported by containerships and/or drybulk vessels;
•
seaborne and other transportation patterns, including the distances over which LNGs, container and/or drybulk cargoes are transported and changes in such
patterns and distances;
•
the globalization of production and manufacturing;
•
developments in international trade and in the market for exports of containerized goods and raw materials;
•
global and regional economic and political conditions, including political and military conflicts;
•
developments in international trade including threats and/or imposition of trade tariffs;
•
any significant explosion, spill or other incident involving an LNG facility or carrier;
•
economic growth in China, India and other emerging markets, including trends in the market for imports of raw materials to such markets;
•
developments with regard to the ability of nations worldwide to address pandemics, such as the COVID-19 pandemic, and their impact on economic activity;
•
laws and regulations, including but not limited to new taxes, environmental protection laws and other regulatory developments;
•
regional, national or international energy policies that constrain the production or consumption of hydrocarbons including natural gas;
•
currency exchange rates;
•
changes in weather patterns, including warmer winters in the northern hemisphere and lower gas demand in the traditional peak heating season and severe
weather events resulting from climate change; and
•
cost of bunkers.
Some of the factors that influence the supply of LNG carriers, containerships and/or vessel capacity for drybulk carriers include the following:
•
the number of newbuild orders and deliveries, which among other factors depend upon the ability of shipyards to meet contracted delivery dates and the ability
of purchasers to finance such new acquisition;
•
the extent of newbuild vessel deferrals;
•
the scrapping rate of LNG, containerships and/or drybulk vessels;
•
newbuild prices and LNG, containership and/or drybulk vessel owner access to capital to finance the construction of newbuilds;
•
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 vessels;
•
the number of LNG, containerships and/or drybulk vessels that are slow-steaming or extra slow-steaming to conserve fuel;
•
the number of LNG, containerships and/or drybulk vessels that are off-charter and the number of vessels otherwise not in service (for example, as a result of
vessel casualties);
•
port and canal congestion and closures; and
•
demand for fleet renewal.
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An oversupply of vessel capacity may prolong or depress current charter rates and adversely affect our ability to re-charter our vessels at profitable rates or
at all.
Since 2014, the LNG market has been at times characterized by an oversupply of LNG tonnage, mainly caused by delays in new LNG capacity coming on
stream. In addition, following a decline in ordering of newbuildings during 2016 and 2017, ordering increased in 2018 through 2022, driven by the strengthening of
charter rates and increasing expectations for long-term LNG supply and demand. As a result, the LNG orderbook as of December 31, 2022 represented approximately
50% of the total on-the-water fleet capacity which is expected to be delivered between 2023 and 2028. A potential overhang of new vessels may cause LNG charter
rates to be depressed.
In the containership market, the container order book as of December 31, 2022 represented approximately 29.1% of the total on-the-water fleet capacity.
Deliveries of vessels ordered will significantly increase the size of the on-the-water container fleet over the next two to three years, which might in turn create an
overhang of container vessels and cause container charter rates to be depressed.
The number of drybulk vessels on order as of December 31, 2022 was estimated by market sources to be approximately 7.6% of the then-existing global
drybulk fleet in dead weight ton (“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 newbuild vessels or re-chartered or idle vessel capacity entering the market, combined with any decline in the demand for LNG,
containerships or drybulk vessels, may depress charter rates and may decrease our ability to re-charter our vessels other than for reduced rates or unprofitable rates or to
re-charter our vessels 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 decrease in the level of export and import of goods, in particular from and to Asia, as a result of trade protectionism, economic sanctions or other factors
affecting global markets, could affect demand for shipping, resulting in a material adverse impact on our charterers’ business and, in turn, 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, trade embargoes or other economic sanctions or other factors affecting global markets
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.
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. In the United States, there is
significant uncertainty about the future relationship between the United States and other exporting countries, including with respect to trade policies, treaties,
government regulations and tariffs. Any future trade barriers or restrictions on trade in the United States may trigger retaliatory actions by others, potentially resulting
in a “trade war.”
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 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, which 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.
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.
Our business could be harmed by trade tariffs, as well as any trade embargoes or other economic sanctions by the United States or other countries against
Russia and countries in the Middle East, Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures that limit trading activities with
those countries. In particular, the ongoing conflict between Russia and Ukraine, and attendant sanctions imposed by the United States, the European Union (“EU”) and
other countries may also adversely impact our business, especially given Russia’s role as a major global exporter of crude oil and natural gas and the imposition of a
price cap on Russian-origin oil announced by the U.S., EU and several other countries in December 2022. So far the reduced flow of Russian natural gas into Europe
and the associated trade distortions has increased demand for LNG shipping, but a long term change in trade patterns of LNG, as a result of the conflict, might
adversely affect the demand for LNG shipping and as a consequence might impair our capacity to re-charter the vessels after the expiration of their current charters.
Any new or increased trade barriers, trade embargoes or restrictions on trade would have an adverse impact on our charterers’ business, operating results and
financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us.
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.
Worldwide inflationary pressures could negatively impact our results of operations and cash flows.
Worldwide economies have recently experienced inflationary pressures, with price increases seen across many sectors globally. For example, the U.S. consumer
price index, an inflation gauge that measures costs across dozens of items, rose 6.5% in December 2022 compared to the prior year, driven in large part by increases in
energy costs. It remains to be seen whether inflationary pressures will continue, and to what degree, as central banks respond to price increases. As a result of the
heightened inflation experienced in 2022, we have incurred increased operating, voyage and administrative costs including higher costs for dry-docking. If inflationary
pressures persist, we may experience further increases in our voyage, administrative and operating expenses, which we may not able to pass on to our
charterers. Furthermore, the effects of inflation on the supply and demand of the products we transport could alter demand for our services. Interventions in the
economy by central banks in response to inflationary pressures may slow down economic activity, including by altering consumer purchasing habits and reducing
demand for the commodities and products we carry, and cause a reduction in trade. As a result, the volumes of LNG and/or goods we deliver and/or charter rates for our
vessels may be affected. Any of these factors could adversely affect our business, financial condition, results of operations, liquidity, cash flows and ability to pay cash
distributions and service or refinance our debt.
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LNG, container and drybulk vessel values have historically been volatile. Vessel values may decrease and over time may fluctuate substantially, which may
cause us to recognize losses if we sell our LNG carriers, container vessels or the M/V Cape Agamemnon, or record impairments and affect our ability to
comply with our loan covenants or refinance our debt.
The market values of LNG, drybulk and container vessels have generally experienced high volatility. LNG, container and drybulk vessel values can fluctuate
substantially over time due to a number of different factors, including:
•
prevailing economic and market conditions affecting the shipping industry (including the level of worldwide LNG production and exports);
•
reduced demand for vessels, including as a result of a substantial or extended decline in world trade;
•
supply of vessels and capacity;
•
types, sizes and ages of vessels;
•
prevailing charter rates, the need to upgrade vessels as a result of charterer requirements 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, including regulations or standards which relate to the reduction of greenhouse
emissions;
•
prevailing newbuild prices for similar vessels;
•
prevailing demolition prices for similar vessels;
•
availability of capital for investment in vessels, including ship finance and public equity;
•
supply of containerships in the market for sale, including mass disposals of containerships controlled by financing institutions, “fire sales” of vessels by
some of our competitors or other fleet-owners that may be in distress, or commercial banks foreclosing on collateral from time to time; and
•
competition from other shipping companies and the availability of other modes of transportation.
If the market values of our vessels deteriorate, 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 our vessels at a reasonable price could result in a loss. A decline in the market value of our vessels could also lead to a
default under our financing arrangements 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 operations, cash flows and ability to make distributions may be materially and adversely affected.
Our growth and our ability to re-charter our LNG vessels and 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 and LNG vessels is highly competitive, generally involves an intensive screening
process and competitive bids, and often extends for several months.
LNG and 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;
•
LNG and container shipping experience and quality of vessel operations, including cost effectiveness;
•
quality and experience of seafaring crew;
•
the ability to finance LNGs and 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 vessels according to charterers’ 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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Competition for providing containerships for chartering purposes comes from a number of experienced shipping companies, including direct competition from
other independent vessel 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 LNG and containership sector, including many with strong reputations and extensive resources and experience in the marine
transportation industry. Furthermore, both markets are highly fragmented. Due in part to the highly fragmented market, competitors with greater resources could enter
the LNG and container shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates than we are able to
offer. Although we believe that no single competitor has a dominant position in the markets in which we compete, we are aware that certain competitors may be able to
devote greater financial and other resources to their activities than we can, resulting in a significant competitive threat to us. This increased competition in both the
LNG and containership shipping markets 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 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 of March 31, 2023, five of our container vessels are chartered
for less than two years and our sole drybulk vessel, the M/V Cape Agamemnon, is deployed in the spot market. Our LNG carriers are under long-term time charters
expiring at the earliest in 2025 (three carriers), 2028 (one carrier), 2029 (one carrier), and 2031 (two carriers). On redelivery from their present charters, our vessels
may operate in the short-term or spot market unless we are unable to secure long-term charters. As more vessels 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. See “—Risks Related to Our Business and Operations—An oversupply of vessel capacity may prolong or depress current charter rates and
adversely affect our ability to re-charter our vessels at profitable rates or at all.”
In recent years, global natural gas and crude oil prices have been volatile. Any decline in oil prices can depress natural gas prices and lead to a narrowing of the
difference in pricing between geographic regions, which can adversely affect the length of voyages in the spot LNG shipping market and the spot rates and medium-
term charter rates for charters which commence in the near future. In addition, advances in LNG carrier technology may negatively impact our ability to re-charter our
LNG carriers on attractive rates and may result in lower levels of utilization.
Operating vessels in the spot market or being unable to re-charter vessels on long-term charters with similar or better rates may mean that our revenues and cash
flows from these vessels will decline following the expiration of our current charter arrangements. These factors could have a material adverse effect on our business
results or operations, cash flows and our ability to make cash distributions and service or refinance our debt. In particular, a sustained decline in our charter rates and
employment opportunities could adversely affect the market value of our vessels, on which certain ratios and financial covenants with which we are required to comply
are based. A significant decline in the market value of our vessels could impact our compliance with covenants in our financing arrangements and, if the values are
lower at a time when we are attempting to dispose of vessels, could cause us to incur a loss. See “—LNG, container and drybulk vessel values have historically been
volatile. Vessel values may decrease and over time may fluctuate substantially, which may cause us to recognize losses if we sell our LNG carriers, container vessels or
the M/V Cape Agamemnon, or record impairments and affect our ability to comply with our loan covenants or refinance our debt.”
A negative change in the economic conditions in Asia, especially in China, Japan or India, could reduce drybulk trade and demand, which would affect
charter rates and have a material adverse effect on the profitability of our drybulk vessel.
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. We currently anticipate that the future demand for the M/V Cape Agamemnon will be dependent, among other things, upon the rate of economic
growth in the global economy and particularly in Asia, including the world’s developing economies, such as China, India, Brazil and Russia. The ongoing hostilities
between Russia and Ukraine, in addition to sanctions imposed on Russia and Belarus and certain entities and individuals in these countries may also adversely impact
our business due to their impact on the global economy and particularly Asia. See “—Regulatory Risks— 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.” If economic
growth declines in China, Japan, India and other countries in Asia, drybulk trade and demand and, as a result, charter rates for drybulk vessels, may decrease and
adversely affect our ability to re-charter the M/V Cape Agamemnon at a profitable rate or at all, 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 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. Competition 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, charterer 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.
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The operation of drybulk vessels involves 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 distributions 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 bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment
during unloading procedures may be more susceptible to breach while at sea. Breaches of a drybulk vessel’s hull may lead to the flooding of the vessel’s holds. If a
drybulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads, leading
to the loss of a vessel. If we or Capital-Executive 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.
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RISKS RELATED TO OUR BUSINESS AND OPERATIONS
We may not be able to grow, or to effectively manage our growth, which could negatively affect our competitiveness and financial condition.
Our success depends on our ability to grow our business. The growth of our business depends upon a variety of factors, some of which we cannot control. These
factors include, among other things, our ability to:
•
capitalize on opportunities in the markets in which we operate by fixing time charters for our vessels at attractive rates;
•
obtain required financing and access to capital markets for new and existing operations;
•
identify additional new markets;
•
identify vessels and/or shipping companies for acquisitions;
•
complete accretive transactions;
•
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;
•
comply with existing and new regulations, such as those imposed by the International Maritime Organization (“IMO”) 2020 and the Ballast Water
Management Convention; and
•
maintain our commercial and technical management agreements with our Managers or other competent managers.
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 newbuilds or locate suitable vessels or negotiate acceptable construction or purchase
contracts with shipyards and owners, or obtain financing for such acquisitions on economically acceptable terms, or at all.
Failure to effectively identify, purchase, develop, employ and integrate any vessels or businesses could negatively affect our competitiveness, business, financial
condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
Certain of our vessels may be under time charters at rates that are at a substantial premium to the spot and period markets, and our charterers’ failure to
perform under these time charters could result in a significant loss of expected future revenues and cash flows.
Our LNG and container vessels that are chartered to BP Gas Marketing Limited (“BP”), Cheniere Marketing International LLP (“Cheniere”), Engie Energy
Marketing Singapore Pte Ltd (“Engie”), Hyundai Merchant Marine Co Ltd. (“HMM”), Hartree Partners Power & Gas Company (UK) Limited (“Hartree"), CMA CGM
S.A. (“CMA CGM”) and Hapag-Lloyd Aktiengesellschaft (“Hapag-Lloyd”) are each currently employed under medium-to-long-term time charters.
Given that the rates we charge to these charterers may at times be significantly higher than the underlying charter market, failure to perform by any of them
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 faces, or continues to face, financial difficulties forcing it to declare bankruptcy, 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 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 beyond repair, there are
serious deficiencies in the vessels or prolonged periods of off-hire, or we default under the charters;
•
a prolonged force majeure event affecting the 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.
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In the event we lose the benefit of the charters with BP, Cheniere, Engie, Hartree, HMM or Hapag-Lloyd prior to their respective expiration date, we would
have to re-charter the vessels at the then prevailing charter rates. If the charter market is depressed at such time, or when time charters for our vessels otherwise expire,
we may be forced to re-charter our vessels at reduced or even unprofitable rates, or we may not be able to re-charter them 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.
If our 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 may be adversely affected.
Many charterers are highly leveraged. 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 charterers in the recent past,
including liner companies, and their ability to make charter payments, which resulted in a material increase in the credit and counterparty risks to which we were
exposed and our ability to re-charter our vessels at competitive rates.
For example, HMM, the charterer of five of our container vessels, completed a financial restructuring in July 2016. In connection with this restructuring, we
agreed a reduction of the charter rate payable to us of 20% to $23,480 per day (from a gross daily rate of $29,350) for a three and a half year period ended in December
2019 and 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 in August 2016 for aggregate cash consideration of $29.7 million.
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 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 number of our charterers are private companies and we may have limited access to their financial information, which may result in us having limited
information on their financial strength and ability to meet their financial obligations.
The loss of our charterers 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.
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, 2022 our charterers who individually accounted for more than 10% of total revenues were BP, HMM, Cheniere and Hapag-Lloyd, who accounted for
28%, 18%, 17% and 16% 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 circumstances described above in “—Certain of our vessels may be under time charters at rates that are at a substantial premium to the spot and period
markets, and our charterers’ failure to perform under these time charters could result in a significant loss of expected future revenues and cash flows.”
Pandemics such as the novel coronavirus (COVID-19) have, in the short to medium term, had an adverse effect on our operations and financial condition and
may have unpredictable long-term effects, including on the demand and supply for LNG, container and drybulk vessels.
On March 11, 2020, the World Health Organization declared the spread of a novel coronavirus (COVID-19) to be a global pandemic. The COVID-19 pandemic
and the government responses thereto negatively impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial
markets and increased unemployment levels. In addition, the pandemic has resulted in the imposition of various travel restrictions, health protocols and changing
quarantine regimes in the countries in which we operate. These have translated into, among other things, increased costs and off-hire related to crewing, crew rotation
and crew related expenses, higher forwarding expenses and longer lead times to delivery, as well as increased dry-docking duration and costs. While most economies
have reopened, it is impossible to predict the course the virus will take, how governments would respond to additional waves of the virus and the long-term
effectiveness of vaccines against the virus. In the long run, the impact of COVID-19 on the global economy, consumer behavior, globalization and international trade
remains uncertain.
We expect that pandemics generally could affect our business in the following ways, among others:
•
Pandemics may reduce the demand for LNG or goods worldwide without a commensurate corresponding change in the number of vessels worldwide, thereby
increasing competition and decreasing the market price for transporting LNG, containerized and drybulk products;
•
Countries could impose quarantine checks and hygiene measures on arriving vessels, causing delays in loading and delivery of cargo;
•
The process of buying, selling, and maintaining vessels may become more onerous and time-intensive. For instance, delays may be caused at shipyards for
newbuildings, dry-docks and other work, in vessel inspections and related certifications by class societies, customers or government agencies, as well as delays
and shortages or a lack of access to required spare parts and lack of berths or shortages in labor, which may in turn delay any repairs to, scheduled or
unscheduled maintenance or modifications, or dry-docking of our vessels;
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•
We may experience a decrease in productivity, generally, as people—including our Managers’ office employees and crews, as well as our counterparties—fall
ill and take time off from work. We are particularly vulnerable to our crew members getting sick, as if even one of our crew members is ill, local authorities
could require us to detain and quarantine the applicable vessel and its entire crew for an unspecified amount of time, disinfect and fumigate the vessel, or take
similar precautions, which would add costs, decrease our utilization, and substantially disrupt our cargo operations. If a vessel’s entire crew falls seriously ill,
we may have substantial difficulty operating that vessel which may necessitate extraordinary external aid;
•
International transportation of personnel could be limited or otherwise disrupted. In particular, our crews generally work on a rotation basis, relying largely on
international air transport for crew changes plan fulfillment. Any such disruptions could impact the cost of rotating our crew and our ability to maintain a full
crew synthesis onboard all our vessels at any given time. It may also be difficult for our in-house technical teams to travel to ship yards to observe vessel
maintenance, and we may need to hire local experts who may vary in skill and are difficult to supervise remotely, to conduct work we ordinarily address in-
house;
•
Governments may impose new regulations, directives or practices, which we may be obligated to implement at our own expense;
•
Any or all of the foregoing could lead our charterers to try to invoke force majeure clauses; and
•
Credit tightening or declines in global financial markets, including to the prices of our publicly traded securities and the securities of our peers, could make it
more difficult for us to access capital, including to finance our existing debt obligations.
Any of these public health threats and related consequences could adversely affect our financial results.
These and other impacts of pandemics in general, including the COVID-19 pandemic, could have the effect of heightening many of the other risk factors
disclosed in this Annual Report. The actual impact of the COVID-19 pandemic in the longer run may take some time to materialize and may not be fully reflected in the
results for the year ending December 31, 2022.
We mostly depend on our Managers, which are privately held companies for the commercial and technical management of our fleet. If, for any reason, any of
our Managers is unable to provide us with the necessary level of services to support and expand our business or qualify for long-term charters, our business,
financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt may be materially affected.
Our Managers are privately held companies and not part of the group of companies controlled by Capital Maritime. Accordingly, they do not benefit from the
financial and operational support of Capital Maritime as parent company.
Under the arrangements we have with our Managers, they provide us with significant commercial and technical management services, including the commercial
and technical management for all our vessels, class certifications, vessel maintenance, crewing, procurement, insurance and shipyard supervision, as well as
administrative, financial and other support services. Please read “Item 4. Information on the Partnership—B. Business Overview—Our Management Agreements.”
Accordingly, our operational success and ability to execute our growth strategy depend significantly upon our Managers’ satisfactory performance of these services.
Furthermore, our success in securing new charters and expanding our relationships with charterers depend largely on our Managers’ reputation, relationships in
the shipping industry and ability to qualify for long-term business with major charterers.
If our Managers’ reputation or industry relationships are harmed, justifiably or not, or if any of our Managers does not perform satisfactorily under our
management agreements, 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, access capital markets, or maintain satisfactory relationships with suppliers and
other third parties may be materially affected.
If any of the above risks were to materialize, our business, financial condition, results of operations, cash flows and our ability to make cash distributions and
service or refinance our debt may be materially affected.
The fees and expenses we pay to our Managers for services provided to us are substantial, fluctuate, cannot be easily predicted and may reduce our cash
available for distribution to our unitholders.
In the light of the floating fee structure of our management agreements, any increase in the costs and expenses associated with the provision of our Managers’
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.
Expenses incurred to manage our fleet depend upon a variety of factors, many of which are beyond our or our Managers’ 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.
Fees charged by our Managers and compensation for expenses and liabilities incurred on our behalf, as well as the costs associated with future dry-dockings or
intermediate surveys on our vessels, can be significant. Accordingly, these fees and expenses 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.
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We depend on our General Partner, a private company under the ownership of Mr. Miltiadis E. Marinakis, for the day-to-day management of our affairs.
Our General Partner, Capital GP L.L.C., is a privately held company initially formed and controlled by Capital Maritime. In April 2019, Capital Maritime
transferred all membership interests in our General Partner to Mr. Miltiadis E. Marinakis. Please read “—Risks Inherent in an Investment in Us—The control of our
General Partner may be transferred to a third party without unitholder consent.” Mr. Miltiadis E. Marinakis, born in 1999, is the son of Mr. Evangelos M. Marinakis.
Although not engaged in day-to-day management, Mr. Miltiadis E. Marinakis holds and oversees certain shipping interests on behalf of the Marinakis family.
To date, our board of directors has not exercised its power to appoint officers of the Partnership. As a result, we rely, and expect to continue to rely, solely on the
officers of our General Partner. Please read “—Risks Inherent in an Investment in Us—We currently do not have any officers and rely, and expect to continue to rely,
solely on officers of our General Partner, who face conflicts in the allocation of their time to our business.” Accordingly, the proper management of our business
depends significantly upon our General Partner.
If the reputation, industry relationships or standing in the market of the General Partner and, in turn, the Partnership, are harmed, justifiably or not, or if our
General Partner fails to properly manage our affairs, our ability to secure new charters, interact with counterparties, obtain financing on commercially acceptable terms,
access capital markets, or maintain satisfactory relationships with suppliers and other third parties may be materially affected. If any of these risks were to materialize,
our business, financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt may be materially
affected.
Our vessels’ present and future employment could be adversely affected by an inability to clear charterers’ risk assessment process.
Shipping has been, and will remain, heavily regulated. Concerns for the environment have led charterers to develop and implement a strict ongoing due
diligence process when selecting their commercial partners. This vetting process has evolved into a sophisticated and comprehensive risk assessment of both the vessel
operator and the vessel, including physical ship inspections, completion of vessel inspection questionnaires performed by accredited inspectors and the production of
comprehensive risk assessment reports. In the case of term charter relationships, in addition to factors discussed under “—Our growth and our ability to re-charter our
LNG vessels and 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 following factors may be 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;
•
shipping industry relationships, reputation for customer service, technical and operating expertise; and
•
compliance with the charterer’s codes of conduct, policies and guidelines, including transparency, anti-bribery and ethical conduct requirements and
relationships with third parties.
Should our Managers not continue to successfully clear major charterers’ 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 major charterers’ terminating 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.
If we decide to install scrubbers on additional vessels, the number of off-hire days of our fleet will increase and we will incur expenses related to the dry-
dockings and, as a result, our cash available for distribution to our unitholders may decrease.
As of the date of this Annual Report, five of our vessels have been retrofitted with scrubbers while two were delivered from the building yard with scrubbers
attached. We expect that the three 10,000 TEU container carrier vessels we acquired in January 2020 will be retrofitted with scrubbers in 2023. We may decide to
retrofit the rest of our fleet with scrubbers in the future, subject to market developments and shipyard availability. The installation of scrubber equipment requires the
vessel to be dry-docked and incur off-hire days. We estimate that the installation of a scrubber (without any unforeseen delays) requires 40 to 75 off-hire days per
vessel.
In addition to the installation of scrubbers or other equipment we may decide to put a vessel into dry-dock before the scheduled dry-docking date in anticipation
of regulatory changes, opportunities in the charter market or if we deem that, due to the location of the vessel, it will be less costly to put the vessel into dry-dock at the
time.
Once one of our vessels is dry-docked, it is automatically considered to be off-hire for the duration of the special or intermediate survey or dry-docking, which
means that for such period of time that vessel will not be earning any revenues. During that period, we however may incur, or may be required to reimburse our
applicable Managers for, on-going operating expenses or other expenses related to the dry-dock. Accordingly, dry-docking may materially affect our cash available for
distribution to our unitholders.
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If our vessels suffer damage due to the inherent operational risks of the shipping industry, we may experience unexpected dry-docking 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 (including severe weather events
resulting from climate change), business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and
other circumstances or events. For the LNG carriers, there is a risk of damage in the membrane of the cargo tanks due to sloshing in extreme weather.
If our vessels suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock repairs are unpredictable and may be substantial. We
may have to pay dry-docking 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 dry-docking facilities is sometimes limited and not all dry-
docking facilities are conveniently located. We may be unable to find space at a suitable dry-docking facility or our vessels may be forced to travel to a dry-docking
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 dry-
docking facilities may adversely affect our business and financial condition. In cases, where the unexpected off-hire period exceeds the maximum allowed under the
respective charter party, the charterer may elect to terminate the charter party. Furthermore, 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.
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 secondhand vessels, we may be exposed to increased operating costs and capital expenditure associated with
new regulations, which could adversely affect our results of operations.
Our fleet of 23 vessels, including the 13,312 TEU container vessel that we expect to take delivery of in June 2023, had a DWT weighted average age of
approximately 6.7 years as of March 31, 2023 compared to the industry average of 13.2 years (adjusted for the composition of our fleet). See “Item 4. Information on
the Partnership—B. Business Overview —Our Fleet”.
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 aging fleet might affect our ability to remain in compliance with debt covenants and/or raise
financing.
In particular, seven of our vessels are not “eco-type” designs. Recent orders of container and drybulk vessels are based on new designs purporting to offer
material bunker savings compared to older designs and greater carrying capacity. Such savings could result in a substantial reduction of bunker cost for charterers on a
per unit basis. 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 at all. This could adversely affect our business, financial condition,
results of operations, cash flows and ability to make cash distributions and service our debt.
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
were 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.
Marine transportation is inherently risky, and an incident involving significant loss of, or environmental contamination by, any of our vessels could harm our
reputation and business.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as:
•
marine disasters;
•
bad weather (including severe weather events resulting from climate change);
•
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;
•
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.
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Our insurance may be insufficient to cover losses that may occur to our property or result from our commercial operations.
The operation of ocean-going vessels in international trade is inherently risky. Not all risks can be adequately insured against, and any particular claim upon our
insurance may not be paid for any number of reasons. We do not currently maintain off-hire insurance 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 distributions 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.
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 marine disaster could exceed our insurance coverage. 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 obtain.
In addition, the insurance that may be available to us may be significantly more expensive than our existing coverage.
We may 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 third party liability incurred in consequence of commercial operations is provided through membership in Protection & Indemnity (“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 crew employment agreements that manning agents enter into on behalf of our Managers, 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, Capital-Executive, and the Pan-Hellenic Seamen’s Federation, effective August 1, 2022, expires on
July 31, 2023. This collective bargaining agreement may not prevent labor interruptions and it is subject to renegotiation in the future. Although we believe that our
relations with our employees are satisfactory, no assurance can be given that we will be able to successfully extend or renegotiate our collective bargaining agreement
when it expires. If we fail to extend or renegotiate our collective bargaining agreement, if disputes with our union arise, or if our unionized workers engage in a strike or
other work stoppage or 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.
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 significant costs of discharging the maritime
lien, loss of earnings for the related off-hire period and other expenses and negatively affect our reputation, which could negatively affect the market for our common
units and adversely affect our business, financial condition, results of operations, cash flows and ability to make cash distributions and service or refinance our debt.
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Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
The government of a vessel’s registry could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a vessel and
becomes the owner. A government could also requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively
becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels
could have a material adverse effect on our 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 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 “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.
Although we believe we are adequately insured to cover loss attributable to such incidents, there is still a risk that such incidents may result in significant unrecoverable
loss which could have a material adverse effect on us.
Political and government instability can affect the industries in which we operate, which may adversely affect our business.
We conduct most of our operations outside of the United States, 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 attacks, war or international hostilities.
Terrorist attacks and the continuing response of countries to these attacks, as well as other current and future conflicts, contribute to world economic instability and
uncertainty in global financial markets. Terrorist attacks and political instability could result in increased volatility of the financial markets in the United States and
globally, and could negatively impact the U.S. and world economy, potentially leading to an economic recession. These uncertainties could also adversely affect our
ability to obtain additional financing on terms acceptable to us or at all.
In the past, political instability has also resulted in attacks on vessels, such as the attack on the M/T Limburg in October 2002, mining of waterways and other
efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the
South China Sea and the Gulf of Aden off the coast of Somalia. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other
property damage and increased vessel operational costs, including insurance costs.
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. Our operations may also be adversely affected by expropriation of vessels, taxes,
regulation, tariffs, trade embargoes, economic sanctions or a disruption of, or limit to trading activities, or other adverse events or circumstances in or affecting the
countries and regions where we operate or where we may operate in the future.
The ongoing conflict between Russia and Ukraine may lead to further regional and international conflicts or armed action. The invasion of Ukraine has
disrupted supply chains, caused instability in the global economy and added pressure to already rising inflation; these effects are likely to continue and possibly
compound as the conflict remains ongoing. Economic sanctions levied on Russia, its leaders and on Russian oil and oil products may cause further global economic
downturns, including additional increases in bunker costs, and the ongoing conflict could result in the imposition of further economic sanctions by the United States and
the European Union against Russia. While much uncertainty remains regarding the global impact of the conflict in Ukraine, it is possible that such tensions could
adversely affect our business, financial condition, results of operation and cash flows. In 2022, Russian gas accounted for 14% of total gas produced and Russian LNG
exports for 8% of the global trade. It is noteworthy that Russian gas accounted for 24% of all natural gas consumed in Europe during 2022. Furthermore, it is possible
that third parties with whom we have charter contracts may be impacted by events in Russia and Ukraine, which could adversely affect our operations.
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’ dry-docking, we are responsible for the cost of fuel consumed, which can be a significant vessel expense. Spot
charter arrangements generally provide that the vessel owner, or pool operator where relevant, bear the cost of fuel. Because we do not, and 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 (such as
the ongoing military conflict between Russia and Ukraine), 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.
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In addition, a global 0.5% sulphur cap on marine fuels imposed by the International Maritime Organization came 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 “— Regulatory Risks—The maritime
transportation industry is subject to substantial environmental and other regulations and international standards, which have become stricter over time and which may
significantly limit our operations, result in substantial penalties 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 container and drybulk 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, operational flexibility
and physical life. Determining a vessel’s efficiency includes considering its speed and fuel economy, while flexibility considerations include the ability to enter harbors,
utilize related docking facilities and pass through canals and straits. Specifically for LNG, technological developments in containment systems and reliquification
technology could affect the value of the vessels as well as their commercial life, as is now demonstrated in the market with older generation vessels trading at a
significant discount as compared to modern vessels. 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.
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.
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 operating surplus. We
account for maintenance capital expenditures required to maintain the operating capacity of our vessels, including any amortization of dry-docking costs associated
with scheduled dry-dockings, 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 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, including as a result of efforts
by central banks to address increased inflation, our ability to acquire new vessels or replace a vessel in our fleet to maintain our asset base and our income generating
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.
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 newbuilds 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 cost of a vessel is
further increased by financing, construction supervision, vessel start-up and other costs.
If we enter into contracts for newbuilds directly with shipyards, we generally will be required to make installment payments prior to their delivery. We typically
must pay between 5% and 10% of the purchase price of a vessel upon signing the purchase contract, even though delivery of the completed vessel will not occur until
much later (approximately 18–36 months later for current orders), which could reduce cash available for distributions to unitholders.
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To fund the acquisition of a vessel or a business or 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. 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 increase or make cash distributions.
Failure of the scrubber or ballast water treatment equipment to operate effectively 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.
As of the date of this Annual Report, five of our vessels have been retrofitted with scrubbers while two were delivered from the building yard with scrubbers
attached. As of the date of this Annual Report, all of our vessels are equipped with ballast water treatment system (“BWTS”). Failure of the scrubber and/or BWTS
equipment to operate effectively after installation might affect our ability to comply with regulatory requirements and/or our charter party agreements, which 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.
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RISKS RELATED 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 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
existing indebtedness.
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 the past 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 lenders, state-backed Hamburg Commercial Bank AG (“HCOB”), was mandatorily privatized.
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, LNG, 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.
In 2019, a number of leading lenders to the shipping industry and other industry participants announced a global framework, referred to as the “Poseidon
Principles”, by which financial institutions can assess the climate alignment of their ship finance portfolios, and additional lenders have subsequently announced their
intention to adhere to such principles. In addition, the EU has introduced a set of criteria for economic activities which should be framed as “green”, called the EU
Taxonomy. Based on the current version of the EU Taxonomy, companies that own assets shipping fossil fuels, including LNG carriers, are considered as not aligned
with the EU Taxonomy. If our operations are considered as not aligned with the EU Taxonomy, it could result in an increase in the cost of capital and/or gradually
reduced access to financing as a result of financial institutions’ compliance with EU Taxonomy. Accordingly, if the vessels in our fleet are deemed not to satisfy the
emissions and other sustainability standards contemplated by the Poseidon Principles, the EU Taxonomy or other Environmental Social Governance (ESG) standards
required by lenders or investors, the availability and cost of bank or other financing for such vessels, or our business as a whole, may be adversely affected.
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 current and future obligations may be impaired. In
addition, restrictions in the availability of credit supply, as well as higher interest rates resulting from efforts by central banks to address increased inflation, 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 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, 2022, our total debt was $1,299.2 million in total. Please also refer to “Item 5. Operating and Financial Review and Prospects—B.
Liquidity and Capital Resources—Borrowings (Financing Arrangements).”
Our leverage and amounts required to service our debt and leasing obligations could have a significant impact on our operations, including the following:
•
principal amortization under our financing arrangements 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, our creditors (senior or, if any, subordinated) and creditors (senior or, if any, subordinated) of our subsidiaries will be
entitled to payment in full prior to any distributions to our unitholders; and
•
our ability to secure additional financing, or to refinance our existing financing arrangements, may be substantially restricted by the existing level of our
indebtedness and the restrictions contained in them.
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.”
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Our financing arrangements contain, and we expect that any new or amended credit facilities or other financing arrangements we may enter into in the future
will contain, restrictive covenants, which may limit our business and financing activities, including our ability to make cash distributions.
Operating and financial restrictions and covenants under our existing financing arrangements and any new financing arrangements we may enter into in the
future could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, our current
financing arrangements require the consent of our lenders to, or limit our ability to, among other things:
•
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 our management
agreement.
Our existing financing arrangements also require us to comply with the International Safety Management Code and to maintain valid safety management
certificates and documents of compliance at all times. Our financing arrangements require us to comply with certain financial covenants:
•
to maintain minimum free consolidated liquidity of at least $0.5 million 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;
•
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 0.75; and
•
to 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 the respective outstanding amount under the applicable Financing Arrangement between 110% and 125%.
Our financing arrangements prohibit the payment of distributions that are not in compliance with certain of these financial covenants or security coverage ratios
or upon the occurrence of any other event of default.
Furthermore, the Bonds we issued in July 2022 and October 2021 require us to (a) maintain a pledged Debt Service Reserve Account (the “DSRA”) with a
minimum balance €100,000, (b) deposit to the DSRA an amount equal to 50% of any cash disbursements to our unitholders (e.g., dividends) exceeding $20.0 million
per annum, capped at 1/3 of the par value of the Bonds outstanding at the time and (c) if our market value adjusted net worth (“MVAN”) falls below $300.0 million, to
deposit to the DSRA the difference between the MVAN and $300.0 million (capped at 1/3 of the par value of the Bonds outstanding).
Our ability to comply with the covenants and restrictions contained in our financing arrangements 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 financing institutions 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 financing arrangements, or if we trigger a cross-default currently contained in our financing arrangements, 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
certain of our financing arrangements are secured by our vessels or through the ownership of the vessels, and if we are unable to repay, or otherwise default on, our
obligations under our financing arrangements, the lenders could seek to take control of these assets.
Furthermore, any contemplated vessel acquisitions will have to be at levels that do not impair the required ratios described above. Depressed shipping markets,
lack of capital in the industry and prolonged overcapacity have an adverse effect on vessel values. If the estimated asset values of our vessels decrease, we may be
obligated to prepay part of our outstanding debt in order to remain in compliance with the relevant covenants in our financing arrangements, 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 are in breach of any of the terms of our financing arrangements, a significant portion of our obligations may become immediately due and payable. This
could affect our ability to execute our business strategy or make cash distributions.
A default under our financing arrangements could result in foreclosure on any of our vessels and other assets secured or a loss of our rights as lessee under such
arrangements.
To the extent that cash flows are insufficient to make required service payments under our financing arrangements or asset cover is inadequate due to a
deterioration in vessel values, we will need to refinance some or all of the principal outstanding under our financing arrangements, replace it with alternate credit
arrangements or provide additional security. We may not be able to refinance or replace our financing arrangements or provide additional security at the time they
become due.
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In the event we default under our financing arrangements or we are not able to refinance our existing indebtedness with new financing arrangements on
commercially acceptable terms, or if our operating results are not sufficient to service current or future indebtedness, or to make relevant interest, principal or lease
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 and leasing obligations, or seeking additional equity capital or bankruptcy
protection. In addition, the terms of any refinancing or alternate financing arrangement may restrict our financial and operating flexibility and our ability to make cash
distributions.
We may not be able to reach agreement with our financiers to amend the terms of the then existing financing arrangements 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.
Events of default under our financing arrangements include:
•
failure to pay principal or interest when due;
•
breach of certain undertakings, negative covenants and financial covenants contained in the financing arrangements, any related security document or
guarantee, including failure to maintain unencumbered title to any of the vessel-owning subsidiaries and failure to maintain proper insurance;
•
any breach of the financing arrangements, any related security document or guarantee (other than breaches described in the preceding two bullet points)
if, in the opinion of the lenders, such default is capable of remedy and continues unremedied following prior written notice of the lenders for a period of
14 days;
•
any breach of representation, warranty or statement made by us in our financing arrangements or related security document or guarantee or the interest
rate swap agreements (if any);
•
a cross-default of our other indebtedness of $5.0 million or greater;
•
our inability, in the reasonable opinion of the lenders, to pay our debts when due;
•
any form of execution, attachment, arrest, sequestration or distress which has or is reasonably likely to have a Material Adverse Effect (as such term is
defined under our financing arrangements);
•
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 financing arrangements, of any of the related finance and guarantee
documents;
•
failure of effectiveness of security documents or guarantee;
•
delisting of our common units from the Nasdaq Global Select Market or on any other recognized securities exchange;
•
invalidity of a security document in any material respect or if any security document ceases to provide a perfected first priority security interest;
•
failure by key charter parties, such as HMM, Hapag-Lloyd, BP and Cheniere 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 financing arrangements; or
•
any other event that occurs or circumstance that arises in light of which our financiers under our financing arrangements reasonably consider that there
is a significant risk that we will be unable to discharge our liabilities under our financing arrangements and related security or guarantee documents.
In addition, certain dealings in connection with sanctioned countries could trigger a mandatory prepayment event. See “—Regulatory Risks—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 debt could have similar or more onerous restrictions. Please see “Item 5. Operating and Financial Review
and Prospects—B. Liquidity and Capital Resources—Borrowings (Financing Arrangements)” for further information on our existing facilities.
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A significant rise in interests rates could result in increased interest expense.
We are reliant on our ability to obtain required financing to operate and grow our business, including debt financing. As of December 31, 2022, $889.8 million
out of our total debt of $1,299.2 million is floating rate debt, which means we pay interest on such debt at a margin on top of LIBOR or its replacement (see “—The
phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different benchmark rate, may adversely affect interest rates and our
cost of capital.” below). Worldwide economies have recently experienced inflationary pressures, with price increases seen across many sectors globally. In response to
inflationary pressures, central banks have begun to increase interest rates, which translates into increases in base interest rates that result in an increase to our interest
expense on our existing floating rate debt. Efforts by central banks to address rising inflation also result in increases to the interests rates available to us on new debt
financing for our operations. If central banks continue to increase interest rates, or interest rates otherwise increase significantly, the increase in base rates and the
resulting increase in our existing floating rate interest expense, as well as increases to the interest rates available to us on new debt financing we may pursue, could
materially and adversely affect our financial condition and ability to make cash distributions. See “—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.” and “—Risks Inherent in an Investment in Us— We cannot assure you that we will pay any distributions on our units.”
The phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different benchmark rate, may adversely affect interest
rates and our cost of capital.
On July 27, 2017, the UK Financial Conduct Authority (“FCA”) announced that it would phase-out LIBOR by the end of 2021. Pursuant to international,
federal, and other regulatory guidance and reform proposals regarding LIBOR, certain LIBOR tenors were discontinued or otherwise became unavailable as benchmark
rates at the end of 2021 and LIBOR is expected to be fully discontinued or become unavailable as a benchmark rate by June 2023. In accordance with recommendations
from the committee appointed by the U.S. Federal Reserve Board to manage the transition away from LIBOR, U.S. dollar LIBOR is expected to be replaced with
Secured Overnight Financing Rate (“SOFR”). Given that SOFR is a secured rate backed by government securities (and therefore does not take into account bank credit
risk), it may be lower than other reference rates, including LIBOR. However, SOFR may rise following interest rate increases effected by the United States Federal
Reserve (the “U.S. Federal Reserve”) and the U.S. Federal Reserve has recently raised U.S. interest rates in response to rising inflation. Further, as a secured rate
backed by government securities, SOFR may be less likely to correlate with the funding costs of financial institutions. As a result, parties may seek to adjust spreads
relative to SOFR in underlying contractual arrangements. Therefore, the use of SOFR-based rates may result in interest rates and/or payments that are higher or lower
than the rates and payments that we experienced under our credit facilities when interest was based on LIBOR. Alternative reference rates may behave in a similar
manner or have other disadvantages or advantages in relation to our indebtedness.
We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks, which may impact the level of
interest payments on the portion of our debt that bears interest at variable rates. As of December 31, 2022, $784.8 million and $105.0 million out of our total debt of
$1,299.2 million was based on loan agreements using LIBOR and SOFR as the benchmark rate respectively. Replacement rates could be higher or more volatile than
LIBOR prior to its discontinuation. The full impact of the expected transition away from LIBOR is unclear, but these changes could adversely affect our cash flow,
financial condition and results of operations.
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REGULATORY RISKS
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.
Certain countries (including certain regions of Ukraine, Russia, Belarus, Cuba, Iran, North Korea 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 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. In particular, sanctions recently imposed in relation to the Russian invasion of Ukraine have created significant
disruptions in the global economy and in the shipping industry.
While it is difficult to estimate the impact of the conflict and current or future sanctions on our business and financial position, these events and related
sanctions could adversely impact our operations. During 2022, economic sanctions were imposed by the United States, the European Union, the United Kingdom and a
number of other countries on Russian financial institutions, businesses and individuals, as well as certain regions within the Donbas region of Ukraine. Certain of these
sanctions have targeted Russia’s usage of and participation in maritime shipping. For example, the United Kingdom and the EU have introduced export restrictions,
which capture the provision of maritime vessels and supplies to or for use in Russia. They have also imposed restrictions on providing financing, financial assistance,
technical assistance and brokering or other services that would further the provision of vessels to or for use in Russia, including the provision of maritime navigation
goods. Import bans of Russian energy products, such as coal, crude oil and refined petroleum products, and commodities, such as coal, iron, steel, plastics, cement and
agricultural products including potash and fertilizer, have also been introduced by a number of jurisdictions. In addition, certain jurisdictions, such as Greece and the
United States, have temporarily detained vessels suspected of violating sanctions. Countries, such as Canada, the United Kingdom and the EU, have also broadly
prohibited Russian-affiliated vessels from entering their waters and/or ports. In light of the current regulatory and economic environment in the region, certain vessel
operators have temporarily suspended shipping routes to and from Russia or have declined to engage in business with Russian-affiliated entities.
These bans and related trade sanctions have started to change trade patterns across the shipping industry and existing or future restrictions may affect our
current or future charters. In the near term, we have seen, and expect to continue to see, increased volatility in the region due to these geopolitical events. In addition,
the volatility of market prices for fuel and energy products have increased as a result of related supply disruptions from the war in Ukraine. While uncertainty remains
with respect to the ultimate impact of the conflict, we have seen, and anticipate continuing to see, significant changes in trade flows. A reduction or stoppage of grain
out of the Black Sea or cargoes from Russia has, and will continue to, negatively impact the markets in those areas. In addition, increased volatility in the price of fuel
or energy commodities may increase or decrease the price of fuel used by our vessels and/or demand for LNG or other commodities we transport, each of which could
affect our operations and liquidity. Due to their effect on the global market for LNG or other goods that we transport, current or additional sanctions could have a
material adverse impact on our cash flows, financial condition and ability to make cash distributions.
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 countries and persons and entities. Any
violation of sanctions or embargoes could result in the our incurring monetary fines, penalties or other sanctions. In addition, certain institutional investors may have
investment policies or restrictions that prevent them from holding securities of companies that have contacts with countries or entities or persons within these countries
that are identified by the U.S. government as state sponsors of terrorism. We are required to comply with such policies in order to maintain access to charterers and
capital. 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. 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 general 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 without our consent and in violation of their charter agreements. 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 2022, none of the vessels in our fleet made any port calls in the Crimea region and the non-government controlled
areas of the Donetsk, Kherson, Luhansk and Zaporizhzhia oblasts of Ukraine, Cuba, North Korea, Iran, Russia, Belarus or Syria.
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. Moreover, although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations,
and intend to maintain such compliance, the scope of certain laws may be unclear, may be subject to changing interpretations or may be strengthened or otherwise
amended. Any violation of sanctions or engagement in sanctionable conduct could result in fines, sanctions or other penalties, and could negatively affect our reputation
and result in some investors deciding, or being required, to divest their interest, or not to invest, in our common units. As noted above, any such violation or conduct
would trigger a mandatory payment event under our financing arrangements. Finally, future expansion of sanctions or the imposition of sanctions on other jurisdictions
could prevent our vessels from making any calls at certain ports, which potentially could have a negative impact on our business and results of operations.
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The maritime transportation industry is subject to substantial environmental and other regulations and international standards, which have become stricter
over time and which may significantly limit our operations, result in substantial penalties or increase our expenditures.
Our operations are affected by extensive and increasingly stringent international, national and local environmental protection laws, regulations, treaties,
conventions and standards in force in international waters, the jurisdictional waters of the countries in which our vessels operate, 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. Further legislation, or amendments to existing legislation, applicable to international and
national maritime trade is expected over the coming years relating to environmental matters. In particular, due to concerns over the risks associated with climate
change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from ships.
These regulatory measures may include the adoption of cap and trade regimes, carbon taxes, increased efficiency standards, operational limitations and incentives or
mandates for renewable energy. See “Item 4. Information on the Partnership—B. Business Overview—Regulation” for more information on regulation applicable to
our business.
Emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, or any amendments or successor agreements and the Paris Agreement adopted under the United Nations Framework Convention on Climate Change
in December 2015 did not include any restrictions or other measures specific to shipping emissions. However, maritime shipping will be included in the Emission
Trading System (ETS) as of 2024 with a phase-in period. It is expected that either shipowners or operators (i.e., charterers) will need to purchase and surrender
emission allowances that represent their carbon emission exposure for a specific reporting period as recorded pursuant to Regulation (EU) 2015/757 concerning the
monitoring, reporting and verification of carbon dioxide emissions from vessels (the “EU MRV Regulation”). As part of the phased approach shipping companies will
be required to surrender 40% of their 2024 emissions in 2025; 70% of their 2025 emissions in 2026; and 100% of their 2026 emissions in 2027. The person or
organization responsible for the compliance with the EU ETS will be the shipping company, defined as the shipowner or any other organization or person, such as the
manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner. An ETS costs clause is also being mandated
which enables the shipping company to contractually pass on costs of ETS allowances to commercial operators. Compliance with the Maritime EU ETS will result in
additional compliance and administration costs to properly incorporate the provisions of the Directive into our business routines. Additional EU regulations which are
part of the EU’s Fit-for-55, such as the Fuel EU Maritime proposal, could also affect our financial position in terms of compliance and administration costs when they
take effect.
The ETS rules and the other regulatory requirements applicable to our operations 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
coverage for environmental risks or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. 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. In
addition we may incur significant additional costs in meeting new maintenance, training and inspection requirements, in developing contingency arrangements for
potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be
expected to become stricter in the future and require us to incur significant capital expenditure on our vessels to keep them in compliance, or even to scrap or sell
certain vessels altogether. Among other things, any climate control legislation, or other regulatory initiatives that aim to reduce greenhouse gases emissions, may
include increases in the pricing of greenhouse gas emissions, new reporting regulations (such as, for example, the Corporate Sustainability Reporting Directive, which
will apply from 2024), changes in legislation impacting existing products and services, costs of transitioning to lower-emission fuels and technologies, potential
substitution or replacement of existing products and services, and stakeholder concerns and/or shifts in customer preferences which may have financial implications for
our business and could lead us to retire existing vessels prior to the end of the their currently-anticipated useful lives.
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 damage claims and natural resource damages relating to the release of, or exposure to,
hazardous materials associated with our current or historic operations. Violations of or liabilities under environmental requirements also can result in substantial
penalties, fines and other sanctions including, in certain instances, seizure or detention of our vessels.
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. In addition, in response to increased freight rates for
containerships that occurred earlier in the COVID-19 pandemic, legislation has been proposed in the United States that could limit or eliminate antitrust exemptions for
certain ocean-going containerships, which could negatively affect existing vessel-sharing alliances in which our charterers participate. If stricter laws or regulations
governing the shipping industry are enacted, including those governing environmental harm, marine accidents or competition rules, it could limit our operations or our
ability to do business and 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 have its underwater parts inspected by class every two to three
years, but for vessels subject to enhanced survey requirements and above 15 years of age, its underwater parts must be inspected in dry-dock.
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If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to maintain insurance arrangements and
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.
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 inspection 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 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.
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GENERAL RISK FACTORS
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 Managers. 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.
Most recently, the conflict between Russia and Ukraine has been accompanied by cyber-attacks against the Ukrainian government and other countries in the
region. It is possible that these attacks could have collateral effects on additional critical infrastructure and financial institutions globally, which could adversely affect
our operations. It is difficult to assess the likelihood of such threat and any potential impact at this time.
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 have operated and may operate in countries known to have a reputation for corruption. The U.S. Foreign Corrupt
Practices Act of 1977 (the “FCPA”) and other anti-corruption laws and regulations in applicable jurisdictions generally prohibit companies registered with the U.S.
Securities and Exchange Commission (the “SEC”) and their intermediaries from making improper payments to government officials for the purpose of obtaining or
retaining business. Under the FCPA, companies registered with the SEC may be held liable for some actions taken by strategic or local partners or representatives.
Legislation in other countries includes the U.K. Bribery Act, which became effective on July 1, 2011.
The U.K. Bribery Act is broader in scope than the FCPA because it does not contain an exception for facilitating payments (i.e., payments to secure or expedite the
performance of a “routine governmental action”) and covers bribes and payments to private businesses as well as foreign public officials. We and our 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 affect 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 anti-corruption policy, may not adequately prevent or detect possible violations under applicable anti-bribery and anti-corruption legislation.
We have incurred, and may continue to incur significant costs in complying with the requirements of the U.S. Sarbanes-Oxley Act of 2002. If management is
unable to continue to provide reports as to the effectiveness of our internal control over financial reporting or our independent registered public accounting
firm is unable to continue to provide us with unqualified attestation reports as to the effectiveness of our internal control over financial reporting, investors
could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common units. We anticipate that we
will continue to incur incremental general and administrative expenses as a publicly traded limited partnership taxed as a corporation.
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 attestation
of our independent registered public accounting firm. Capital Ship Management 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 financial statements may be materially misstated. We have incurred and will continue to incur legal, accounting and
other expenses in complying with these and other applicable regulations.
We anticipate that our incremental general and administrative expenses as a publicly traded limited partnership taxed as a corporation for U.S. federal income tax
purposes will include costs associated with annual reports to unitholders, tax returns, investor relations, registrar and transfer agent’s fees, incremental director and
officer liability insurance costs and director compensation.
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RISKS INHERENT IN AN INVESTMENT IN US
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 makes 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 debt, the level of our capital expenditures, our ability to pursue accretive transactions, our financial
condition, results of operations, prospects and applicable provisions of Marshall Islands law.
We may not have sufficient cash available each quarter to pay a minimum quarterly distribution on our common units following the payment of fees and
expenses and the establishment by our board of directors of cash reserves. 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 distribution 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 debt, additional
borrowings, compliance with the covenants in our financing arrangements, our anticipated future cost of capital, access to financing and equity and debt capital
markets, including for the purposes of refinancing or repaying existing debt, 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 light of the factors described above and elsewhere in this Annual Report, there can be no assurance that we will pay any distributions on our units.
Negative media coverage and public and judicial scrutiny relating to Mr. Evangelos M. Marinakis may adversely affect our reputation and operations,
investor confidence and the trading price of our common units.
Mr. Evangelos M. Marinakis is the chairman of Capital Maritime, our sponsor. In addition, as of April 17, 2023, the Marinakis family, including Mr. Evangelos
M. Marinakis, may be deemed to beneficially own a 30.2% interest in us, excluding treasury units of 721,347, through its beneficial ownership of, among other entities,
Capital Maritime. Furthermore, Mr. Miltiadis E. Marinakis, Mr. Evangelos M. Marinakis’s son, is the owner of Capital GP L.L.C., our General Partner and Capital Gas
Corp.
Mr. Evangelos M. Marinakis holds significant other interests in Greece and abroad. Among other things, Mr. Marinakis is the principal owner of Olympiacos, a
Greek professional football team, and the Nottingham Forest Football Club in England. Mr. Marinakis also owns the Greek media company Alter Ego Media S.A.
Furthermore, Mr. Marinakis is a member of the Piraeus city council.
Mr. Marinakis has been the subject of intense and at times negative media scrutiny in Greece. Given the relationships of Mr. Marinakis and certain members of
his family with Capital Maritime and us described above, any past or future negative media coverage, public and judicial scrutiny or criminal proceedings in relation to
Mr. Marinakis, regardless of the factual basis for the assertions being made or the final outcome of any investigation or proceeding, may affect the reputation and
operations of Capital Maritime, as well as our reputation and operations. Such coverage, scrutiny and proceedings may also adversely impact investor confidence and
the trading price of our common units.
The control of our General Partner may be transferred to a third party without unitholder consent.
Our General Partner is a limited liability company initially formed and controlled by Capital Maritime as sole member. In April 2019, Capital Maritime
transferred all membership interests in our General Partner to Mr. Miltiadis E. Marinakis.
Our partnership agreement does not restrict the ability of the member or members from time to time of our General Partner from transferring control of our
General Partner or its assets to a third party, whether in a merger, sale of all membership interests or sale of all or substantially all of its assets, without the consent of
our unitholders.
Any such change in control of our General Partner may affect the way we and our operations are managed, which could have a material adverse effect on our
business, financial condition, results of operations, cash flows and our ability to make cash distributions and service or refinance our debt.
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Please read “—Risks Related to our Business and Operations—We depend on our General Partner, a private company under the ownership of Mr. Miltiadis E.
Marinakis, for the day-to-day management of our affairs.”
Our General Partner, which may have conflicts of interest, has limited fiduciary and contractual duties, which may permit it to favor its own interests or the
interest of its affiliates or related persons to the detriment of other unitholders.
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 our directors have a fiduciary duty to manage us in a manner beneficial to us and our unitholders. However, this duty is limited under
our partnership agreement. Please see “—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.” In addition, Mr. Kalogiratos who is an officer of our General Partner and a
director of the Partnership, serves also as officer and director of Capital Maritime, and as such has fiduciary duties to Capital Maritime that may cause him 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, our General Partner and their affiliates, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts,
the officers of our General Partner and Capital Maritime may favor their own interests over the interests of our unitholders.
These conflicts include, among others, the following situations:
•
neither our partnership agreement nor any other agreement requires our General Partner or its affiliates to pursue a business strategy that favors us or
utilizes our assets, and Capital Maritime’s officers and directors in their capacity as such have a fiduciary duty to make decisions in the best interests of
the shareholders of Capital Maritime, which may be contrary to our interests;
•
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, unitholders are treated as having agreed
to the modified standard of fiduciary duties and to certain actions that may be taken by our General Partner and our directors, all as set forth in the
partnership agreement;
•
our General Partner and our board of directors will be involved in determining the amount and timing of our asset purchases and sales, capital
expenditures, borrowings, and issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available
for distribution to our unitholders;
•
our General Partner may have substantial influence over our board of directors’ decision to cause us to borrow funds in order to permit the payment of
cash distributions, even if the purpose or effect of the borrowing is to make 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.”
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 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;
•
election of a successor 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 appropriate in connection with the authorization and issuance of any class or series
of our securities.
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In addition, an affirmative vote of the holders of at least two thirds of the outstanding units, including any units owned by our General Partner and its affiliates,
is required to remove the General Partner.
Capital Maritime and its affiliates 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 voting rights reallocated as a result of such limitations.
Accordingly, Capital Maritime and its affiliates may favor their own interests or the interests of our General Partner in any vote by our unitholders. These
considerations may significantly impact any vote under the terms of our partnership agreement and may significantly affect your rights under our partnership
agreement.
Please also read “—Unitholders have limited voting rights and our partnership agreement restricts the voting rights of unitholders owning 5% or more of our
units ” for information on additional restrictions imposed by our partnership agreement.
Capital Maritime and its affiliates may compete with us.
The omnibus agreement that we and Capital Maritime have entered into imposes certain mutual restrictions on the acquisition, ownership and operations, and
provides for certain rights of first refusal in respect, of product and crude oil tankers, but it does not apply to LNG, container and drybulk vessels and other shipping
markets. The omnibus agreement however contains significant exceptions. Accordingly, Capital Maritime and its controlled affiliates have significant ability to
compete with us, which could harm our business. Please read “Item 7. Major Unitholders and Related Party Transactions—B. Related-Party Transactions” for further
information.
We currently do not have any officers and rely, and expect to continue to rely, solely on officers of our General Partner and/or our Managers, who face
conflicts in the allocation of their time to our business.
Our board of directors has not exercised its power to appoint officers of the Partnership 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 Capital Maritime and/or its affiliates.
For example, our General Partner’s Chief Executive Officer, Chief Financial Officer and Chief Commercial Officer are also executive officers or employees of
Capital Maritime, Capital Ship Management and/or their respective affiliates. Capital Maritime and our Managers each 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 Capital Maritime, our
Managers and/or their respective 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 remedies 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 directors 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. Specifically, pursuant to our partnership
agreement, 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 resolution is “fair and reasonable,” our board of directors may
consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to
us; and
•
provides that neither our General Partner and its officers nor our directors will be liable for monetary damages to us, our limited partners or assignees
for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our
General Partner or directors or its officers or directors or those other persons engaged in actual fraud or willful misconduct.
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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 “Item 7. Major Unitholders and Related-Party Transactions—B. Related-Party Transactions.”
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. Currently our
board has seven members, of which five were elected by common unitholders. 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 unitholders by the
affirmative vote of the holders of a majority of the outstanding common units.
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 two thirds of the outstanding units, including any units owned by our General Partner
and its affiliates, and a majority vote of our board of directors. As of April 17, 2023, 14,266,542 common units are owned by public unitholders, representing 69.8% of
our common units excluding treasury units of 721,347.
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 an affiliate of our General Partner, Capital Maritime is not subject to such limitation and will
be attributed its pro rata share of any units reallocated as a result of such limitation. Further, this limitation does not apply to unitholders who acquire more than 5% of
any class of units then outstanding with the prior approval of our board of directors.
As of April 17, 2023, based on 20,449,169 units issued and outstanding (excluding treasury units of 721,347 and including 348,570 general partner units), the
Marinakis family, including Mr. Miltiadis E. Marinakis, who beneficially owns 100% of our General Partner and Capital Gas Corp., and Evangelos M. Marinakis, the
chairman of Capital Maritime, may be deemed to beneficially own a 30.2% interest in us, through:
•
Capital Maritime, which beneficially owns 4,680,211 common units, representing 22.9% of the outstanding units;
•
Capital Gas Corp., which beneficially owns 1,153,846 common units, representing 5.6% of the outstanding units; and
•
our General Partner, which may be deemed to beneficially own 348,570 general partner units representing a 1.7% interest in us.
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.
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 or related persons own
sufficient units to be able to prevent such removal. The vote of the holders of at least two thirds 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 April 17, 2023, based on a total of 20,449,169 units issued and
outstanding (excluding treasury units of 721,347 and including 348,570 general partner units), the Marinakis family, including Mr. Miltiadis E. Marinakis
and Evangelos M. Marinakis, the chairman of Capital Maritime, may be deemed to beneficially own a 30.2% interest in us;
•
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;
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•
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 have limited voting rights, as described under “—Unitholders have limited voting rights and our partnership agreement restricts the voting
rights of unitholders owning 5% or more of our units”; and
•
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.
Our General Partner has a limited call right that may require unitholders 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 defined in our partnership agreement). As a result, unitholders may be required to sell their units at an undesirable time or price and may
not receive any return on their investment. Unitholders may also incur a tax liability upon a sale of their units.
Our common units are equity securities and are subordinated to our existing and future indebtedness and will be subject to prior distribution and liquidation
rights of any preferred units we may issue in the future.
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 preferred units we may issue in the future. 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. Any actual or possible reduction in the amount of distributions made on our common units
could materially and adversely affect the market price of the common units.
Future sales of our common units, or the issuance of preferred units, debt securities or warrants, could cause the market price of our common units to decline.
The market price of our common units could decline due to sales of a large number of units, or the issuance of debt securities or warrants, in the market, 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 such equity securities.
Since our initial public offering, we conducted a number of issuances of common and preferred units, and we may engage in 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.
You may not have limited liability if a court finds that unitholder action constitutes control of our business.
As a limited partner in a partnership organized under the laws of the Republic of the Marshall Islands, you could be held liable for our obligations to the same
extent as a General Partner if 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 “The Partnership Agreement—Limited Liability” in
Exhibit 2.1 to this Annual Report for a more detailed discussion of the implications of the limitations on liability to a unitholder.
We can borrow money to pay distributions or buy back our units, which would reduce the amount of credit available to operate our business.
Our partnership agreement allows us to make working capital borrowings to pay distributions. Accordingly, we can make distributions on all our units even
though cash generated by our operations may not be sufficient to pay such distributions. Any working capital borrowings by us to make distributions will reduce the
amount of working capital borrowings we can make for operating our business. For more information, please read “Item 5. Operating and Financial Review and
Prospects—B. Liquidity and Capital Resources—Borrowings (Financing Arrangements)”.
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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 distribution amount. Assignees who become
substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the assignee at the time it became a
limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement.
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 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 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 responsibilities of directors under the laws of the Republic of the Marshall Islands are not as clearly
established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Although the MILPA
does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware, our public unitholders may have more difficulty in protecting their
interests in the face of actions by management, directors or controlling unitholders than would shareholders of a limited partnership organized in a U.S. jurisdiction.
As a Marshall Islands limited partnership with principal executive offices in Greece and having subsidiaries in the Marshall Islands and other offshore
jurisdictions such as Liberia, our operations may be subject to economic substance requirements, which could harm our business.
We are a Marshall Islands limited partnership with principal executive offices in Greece. Our subsidiaries are organized in the Marshall Islands, Liberia and
Cyprus. The Marshall Islands has enacted economic substance regulations with which we may be obligated to comply. Regulations adopted in the Marshall Islands
require certain entities that carry out particular activities to comply with an economic substance test whereby the entity must show that it (i) is directed and managed in
the Marshall Islands in relation to that relevant activity, (ii) carries out core income-generating activity in relation to that relevant activity in the Marshall Islands
(although it is being understood and acknowledged by the regulators that income-generated activities for shipping companies will generally occur in international
waters) and (iii) having regard to the level of relevant activity carried out in the Marshall Islands has (a) an adequate amount of expenditures in the Marshall Islands, (b)
adequate physical presence in the Marshall Islands and (c) an adequate number of qualified employees in the Marshall Islands.
The Council of the European Union (the “Council”), routinely publishes a list of “non-cooperative jurisdictions” for tax purposes, which includes countries that
the Council believes need to improve their legal framework and to work towards compliance with international standards in taxation. On February 14, 2023, the
Republic of the Marshall Islands, among others, was placed by the EU on the list of non-cooperative jurisdictions for lacking in the enforcement of economic substance
requirements. The Marshall Islands has stated that it is of the opinion that it has met its commitments to the Council’s code of conduct group thus far, and the Marshall
Islands has confirmed it will continue to work closely with the EU and the Council’s code of conduct group to address any technical concerns of the EU member states.
EU member states have agreed upon a set of measures, which they can choose to apply against the listed countries, including increased monitoring and audits,
withholding taxes, and non-deductibility of costs, and although we are not currently aware of any such measures being adopted they can be adopted by one or more EU
members states in the future. The European Commission has stated it will continue to support member states’ efforts to develop a more coordinated approach to
sanctions for the listed countries. EU legislation prohibits certain EU funds from being channeled or transited through entities in non-cooperative jurisdictions.
We do not know how long the Marshall Islands will remain on the non-cooperative list; what actions the Marshall Islands may take, if any, to remove itself from
the list; how quickly the EU would react to any changes in legislation of the Marshall Islands; or how EU banks or other counterparties will react while we or our
subsidiaries remain as entities organized and existing under the laws of the Marshall Islands. The effect of the EU list of non-cooperative jurisdictions, and any
noncompliance by us with legislation adopted by the Marshall Islands to achieve removal from the list, could have a material adverse effect on our business, financial
condition and operating results.
In addition, certain jurisdictions have enacted or may enact economic substance laws and regulations with which we may be obligated to comply. If we fail to
comply with our obligations under any such laws and regulations, including the Marshall Islands regulations, we could be subject to financial penalties and disclosure
of information to foreign tax officials, or could be struck from the register of companies, in related jurisdictions. Any of the foregoing could be disruptive to our
business and could have a material adverse effect on our business, financial condition and operating results.
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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.
As a “foreign private issuer” and a limited partnership, we are exempt from certain otherwise applicable SEC and NASDAQ requirements, which may result
in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
We are a Marshall Islands limited partnership. The Nasdaq Global Select Market requires limited partnerships with listed units to comply with its corporate
governance standards, subject to certain exceptions as set forth in Nasdaq Rule 5615(a)(4). As a foreign private issuer, we are not required to comply with all of the
rules that apply to listed U.S. limited partnerships. In particular, our status as a foreign private issuer limited partnership exempts us from compliance with certain SEC
laws and regulations and certain of the Nasdaq Global Select Market’s regulations, including the proxy rules, the short-swing profits recapture rules of Section 16 of the
Exchange Act, certain rules relating to disclosure regarding executive compensation, and certain governance requirements such as independent director oversight of the
nomination of directors and executive compensation. In addition, we are not required under the Exchange Act to file current reports and financial statements with the
SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing
quarterly reports with the SEC. 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, a conflicts committee and a compensation
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. However, these exemptions and leniencies reduce the frequency and scope of information and protections to which you are otherwise entitled as an investor
and perceptions about the actual or possible reduction in the frequency and scope of information and protections to which our investors are entitled could materially and
adversely affect the market price of the common units.
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TAX RISKS
In addition to the following risk factors, you should read “Item 10. Additional Information—E. Taxation” below for a more complete discussion of the expected
material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our units.
U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S.
unitholders.
A foreign entity taxed as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company” (a “PFIC”) for U.S.
federal income tax purposes if (x) at least 75% of its gross income for any taxable year consists of certain types of “passive income,” or (y) at least 50% of the average
value of the entity’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends,
interest, gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received from unrelated parties in
connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive
income.” U.S. persons who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the
distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and projected method of operation, we believe that we are not currently a PFIC and we do not expect to become a PFIC in the future. We
intend to treat our income from spot and time chartering activities as non-passive income, and the vessels engaged in those activities as non-passive assets, for PFIC
purposes. However, no assurance can be given that the Internal Revenue Service (the “IRS”) or a United States court will accept this position, and there is accordingly a
risk that the IRS or a United States court could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future
taxable year if there were to be changes in our assets, income or operations. See “Item 10. Additional Information—E. Taxation —Material U.S. Federal Income Tax
Considerations—U.S. Federal Income Taxation of U.S. Holders —PFIC Status and Significant Tax Consequences.”
We may have to pay tax on United States source income, which would reduce our earnings.
Under the Internal Revenue Code of 1986, as amended (the “Code”), 50% of the gross shipping income of a vessel-owning or chartering corporation that is
attributable to transportation that either begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source shipping income and
such income generally is subject to a 4% U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under
Section 883 of the Code. We believe that we and each of our subsidiaries will qualify for this statutory tax exemption, and we will take this position for U.S. federal
income tax return reporting purposes. See “Item 10. Additional Information—E. 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 generally would be subject
for those years to a 4% U.S. federal gross income tax on our U.S. source shipping income. The imposition of this taxation could have a negative effect on our business
and would result in decreased earnings available for distribution to our unitholders.
You may be subject to income tax in one or more non-U.S. countries, including Greece, as a result of owning our units if, under the laws of any such country,
we are considered to be carrying on business there. Such laws may require you to file a tax return with and pay taxes to those countries.
We intend that our affairs and the business of each of our subsidiaries will be conducted and operated in a manner that minimizes income taxes imposed upon us
and these subsidiaries or which may be imposed upon you as a result of owning our units. However, because we are organized as a partnership, there is a risk in some
jurisdictions that our activities and the activities of our subsidiaries may be attributed to our unitholders for tax purposes and, thus, that you will be subject to tax in one
or more non-U.S. countries, including Greece, as a result of owning our units if, under the laws of any such country, we are considered to be carrying on business there.
If you are subject to tax in any such country, you may be required to file a tax return with and pay tax in that country based on your allocable share of our income. We
may be required to reduce distributions to you on account of any withholding obligations imposed upon us by that country in respect of such allocation to you. The
United States may not allow a tax credit for any foreign income taxes that you directly or indirectly incur.
We believe we can conduct our activities in a manner so that our unitholders should not be considered to be carrying on business in Greece solely as a
consequence of acquiring, holding, disposing of or participating in the redemption of our units. However, the question of whether either we or any of our subsidiaries
will be treated as carrying on business in any country, including Greece, will largely be a question of fact determined through an analysis of contractual arrangements,
including the management and the administrative services agreements we have entered into with our Managers, and the way we carry on business or conduct
operations, all of which may change over time. The laws of Greece or any other foreign country may also change, which could cause the country’s taxing authorities to
determine that we are carrying on business in such country and are subject to its taxation laws. Any foreign taxes imposed on us or any subsidiaries or the increase of
any tonnage tax will reduce our cash available for distribution.
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Item 4. Information on the Partnership.
A.
History and Development of the Partnership
We are a master limited partnership organized as Capital Product Partners L.P. under the laws of the Marshall Islands on January 16, 2007. We completed our initial
public offering in April 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. Our website address is www.capitalpplp.com. The SEC maintains an internet
website at www.sec.gov that contains reports and other information regarding issuers, including us, that file electronically with the SEC. The information contained on,
or that can be accessed through these websites is not part of, and is not incorporated into, this Annual Report.
Developments in 2022 and up to the filing of this Annual Report
Unit Repurchase Program
During 2022, we completed the repurchase, under the unit repurchase program approved in 2021, of 389,962 units, for an average price per unit of $15.13 plus
repurchase expenses. These units are held as treasury units by the Partnership and the amount of $5.9 million is recorded as a reduction in the Partnership’s Partners’
Capital. On January 26, 2023, our board approved a new unit repurchase program, providing the Partnership with authorization to repurchase up to $30.0 million of the
Partnership’s common units, effective for a period of two years through January 2025.
Acquisition of one LNG carrier (“LNG/C”) and three 13,312 TEU Container Vessels
On June 6, 2022, CPLP agreed to exercise its right of first offer and acquire, upon their respective delivery from the shipyard, one 174,000 cubic meter (“CBM”)
latest generation X-DF LNG/C vessel and three 13,312 TEU hybrid scrubber-fitted Tier III and Phase III, dual fuel ready eco container sister vessels from Capital
Maritime, for total consideration of $596.6 million.
The LNG/C Asterix I that was under construction by Hyundai Heavy Industries Co. Ltd. (“Hyundai”), was delivered to CPLP on February 17, 2023 and started her
seven-year employment with Hartree, which will expire in December 2029. Hartree has an option to extend the charter by an additional two years. The total
consideration for the Asterix I of $230.0 million was financed through a combination of a $12.0 million cash deposit advanced to Capital Maritime in June
2022, $184.0 million of debt and $34.0 million of cash at hand.
Two of the three 13,312 TEU Container vessels that CPLP agreed to acquire from Capital Maritime, the M/V Manzanillo Express and the M/V Itajai Express that
were under construction by Hyundai Samho Heavy Industries Co. Ltd., South Korea, (“Hyundai Samho”), were delivered to CPLP on October 12, 2022 and on January
10, 2023, respectively and started their ten-year employment with Hapag-Lloyd, which, together with the optional periods, will expire between October
2038 and January 2039. The total consideration for these vessels of $245.0 million was comprised of a $12.0 million cash deposit advanced to Capital Maritime in June
2022, $213.0 million of debt, $7.5 million in common units of CPLP (valued at the volume weighted average price of the common units of CPLP for the 30 trading
days ending on the second trading day immediately prior to the Vessel acquisition, being 505,204 common units in total), and $12.5 million of cash at hand.
The M/V Buenaventura Express, the third 13,312 TEU Container vessel that CPLP agreed to acquire from Capital Maritime currently is under construction at
Hyundai Samho and is scheduled for delivery in June 2023, upon its delivery from the shipyard. The vessel has also secured a long-term time charter with Hapag-Lloyd
for a firm period of 10 years which, together with the optional periods, will expire in June 2039.
Financing Arrangements
On February 7, 2023, we entered into a sale and leaseback agreement with CMB Financial Leasing Co., Ltd, (“CMBFL”) of $184.0 million with the purpose of
partially financing the acquisition of LNG/C Asterix I.
On December 23, 2022, we entered into a Japanese Sale and Lease Back with Call Option arrangement of $108.0 million with the purpose of partially financing the
acquisition of M/V Itajai Express.
On October 6, 2022, we entered into a credit facility with HCOB of $105.0 million with the purpose of partially financing the acquisition of M/V Manzanillo
Express.
On July 22, 2022, the wholly owned subsidiary of the Partnership, CPLP PLC, issued €100.0 million of Bonds listed on the Athens Stock Exchange with a fixed
coupon of 4.40% for a term of seven years.
On August 4, 2022, in connection with the issuance of the Bonds, we entered into a cross-currency swap agreement with Piraeus Bank SA exchanging €100.0
million with $101.8 million paying a fixed annual rate of 6.55%.
Sale of the M/V Archimidis and the M/V Agamemnon
On May 30, 2022, the Partnership entered into two separate memorandums of agreement for the sale of the M/V Archimidis and the M/V Agamemnon to an
unaffiliated party for total consideration of $130.0 million. The M/V Archimidis was delivered to its new owner on July 6, 2022, and the M/V Agamemnon was
delivered on July 28, 2022.
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Borrowings (Financing Arrangements)” below for information
regarding our financing arrangements.
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Developments in 2021
Acquisition of six LNG/C vessels
On August 31, 2021, CPLP agreed to acquire three 174,000 CBM latest generation X-DF LNG carriers, namely, the LNG/C Aristos I, the LNG/C Aristarchos and
the LNG/C Aristidis I, constructed at Hyundai, from CGC Operating Corp., for total consideration of $599.8 million comprised of (i) $147.1 million of cash on hand,
(ii) the assumption of the $427.4 million of secured debt, (iii) the issuance of 1,153,846 (or $15.3 million in value) of new common units of CPLP at a premium to the
unit trading price at the time of the agreement and (iv) $10.0 million of unsecured, interest free seller’s credit. The LNG/C Aristos I and the LNG/C Aristarchos were
delivered to the Partnership on September 3, 2021, while the LNG/C Aristidis I was delivered on December 16, 2021. The LNG/C Aristos I and the LNG/C Aristidis I
are under long-term time charters with BP with earliest expiration in October 2023 and December 2023, respectively. The LNG/C Aristarchos is under a long-term time
charter with Cheniere, which expires the earliest in February 2025.
Furthermore, on August 31, 2021, the Partnership secured an option, which was exercised on November 4, 2021, to acquire an additional three X-DF LNG/C sister
vessels, namely, the LNG/C Attalos, the LNG/C Asklipios and the LNG/C Adamastos, constructed at Hyundai, for total consideration of $623.0 million comprised of
(i) $184.0 million of cash on hand and (ii) the assumption of the $439.0 million of secured debt. The LNG/C Attalos and the LNG/C Asklipios were delivered to the
Partnership on November 18, 2021, while the LNG/C Adamastos was delivered on November 29, 2021. The LNG/C Attalos is under long-term time charter with BP
with earliest expiration in October 2025, the LNG/C Asklipios is under long-term time charter with Cheniere expected to expire at the earliest in January 2025 and the
LNG/C Adamastos is under a long-term time charter with Engie which expires at the earliest in September 2026.
Sale of the M/V CMA CGM Magdalena and the M/V Adonis
On April 7, 2021 the Partnership entered into memorandums of agreement for the sale of the M/V CMA CGM Magdalena and the M/V Adonis to an unaffiliated
third party for total consideration of $195.0 million. The M/V CMA CGM Magdalena and the M/V Adonis were delivered to their new owners on May 17, 2021, and
December 13, 2021, respectively.
Acquisition of three Panamax container carrier vessels
In February 2021, the Partnership completed the acquisition of the three 5,100 TEU sister container vessels, namely the M/V Long Beach Express, M/V Seattle
Express and the M/V Fos Express built in 2008 at Hanjin Heavy Industries, South Korea, for total consideration of $40.5 million. The vessels are employed under long-
term time charters with Hapag-Lloyd with the earliest expiration in June 2025 (for the M/V Long Beach Express) or September 2025 (for the M/V Seattle Express and
the M/V Fos Express).
Financing Arrangements entered into and/or assumed
On October 20, 2021, the wholly owned subsidiary of the Partnership, CPLP PLC, issued €150.0 million of Bonds listed on the Athens Stock Exchange with a fixed
coupon of 2.65% for a term of five years.
In connection with the issuance of the Bonds, we entered into certain cross-currency swap agreements, including on December 2, 2021 a cross currency agreement
with Piraeus Bank SA, exchanging €120.0 million with $139.7 million paying fixed annual rate of 3.655% and on December 14, 2021 a cross currency agreement with
Alpha Bank SA, exchanging €30.0 million with $34.9 million paying fixed annual rate of 3.690%.
On December 16, 2021, upon the delivery of the LNG/C Aristidis I, we assumed a syndicated secured credit facility with ING Bank N.V., London Branch acting as
agent of $123.0 million.
On November 29, 2021, upon the delivery of the LNG/C Adamastos, we assumed debt in the form of a sale and leaseback agreement with Shin Doun Kisen Co.,
Ltd. (“Shin Doun”) of $143.1 million.
On November 18, 2021, upon the delivery of the LNG/C Attalos and the LNG/C Asklipios we assumed debt in the form of sale and leaseback agreement with
CMBFL of $146.3 million and $149.6 million respectively.
On September 3, 2021, upon the delivery of the LNG/C Aristos I and the LNG/C Aristarchos we assumed debt in the form of sale and leaseback agreement with
Bank of Communications Financial Leasing Co., Ltd, (“Bocomm”) of $148.9 million and $155.4 million respectively. Furthermore, we entered into the CGC Seller’s
Credit in order to defer $10.0 million of the total purchase price of the LNG/C Aristos I and the LNG/C Aristarchos for up to twelve months from the Vessels’ delivery
date.
On January 22, 2021, we entered into an agreement for the sale and lease back of the vessels M/V Long Beach Express, M/V Seattle Express and M/V Fos Express
with CMBFL for $10.0 million each. Furthermore, we entered into the Seller’s Credit Agreement with CMTC (“CMTC Seller’s Credit”) in order to defer $6.0 million
of the purchase price of the M/V Long Beach Express, M/V Seattle Express and M/V Fos Express for up to five years from the Vessels’ delivery date.
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Borrowings (Financing Arrangements)” below for information
regarding our financing arrangements.
Unit Repurchase Program
On January 25, 2021, the Partnership’s Board of Directors approved a unit repurchase plan for an amount of $30.0 million to be used for repurchasing the
Partnership’s common units over the period of two years. During 2021, we completed the repurchase of 382,250 units, paying an average price per unit of $11.74 plus
repurchasing expenses. These units are held as treasury units by the Partnership and the amount of $4.5 million is recorded as a reduction in the Partnership’s Partners’
Capital.
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Developments in 2020
Change of Manager of the M/V Cape Agamemnon
On November 30, 2020, we completed the process of changing the manager of our Capesize bulk carrier vessel, the M/V Cape Agamemnon, from Capital Ship
Management to Capital-Executive, a privately held company ultimately controlled by Mr. Miltiadis E. Marinakis, resulting in Capital-Executive becoming the sole
manager of our container and drybulk vessels. The agreement with Capital-Executive has the same terms and conditions of the floating fee management agreement we
had with Capital Ship Management.
Acquisition of three Neo-Panamax container vessels
In January 2020 the Partnership completed the acquisition of the three 10,000 TEU sister container vessels, namely the M/V Athos, the M/V Aristomenis and
the M/V Athenian built in 2011 at Samsung Heavy Industries Co. Ltd South Korea, for total consideration of $162.6 million from Capital Maritime. The vessels are
employed under long-term time charters with Hapag-Lloyd which will expire in April 2026.
Financing Arrangements
On January 17, 2020 the Partnership entered into a new term loan facility with HCOB of up to $38.5 million.
On January 20, 2020 we entered into an agreement for the sale and lease back of the vessels M/V Athos and M/V Aristomenis with CMBFL for $38.5 million
each.
In December 2019 we entered into a non-binding term sheet and in May 2020 into agreements with ICBC Financial Leasing Co., Ltd. (“ICBCFL”) for the sale
and lease back of three vessels then mortgaged under the 2017 credit facility, namely the M/V Akadimos (ex CMA CGM Amazon), the M/V Adonis (ex CMA CGM
Uruguay) and the CMA CGM Magdalena, for a total amount of $155.4 million. Following the sale of the M/V CMA CGM Magdalena and the M/V Adonis, in May
and December 2021, respectively, we fully repaid the amount of $96.2 million related to the two of the three ICBCFL agreements. See also “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources—Borrowings (Financing Arrangements)” below for information regarding our financing
arrangements.
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B.
Business Overview
We are an international owner of ocean-going vessels. Our fleet consists of 22 vessels including, 11 Neo-Panamax container carrier vessels (1.1 million DWT
and total TEU capacity of 90,889), three Panamax container carrier vessels (0.2 million DWT and total TEU capacity of 15,267), one Capesize bulk carrier vessel (0.2
million DWT) and seven latest generation LNG carrier vessels (0.6 million DWT and total capacity of 1.2 million CBM), with a DWT weighted average fleet age of
approximately 7.2 years as at March 31, 2023. This excludes one 13,312 TEU container vessel that CPLP has agreed to acquire and is expected to be delivered in the
second quarter of 2023.
All of our container carrier vessels are currently chartered under medium- to long-term charters (with remaining revenue-weighted charter of approximately 5.9
years as of March 31, 2023 based on earliest expiration) to reputable charterers, such as CMA CGM, HMM and Hapag-Lloyd.
All of our LNG carrier vessels are currently chartered under medium- to long-term charters (with remaining revenue-weighted charter of approximately 6.4
years as of March 31, 2023, based on earliest expiration) to reputable charters, such as BP, Cheniere, Engie and Hartree.
Our fleet is managed by our Managers, which are private companies.
Business Strategies
Our primary business objective is to increase cash available for distributions to our unitholders, while maintaining a strong financial position and growing our
business. We aim to realize our business objectives through the following 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 provide visibility of revenues and cash flows. As our vessels come up for re-chartering, we aim to redeploy them under period contracts that reflect
our expectations of prevailing market conditions. In the pursuit of our strategies, we evaluate growth opportunities across all shipping sectors. We
believe that the DWT weighted average age of our fleet of approximately 6.7 years as of March 31, 2023, including a 13,312 TEU container vessel we
expect to take delivery of in June 2023, compared to an industry average of 13.2 years (adjusted for the composition of our fleet) and the high
specifications of our vessels, position us favorably to continue to secure medium- to long-term charters for our vessels.
•
Expand our fleet through accretive acquisitions. Subject to available required financing, we intend to evaluate potential acquisitions of both
newbuilds and second-hand vessels across the shipping markets. We also intend to take advantage of opportunities afforded to us by our relationship
with our sponsor, Capital Maritime. In January 2020, we acquired three 10,000 TEU container carrier vessels; in February 2021 we acquired an
additional three 5,100 TEU container carrier vessels and during the second half of 2021 we acquired six LNG carrier vessels. In June 2022 we agreed to
acquire one LNG carrier vessel which was delivered to us in February 2023, and three 13,312 TEU container carrier vessels two of which we took
delivery in October 2022 and January 2023, respectively, while the third is scheduled for delivery in June 2023. For future acquisitions, we may
consider increases in our overall leverage, provided that we are able to deliver stable distributions to our unitholders and grow our fleet. In addition, we
may pursue opportunities for acquisitions of, or combinations with, other shipping businesses.
•
Maintain and build on our ability to meet rigorous industry and regulatory safety standards. We believe that in order for us to be successful in
growing our business, we need to maintain our vessel safety record and further build on our high level of customer service and support. We believe that
our Managers, have strong records of vessel safety and compliance with rigorous health, safety and environmental protection standards, and are
committed to providing our charterers with a high level of customer service and support.
Our Customers
We provide marine transportation services under medium- to long-term time charters with a range of counterparties:
•
Hyundai Merchant Marine Co. Ltd, is an integrated logistics company, which has worldwide global service networks and diverse logistics facilities.
•
Hapag Lloyd- Aktiengesellschaft, is a German international shipping and container transportation company and one of the largest container carrier
companies in terms of vessel capacity.
•
BP Gas Marketing Limited is part of the wider BP group and produces and distributes oil and natural gas. The company offers biofuels, motor oil,
lubricants, petrol, crudes, liquefied natural gas, marine fuels, natural gas liquids, and petrochemicals. BP markets its products worldwide.
•
Cheniere Marketing International LLP is part of Cheniere Energy Inc., a liquefied natural gas company headquartered in Houston, Texas. Cheniere is
a full-service LNG provider, with capabilities that include gas procurement and transportation, liquefaction, vessel chartering, and LNG delivery.
Cheniere has one of the largest liquefaction platforms in the world, consisting of the Sabine Pass and Corpus Christi liquefaction facilities on the U.S.
Gulf Coast, with expected total production capacity of approximately 45.0 million tons per annum of LNG operating or in commissioning.
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•
Engie Energy Marketing Singapore Pte Ltd. is part of the wider Engie SA group, a French multinational utility company, headquartered in Paris,
France, which operates in the fields of energy transition, electricity generation and distribution, natural gas, nuclear, renewable energy and petroleum.
Engie supplies electricity in 27 countries in Europe and 48 countries worldwide.
•
Hartree Partners Power & Gas Company (UK) Limited. is a global energy and commodities firm privately held by management and Oaktree, a
global investment manager with approximately $170.0 billion of assets under management as of the end of the year 2022.
•
CMA CGM S.A. is a French container transportation and shipping company with a presence in 160 countries and currently operates a fleet of
approximately 593 vessels.
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. 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.”.
Our Management Agreements
Under our management agreements:
•
we pay our Managers a daily technical management fee per vessel, which is revised annually based on the United States Consumer Price Index;
•
we indemnify our Managers for expenses and liabilities they incur on our behalf in the provision of the contracted for services, including, for example,
crew, repairs and maintenance, insurance, stores, spares, lubricants and other operating costs; and
•
we bear all costs and expenses associated with a vessel’s dry-docking.
We expect that vessels acquired in the future will be managed under similar floating fee management arrangements. See Note 4 (Transactions with Related
Parties) to our Financial Statements for additional information on fees pays under our management agreements.
Our Fleet
At the time of our initial public offering in 2007, our fleet consisted of eight vessels. As of December 31, 2018, our fleet consisted of 36 vessels. We completed
the spin-off of our 25 vessel Tanker Business on March 27, 2019. Following the spin-off our fleet was comprised of 10 Neo-Panamax container carrier vessels and one
Capesize bulk carrier vessel. In 2020 we completed the acquisition of three Neo-Panamax container carrier vessels and in the first half of 2021 the acquisition of three
Panamax container carrier vessels. During the second half of 2021 we completed the acquisition of six LNG/C vessels while in May and December 2021, respectively,
we completed the sale of two Neo-Panamax container carrier vessels. On June 6, 2022, we agreed to acquire, upon their respective delivery from the shipyard, one
LNG/C and three Neo-Panamax container carrier vessels. The LNG/C was delivered in February 2023 and two of the Neo-Panamax container carriers were delivered in
October 2022 and January 2023, respectively, while the third Neo-Panamax container carrier is scheduled for delivery in June 2023. In July 2022 we also completed the
sale of two Neo-Panamax container carrier vessels.
As a result, we currently own 22 vessels including, 11 Neo-Panamax container carrier vessels (1.1 million DWT and total TEU capacity of 90,889) with a DWT
weighted average age as at March 31, 2023, of approximately 7.8 years, three Panamax container carrier vessels (0.2 million DWT and total TEU capacity of 15,267)
with a DWT weighted average age as at March 31, 2023, of approximately 14.9 years, one Capesize bulk carrier vessel (0.2 million DWT) with an age as at March 31,
2023, of approximately 12.7 years and seven LNG carrier vessels (0.6 million DWT and total capacity of 1.2 million CBM) with an DWT weighted average age as at
March 31, 2023, of approximately 1.6 years. This excludes one Neo-Panamax container carrier that we have agreed to acquire and is expected to be delivered in the
second quarter of 2023.
We intend, subject to prevailing shipping, charter and financing market conditions, to make strategic acquisitions in a prudent manner that is accretive to our
unitholders and to long-term distributable cash flow growth. In addition, we may pursue opportunities for acquisitions of, or combinations with, other shipping
businesses.
The table below provides summary information about the vessels in our current fleet, as well as their delivery date or expected delivery date to us and their
employment, including earliest possible redelivery dates of the vessels and relevant charter rates. 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 ownership of sister vessels provides a number of efficiency advantages
in the management of our fleet.
All of the vessels in our fleet are or were designed, constructed, inspected and tested in accordance with the rules and regulations of Lloyd’s Register of
Shipping (“Lloyd’s”), Bureau Veritas (“BV”), DNV GL, Korean Register (“KR”) or the American Bureau of Shipping (“ABS”).
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VESSELS IN OUR FLEET
Vessel Name
Sister
Vessels
(1)
Year
Built
DWT-TEU-CBM (5)
Management
Agreement
Expiration (2)
Charter
Duration
/ Type (3)
Expiry of
Charter (4)
Charterer
Description
DRYBULK VESSEL
Cape Agamemnon
A
2010
179,221
Nov-25
Spot
-
-
Cape Size Dry
Cargo
CONTAINER CARRIER VESSELS
Manzanillo Express (11)
B
2022
142,411-13,312 TEU
Oct-27
10-yr TC
Jul-32
Hapag-
Lloyd
Dual Fuel Eco
Container Carrier
Itajai Express (11)
B
2023
142,411-13,312 TEU
Jan-28
10-yr TC
Oct-32
Hapag-
Lloyd
Dual Fuel Eco
Container Carrier
Hyundai Prestige
C
2013
63,010-5,023 TEU
Aug-24
12-yr TC
Dec-24
HMM
Eco Wide Beam
Container Carrier
Hyundai Premium
C
2013
63,010-5,023 TEU
Aug-24
12-yr TC
Jan-25
HMM
Eco Wide Beam
Container Carrier
Hyundai Paramount
C
2013
63,010-5,023 TEU
Aug-24
12-yr TC
Feb-25
HMM
Eco Wide Beam
Container Carrier
Hyundai Privilege
C
2013
63,010-5,023 TEU
Aug-24
12-yr TC
Mar-25
HMM
Eco Wide Beam
Container Carrier
Hyundai Platinum
C
2013
63,010-5,023 TEU
Aug-24
12-yr TC
Apr-25
HMM
Eco Wide Beam
Container Carrier
Akadimos(12)
D
2015
115,534-9,288 TEU
Aug-24
2-yr TC
Mar-25
CMA CGM
Eco-Flex Wide
Beam Container
Carrier
Athos
E
2011
118,888-9,954 TEU
Jan-25
6.8-yr TC
Apr-26
Hapag-
Lloyd
Container Carrier
Aristomenis
E
2011
118,712-9,954 TEU
Jan-25
7.5-yr TC
Apr-26
Hapag-
Lloyd
Container Carrier
Athenian
E
2011
118,834-9,954 TEU
Jan-25
6.8-yr TC
Apr-26
Hapag-
Lloyd
Container Carrier
Long Beach Express (6)
F
2008
68,618-5,089 TEU
Feb-26
4.7-yr TC
Jun-25
Hapag-
Lloyd
Container Carrier
Seattle Express (6)
F
2008
68,411-5,089 TEU
Feb-26
4.7-yr TC
Sep-25
Hapag-
Lloyd
Container Carrier
Fos Express (6)
F
2008
68,579-5,089 TEU
Feb-26
4.7-yr TC
Sep-25
Hapag-
Lloyd
Container Carrier
LNG/C VESSELS
Aristos I (7)
G
2020
81,978-174,000 CBM
Sep-26
5-yr TC
Oct-25
BP
LNG/C
Aristarchos (8)
G
2021
81,956-174,000 CBM
Sep-26
10-yr TC
May-31
Cheniere
LNG/C
Aristidis I (7)
G
2021
81,898-174,000 CBM
Dec-26
5-yr TC
Dec-25
BP
LNG/C
Attalos (7)
G
2021
81,850-174,000 CBM
Nov-26
4.2-yr TC
Oct-25
BP
LNG/C
Adamastos (9)
G
2021
82,095-174,000 CBM
Nov-26
7.2-yr TC
Sep-28
Engie
LNG/C
Asklipios (8)
G
2021
81,882-174,000 CBM
Nov-26
10-yr TC
Aug-31
Cheniere
LNG/C
Asterix I (10)
G
2023
81,932-174,000 CBM
Feb-28
7-yr TC
Dec-29
Hartree
LNG/C
TOTAL FLEET
2,030,260 DWT-106,156 TEU-1,218,000 CBM
(1) Sister vessels and shipyards of origin are denoted in the tables by the following letters: (A) this vessel was built by Sungdong Shipbuilding & Marine
Engineering Co., Ltd., South Korea; (B): these vessels were built by Hyundai Samho Heavy Industries Co. Ltd; (C): these vessels were built by Hyundai Heavy
Industries Co. Ltd, South Korea; (D): these vessels were built by Daewoo-Mangalia Heavy Industries S.A; (E): these vessels were built by Samsung Heavy Industries
Co. Ltd; (F): these vessels were built by Hanjin Heavy Industries & Construction Co., Ltd.; and (G): these vessels were built by Hyundai Heavy Industries Co., Ltd.
(2) Our vessels are managed under floating fee management agreements entered into with our Managers. For additional details regarding our management
agreement, please see “—Our Management Agreements” above.
(3) TC: Time Charter.
(4) Earliest possible redelivery date.
(5) DWT: Dead Weight Ton, TEU: Twenty-foot Equivalent Units, CBM: Cubic Meter.
(6) In September 2020, each of the vessel-owning companies of the M/V Long Beach Express, the M/V Seattle Express and the M/V Fos Express entered into a
time charter agreement with Hapag-Lloyd for a period of 56 to 60 months. The charterer has the option to extend the time charters of the vessels by 24 months (+/- 60
days) plus 12 months (+/- 45 days). The charter of the M/V Long Beach Express commenced in October 2020 and of the M/V Seattle Express and the M/V Fos Express
in January 2021.
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(7) In 2019, each of the vessel-owning companies of the LNG/C Aristos I, the LNG/C Aristidis I and the LNG/C Attalos, entered into a time charter agreement with
BP for a period of 3 years (+/- 30 days). The charterers have three two-year options (+/- 30 days) and one three-year option (+/- 30 days).The charters of the LNG/C
Aristos I and the LNG/C Aristidis I commenced in November 2020 and January 2021 respectively. The charter of the LNG/C Attalos commenced in November 2022,
previously the vessel was under a 15-month (+/- 30 days) time charter with BP. In February and March 2023 the charterer exercised its option to extend the time charter
of the LNG/C Aristos I and LNG/C Aristidis I by two years (+/- 30 days), respectively.
(8) In April 2021, each of the vessel-owning companies of the LNG/C Aristarchos and the LNG/C Asklipios, entered into a time charter agreement with Cheniere
until March 15, 2025 (+/- 30 days) and February 5, 2025 (+/- 30 days). Each charter has two one-year options (+/- 30 days). The charters of the LNG/C Aristarchos and
the LNG/C Asklipios commenced in June 2021 and September 2021, respectively. In August 2022 both vessels amended their time charter agreement with Cheniere
and extended them until June 14, 2031 (+/- 30 days) and September 28, 2031 (+/- 30 days), respectively. After the amendment each charter has two two-year options
(+/- 30 days).
(9) In July 2021, the vessel-owning company of the LNG/C Adamastos, entered into a time charter agreement with Engie for a period of 1,890 days (+90/-45 days)
or for a period of 2,620 days (+90/-45 days) if the charterer exercises its option on or prior to May 2023. The charter of the LNG/C Adamastos commenced in August
2021. In May 2022, the charterer elected the second period of 2,620 days (+90/-45 days).
(10) In January 2022, the vessel-owning company of the LNG/C Asterix I, entered into a time charter agreement with Hartree for a period of 1,825 days (+/-60 days)
or for a period of 2,555 days (+/-60 days) if the charterer exercises its option on or prior to January 2025. The charter has one two-year option (+/- 30 days). In January
2023, the charterer selected the period of 2,555 days (+/-60 days). The charter of the LNG/C Asterix I commenced in February 2023.
(11) In June 2021, the vessel-owning companies of the M/V Manzanillo Express and the M/V Itajai Express, entered into a time charter agreement with Hapag-Lloyd
for a period of 120 months (+/-90 days). The charterers have three two-year options (+/- 45 days). The charter of the M/V Manzanillo Express and the M/V Itajai
Express commenced in October 2022 and January 2023, respectively.
(12) In March 2023, the vessel-owning company of the M/V Akadimos entered into a time charter agreement with CMA CGM for a period of two years (+45/-30
days). The charter of the M/V Akadimos commenced in April, 2023.
Our Charters
Our vessels are chartered with remaining revenue-weighted charter duration of approximately 6.2 years as of March 31, 2023. 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, depending 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 “—Our
Fleet” above for more information on our time 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 rates and the charterer is responsible for substantially all vessel voyage
costs except for commissions which are assumed by the owner. The basic hire rate payable under the charters is a previously agreed daily rate, as specified in the
charter, payable at the beginning of the month in U.S. Dollars.
Bareboat Charters
A bareboat charter is a contract pursuant to which the vessel owner provides the vessel to the customer for a fixed period of time at a specified daily rate, and
the customer provides for all of the vessel’s expenses (including any commissions) and generally assumes all risk of operation. The customer undertakes to maintain the
vessel in a good state of repair and efficient operating condition and dry-dock the vessel during this period at its cost and as per the classification society requirements.
None of our vessels are currently under bareboat charters.
Spot Charters
A spot charter generally refers to a voyage charter or a trip charter or a short-term time charter.
Voyage / Trip Charter
A voyage charter involves the carriage of a specific amount and type of cargo on a “load port-to-discharge port” basis, subject to various cargo handling terms.
Under a typical voyage charter, the shipowner is paid on the basis of moving cargo from a loading port to a discharge port. In voyage charters the shipowner generally
is responsible for paying both vessel operating costs and voyage expenses, and the charterer generally is responsible for any delay at the loading or discharging ports.
Under a typical trip charter or short-term time charter, the shipowner is paid on the basis of moving cargo from a loading port to a discharge port at a set daily rate. The
charterer is responsible for paying bunkers and other voyage expenses, while the shipowner is responsible for paying vessel operating expenses.
Seasonality
We seek to operate our vessels under medium- to long-term charters and are not generally subject to the effect of seasonable variations in demand.
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Management of Ship Operations, Administration and Safety
Our objective is to run our operations in a safe, efficient and cost-effective manner. To that end, our Managers, provide expertise in various functions critical to
our operations. Specifically, pursuant to the management and administrative services agreements we have entered into with them, our Managers grant us access to
human resources, financial and other administrative services, including bookkeeping, audit and accounting services, administrative and clerical services, banking and
financial services, client, investor relations, information technology and technical management services, including commercial management of the vessels, vessel
maintenance and crewing (not required for vessels subject to bareboat charters), procurement, insurance and shipyard supervision.
In compliance with the International Maritime Organization’s ISM code, our Managers operate under safety management systems certified by Lloyd’s Register
of Shipping (“LRS”). Capital-Executive’s management systems also comply with the Environmental Management Standard ISO 14001, the Occupational Health &
Safety Management System ISO 45001 and the Energy Management Standard 50001, all of which are certified by LRS. In addition, Capital-Executive has
implemented an “Integrated Management System Approach” verified by the LRS.
One of the key strategies of our Managers is the implementation of a regime of responsible, safe and clean shipping in an effort to operate our vessels in a
manner intended to protect the safety and health of our Managers’ employees, the general public and the environment. Our Managers’ senior management teams aim to
actively manage the risks inherent in our business and are committed to eliminating incidents that threaten safety, such as groundings, fires, collisions and spills, as well
as reducing emissions and waste generation.
Capital-Executive and Capital Gas currently outsource in part or in full the technical management and crewing of six container carrier vessels and six LNG
carrier vessels to third parties.
Crewing and Staff
Capital-Executive, through a Capital Maritime subsidiary in Romania and crewing offices in Romania, Russia and the Philippines, recruits senior officers and
crews for our vessels. Our vessels are currently manned primarily by Romanian and Russian officers and Filipino ratings. We believe that Capital-Executive has
significant experience in operating vessels in this configuration and has access to a pool of certified and experienced crew members whom it can recruit to man our
vessels.
Capital Gas also recruits crew through a third-party manager.
The LNG vessels are currently manned primarily by Romanian, Ukrainian and Russian officers and Filipino ratings. The continued hostilities between Russia
and Ukraine might adversely impact our ability to safely repatriate Russian and Ukrainian officers and make the ability to perform regular crew changes problematic, as
travel may not be available. This could impact the smooth operations of vessels as new officers and crews are sourced which may not have the familiarity of the vessel
that they are joining. The extent to which this war will impact the Partnership’s future results of operations and financial condition will depend on future developments,
which are highly uncertain and cannot be predicted. Accordingly, an estimate of the impact cannot be made at this time.
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 which that country has accepted and signed. In addition, where surveys are required by international conventions and corresponding laws and ordinances of
a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and inspections that are required by regulations and requirements of the flag state
administration 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 occasional 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.
•
A bottom survey, which is an examination of the outside of the ship’s bottom and related items, and is normally carried out with the ship in dry-dock.
However, the classification society may give consideration to alternate examination while the ship is afloat as an in-water survey. An in-water survey is
not be permitted for ships 15 years of age and over that are assigned the notation ESP. A minimum of two bottom surveys are to be held in each five-
year special survey period and the maximum interval between successive bottom surveys may not exceed three years. One of the two bottom surveys
required in each five-year period is to coincide with the special survey. Non-ESP vessels (i.e., containers and LNG) are eligible to apply to the flag
administration for the vessel to be placed on an Extended Dry-Docking (“EDD”) regime thus extending the bottom surveys to 7.5 years. The EDD
scheme provides commercial flexibility and reduced operating expenses during the survey periods.
•
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 newbuilds 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 dry-docking the vessel. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
•
Vessels above 15 years of age, subject to enhanced survey requirements, are also dry-docked twice during each five year cycle 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 classification society. The classification surveyor in this case will issue a “recommendation” which must be rectified by
the ship-owner within prescribed time limits.
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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 thickness of the steel structures. Should the
thickness be found to be less than class requirements, the classification society will order steel renewals. The classification society may grant a 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 the International Convention for the Safety of Life at Sea (“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 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 (IACS). All of our vessels are certified as being “in class” by IACS members including ABS, BV, DNV, KR,
and Lloyd’s Register. All new and second-hand vessels that we may purchase must be certified prior to their delivery under our standard agreements. If any vessel we
contract to purchase is not certified as “in class” on the date of closing, under our standard purchase agreements, we will have no obligation to take delivery of such
vessel.
Risk Management and Insurance
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters, death or personal injury and property losses caused by adverse
weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. The occurrence of any of these events may result in loss
of revenues or increased costs or, in the case of marine disasters, catastrophic liabilities. Although we believe our current insurance program is usual and comprehensive
in our industry, we cannot insure against all risks, and we cannot be certain that all covered risks are adequately insured against or that we will be able to achieve or
maintain similar levels of coverage throughout a vessel’s useful life. Furthermore, there can be no guarantee that any specific claim will be paid by the insurer or that it
will always be possible to obtain insurance coverage at reasonable rates. More stringent environmental regulations have resulted in increased costs for, and may result
in the lack of availability of, insurance against the risks of environmental damage or pollution. Any uninsured or under-insured loss could harm our business and
financial condition or could materially impair or end our ability to trade or operate.
We believe our current insurance program is prudent. We currently carry the traditional range of marine and liability insurance coverage for each of our vessels
to protect against most of the accident-related risks involved in the conduct of our business. Specifically we carry:
•
Hull and machinery insurance, 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 shipowner is
responsible. We carry the current maximum available amount of coverage for oil pollution risks, $1.0 billion per vessel per incident;
•
War risks insurance, which covers such items as piracy and terrorism; and
•
Freight, demurrage and defense cover, which is a form of legal costs insurance covering certain costs of prosecuting or defending commercial (usually
uninsured operating) claims.
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Not all risks are insured and not all risks are insurable. The principal insurable risks, which remain uninsured across our fleet, are “loss of hire” and “strikes”.
The following table sets forth certain information regarding our insurance coverage as of December 31, 2022:
Type
Aggregate Sum Insured for All Vessels in Our Existing Fleet
Hull and Machinery
$2.8 billion
Increased Value (including Excess Liabilities)
$600.0 million additional “total loss” coverage
Hull & Machinery (War Risks)
$3.4 billion
Protection and Indemnity (P&I) Pollution Liability Claims
Up to $1.0 billion per incident per vessel
Competition
We operate in a highly fragmented, highly diversified global market with many charterers, owners and operators of vessels.
Competition for charters 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 charterer. Although we believe that at the present time no single company has a
dominant position in the markets in which we operate, 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. However, we believe our ability to comply
better with the rigorous standards of major charterers 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, National Maritime Regulations of
Country of Registry, Classification Rules and Regulations, IACS Quality Standards, U.S. federal, state and local as well as non-U.S. health, safety and environmental
protection laws and regulations, including, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the U.S. Ports and Waterways
Safety Act of 1972, the Act to Prevent Pollution from Ships, the U.S. Clean Air Act (“Clean Air Act”), the U.S. Water Pollution Control Act (“Clean Water Act”),
Japanese Marine traffic safety laws, Australian Marine Orders regarding stevedores safety, as well as regulations adopted by the IMO and the EU, State air emission
requirements, IMO/United States Coast Guard (“USCG”)/Environmental Protection Agency (“EPA”) pollution regulations and various SOLAS amendments,
International Labour Organization (“ILO”) regulations, International Telecommunications Union (“ITU”) regulations, as well as insurance requirements and 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, and designating local air emission control areas. 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, licenses and certificates for
our vessels, depending upon such factors as the country of registry, the cargo transported, the trading area, the nationality of the vessel’s crew, the age and size of the
vessel and our status as owner or charterer. Failure to maintain necessary permits, licenses or certificates could require us to incur substantial costs or temporarily
suspend 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 impose greater inspection, training
and safety requirements on all types of vessels in the shipping industry. In addition to inspections by us, our vessels are subject to both scheduled and unscheduled
inspections by a variety of governmental and private entities, each of which may have unique requirements. These entities include the local port authorities (such as
USCG, harbor master or equivalent), classification societies, flag state administration, P&I Clubs, Port State Control (“PSC”) officers, ILO inspectors, charterers, and
particularly terminal operators which conduct frequent vessel inspections.
It is our policy to operate our vessels in full compliance with applicable environmental laws and regulations. However, regulatory programs are complex,
frequently change and may impose increasingly strict requirements, we cannot predict the ultimate cost of complying with these and any future requirements, or their
impact on the resale value or useful life of our vessels.
United States Requirements
The United States regulates the shipping industry with extensive environmental protection requirements and a liability regime addressing violations and the
cleanup of oil spills, primarily through the Oil Pollution Act of 1990 (“OPA 90”), CERCLA and certain coastal state laws.
Under OPA 90, vessel operators, including vessel owners, managers and bareboat or “demise” charterers, are “responsible parties” who share strict joint and
several liability for all containment and clean-up costs and other damages arising from oil spills from their vessels. These “responsible parties” would not be liable if
the spill results solely from the act or omission of a third party, an act of God or an act of war. The limits of OPA90 liability are the greater of $2,500 per gross ton or
$12.5 million for any tanker other than single-hull tank vessels, over 3,000 gross tons (subject to adjustment for inflation). OPA 90 specifically permits individual states
to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for
unlimited liability for discharge of pollutants within their waters.
CERCLA applies to the discharge of hazardous substances (other than oil) whether on land or at sea, and contains a liability regime that provides for cleanup
costs and damages to natural resources. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying any hazardous
substances as cargo, or the greater of $300 per gross ton or $0.5 million for any other vessel, per release of or incident involving hazardous substances. As with OPA 90,
these limits of liability do not apply if the incident is caused by gross negligence, willful misconduct, violation of certain regulations or if the responsible party fails or
refuses to report the incident or fails to provide all reasonable cooperation and assistance requested in response activities, in which case, liability is unlimited. While
OPA 90 and CERCLA would not apply to the discharge of LNG, these laws may affect us because we carry oil as fuel and lubricants for our engines, and the discharge
of these could cause an environmental hazard. 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.
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The Clean Water Act requires owners and operators of vessels to adopt contingency plans for reporting and responding to oil spill scenarios up to a “worst case”
scenario and to identify and ensure, through contracts or other approved means, the availability of necessary private response resources to respond to a “worst case
discharge.” In addition, periodic training programs, drills for shore and response personnel, and for vessels and their crews, are required. Our vessel response plans have
been approved by the 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 significant penalties for damage caused by water pollution
U.S. 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, our vessels are required to obtain coverage under the EPA 2013 Vessel General Permit (“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
and U.S. EPA has announced that plans to publish new vessel discharge standards in late 2024 which could ultimately replace the VGP program by 2026.
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 IMO. 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 other systems have recently received a USCG type BWTS approval. As of the date of this Annual Report, all of
our vessels are equipped with BWTS, seven have been retrofitted after delivery from the building yard, while 15, including our seven LNG carriers, were delivered
from the building yard with installed BWTS systems
The Clean Air Act requires the EPA to promulgate standards applicable to emissions of volatile organic compounds, hazardous air pollutants and other air
contaminants. The Clean Air Act also requires states to draft State Implementation Plans (“SIPs”) designed to attain national health-based air quality standards, which
have significant regulatory impacts in major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading
operations by requiring the installation of vapor control equipment. Individual states, including California, also regulate vessel emissions within state waters. California
also has adopted fuel content regulations that will apply to all vessels sailing within 24 miles of the California coastline or whose itineraries call for them to enter any
California ports, terminal facilities, or internal or estuarine waters. In addition, the IMO designates 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 and NOx 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, have been adopted 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.
China Requirements
China established coastal emission control areas (ECA) that capped the sulphur content of marine fuels. The three ECAs are the Pearl River Delta, the Yangtze
River Delta and Bohai Bay. These coastal ECAs are designated under Chinese domestic law and are not MARPOL Annex VI designated ECAs and exclude the waters
under the jurisdiction of Hong Kong, Macao and Taiwan. Since 1 January 2019, vessels operating within such a coastal ECA have been required to use fuel with a
maximum sulphur content of 0.50%. The China Maritime Safety Administration issued an “Implementation Scheme of 2020 Global Marine Fuel Oil Sulphur Cap”
according to which, among other requirements, from 1 January 2022 a sulphur cap of 0.10% will apply to seagoing vessels entering Hainan Waters within the coastal
ECA.
Korea Requirements
From 1 September 2020, the South Korea government implemented mandatory SOx Emission Control Areas (SECAs) requiring the use of 0.1% sulphur fuel by
ships in specified port areas. The following seaport areas became Korean SECAs, Incheon (including Gyeongin port), Pyeongtaek·Dangjin Yeosu·Gwangyang
(including Hadong port) Busan Ulsan.
Effective from 1 September 2020, all ships (including foreign-flagged vessels) berthed or at anchorage in the above SECAs must ensure that, one hour after
mooring (or anchoring) and one hour before de-berthing (or heaving anchor), sulphur content of fuel oils used on board does not exceed 0.1% m/m (or an approved
equivalent arrangement is used).
Effective from 1 January 2022, all ships (including foreign-flagged vessels) entering or leaving the SECAs must comply with the same 0.1% m/m sulphur fuel
limit using the appropriate fuel oils (or approved equivalent arrangement).
EU requirements
In September 2020, the EU agreed to cut GHG emissions by at least 55% by 2030 and to become climate neutral by 2050. The “Fit for 55” proposed
legislative package issued on July 2021 to meet the new targets. It includes:
•
Emission Trading System (ETS) Directive: The EU has determined that maritime shipping will be included in the ETS as from 2024 in the absence of a
comparable system operating under the IMO, with the ships presently reporting emissions under the EU MRV Regulation required to purchase CO2
emission credits. Under the ETS, every year companies must purchase enough allowances in order to cover the total amount of their CO2 emissions in that
year. At the end of each year they must surrender those allowances. All intra-EU emissions will be included, except that only 50% of the emissions for
voyages from and to a third country when arriving in or departing from the EU, respectively, will be included. Non-compliance is fined and may eventually
lead to a ban from EU waters. It remains to be seen what form the enactments will take when the final text of the ETS is published. On December 18, 2022,
provisional agreement was reached by the EU Council and EU Parliament (the two EU legislative bodies) which provides for a gradual introduction of
obligations for shipping companies. Specifically, shipping companies will be obliged to surrender allowances corresponding to only 40% of their verified
emissions for 2024, 70% for 2025 and 100% as from 2026.
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•
Fuel EU Maritime Regulation: This is a new regulation coming into effect in 2025, imposing life cycle GHG footprint requirements on the energy used
onboard vessels. It will apply to the same vessels that are covered by the EU MRV Regulation and will, in addition to CO2, cover methane and nitrous
oxide, from a well-to-wake perspective. The GHG intensity of the energy used will be required to improve by 2% in 2025 relative to 2020, ramping up to
75% by 2050. Credits will be granted for energy generated on board, such as by wind power. The regulation will also require container and passenger
vessels to connect to shore power from 2030 for stays longer than two hours. Similar to the ETS, non-compliance may lead to fines and vessels being
banned from EU waters.
•
Alternative Fuels Infrastructure Regulation: This regulation is an update of an existing directive and will require EU member states to ramp up the
availability of LNG by 2025 and onshore electrical power supply by 2030 in core EU ports.
•
Energy Taxation Directive: This directive is being revised to remove the tax exemption for conventional fuels used between EU ports as of 1 January 2023.
International bunker for extra-EU voyages remains tax exempt. For heavy fuel oil, the new tax rate will be approximately €37 per ton. LNG will initially be
taxed at a rate of €0.6 per GJ. Alternative fuels will be tax exempt for a ten-year period.
International Requirements
In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from ships.
Annex VI sets limits on sulphur 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 sulphur content of fuel oil and allows for special sulphur emission control areas to be established with
more stringent controls on sulphur emissions (“SECA areas”).
Amendments to Annex VI to the MARPOL address particulate matter, nitrogen oxide and sulphur oxide emissions. The revised Annex VI reduces air pollution
from vessels by, among other things (i) implementing a progressive reduction of sulphur 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. A global 0.5% sulphur cap on marine fuels came 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 prior global sulphur cap of 3.5%, which came into effect on January 1,
2012. Shipowners can meet the new requirements by continuing to use fuel types which exceed the 0.5% sulphur limit and retrofitting an approved Exhaust Gas
Cleaning System (also known as scrubbers) to remove sulphur from exhaust, which would require a substantial capital expenditure and prolonged off-hire of the vessel
during installation, or use petroleum fuels such as marine gasoil (MGO), which meet the 0.5% sulphur limit. 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 sulphur 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 meet relevant Annex VI requirements. Nevertheless, as most existing vessels are not
designed to operate on ultra-low sulphur 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.
In general, as our vessels are employed under time charter arrangements, our charterers are responsible for procuring compliant bunkers for our vessels and
incur the cost of these bunkers.
The ISM code, promulgated by the IMO, also requires the party with operational control of a vessel to develop an extensive safety management system that
includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies. The ISM code requires that vessel operators obtain a safety management certificate for each vessel they operate.
No vessel can obtain a certificate 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.
Vessels that transport gas, including LNG carriers, are also subject to the International Gas Carrier Code (“IGC”) which provides a standard for the safe carriage
of LNG and certain other liquid gases by prescribing the design and construction standards of vessels involved in such carriage. Each of our vessels is in compliance
with the IGC Code. Our ship manager holds a document of compliance under the ISM code for operation of Gas Carriers.
Noncompliance with the ISM code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to increased
premiums and decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.
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Many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution
Damage of 1969 (the “CLC”) (the United States, with its separate OPA 90 regime, is not a party to the CLC). Under this convention and depending on whether the
country in which the damage results is a party to the 1992 Protocol to the International Convention on Civil Liability for Oil Pollution Damage, a vessel’s registered
owner is strictly liable for pollution damage caused in the territorial waters of a 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 coverage requirements under the
plan adopted by the IMO.
In 2001, the IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”), which imposes strict
liability on ship owners for pollution damage caused by discharges of bunker oil in jurisdictional waters of ratifying states. The Bunker Convention also requires
registered owners of ships over a certain size to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as
amended). Our fleet has been issued with a certificate attesting that insurance is in force in accordance with the insurance provisions of the convention.
As of the date of this Annual Report, five of our vessels have been retrofitted with scrubbers while two were delivered from the building yard with scrubbers
attached. We expect that the three vessels we acquired in January 2020 will be retrofitted with scrubbers in 2023. As of the date of this Annual Report, all of our vessels
are equipped with BWTS, seven have been retrofitted after delivery from the building yard, while 15, including our seven LNG carriers, were delivered from the
building yard with BWTS attached. We may also decide to retrofit the rest of our fleet with scrubbers over the coming years, subject to market developments and yard
availability.
Climate Change and Greenhouse Gas Regulation
Increasing concerns about climate change have resulted in a number of international, national and regional measures to limit greenhouse gas emissions and
additional stricter measures can be expected in the future.
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. However, new treaties may be adopted in the future that include restrictions on shipping
emissions. The EU also has indicated that it intends to propose an expansion of the existing EU 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, above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels with regular five-year reviews of
progress beginning in 2023. National and multilateral efforts to meet these goals could result in reductions in the use of carbon fuels generally, and stricter limits on
greenhouse gas emissions from ships in particular. Any passage of climate control legislation or other regulatory initiatives by the IMO, EU, the U.S. or other countries
where we operate that restrict emissions of greenhouse gases could have a financial impact on our operations that we cannot predict with certainty at this time. In
addition, scientific studies have indicated that increasing concentrations of greenhouse gases in the atmosphere can produce climate changes with significant physical
effects, such as increased frequency and severity of storms, floods and other severe weather events that could affect our operations. 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.
IMO continues to contribute to the global fight against climate change, in support of the UN Sustainable Development Goal 13, to take urgent action to combat
climate change and its impacts. In 2018, IMO adopted an initial strategy on the reduction of GHG emissions from ships, setting out a vision which confirms IMO’s
commitment to reducing GHG emissions from international shipping and to phasing them out as soon as possible. The initial GHG strategy envisages, in particular, a
reduction in carbon intensity of international shipping (to reduce CO2 emissions per transport work, as an average across international shipping, by at least 40% by
2030, pursuing efforts towards 70% by 2050, compared to 2008), and that total annual GHG emissions from international shipping be reduced by at least 50% by 2050
compared to 2008. In June 2021, the IMO adopted extensive new CO2 regulations applicable to existing ships. The Energy Efficiency Existing Ship Index (EEXI)
addressing the technical efficiency of ships, the Carbon Intensity Indicator (CII) rating scheme addressing the operational efficiency. The EEXI will impose a
requirement similar to EEDI to existing ships of specific ship types as a one-off certification. The EEXI is to be verified and a new Energy Efficiency Certificate issued
no later than the first annual, intermediate or renewal IAPP survey or the initial IEE survey after 1 January 2023. An EEXI Technical File must be issued including the
calculation of the attained EEXI, which must be below a required EEXI value. From 2023, the CII requirements will take effect for the entire fleet, with the first annual
reporting on carbon intensity to be completed in 2023 and the first rating given in 2024. Within 3 months after the end of each calendar year, ships shall calculate the
attained annual operational CII over a 12-month period using data from the IMO Data Collection System and shall report it to its flag administration or recognized
organization who shall:
-
determine whether the data has been properly reported,
-
verify the attained annual operational CII,
-
determine the operational carbon intensity rating (A, B, C, D or E)
-
will issue a Statement of Compliance related to fuel oil consumption reporting and annual operational carbon intensity rating.
For ships rated as D for 3 consecutive years or rated as E, the SEEMP shall be amended with a plan of corrective actions to achieve the required annual
operational CII.
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C.
Organizational Structure
CPLP is a limited partnership organized in the Republic of the Marshall Islands. As of the date of this annual report, it has 29 subsidiaries which are
incorporated in the Marshall Islands, Liberia and Cyprus. Of our significant subsidiaries, 22 either own or leaseback vessels in our fleet. Our subsidiaries are wholly-
owned by us. A list of our significant subsidiaries as of the date of this annual report, is set forth in Exhibit 8.1 to this annual report.
Please also see Note 1 (Basis of Presentation and General Information) to our Financial Statements for a list of our significant subsidiaries as of December 31,
2022.
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 “—B: Business Overview—Our Fleet” and “—Regulation” above. Our obligations under our financing arrangements are secured
by all our vessels. For further details regarding our financing arrangements, please read “Item 5. Operating and Financial Review and Prospects—B. Liquidity and
Capital Resources—Borrowings (Financing Arrangements).”
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 Financial Statements. 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.
For a discussion of the year ended December 31, 2021, compared to the year ended December 31, 2020, please refer to Part A, Item 5, “Operating and Financial
Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on April 27, 2022.
The following discussion contains forward-looking statements that 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 and uncertainties discussed in “Item 3.
Key Information—D. Risk Factors” These 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. Forward-looking statements are not guarantees and actual results could differ materially from those
expressed or implied in the forward-looking statements. See “Forward-Looking Statements” above.
A.
Operating Results Overview
We are an international owner of ocean-going 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 primary business objective is to make distributions to our unitholders on a quarterly basis and increase the level of our distributable cash flow over time,
while growing our business, 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 our Managers’ 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 and its affiliates 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 cash flow growth, subject to approval of our board of directors, overall market conditions and our ability to obtain required financing and access financial
markets.
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We generally rely on external financing sources, including bank borrowings and sale-leaseback arrangements 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, 2022, the Marinakis family, including Evangelos M. Marinakis, the chairman of Capital Maritime, our sponsor, may be deemed to
beneficially own a 30.0% interest in us through, among others, Capital Maritime and Capital Gas Corp.
Our Charters
We generate revenues by charging our charterers for the use of our vessels.
Historically, our vessels were chartered under time or bareboat charter agreements. As of December 31, 2022, with the exception of the M/V Cape Agamemnon,
all of our vessels, were trading in the period market. As of December 31, 2022, the M/V Cape Agamemnon was deployed in the spot market.
Our vessels are currently under contracts with HMM, CMA CGM, Hapag-Lloyd, BP, Cheniere, Hartree and Engie.
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. Please read “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.”.
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.
As of the date of this Annual Report, we are exposed to the container and LNG markets to a significant extent, as our fleet is comprised of 14 container carrier
vessels, seven LNG carrier vessels and one drybulk vessel. We have one vessel trading in the spot market.
The world economy has experienced significant economic and political upheavals in recent history. In addition, credit supply has been constrained and financial
markets have been particularly turbulent for master limited partnerships such as us. Protectionist trends, efforts by central banks to address increased inflation, global
growth and demand for the seaborne transportation of goods, including dry and containerized goods and liquefied natural gas and overcapacity and deliveries of newly
built vessels may affect the shipping industry in general and our business, financial condition, results of operations and cash flows in particular.
Some of the key factors that may affect our business, future financial condition, results of operations and cash flow include the following:
•
supply and demand for containerized goods, LNG and dry cargo;
•
supply and orderbook of vessels, including, container vessels, liquefied natural gas and drybulk vessels;
•
the continuing demand for goods from China, India, Brazil and Russia and other emerging markets and developments in international trade including
threats and/or imposition of trade tariffs;
•
time charter hire levels and our ability to enter our vessels into long-term charters at competitive rates as their current charters expire;
•
the impact of the Russia-Ukraine conflict on the global economy in general, and on the oil and gas industry in particular;
•
our ability to comply with the covenants in our financing arrangements, including covenants relating to the maintenance of vessel value ratios;
•
developments in vessel values, which might affect our ability to comply with certain covenants under our financing arrangements and/or refinance our
debt;
•
the relationships and reputation of our Managers, our General Partner and Capital Maritime in the shipping industry;
•
the effective and efficient technical management of our vessels;
•
the strength of and growth in the number of our customer relationships;
•
continued and consistent support from our Managers at comparable rates;
•
the prevailing spot market rates and the number of our vessels which we may operate in the spot market;
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•
our level of debt and the related interest expense and amortization of principal, including the impact of increased interest rates on our floating rate debt;
•
the ability to increase the size of our fleet and make additional acquisitions that are accretive to our unitholders;
•
our access to debt and equity financing, and the cost of capital required to acquire additional vessels or to implement our business strategy;
•
our ability to comply with maritime regulations and standards, including new environmental regulations and standards, and the costs associated
therewith;
•
the costs associated with upcoming dry-docking of our vessels; and
•
the impact of COVID-19 on the container, LNG and drybulk charter market and on our operations.
Please read “Item 3. Key Information—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 size of our fleet when evaluating our results of operations. In February 2021, we completed the acquisition of three
Panamax container carrier vessels, the M/V Long Beach Express, the M/V Seattle Express and the M/V Fos Express. During the second half of the year 2021 we
completed the acquisition of six LNG carrier vessels, the LNG/C Aristos I and the LNG/C Aristarchos on September 3, 2021, the LNG/C Attalos and the LNG/C
Asklipios on November 18, 2021, the LNG/C Adamastos on November 29, 2021 and the LNG/C Aristidis I on December 16, 2021 while in May and December 2021,
respectively, we completed the sale of two Neo-Panamax container carrier vessels, the M/V CMA-CGM Magdalena and the M/V Adonis. On June 6, 2022, we agreed
to acquire, upon their respective delivery from the shipyard, one LNG carrier vessel and three Neo-Panamax container carrier vessels. The first vessel, the Neo-
Panamax container carrier vessel, the M/V Manzanillo Express, was delivered on October 12, 2022. On July 6, 2022 and July 28, 2022, we completed the sale of two
Neo-Panamax container carrier vessels, the M/V Archimidis and the M/V Agamemnon respectively. Consequently, the weighted average number of vessels in our fleet
increased by 3.4 during and the year 2022 compared to the year 2021. 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.
Results of Operations
We have derived the following selected historical financial data for the years ended December 31, 2022 and 2021 from our Financial Statements. The table
below should be read together with, and is qualified in its entirety by reference to, the Financial Statements. 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. All
numbers are in thousands of U.S. Dollars, except numbers of units and earnings per unit.
Income Statement Data:
2022
2021
Revenues
$
299,071 $
184,665
Expenses / (income), net:
Voyage expenses
16,236
10,698
Vessel operating expenses
58,288
41,199
Vessel operating expenses – related parties
9,172
5,923
General and administrative expenses
10,681
8,662
Gain on sale of vessels
(47,275)
(46,812)
Vessel depreciation and amortization
69,272
46,935
Total operating expenses, net
116,374
66,605
Operating income
182,697
118,060
Other income / (expense), net:
Interest expense and finance cost
(55,421)
(20,129)
Other (expense)/income
(1,855)
247
Partnership’s net income
125,421
98,178
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Our results of operations for the years ended December 31, 2022 and 2021 differ primarily due to:
•
the net increase in the weighted average number of vessels in our fleet by 3.4 vessels. The weighted average number of container carrier and dry bulk
vessels decreased by 1.6 following the sale of the M/V Archimidis and the M/V Agamemnon in July 2022 and the acquisition of the M/V Manzanillo
Express, while the weighted average number of LNG carrier vessels which are earning revenues and are incurring operating expenses at a higher rate
compared to the rest of our fleet increased by 5.0;
•
the increase in the weighted average interest on our long-term debt to 4.1% for the year 2022 from 2.9% for the year 2021.
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Total Revenues
Total revenues, consisting of time and voyage charter revenues, amounted to $299.1 million for the year ended December 31, 2022 compared to $184.7 million
for the year ended December 31, 2021.
The increase of $114.4 million was primarily a result of the net increase in the weighted average number of vessels in our fleet by 3.4 vessels during the year
ended December 31, 2022, and the higher average charter rates earned by certain of our vessels during the year 2022 compared to the year 2021.
Time and voyage charter revenues are mainly comprised of the charter hires received from unaffiliated third-party charterers and are generally affected by the
number of vessel operating days, the weighted average number of vessels in our fleet and the charter rates.
For the year ended December 31, 2022, BP, HMM, Cheniere and Hapag-Lloyd accounted for 28%, 18%, 17% and 16% 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 4. Information on the Partnership—B. 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 $16.2 million for the year ended December 31, 2022, compared to $10.7 million for the year ended December 31, 2021.
The increase of $5.5 million was primarily attributable to the increase in the weighted average number of vessels in our fleet during the year 2022 and the increase in
voyage expenses incurred by the M/V Cape Agamemnon employed under voyage charters during the year 2022 compared to the year 2021.
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 charters are paid for by the charterer, except for commissions, which are paid for by us.
Voyage expenses incurred during voyage charters or off hire periods are paid for by us. Please also refer to Note 10 (Voyage Expenses and Vessel Operating Expenses)
to the Financial Statements for information on the composition of our voyage expenses.
Vessel Operating Expenses
For the year ended December 31, 2022, our total vessel operating expenses amounted to $67.5 million compared to $47.1 million for the year ended December
31, 2021. The $20.4 million increase in total vessel operating expenses primarily reflects the increase in the number of vessels in our fleet during 2022 including the
LNG carriers which are incurring operating expenses at a higher rate compared to the rest of our fleet.
Total vessel operating expenses for the year ended December 31, 2022 include expenses of $9.2 million incurred under the management agreements we have
with our Managers, compared to $5.9 million during the year ended December 31, 2021.
See Note 10 (Voyage Expenses and Vessel Operating Expenses) to the Financial Statements for information on the composition of our vessel operating
expenses.
General and Administrative Expenses
General and administrative expenses amounted to $10.7 million for the year ended December 31, 2022, compared to $8.7 million for the year ended December
31, 2021. The $2.0 million increase in general and administrative expenses was mainly attributable to the increase in the amortization associated with our equity
incentive plan and certain write-offs associated with long outstanding trade receivables.
General and administrative expenses include board of directors’ fees and expenses, audit and certain legal fees, compensation cost related to our Omnibus
Incentive Compensation Plan and other fees related to the expenses of the publicly traded partnership.
Gain on sale of vessels
Gain on sale of vessels amounted to $47.3 million for the year ended December 31, 2022, compared to $46.8 million for the year ended December 31, 2021.
Gain on sale of vessels for the year 2022 includes the gain we recognized in connection with the sale of the M/V Archimidis and the M/V Agamemnon in July 2022,
while the gain on sale of vessels for the year 2021 includes the gain we recognized in connection with the sale of the M/V CMA CGM Magdalena and the M/V Adonis
in May 2021 and December 2021, respectively.
Vessel Depreciation and Amortization
Depreciation and amortization amounted to $69.3 million for the year ended December 31, 2022, compared to $46.9 million for the year ended December 31,
2021. The $22.4 million increase in vessel depreciation and amortization primarily reflects the net increase in the number of vessels and the higher average cost due to
the LNG/C vessels acquisitions in our fleet during the year ended December 31, 2022.
Generally, depreciation is expected to increase if the weighted average number of vessels in our fleet increases.
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Total Other Expense, Net
Total other expense, net for the year ended December 31, 2022 amounted to $57.3 million, compared to $19.9 million for the year ended December 31, 2021.
Total other expense, net includes interest expense and finance costs of $55.4 million for the year ended December 31, 2022, compared to $20.1 million for the year
ended December 31, 2021. The increase of $35.3 million primarily reflects higher debt and interest costs incurred mainly as a result of higher average indebtedness and
the increase in the LIBOR weighted average interest rate for the year ended December 31, 2022 compared to 2021.
Interest expense and finance costs include interest expense, amortization of financing charges, commitment fees and bank charges.
The weighted average interest rate on the debt outstanding under our financing arrangements for the year ended December 31, 2022 was 4.1%, compared to
2.9% for the year ended December 31, 2021. Please also refer to Note 7 (Long-Term Debt) to our Financial Statements.
Net Income
Net income for the year ended December 31, 2022 amounted to $125.4 million compared to $98.2 million for the year ended December 31, 2021.
For a discussion of our results for the year ended December 31, 2021 compared to the year ended December 31, 2020, please see “Item 5. Operating and
Financial Review and Prospects – A. Operating Results Overview– Year Ended December 31, 2021 Compared to Year Ended December 31, 2020” contained in our
annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on April 27, 2022.
Foreign currency fluctuations/hedging
See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for information about our exposure to foreign currency fluctuations.
Government polices
See “Item 3. Key Information—D. Risk Factors— RISKS RELATED TO OUR INDUSTRY” for information on the risks arising from governmental economic,
fiscal, monetary or political policies or factors.
B.
Liquidity and Capital Resources
As of December 31, 2022, total cash and cash equivalents (including restricted cash) were $154.8 million. Restricted cash under our financing arrangements
amounted to $10.2 million.
As of December 31, 2022, there were $108.0 million undrawn under our financing arrangements. The full amount was drawn on January 6, 2023, with the
purpose of partially financing the acquisition of the shares of the company owning the M/V Itajai Express. See also “—Borrowings (Financing Arrangements)” below
for information regarding our financing arrangements.
Generally, our primary sources of funds have been cash from operations, bank borrowings, sale-leaseback arrangements and equity and debt securities offerings.
Cash from operations depends on our chartering activity. 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. None of our charters is expected to expire in the coming
12 months. Cash flows from operations may be further affected by other factors described in “Item 3. Key Information— D. Risk Factors”.
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 equity and debt securities offerings, to fund replacement, expansion and
investment capital expenditures, and to refinance or repay outstanding indebtedness.
In particular, since 2011, our board of directors has elected not to provision cash reserves for estimated replacement capital expenditures. Accordingly, our
ability to maintain and grow our asset base, including through further dropdown opportunities from Capital Maritime and its affiliates 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.
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 reserve. 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.
Subject to our ability to obtain required financing and access financial markets, we expect to continue to evaluate opportunities to acquire vessels and
businesses.
As of December 31, 2022, total partners’ capital amounted to $638.4 million, an increase of $112.9 million compared to $525.5 million as of December 31,
2021. The increase reflects net income for the year ended December 31, 2022, the $6.6 million of our common units issued to the seller upon delivery of the M/V
Manzanillo Express as part of the consideration for that vessel, and the amortization associated with the equity incentive plan, partly offset by distributions declared and
paid during the period in the total amount of $12.2 million, the repurchase of common units for an aggregate amount of $5.9 million and other comprehensive loss
of $4.8 million resulting from the increase in the U.S. Dollar equivalent of our euro-denominated bonds, partly set off by the change in the fair value of the relevant
cross-currency swap agreement we designated as an accounting hedge.
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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.
For more information on our anticipated future cash requirements and resources please refer to Note 7 (Long-Term Debt) and Note 15 (Commitments and
Contingencies) to our Financial Statements.
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.
2022
2021
Net Cash Provided by Operating Activities
$
172.6 $
111.2
Net Cash Used in Investing Activities
$
(14.1) $
(175.1)
Net Cash (Used in)/Provided by Financing Activities
$
(35.1) $
40.6
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $172.6 million for the year ended December 31, 2022 compared to $111.2 million for the year ended December
31, 2021. The increase of $61.4 million was mainly attributable to the net increase in the number of vessels in our fleet, a decrease in our trade receivables, an increase
in pre-collections of revenue to be earned in future periods, an increase in accounts payables and accrued liabilities and a decrease in payments for dry-docking costs,
partly offset by the increase in the amounts we reimbursed our Managers for expenses paid on our behalf and the increase in amounts we paid in advance for operating
and other expenses.
Net Cash Used in Investing Activities
Net cash used in investing activities refers primarily to cash used for vessel acquisitions and improvements, including installation of scrubbers and BWTS,
partly offset by proceeds from the sale of vessels. Net cash used in investing activities for the year ended December 31, 2022 amounted to $14.1 million compared to
$175.1 million during the year 2021. The decrease of $161.0 million was primarily attributable to the decrease in the amounts paid for vessel acquisitions and
improvements in the year 2022. During the year 2022 we paid $115.0 million to acquire the M/V Manzanillo Express, paid $24.0 million in advance for the acquisition
of one LNG/C and two Neo-Panamax container carriers, one of which was delivered in January 2023 and the other of which is to be delivered in the second quarter of
2023, and $2.2 million for vessel improvements, partly offset by $127.1 million of net proceeds received from the sale of the M/V Archimidis and the M/V
Agamemnon. During the year 2021 we paid $365.7 million to acquire three Panamax container carrier vessels and six LNG carrier vessels and $2.4 million for vessel
improvements party offset by $193.0 million net proceeds received from the sale of the M/V CMA CGM Magdalena and the M/V Adonis.
Net Cash Used in/Provided by Financing Activities
Net cash used in financing activities for the year ended December 31, 2022, was $35.1 million representing mainly scheduled principal payments for the year of
$85.2 million, debt repayments in connection with the sale of the M/V Archimidis and the M/V Agamemnon of $28.0 million, the repayment in full of our 2017 and
2020 credit facilities for a total amount of $95.7 million, the repayment of $10.0 million seller’s credit, $12.2 million of dividends paid to our common unit holders and
$5.9 million paid to acquire CPLP units under our repurchase program partly offset by the issuance of €100.0 million ($101.3 million) Bonds in July 2022 and the
drawdown of $105.0 million of a new credit facility to partly finance the acquisition of the M/V Manzanillo Express in October 2022 net of $4.3 million paid for the
issuance of these financing arrangements.
Net cash provided by financing activities for the year ended December 31, 2021, was $40.6 million representing mainly cash proceeds of $204.3 million from
the financing arrangements we entered into during the year 2021, to partly finance the acquisition of the M/V Long beach Express, the M/V Seattle Express and the
M/V Fos Express and the issuance of the Bonds in October 2021, partly offset by $6.1 million paid for the issuance of these financing arrangements, $49.3 million of
scheduled principal payments, $96.2 million prepayment of the ICBCFL financing arrangement as a result of the sale of the two Neo-Panamax container carrier vessels
in 2021, $7.6 million of dividends paid to our common unit holders and $4.5 million paid to acquire CPLP units under our repurchase program.
Borrowings (Financing Arrangements)
Our long-term borrowings are reflected in our balance sheet in non-current liabilities as “Long-term debt, net” and in current liabilities as “Current portion of
long-term debt, net”.
As of December 31, 2022 and 2021 our total borrowings were $1,299.2 million and $1,317.4 million respectively. See Note 7 (Long-Term Debt) to our
Financial Statements for further discussion of our long-term debt.
The 2017 Credit Facility (fully repaid in 2022)
On September 6, 2017, we entered into a credit facility with a syndicate of lenders led by HCOB and ING, as mandated lead arrangers and bookrunners, and
BNP Paribas and National Bank of Greece S.A., as arrangers (the “2017 Credit Facility”). In October 2017, we drew $460.0 million thereunder. In connection with the
spin off our then existing crude and product tanker business (the “DSS Transaction”), on March 27, 2019, we amended the 2017 Credit Facility and prepaid an amount
of $89.3 million thereunder. On May 27, 2020 upon the closing of the ICBCFL facility described below, we repaid $116.5 million to release three vessels under the
2017 Credit Facility. On May 30, 2022 the Partnership entered into memorandums of agreement for the sale of the M/V Archimidis and the M/V Agamemnon to an
unaffiliated third party for total consideration of $130.0 million and the amount repaid to HCOB on the delivery of the vessels to their new owners was $28.0 million in
total. In August 2022, we repaid in full the amount outstanding at the time under the 2017 Credit Facility of $65.8 million.
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The 2020 Credit Facility (fully repaid in 2022)
On January 17, 2020 we entered into a new term loan facility with Hamburg Commercial Bank A.G. (the “2020 Credit Facility”) of up to $38.5 million for the
purpose of partially financing the acquisition of M/V Athenian. The full amount of the facility was drawn on January 22, 2020 and, in August 2022, we repaid in full
the amount outstanding at the time under the 2020 Credit Facility of $29.9 million.
The 2020 CMBFL Sale and Lease Back
On January 20, 2020 we entered into an agreement for the sale and lease back of the vessels M/V Athos and M/V Aristomenis with CMBFL for $38.5 million
each. The lease agreement has a duration of five years and includes a purchase option for us to acquire each vessel on expiration of the lease at the predetermined price
of $22.5 million, and requires us to pay the amount of $7.5 million to CMBFL if the option is not exercised. In addition, we have various purchase options commencing
from the first anniversary of the lease. The full amounts were drawn on January 23, 2020. As of December 31, 2022 the balance outstanding under the 2020 CMBFL
facility was $59.4 million.
The ICBCFL Sale and Lease Back
In December 2019 we entered into a non-binding term sheet and in May 2020 into an agreement with ICBCFL for the sale and lease back of three vessels then
mortgaged under the 2017 credit facility, namely the M/V Akadimos (ex CMA CGM Amazon), the M/V Adonis (ex CMA CGM Uruguay) and the M/V CMA CGM
Magdalena, for a total amount of $155.4 million. The lease has a duration of seven years after drawdown and includes mandatory purchase obligations for us to
repurchase the vessels on expiration of the agreement, at the predetermined price of $77.7 million. In addition, we have various purchase options commencing from the
first anniversary of the lease. The full amount was drawn on May 27, 2020. The amount we repaid to release these three vessels under the 2017 credit facility was
$116.5 million. On April 7, 2021 the Partnership entered into memorandums of agreement for the sale of the M/V CMA CGM Magdalena and the M/V Adonis to an
unaffiliated third party for total consideration of $195.0 million. The M/V CMA CGM Magdalena and the M/V Adonis were delivered to their new owners on May 17,
2021 and December 13, 2021, respectively. The amount repaid to ICBCFL on the delivery of the vessels to their new owners was $96.2 million in total. As of
December 31, 2022, the balance outstanding under the ICBCFL Facility was $42.0 million.
The 2021 CMBFL Panamax Sale and Lease Back (fully repaid in 2023)
On January 22, 2021, we entered into an agreement for the sale and lease back of the vessels M/V Long Beach Express, M/V Seattle Express and M/V Fos
Express with CMBFL for $10.0 million each. The lease agreement has a duration of five years. In addition, we have various purchase options commencing from the
first anniversary of the lease, including an option to purchase the vessel on the 5th anniversary of the lease for a predetermined price of $4.5 million. The full amounts
were drawn on February 25, 2021. As of December 31, 2022, the balance outstanding under the 2021 CMBFL Panamax Facility was $24.2 million. On March 14, 2023
we repaid in full the amount outstanding at the time of $23.4 million.
The CMTC Seller’s Credit
In January 2021, in connection to the acquisition of the M/V Long Beach Express, the M/V Seattle Express and the M/V Fos Express, the Partnership entered into a
seller’s credit agreement with Capital Maritime to defer $6.0 million of the purchase price of the vessels for up to five years from the delivery of the vessels.”
The 2021 BoComm Sale and Lease Back
Upon the acquisition of the LNG/C Aristos I and the LNG/C Aristarchos on September 3, 2021, we assumed indebtedness, previously entered by the companies
owning the vessels, of $148.9 million and $155.4 million, respectively, under sale and lease back transactions (the “2021 BoComm Facility”). At maturity on October
2027 and May 2028, the lease provides for a purchase obligation to acquire each vessel at the predetermined price of $84.7 million. In addition, the lease agreement
includes various purchase options commencing from the inception of the lease. As of December 31, 2022 the balance outstanding under the 2021 BoComm Facility was
$271.1 million.
The CGC Seller’s Credit (fully repaid in 2022)
In connection to the acquisition of the vessels LNG/C Aristos I and LNG/C Aristarchos, the Partnership entered into a seller’s credit agreement with CGC to
defer $10.0 million of the purchase price of the vessels for up to twelve months from the delivery of the vessels. The CGC Seller’s Credit is unsecured and interest free.
The full amount was repaid in July 2022.
The 2021 CMBFL LNG/C Sale and Lease Back
Upon the acquisition of the LNG/C Attalos and the LNG/C Asklipios on November 18, 2021, we assumed debt previously incurred by the companies owning
the vessels, of $146.3 million and $149.6 million, respectively, under sale and lease back transactions with CMBFL. At maturity on August 2028 and September 2028,
the lease provides for a purchase option to acquire each vessel at the predetermined price of $90.7 million and $91.4 million respectively. In addition, the lease
agreement includes various purchase options commencing from the first anniversary of the lease. As of December 31, 2022 the balance outstanding under the 2021
CMBFL LNG/C Facility was $277.3 million.
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The 2021 Shin Doun Sale and Lease Back
Upon the acquisition of the LNG/C Adamastos on November 29, 2021, we assumed debt previously incurred by the company owning the vessel, of $143.1
million, under sale and lease back transaction with Shin Doun. The lease agreement has a duration of 15 years maturing in July 2036 and includes a purchase obligation
at the end of the lease at a predetermined price of $30.0 million. As of December 31, 2022 the balance outstanding under the 2021 Shin Doun Facility was $136.8
million.
The 2021 Credit Facility
Upon the acquisition of the LNG/C Aristidis I on December 16, 2021, we assumed debt previously incurred by the Seller, of $123.0 million, under a syndicate
credit facility led by ING. As of December 31, 2022 the 2021 Credit Facility has a remaining duration of five years, maturing in December 2027. As of December 31,
2022 the balance outstanding under the 2021 Credit Facility was $110.8 million.
The 2022 Credit Facility
On October 6, 2022 we entered into a new term loan facility with HCOB (the “2022 Credit Facility”) of up to $105.0 million for the purpose of partially
financing the acquisition of the M/V Manzanillo Express. The full amount of the facility was drawn on October 11, 2022. As of December 31, 2022 the balance
outstanding under the 2022 Credit Facility was $105.0 million.
The 2022 Sale and Lease Back
On December 23, 2022 the Partnership entered into a new sale and lease back agreement of up to $108.0 million for the purpose of partially financing the
acquisition of the shares of the company owning the M/V Itajai Express. The full amount of the sale and lease back agreement was drawn on January 6, 2023 and has a
duration of eight years.
Senior Unsecured Bonds
On October 20, 2021, the wholly owned subsidiary of the Partnership, CPLP PLC, issued €150.0 million of senior unsecured bonds in Greece. The Bonds are
guaranteed by the Partnership, mature in October 2026 and have a coupon of 2.65%, payable semi-annually. The trading of the Bonds on the Athens Stock Exchange
commenced on October 25, 2021.
On July 22, 2022, the wholly owned subsidiary of the Partnership, CPLP PLC, issued €100.0 million of senior unsecured bonds in Greece. The Bonds are
guaranteed by the Partnership, mature in July 2029 and have a coupon of 4.40%, payable semi-annually. The trading of the Bonds on the Athens Stock Exchange
commenced on July 27, 2022.
The required annual payments to be made subsequently to December 31, 2022 with reference to our financing arrangements are as follows:
For the year ending December 31,
In millions
2023
$
75.4
2024
68.1
2025
107.2
2026
237.8
2027
238.8
Thereafter
571.9
Total
$
1,299.2
On December 2, 2021 we entered into a cross-currency swap agreement with Piraeus Bank SA exchanging €120.0 million with $139.7 million paying a fixed
annual rate of 3.655%. The agreement’s effective date is October 21, 2021 and its maturity date is October 21, 2025.
On December 13, 2021 we entered into a cross-currency swap agreement with Alpha Bank SA exchanging €30.0 million with $34.9 million paying a fixed
annual rate of 3.690%. The agreement’s effective date is October 21, 2021 and its maturity date is October 21, 2025.
On August 4, 2022 we entered into a cross-currency swap agreement with Piraeus Bank SA exchanging €100.0 million with $101.8 million paying a fixed
annual rate of 6.55%. The agreement’s effective date is July 26, 2022 and its maturity date is July 26, 2029.
Our financing arrangements, other than the Bonds, 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 financing arrangements including the Bonds also contain financial covenants:
•
to maintain minimum free consolidated liquidity of at least $0.5 million per collateralized vessel;
•
to maintain a ratio of EBITDA (as defined therein) 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 0.75.
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In addition, the Bonds require that:
•
we maintain a pledged DSRA with a minimum balance €0.1 million
•
we deposit to the DSRA 50% of any cash disbursements to unitholders (e.g., dividends) exceeding $20.0 million per annum, capped at 1/3 of the par
value of the Bonds outstanding at the time; and
•
if our MVAN falls below $300.0 million then to deposit to the DSRA the difference between the MVAN and the $300.0 million (capped to 1/3 of the par
value of the Bonds outstanding).
Furthermore, all our financing arrangements other than the Bonds provide that:
•
we are required to 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 the respective outstanding amount under the applicable financing arrangement between 110% and
125%;
•
the vessel-owning subsidiaries 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; and
•
the earnings, insurances and requisition compensation of the vessels are required to be assigned as collateral and additional security, including pledge
and charge on current account, corporate guarantee from each of the vessel-owning subsidiaries and mortgage interest insurance, is also required.
These financing arrangements are secured by first-priority mortgages over all our vessels and are guaranteed by each vessel-owning subsidiary and 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.
As of December 31, 2022, we were in compliance with all financial debt covenants under all our financing arrangements.
Our ability to comply with the covenants and restrictions contained in our financing arrangements 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 financing institutions 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 financing arrangements, or if we trigger a cross-default currently contained in our financing arrangements, we
may be forced to suspend our distributions, a significant portion of our obligations may become immediately due and payable and our lenders’ commitment to make
further loans to us (if any) may terminate. We may not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, obligations under
certain of our credit facilities are secured by our vessels or through the ownership of the vessels, and if we are unable to repay, or otherwise default on, our financing
arrangements, the lenders could seek to take control of these assets.
Furthermore, any contemplated vessel acquisitions will have to be at levels that do not impair the required ratios described above. If the estimated asset values
of our vessels decrease, we may be obligated to prepay part of our outstanding debt in order to remain in compliance with the relevant covenants in our financing
arrangements. A decline in the market value of our vessels could also affect our ability to refinance our debt and/or limit our ability to obtain additional financing. A
decrease of 10% in the fair market values of our vessels would not cause any violation of the indebtedness to market value covenants, contained in our financing
arrangements.
C.
Research and Development. Not applicable.
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 container, the LNG and drybulk markets at the time of re-chartering a vessel. For other trends affecting our business please see
other discussions in “—A. Operating Results” above.
E.
Critical Accounting Estimates
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 estimates are those estimates made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or
are reasonably likely to have a material impact on our financial condition or results of operations. We have described below what we believe our critical accounting
estimates are. For a description of our significant accounting policies, see Note 2 (Significant Accounting Policies) to our Financial Statements.
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Impairment
The carrying value of each of our vessels represents its original cost (contract price, initial expenditures and improvements) 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 newbuilds.
The table below specifies (i) the carrying value of each of our vessels as of December 31, 2022 and 2021 and (ii) which of those vessels we believe had a
charter-free market value below its carrying value. We believe that the aggregate carrying value of the vessels indicated with an asterisk below exceeded their aggregate
basic charter-free market value by approximately $5.9 million and $3.3 million as of December 31, 2022 and 2021, respectively. 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, to a willing buyer in circumstances 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 the 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 the vessels received from third-party independent
shipbrokers approved by our financing providers. Vessel values are highly volatile. Accordingly, as such, our estimates may not be indicative of the current or future
basic market value of the vessels or prices that could be achieved if the vessels were to be sold.
Carrying
Carrying
value as of
value as of
December 31,
December 31,
Vessels
Date acquired
by us
2022
2021
(in millions of United States
dollars)
M/V Cape Agamemnon
06/09/2011
$
30.3* $
32.3*
M/V Archimidis
12/22/2012
$
- $
40.3
M/V Agamemnon
12/22/2012
$
- $
43.3
M/V Hyundai Prestige
09/11/2013
$
38.4 $
40.7
M/V Hyundai Premium
03/20/2013
$
37.9 $
40.2
M/V Hyundai Paramount
03/27/2013
$
37.9 $
40.1
M/V Hyundai Privilege
09/11/2013
$
38.6 $
40.9
M/V Hyundai Platinum
09/11/2013
$
38.7 $
40.9
M/V Akadimos (ex CMA CGM Amazon)
06/10/2015
$
65.8 $
69.2
M/V Athenian
01/22/2020
$
46.1 $
48.6
M/V Athos
01/23/2020
$
46.4 $
48.6
M/V Aristomenis
01/23/2020
$
46.2 $
48.6
M/V Long Beach Express
02/25/2021
$
15.7 $
16.8
M/V Seattle Express
02/25/2021
$
15.7 $
16.8
M/V Fos Express
02/25/2021
$
15.7 $
16.8
LNG/C Aristos I
09/03/2021
$
188.1 $
193.7
LNG/C Aristarchos
09/03/2021
$
186.0 $
191.3
LNG/C Aristidis I
12/16/2021
$
196.3 $
202.1
LNG/C Attalos
11/18/2021
$
198.4 $
204.1
LNG/C Adamastos
11/29/2021
$
202.0 $
207.9
LNG/C Asklipios
11/18/2021
$
193.1 $
198.7
M/V Manzanillo Express
10/12/2022
$
120.6 $
-
Total
$
1,757.9 $
1,781.9
*
Indicates vessels for which we believe that, as of December 31, 2022 and 2021, the carrying value exceeds the basic charter-free market value. As discussed
below, we believe that the carrying values of our vessels as of December 31, 2022 and 2021 were recoverable as the undiscounted projected net operating cash
flows of these vessels exceeded their carrying value by a significant amount.
We performed undiscounted cash flow tests as of December 31, 2022 and 2021, 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;
•
dry-docking expenditures;
•
an estimated gross daily time charter rate for the unfixed days (based on the ten-year historical average of time charters with duration of one year) 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 99.5% based on the fleet’s historical performance; and
•
the remaining estimated life of our vessels.
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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, based on 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 container and bulk carrier
vessels and 35 years for our LNG carrier 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 historical average 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 conducted 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, are
based on the historical experience of our fleet;
•
estimates of operating expenses and dry-docking expenditures are based on historical operating and dry-docking 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 based on the ten-year historical average demolition prices
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 depreciation calculations.
The impairment test that we conduct is most sensitive to variances in future time charter rates. Based on the sensitivity analysis performed for December 31,
2022 and 2021, 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,
Year ended
December 31,
Type of vessels
2022
2021
Cape vessel
32.3%
25.2%
Based on the above assumptions we determined that the undiscounted cash flows support the vessels’ carrying amounts as of December 31, 2022 and 2021.
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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., manages our day-to-day activities consistent with the policies and procedures adopted by our board of directors. Our
General Partner is a limited liability company initially formed and controlled by Capital Maritime as sole member. In April 2019, Capital Maritime transferred all
membership interests in our General Partner to Mr. Miltiadis E. Marinakis. See “Item 3. Key Information—D. Risk Factors—Risks Related to our Business and
Operations—We depend on our General Partner, a private company under the ownership of Mr. Miltiadis E. Marinakis, for the day-to-day management of our affairs.”.
Our board of directors currently consists of seven members, including two members who are designated by our General Partner in its sole discretion and five
members 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 22, 2022, Eleni Tsoukala and Keith Forman were elected to act as a Class III Directors until the
Partnership’s 2025 annual meeting of Limited Partners.
Our General Partner intends to cause its officers to devote as much time as is necessary for the proper conduct of our business and affairs. Our General Partner’s
Chief Executive Officer, Mr. Gerasimos (Jerry) Kalogiratos, Chief Financial Officer, Mr. Nikolaos Kalapotharakos and Chief Commercial Officer, Spyridon Leousis,
allocate their time between managing our business and affairs and the business and affairs of Capital Maritime, and/or its affiliates. The amount of time they allocate
between our business and their other positions 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 the date of this Annual Report.
Name
Age
Position
Keith Forman(4)
64
Director and Chairman of the Board(5)
Gerasimos (Jerry) Kalogiratos(1)
45
Director and Chief Executive Officer of
our General Partner
Gurpal Grewal(1)
76
Director
Rory Hussey(2)
71
Director(5)
Abel Rasterhoff(3)
83
Director(5)
Eleni Tsoukala(4)
45
Director(5)
Dimitris P. Christacopoulos(3)
52
Director(5)
Nikolaos Kalapotharakos
48
Chief Financial Officer of our General
Partner
Spyridon Leousis
44
Chief Commercial Officer of our General
Partner
(1) Appointed by our General Partner.
(2) Class I director (term expires in 2023).
(3) Class II director (term expires in 2024).
(4) Class III director (term expires in 2025).
(5) Member of our audit committee, our conflicts committee and compensation committee.
Biographical information with respect to each of our directors, our director nominees and our General Partner’s executive officers is set forth below. The business
address for our executive officers is 3 Iassonos Street Piraeus, 18537 Greece.
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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, audit committee and compensation committee. Mr. Forman
joined our board on April 3, 2007. Since July 2022, Mr. Forman has been acting as a senior advisor to Kayne Anderson Capital Advisors, an alternative investment
management firm focused on energy infrastructure and renewables. Mr Forman served in a similar role at Industry Funds Management, an Australian fund manager
investing in infrastructure projects worldwide, from 2012 to 2022. In January 2020, Mr. Forman began a fellowship at Harvard University’s Advanced Leadership
Initiative which ended on December 31, 2021. Mr. Forman has held a number of executive, director and advisory positions at investment companies and master limited
partnerships throughout his career. 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 director 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 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 of our General Partner in June 2015. He has also previously served as Chief Financial Officer of our
General Partner until February 28, 2018, when he was succeeded by Mr. Nikolaos Kalapotharakos. He joined our board of directors in December 2014. Mr. Kalogiratos
joined Capital Maritime & Trading Corp. in 2005 and was part of the team that completed the IPO of Capital Product Partners L.P. in 2007. He has also served as Chief
Financial Officer and director of NYSE-listed Crude Carriers Corp. before its merger with us in September 2011. He has over 17 years of experience in the shipping
and finance industries, specializing in vessel acquisition and projects and shipping finance. Before he joined Capital Maritime, he worked in equity sales in Greece. He
completed his MA in European Economics and Politics at the Humboldt University in Berlin and holds a B.A. degree in Politics, Philosophy and Economics from the
University of Oxford in the United Kingdom and an Executive Finance degree from the London Business School. From March 2019 to July 2021, Mr. Kalogiratos
served on the board of directors of NYSE listed DSSI.
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 in
January 2016 as deputy Chief Financial Officer. He started his professional career in 2001 at PricewaterhouseCoopers (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. Kalapotharakos 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.
Spyridon Leousis, Chief Commercial Officer.
Mr. Leousis was appointed as Chief Commercial Officer of our General Partner on January 24, 2022. Mr. Leousis brings 18 years of global experience in the
LNG shipping and finance industries. He currently serves as Business Development Director of Capital Gas and has previously worked as Head of Planning and
Analysis for Nakilat, the largest LNG shipowner in the world and as Senior Consultant for the Treasury of National Bank of Greece. He holds an MEng in Naval
Architecture and Marine Engineering from National Technical University of Athens and an MBA from Athens University of Economics and Business.
Gurpal Grewal, Director.
Mr. Gurpal Grewal joined our board of directors on November 16, 2017. Mr. Gurpal Grewal previously served as technical director of Capital Ship
Management Corp. 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 engineer 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, audit committee and our compensation committee.
Until his retirement in 2017, Mr. Hussey 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 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 N.V. 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 our compensation 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 International Trading and Shipping Company Limited. During this period he also served as a Board
Member of the Securities and Futures Authority (SFA) in London. From February 1998 to 2004, Mr. Rasterhoff 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. Rasterhoff also served as a director and audit committee member of Aegean Marine Petroleum Network Inc., a
company listed on the NYSE from December 2006 to May 2012. Mr. Rasterhoff holds a graduate business degree in economics from Groningen State University.
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Eleni Tsoukala, Director.
Ms. Tsoukala was appointed to our board of directors on February 28, 2018 and serves on our audit committee, conflicts committee and compensation
committee. 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, audit committee and our compensation committee. Mr. Christacopoulos currently serves as a
Partner at Octane Management Consultants. He started his professional career as an analyst in the R&D Department of a major food producer in Greece in 1992 before
joining Booz Allen & Hamilton Consulting in 1995 in New York in their Operations Management Group. He subsequently joined Barclays Capital as the Associate
Director for Strategic Planning in London from 1999 to 2002 at which time he became Director of Corporate Finance & Strategy at Aspis Group of Companies in
Athens where he participated in the Group’s Management and Investment Committees. In 2005, he joined Fortis Bank NV/SA as a Director in the Energy, Commodities
and Transportation Group and until 2010 acted as the Deputy Country Head for Greece, setting up the bank’s Greek branch and expanding its presence in ship and
energy finance in the region. Mr. Christacopoulos has a diploma in chemical engineering from the National Technical University of Athens and an MBA from
Columbia Business School in New York.
B.
Compensation
Reimbursement of Expenses of Our General Partner
Our General Partner does not receive any management fee or other compensation for managing us. Our General Partner and its other 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. In 2022, these expenses for which our General Partner was reimbursed amounted to $0.1 million.
Executive Compensation
The compensation of our General Partner’s Chief Executive Officer, Chief Financial Officer, and Chief Commercial Officer (appointed on January 24, 2022) is
set and paid by our General Partner, and we reimburse our General Partner for such costs and related expenses under relevant executive service agreements. We do not
have a retirement plan for our General Partner’s executive officers or directors. Officers and employees of our General Partner or its affiliates may participate in
employee benefit plans and arrangements sponsored by Capital Maritime, our General Partner or their affiliates, including plans that may be established in the future.
For the year ended December 31, 2022 we paid our General Partner $2,050,003 as compensation for services related to the management of our business and affairs,
including the appointment and performance of relevant duties of the chief executive officer, chief finance officer, and a number of additional officers.
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,
all of which have now vested. Please read “—E. Share Ownership—Omnibus Incentive Compensation Plan” below for additional information. For the year ended
December 31, 2022, our directors, including our chairman, received an aggregate cash amount of $0.6 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, 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.
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During the year ended December 31, 2022, our board of directors held 13 meetings. As part of our board meetings, our independent directors meet without the
non-independent directors in attendance. In addition, the board regularly holds sessions without the CEO and executive officers present. During the year ended
December 31, 2022 our independent directors held two executive sessions. 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 meetings of committees of the board of directors on which such director served.
Although the Nasdaq Global Select Market does not require a listed limited partnership like us to have a majority of independent directors on our board of
directors or to establish a compensation committee or a nominating/corporate governance committee, our board of directors is currently comprised of directors a
majority of whom are independent and has established an audit committee, a conflicts committee and a compensation committee comprised solely of independent
directors. Each of the committees operates under a written charter adopted by our board of directors which is available under “Corporate Governance” in the Investor
Relations tab of our web site at www.capitalpplp.com. The information contained on, or that can be accessed through this website is not part of, and is not incorporated
into, this Annual Report. 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 Dimitris Christacopoulos (Chair), Abel Rasterhoff, Rory Hussey, Keith Forman and Eleni Tsoukala. 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 five times during the year ended December
31, 2022, on January 24, January 31, April 27, July 26 and October 20.
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, Eleni Tsoukala 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 conflicts committee reviews specific matters that the board believes may involve
conflicts of interest and determines if the resolution of the conflict of interest is fair and reasonable to us. Any matters approved by the conflicts committee will be
conclusively deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our directors, our General Partner or its affiliates of any duties
any of them may owe us or our unitholders. The conflicts committee met seven times during the year ended December 31, 2022.
Compensation Committee. The compensation committee of our board of directors is composed of the same directors constituting the audit committee and
conflicts committee, being Rory Hussey (chair), Keith Forman, Abel Rasterhoff, Eleni Tsoukala and Dimitris Christacopoulos. The compensation committee reviews
compensation of the members of the board of directors and has overall responsibility for approving and evaluating our compensation plans, policies and programs, but
not the compensation of the executive officers of the General Partner of the Partnership and related executive service agreements. The Compensation Committee did
not meet during the year ended December 31, 2022.
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 and on the employees of our Managers to operate our vessels.
All of the executive officers of our General Partner and one of our directors also are executive officers, directors or employees of Capital Maritime, Capital Ship
Management or their respective affiliates.
E.
Share Ownership
As of December 31, 2022:
·
the chairman of our board of directors, Keith Forman, has owned a small number of common units since the date of our IPO;
·
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
common units in us in the same manner as all shares converted under the terms of our merger agreement with Crude Carriers in 2011; and
·
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.
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Omnibus Incentive Compensation Plan
On April 29, 2008, our board of directors adopted an omnibus incentive compensation plan (the “Plan”), according to which we were entitled to issue a limited
number of awards to our employees, consultants, officers, directors or affiliates, including the employees, consultants, officers or directors of our General Partner, our
Managers, Capital Maritime and certain key affiliates and other eligible persons. The Plan contemplated awards 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 was
administered by our General Partner as authorized by our board of directors. The Plan was amended from time to time. See Note 13 (Omnibus Incentive Compensation
Plan) to our Financial Statements.
In July 2019, the board of directors adopted an amended and restated Plan, so as to reserve for issuance a maximum number of 740,000 restricted common
units. On the same day, the Partnership awarded 445,000 unvested units . Awards vested in three equal installments ending on December 31, 2021. All awards under the
amended Plan are conditional upon the grantee’s continued service until the applicable vesting date.
In January 2022, the board of directors adopted an amended and restated Plan, so as to reserve for issuance a maximum number of 750,000 restricted common
units. As of the date of this Annual Report the total number of restricted common units reserved was 1,045,000. On March 18, 2022, the Partnership awarded 743,800
unvested units . Awards granted to beneficiaries would vest in three equal installments. One third of the units awarded, namely 247,933 units vested on December 31,
2022. On December 30, 2022, the Partnership awarded another 1,969 unvested units, which were fully vested on December 31, 2022.
Item 7. Major Unitholders and Related-Party Transactions.
As of December 31, 2022, our partners’ capital consisted of 20,255,707 common units, of which 14,421,650 were beneficially owned by public unitholders, no
subordinated units, 348,570 general partner units and 566,239 treasury units that the Partnership has purchased under the unit repurchase program currently in effect.
On January 25, 2021, the Partnership’s Board of Directors approved a unit repurchase program, providing the Partnership with authorization to repurchase up to
$30.0 million of units of the Partnership’s common units, effective for a period of two years through January 2023.
On January 26, 2023, the Board approved a new unit repurchase program, providing the Partnership with authorization to repurchase up to $30.0 million of the
Partnership’s common units, effective for a period of two years through January 2025.
As of April 25, 2023, the Partnership had purchased 947,932 common units under the program.
Please see “Item 16 – E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”
Based on 20,449,169 units issued and outstanding (excluding treasury units of 721,347 and including 348,570 general partner units) on April 17, 2023, the
Marinakis family, including Evangelos M. Marinakis, the chairman of (i) Capital Maritime, may be deemed to beneficially own a 30.2% interest in us, through Capital
Maritime, which may be deemed to beneficially own 4,680,211 common units representing a 22.9% interest in us, (ii) Capital Gas Corp., which may be deemed to
beneficially own 1,153,846 common units representing a 5.6% interest in us and (iii) our General Partner, which may be deemed to beneficially own 348,570 general
partner units representing a 1.7% interest in us.
As of April 11, 2023, there were two holders of record of our common units, which have a U.S. mailing address. One of these two holders is CEDE & Co., a
nominee company for The Depository Trust Company (a registered clearing agency with the SEC), which held approximately 80.9% of our outstanding common units
as of such date. The beneficial owners of the common units held by CEDE & Co. may include persons who reside outside the United States.
A.
Major Unitholders
The following table sets forth as of April 17, 2023 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 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.
Percentage of
Total Common
Units
Number of
(excluding
Common
treasury units
Name of Beneficial Owner
Units Owned
of 721,347)
Capital Maritime (1)
4,680,211
22.9%
Capital Gas Corp. (2)
1,153,846
5.6%
Donald Smith & Co., Inc. (3)
1,630,946
8.0%
All executive officers and directors as a group
(seven persons) (4)
*
*
(1)
The Marinakis family, including Evangelos M. Marinakis, our former chairman, through its ownership of Capital Maritime may be deemed to beneficially own,
or to have beneficially owned, all of our units held by Capital Maritime.
(2)
The Marinakis family, including Miltiadis E. Marinakis, through its ownership of the 100% of Capital Gas Corp., may be deemed to beneficially own all of our
units held by Capital Gas Corp.
(3)
As reported in a Schedule 13G filed on February 9, 2023 by (i) Donald Smith & Co., Inc., a Delaware corporation (“DSCI”) and (ii) DSCO Value Fund, L.P., a
Delaware limited partnership. According to the Schedule 13G, DSCI is an investment adviser, and the address of its principal office is 152 W 57th Street, New
York NY 10019. According to the Schedule 13G, the ultimate power to direct the receipt of dividends paid with respect to, and the proceeds from the sale of,
common units, is vested in the institutional clients for which DSCI serves as investment advisor. DSCI does not serve as custodian of the assets of any of its
clients and accordingly, in each instance only the client or the client’s custodian or trustee bank has the right to receive dividends paid with respect to, and
proceeds from the sale of, common units. According to the Schedule 13G/A, to the knowledge of DSCI, with respect to the common units reported in the
Schedule 13G/A owned by advisory client of DSCI, not more than 5% of the common units is owned by any one client. With respect to the remaining common
units owned, various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the common units. No
one person’s interest in the common units is more than 5% of the total outstanding common units.
(4)
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” above.
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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, 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
Our General Partner, which is a private entity wholly owned by Mr. Miltiadis E. Marinakis, controls the appointment of up to three of the members of our board
of directors. Capital Maritime and Capital Gas Corp. can vote the common units they hold 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). Accordingly, our General Partner, Capital Maritime and Capital Gas Corp. have the ability
to exercise significant influence on important actions we may take.
Administrative and executive services agreements with Capital Ship Management and our General Partner
On April 4, 2007, we entered into an administrative services agreement with Capital Ship Management, pursuant to which Capital Ship Management 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 Capital Ship Management pursuant to which our Manager provides IT management services to CPLP. We
also reimburse Capital Ship Management and our General Partner for reasonable costs and expenses incurred in connection with the provision of these services
pursuant to both agreements after Capital Ship Management submits to us an invoice for such costs and expenses, together with any supporting detail that may be
reasonably required.
In 2022, we amended the executive services agreement 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 relations and corporate support services to the Partnership, for a fee of $2.4 million per
annum.
In 2018, Capital Ship Management conducted a management buy-out led by its senior management. Since then, Capital Ship Management is no longer part of
the group of companies controlled by Capital Maritime.
See Note 4 (Transactions with Related Parties) to our Financial Statements for additional information on fees pays under our management agreements.
Transactions entered into during the year ended December 31, 2022 and up to the date of this Annual Report
Master Vessel Acquisition Agreement (the “MVAA”)
On June 6, 2022, CPLP agreed to exercise its right of first offer and entered into a Master Vessel Acquisition Agreement with Capital Maritime to acquire one
174,000 CBM latest generation X-DF LNG/C and three 13,312 TEU hybrid scrubber-fitted Tier III and Phase III, dual fuel ready eco container sister vessels for total
consideration of $596.6 million.
Share Purchase Agreements with Capital Maritime for the Acquisition of the M/V Manzanillo Express, the M/V Itajai Express and the LNG/C Asterix I
On October 12, 2022, CPLP acquired the shares of the company owning the M/V Manzanillo Express for total consideration of $121.6 million comprised of (i)
a cash deposit of $6.0 million advanced in June 2022, (ii) $6.6 million in common units of CPLP, (iii) $105.0 million of debt and (iv) $4.0 million of cash at hand.
On January 10, 2023, CPLP acquired the shares of the company owning the M/V Itajai Express for total consideration of $122.5 million comprised of (i) a cash
deposit of $6.0 million advanced in June 2022, (ii) $108.0 million of debt and (iii) $8.5 million of cash at hand.
On February 17, 2023, CPLP acquired the shares of the company owning the LNG/C Asterix I for total consideration of $230.0 million comprised of (i) a cash
deposit of $12.0 million advanced in June 2022, (ii) $184.0 million of debt and (iii) $34.0 million of cash at hand.
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Floating Rate Management Agreements with Capital-Executive
In October 2022 and January 2023, the vessel-owning subsidiaries of the M/V Manzanillo Express and the M/V Itajai Express entered into a floating rate
management agreements with Capital-Executive, pursuant to which Capital-Executive provides certain commercial and technical management services.
Floating Rate Management Agreements with Capital Gas
In February 2023 the vessel-owning subsidiary of the LNG/C Asterix I entered into a floating rate management agreement with Capital Gas, pursuant to which
Capital Gas provides certain commercial and technical management services.
Transactions entered into during the year ended December 31, 2021
Share Purchase Agreements with CGC Operating for the Acquisition of the Companies Owning Six LNG Carriers and the CGC Seller’s Credit
On August 31, 2021, CPLP agreed to acquire the shares of the companies owning three 174,000 CBM latest generation X-DF LNG carriers from CGC
Operating for total consideration of $599.8 million comprised of (i) $147.1 million of cash on hand, (ii) the assumption of the $427.4 million of secured debt, (iii) the
issuance of 1,153,846 (or $15.3 million in value) of new common units of CPLP at a premium to the trading unit price at the time of the agreement and (iv) the CGC
Seller’s Credit, which is $10.0 million of unsecured, interest free seller’s credit. The three vessels are the LNG/C Aristos I, the LNG/C Aristarchos and the LNG/C
Aristidis I.
In connection with the acquisition of the LNG/C Aristos I and the LNG/C Aristarchos, the Partnership entered into the CGC Seller’s Credit, which is a seller’s
credit agreement with CGC Operating to defer $10.0 million of the purchase price for up to twelve months from the delivery of the vessels. The CGC Seller’s Credit is
unsecured and interest free. For a discussion of the financing of this acquisition, see “Item 4. Information on the Partnership—A. History and Development of the
Partnership—2021 Developments.”
Furthermore, on August 31, 2021, the Partnership secured an option, which was exercised on November 4, 2021, to acquire the shares of the companies owning
an additional three X-DF LNG sister vessels for total consideration of $623.0 million comprised of (i) 184.0 million of cash on hand and (ii) the assumption of the
$439.0 million of secured debt. The three vessels are the LNG/C Attalos, the LNG/C Asklipios and the LNG/C Adamastos.
On March 30, 2022, CGC Operating transferred all 1,153,846 common units held by it to Capital Gas Corp. for no consideration. Mr. Miltiadis M. Marinakis
beneficially owns 50% of CGC Operating and the remaining 50% of CGC Operating is beneficially owned by a U.S.-based financial sponsor. In connection with the
transfer of common units from CGC Operating to Capital Gas Corp., Capital Gas Corp. paid $9,029,877.39 to the U.S.-based financial sponsor in exchange for its
interest in the common units held by CGC Operating. Mr. Miltiadis E. Marinakis beneficially owns of 100% of Capital Gas Corp.
Share Purchase Agreements for the Acquisition of the Companies Owning M/V Long Beach Express, M/V Seattle Express and the M/V Fos Express and the
CMTC Seller’s Credit
On January 27, 2021, we entered into three separate share purchase agreements with Capital Maritime for the acquisition of the shares of the companies owning
the M/V Long Beach Express, M/V Seattle Express and the M/V Fos Express (three sister 5,100 TEU container vessels built in 2008 at Hanjin Heavy Industries, South
Korea), for consideration of $13.5 million each. The vessels were delivered to the Partnership on February 25, 2021.
In connection with this acquisition, the Partnership entered into a seller’s credit agreement with Capital Maritime to defer $6.0 million of the purchase price for
up to five years from the delivery of the vessels. The CMTC Sellers’ Credit bears interest at a fixed rate of 5.0% per year. For a discussion of the financing of this
acquisition, see “Item 4. Information on the Partnership—A. History and Development of the Partnership—2021 Developments.”
Floating Rate Management Agreements with Capital Gas
On its acquisition date in 2021, each vessel-owning subsidiary of our six LNC/C vessels entered into a floating rate management agreement with Capital Gas,
pursuant to which Capital Gas provides certain commercial and technical management services.
Floating Rate Management Agreement with Capital-Executive
In February 2021, each vessel-owning subsidiary of M/V Long Beach Express, M/V Seattle Express and the M/V Fos Express, entered into a floating rate management
agreement with Capital-Executive, pursuant to which Capital-Executive provides certain commercial and technical management services.
Transactions entered into during the year ended December 31, 2020
Share purchase Agreements for the acquisition of M/V Athenian, the M/V Athos and M/V Aristomenis.
On January 22, 2020, we entered into three separate share purchase agreements with Capital Maritime for the Acquisition of the Companies owning the M/V
Athenian, the M/V Athos and M/V Aristomenis for consideration of $54.2 million each.
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Change of Management Agreement for M/V Cape Agamemnon.
On November 30, 2020 the M/V Cape Agamemnon, the last vessel to which Capital Ship Management provided technical management services entered into a
technical management agreement with Capital-Executive with the same terms.
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 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 owner. 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 business 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 difference 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 General 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 committee 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 proceeding 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 person 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.
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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 our General Partner or its affiliates to pursue a business strategy that favors us
or utilizes our assets or dictates what markets to pursue or grow.
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.
Our partnership agreement contains provisions that restrict the standards to which our General Partner would otherwise be held by Marshall 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. 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.
Our General Partner’s Chief Executive Officer, Chief Financial Officer and Chief Commercial Officer are also executive officers or employees of Capital
Maritime, Capital Ship Management or their respective affiliates.
If the activities of Capital Maritime, Capital Ship Management or their respective affiliates 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. The officers of our General Partner are not required to work full-time on
our affairs.
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 Capital Maritime or our General Partner, on the other hand, will not be the result of arms’- length
negotiations.
Neither our partnership agreement nor any of the other agreements, contracts and arrangements initially put in place among Capital Maritime or our General
Partner and us were 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:
•
approved by a majority of the members of our conflicts committee;
•
approved by the vote of a majority of the common units (excluding common units owned by the General Partner and its affiliates);
•
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).
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.
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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 “The
Partnership Agreement—Limited Call Right” in Exhibit 2.1 to this Annual Report.
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, our General Partner or our
Managers.
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 or our Managers
and their respective affiliates, on the one hand, and us or the holders of common units, on the other hand, depending on the nature of the conflict. We do not intend to do
so in most cases.
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 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 Ship Management. In the performance of its
obligations under these agreements, Capital Ship Management is 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, as well as to you. These modifications disadvantage the common unitholders because they restrict the rights and
remedies 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 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” in Exhibit 2.1 to this Annual Report.
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.
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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 “The Partnership Agreement—Indemnification.” in Exhibit 2.1 to this Annual
Report.
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.
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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 unitholders 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;
•
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 (on a pre-reverse split-adjusted basis) $0.2325 per unit,
which is equal to $0.93 per unit per year, or $1.6275 per unit, which is equal to $6.51 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.
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 maintain 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 determined 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.
•
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 distribution, 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.
•
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 or anticipated cash needs.
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•
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 distributions to our unitholders may be
restricted.
We have generally declared distributions on our common units in January, April, July and October of each year and paid those distributions in the subsequent
month according to our distribution policy, which has changed from time to time.
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 available 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 securities, (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 interest 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.
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 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. In addition, 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.
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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 dry-docking, modifying an existing 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 beginning 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 construction 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 subtracted 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 operations 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 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 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, subject to applicable law:
•
first, 98.0% 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 and other similar disclosure in this Section assumes that our General Partner maintains its initial 2.0% general partner interest.
As of the date of this Annual Report, our General Partner holds a 1.7% general partner interest.
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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 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, 98.0% to all unitholders, pro rata, and 2.0% to our General Partner, until each unitholder receives a total of $1.6975 per unit for that quarter (the
“first target distribution”),
•
second, 85.0% to all unitholders, pro rata, and 15.0% to our General Partner, until each unitholder receives a total of $1.8725 per unit for that quarter
(the “second target distribution”),
•
third, 75.0% to all unitholders, pro rata, and 25.0% to our General Partner, until each unitholder receives a total of $2.0475 per unit for that quarter (the
“third target distribution”), and
•
thereafter, 65.0% to all unitholders, pro rata, and 35.0% to our General Partner.
The percentage interests set forth above assume that our General Partner maintains its initial 2.0% general partner interest and has not transferred the incentive
distribution rights and that we do not issue additional classes of equity securities. As of the date of this Annual Report, our General Partner holds a 1.7% general partner
interest.
Following discussion with, and with the unanimous support of, the conflicts committee of our board of directors, Capital Maritime permanently waived its
rights to receive quarterly incentive distributions between $1.6975 and $1.75. This waiver effectively increases the first target distribution and the lower bound of the
second target distribution (as referenced in the table below) from $1.6975 to $1.75.
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 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 distribute reaches the next target distribution level, if any. The percentage interests shown
for the unitholders and our General Partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum
quarterly distribution. The percentage interests shown for our General Partner assume that our General Partner maintains its initial 2.0% general partner interest and that
our General Partner has not transferred the incentive distribution rights. As of the date of this Annual Report, our General Partner holds a 1.7% general partner interest.
Total Quarterly Distribution
Target Amount
Marginal Percentage Interest in Distributions
Unitholders
General Partner
Minimum Quarterly Distribution
$1.6275
98.0%
2.0%
First Target Distribution
up to $1.6975 (1)
98.0%
2.0%
Second Target Distribution
above $1.6975 (1) up to $1.8725
85.0%
15.0%
Third Target Distribution
above $1.8725 up to $2.0475
75.0%
25.0%
Thereafter
above $2.0475
65.0%
35.0%
(1)
As disclosed on our Report on Form 6-K furnished on August 26, 2014, Capital Maritime unilaterally notified the Partnership that it decided to waive its rights to
receive quarterly incentive distributions between $1.6975 and $1.75. 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 $1.6975 to $1.75.
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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, 98.0% to the common unitholders, pro rata, and 2.0% 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 its initial 2.0% general partner interest and that we do not issue
additional classes of equity securities. As of the date of this Annual Report, our General Partner holds a 1.7% general partner interest.
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 payment 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 (as we did in connection with the DSS Transaction) or subdivide our units into a greater number of units, we will proportionately adjust:
•
the minimum quarterly distribution; and
•
the target distribution levels.
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 the 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 reduced 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 liquidation. We will apply the
proceeds of liquidation in the manner set forth below.
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:
•
the initial unit price of the common units issued in our initial public offering (adjusted as our board of directors determines to be appropriate to give
effect to any distribution, subdivision or combination, such as the reverse unit split we effected in March 2019 in connection with the DSS Transaction)
(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.
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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:
•
the initial unit price of the common units issued in our initial public offering (adjusted as our board of directors determines to be appropriate to give
effect to any distribution, subdivision or combination, such as the reverse unit split we effected in March 2019 in connection with the DSS Transaction)
(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 (as adjusted) (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial
liquidation); and
•
thereafter, 50.0% to all unitholders, pro rata, 48.0% to holders of incentive distribution rights and 2.0% to our General Partner.
The preceding paragraph is based on the assumption that our General Partner maintains its initial 2.0% general partner interest and has not transferred the
incentive distribution rights and that we do not issue additional classes of equity securities. As of the date of this Annual Report, our General Partner holds a 1.7%
general partner interest.
B.
Significant Changes
Other than as described in “Item 4. Information on the Partnership—A. History and Development of the Partnership—Recent Developments” and in Note 16
(Subsequent Events) to our Financial Statements and below, no significant changes have occurred since the date of our Financial Statements.
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.
Item 10. Additional Information.
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
We were organized on January 16, 2007 and have perpetual existence. Our purpose under our partnership agreement is to engage in any business activities that
may lawfully be engaged in by a limited partnership 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 carries out our purpose.
Please refer to Exhibit 2.1 (Description of Securities registered under Section 12 of the Exchange Act) to this Annual Report for a summary of the material
provisions of our partnership agreement. The partnership agreement and the amendments thereto are filed as Exhibit I to our Report on Form 6-K dated February 24,
2010, as Exhibit I to our Report on Form 6-K dated September 30, 2011, as Exhibit II to our Report on Form 6-K/A dated May 23, 2012, as Exhibit II to our Report on
Form 6-K dated March 21, 2013 and as Exhibit A to Exhibit I to our 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—A. Consolidated Statements and Other 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. Major Unitholders and Related Party Transactions—B.
Related-Party Transactions —Conflicts of Interest and Fiduciary Duties.”.
C.
Material Contracts
For a discussion of material contracts, 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 please see “Item 4. Information on the Partnership—A. History and Development of the
Partnership” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Borrowings (Financing Arrangements).” Please also
refer to “Item 7. Major Unitholders and Related Party Transactions—B. Related-Party Transactions” for further detail on the transactions entered into with related
parties.
D.
Exchange Controls
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 persons that are both to non-resident and non-citizen holders of our
securities.
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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 carry on business or conduct transactions or operations in the Marshall Islands (“non-resident holders”). Because we, our subsidiaries and our
controlled affiliates do not, and assuming that we and our subsidiaries will not carry on business or conduct transactions 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 and our subsidiaries will not carry on business or conduct transactions 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
redomiciliation) with the Marshall Islands registrar, (iv) obtaining certificates of good standing from, or certified copies of documents filed with, the Marshall Islands
registrar, (v) compliance, or penalties for noncompliance, with Marshall Islands law concerning books and records and economic substance regulations and (vi) 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, possibly with retroactive effect. Changes in these authorities may cause the tax consequences to
vary substantially from the consequences described below.
The following discussion applies only to beneficial owners of our common units that own such units as “capital assets” (generally, for investment purposes) and
does not comment on all aspects of U.S. federal income taxation which may be important to particular common unitholders in light of their individual circumstances,
such as unitholders subject to special tax rules (e.g., financial institutions, insurance companies, broker-dealers, tax-exempt organizations, or former citizens or long-
term residents of the United States), persons that will hold the common units as part of a straddle, hedge, conversion, constructive sale, wash sale or other integrated
transaction for U.S. federal income tax purposes, persons that own (actually or constructively) 10.0% or more of the total 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 concerning the ownership or
disposition of our common units. Each common unitholder is urged to consult its tax advisor regarding the U.S. federal, state, local and other tax consequences of the
ownership or disposition of our common units.
Election to be Taxed as a Corporation
We have elected to be taxed as a corporation for U.S. federal income tax purposes. As such, among other consequences, U.S. Holders (as defined below) will,
subject to the discussion of certain rules relating to PFICs below (please see “—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 income as discussed
below. Additionally, our distributions to common unitholders will generally be reported on IRS Form 1099-DIV.
Taxation of Operating Income
We expect that substantially all of our gross income will be attributable to the transportation of 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. Transportation Income attributable to transportation
that both begins and ends in the United States (or “U.S. Source Domestic Transportation Income”) will be considered to be 100% derived from sources within the
United States. Transportation Income attributable to transportation exclusively between non-U.S. destinations will be considered to be 100% derived from sources
outside the United States. Transportation Income derived from sources outside the United States generally will not be subject to U.S. federal income tax.
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Based on our current operations, we do not expect to have U.S. Source Domestic Transportation Income. However, certain of our activities give rise to U.S.
Source International Transportation Income, and future expansion of our operations could result in an increase in the amount of U.S. Source International
Transportation Income, as well as give rise to U.S. Source Domestic Transportation Income, all of which could be subject to U.S. federal income taxation unless
exempt from U.S. taxation under Section 883 of the Code (or the “Section 883 Exemption”), as discussed below.
The Section 883 Exemption
In general, the Section 883 Exemption provides that if a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury
Regulations thereunder (the “Section 883 Regulations”), it will not be subject to the net basis and branch profits taxes or the 4% gross basis tax described below on its
U.S. Source International Transportation Income. The Section 883 Exemption applies to U.S. Source International Transportation Income and other forms of related
income, such as gain from the sale of a vessel. As discussed below, we believe that under our current ownership structure, the Section 883 Exemption will apply and
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 securities market either in the
United States or in a jurisdiction outside the United States that grants an Equivalent Exemption. The Section 883 Regulations provides, in pertinent part, that equity
interests in a non-U.S. corporation will be considered to be “primarily traded” on an established securities market in a given country if the number of units of each class
of equity relied upon to meet the “regularly traded” test that are traded during any taxable year on all established securities markets in that country exceeds the number
of units in each such class that are traded during that year on established securities markets in any other single country. Equity of a non-U.S. corporation will be
considered to be “regularly traded” on an established securities market under the Section 883 Regulations if one or more classes of equity of the corporation that, in the
aggregate, represent more than 50% of the total combined voting power and value of the non-U.S. corporation are listed on such market and certain trading volume
requirements are met or deemed met as described below. For this purpose, if one or more “5% Unitholders” (i.e., a unitholder holding, actually or constructively, at least
5% of the vote and value of a class of equity) own in the aggregate 50% or more of the vote and value of a class of equity (the “Closely Held Block”), such class of
equity will not be counted towards meeting the “primarily and regularly traded” test (the “Closely Held Block Exception”).
We are organized under the laws of the Republic of the Marshall Islands. The U.S. Treasury Department has recognized the Republic of the Marshall Islands as
a jurisdiction that grants an Equivalent Exemption. Consequently, our U.S. Source International Transportation Income (including, for this purpose, (i) any such income
earned by our subsidiaries that have properly elected to be treated as partnerships or disregarded as entities separate from us for U.S. federal income tax purposes and
(ii) any such income earned by subsidiaries that are corporations for U.S. federal income tax purposes, are organized in a jurisdiction that grants an Equivalent
Exemption and whose outstanding stock is owned 50% or more by value by us) will be exempt from U.S. federal income taxation provided we meet the Publicly
Traded Test. In addition, since our common units are only traded on the Nasdaq Global 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 provide that a class of equity will be considered to be “regularly traded” on an established securities market if (i)
such class of stock is listed on such market; (ii) such class of stock is traded on such market, other than in minimal quantities, on at least 60 days during the taxable year
or one sixth of the days in a short taxable year and (iii) the aggregate number of shares of such class of stock traded on such market during the taxable year is at least
10% of the average number of shares of such class of stock outstanding during such year, or as appropriately adjusted in the case of a short taxable year.
We believe that trading of our common units has satisfied these conditions in the past, and we expect that such conditions will continue to be satisfied. Finally,
we believe that our common units represent more than 50% of our voting power and value and accordingly we believe that our units should be considered to be
“regularly traded” on an established securities market.
These conclusions, however, are based upon legal authorities that do not expressly contemplate an organizational structure such as ours. In particular, although
we have elected to be treated as a corporation for U.S. federal income tax purposes, for corporate law purposes we are organized as a limited partnership under Marshall
Islands law and our General Partner is responsible for managing our business and affairs and has been granted certain veto rights over decisions of our board of
directors. Accordingly, it is possible that the IRS could assert that our units do not meet the “regularly traded” test.
We expect that our units will not lose eligibility for the Section 883 Exemption as a result of the Closely Held Block Exception because our partnership
agreement provides that the voting rights of any 5% Unitholders (other than our General Partner and its affiliates, their transferees and persons who acquired such units
with the approval of our board of directors) are limited to a 4.9% voting interest in us regardless of how many common units are held by that 5% Unitholder. (The
voting rights of any such unitholders in excess of 4.9% will be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power
of all classes of units entitled to vote). If Capital Maritime and our General Partner own 50% or more of our common units, they will provide the necessary documents
to establish an exception to the application of the Closely Held Block Exception. This exception is available when shareholders residing in a jurisdiction granting an
Equivalent Exemption and meeting certain other requirements own sufficient shares in the Closely Held Block to preclude shareholders who have not met such
requirements from owning 50% or more of the outstanding class of equity relied upon to satisfy the Publicly Traded Test.
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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 transportation or bareboat charters attributable to a fixed place of
business in the United States in the future, which would result in such income being treated as Effectively Connected Income. In addition, any U.S. Source Domestic
Transportation Income generally will be treated as Effectively Connected Income.
Any income we earn that is treated as Effectively Connected Income would be subject to U.S. federal corporate income tax (the highest statutory rate is
currently 21%) on a net income basis. In addition, a 30% branch profits tax imposed under Section 884 of the Code also would apply to such income, and a branch
interest tax could be imposed on certain interest paid or deemed paid by us.
Taxation of Gain on the Sale of a Vessel
Provided we qualify for the Section 883 Exemption, gain from the sale of a vessel should be exempt from tax under Section 883. If, however, we do not qualify
for the Section 883 Exemption, then such gain could be treated as effectively connected income (determined under rules different from those discussed above) and
subject to the net income and branch profits tax regime described above.
The 4% Gross Basis Tax
If the Section 883 Exemption does not apply and the net income tax does not apply, we would be subject to a 4% U.S. federal income tax on the U.S.
source portion of our U.S. Source International Transportation Income, without the benefit of deductions.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term U.S. Holder means a beneficial owner of our common units that is an individual U.S. citizen or resident (as determined for U.S. federal
income tax purposes), a corporation or other entity organized under the laws of the United States or its political subdivisions and classified as a corporation for U.S.
federal income tax purposes, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United
States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all 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.
Dividends paid on our common units to a U.S. Holder who is an individual, trust or estate (in all cases, a “U.S. Individual Holder”) will be treated as qualified
dividend income that is taxable to such U.S. Individual Holder at preferential rates applicable to long-term capital gain provided that: (i) our common units are readily
tradable on an established securities market in the United States (such as the Nasdaq Global Select Market, on which our common units are traded); (ii) we are not a
PFIC (which we do not believe we are, have been or will be, as discussed below); (iii) the U.S. Individual Holder has owned the common units for more than 60 days in
the 121-day period beginning 60 days before the date on which the common units become ex-dividend (and has not entered into certain risk limiting transactions with
respect to such units) and (iv) the U.S. Individual Holder is not under an obligation to make related payments with respect to positions in substantially similar or related
property. There is no assurance that any dividends paid on our common units will be eligible for these preferential rates in the hands of a U.S. Individual Holder, and
any dividends paid on our common units that are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder. Special rules may
apply to any “extraordinary dividend” paid by us. An extraordinary dividend is, generally, a dividend with respect to a unit if the amount of the dividend is equal to or
in excess of 10 percent of a unitholder’s adjusted basis (or fair market value in certain circumstances) in such unit. If we pay an “extraordinary dividend” on our
common units that is treated as “qualified dividend income” then any loss derived by a U.S. Individual Holder from the sale or exchange of such units will be treated as
long-term capital loss to the extent of the amount of such dividend.
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Sale, Exchange or other Disposition of Common Units
Subject to the discussion of PFICs below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common
units in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis
in such units. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one-year at the time of the sale,
exchange or other disposition. Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes. A
U.S. Holder’s ability to deduct capital losses is subject to certain limitations. Long-term capital gain of a U.S. Individual Holder is generally subject to tax at
preferential rates.
PFIC Status and Significant Tax Consequences
Special and adverse U.S. federal income tax rules apply to a U.S. Holder that owns an equity interest in a non-U.S. entity taxed as a corporation and classified
as a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held
our common units, either:
•
at least 75% of our gross income (including the gross income of our vessel-owning subsidiaries) for such taxable year consists of passive income (e.g.,
dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or
•
at least 50% of the average value of the assets held by us (including the assets of our vessel-owning subsidiaries) during such 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 rules depending on
whether the U.S. Holder makes an election to treat us as a Qualified Electing Fund (a “QEF election”). As an alternative to making a QEF election, a U.S. Holder
should be able to make a “mark-to-market” election with respect to our common units, as discussed below. In addition, if a U.S. Holder owns our common units during
any taxable year that we are a PFIC, such units owned by such holder will be treated as units in a PFIC even if we are not a PFIC in a subsequent year and, if the total
value of all PFIC stock that such holder directly or indirectly owns exceeds certain thresholds, such holder must file IRS Form 8621 with the holder’s U.S. federal
income tax return to report the holder’s ownership of our common units.
If we are a PFIC and, at any time, have a non-U.S. subsidiary that is classified as a PFIC, a U.S. Holder generally would be deemed to own a portion of the
shares of such lower-tier PFIC, and, unless it makes a timely QEF election with respect to such subsidiary, generally could incur liability for the deferred tax and
interest charge described below if we (or our subsidiary) receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or if the U.S. Holder
otherwise were deemed to have disposed of an interest in the lower-tier PFIC. The mark-to-market election described below would not apply to the U.S. Holder’s
indirect interest in any such lower tier PFICs.
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 we are a PFIC and in turn have subsidiaries that are PFICs, a U.S.
Holder would have to make a separate QEF election with respect to each such subsidiary PFIC to avoid being subject to the deferred tax interest charges described
below in respect of such subsidiary PFICs. 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 elections described above.
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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 other than the taxable year in which the Non-Electing Holder’s holding period in the common units begins 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 that preceded the current taxable year), and (2) any gain realized on the sale, exchange or other disposition of our common units.
Under these special rules:
•
the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common units;
•
the amount allocated to the current taxable year and any year prior to the year we were first treated as a PFIC with respect to the Non-Electing Holder
would be taxed as ordinary income; and
•
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for
that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable
year.
These penalties would not apply to a qualified pension, profit sharing or other retirement trust or other tax-exempt organization that did not borrow money or
otherwise utilize leverage in connection with its acquisition of our common units. If we were treated as a PFIC for any taxable year and a Non-Electing Holder who is
an individual dies while owning our common units, such holder’s successor generally would not receive a step-up in tax basis with respect to such units.
Shareholder Reporting
A U.S. Holder that owns “specified foreign financial assets” (as defined in Section 6038D of the Code and applicable Treasury Regulations) with an aggregate
value in excess of $50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with its tax return.
“Specified foreign financial assets” may include financial accounts maintained by foreign financial institutions, as well as the following, but only if they are held for
investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-United States persons, (ii) financial instruments and
contracts that have non-United States issuers or counterparties, and (iii) interests in foreign entities. Significant penalties may apply for failing to satisfy this filing
requirement. U.S. Holders are urged to contact their tax advisors regarding this filing requirement.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common units (other than a partnership, including any entity or arrangement treated as a partnership for U.S. federal income tax
purposes) that is not a U.S. Holder is a Non-U.S. Holder.
Distributions
Distributions we pay to a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax if the Non-U.S. Holder is not engaged in a U.S.
trade or business. If the Non-U.S. Holder is engaged in a U.S. trade or business, distributions we pay may be subject to U.S. federal income tax to the extent those
distributions constitute income effectively connected with that Non-U.S. Holder’s U.S. trade or business. However, distributions paid to a Non-U.S. Holder who is
engaged in a trade or business may be exempt from taxation under an income tax treaty if the income represented thereby is not attributable to a U.S. permanent
establishment maintained by the Non-U.S. Holder. “Effectively connected” distributions recognized by a corporate Non-U.S. Holder may also, under certain
circumstances, be subject to an additional “branch profits tax” at a 30% rate, or at a lower rate if the corporate Non-U.S. Holder is eligible for the benefits of an income
tax treaty that provides for a lower rate.
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.
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Backup Withholding and Information Reporting
In general, payments of distributions on our common units or the gross proceeds of a disposition of our common units made within the United States 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;
•
in the case of distributions, 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.
Payment of the gross proceeds of a disposition of our common units effected at a foreign office of a broker generally will not be subject to information reporting
or backup withholding. However, a sale effected at a foreign office of a broker could be subject to information reporting in the same manner as a sale within the United
States (and in certain cases may be subject to backup withholding as well) if (i) the broker has certain connections to the United States, (ii) the proceeds or confirmation
are sent to the United States or (iii) the sale has certain other specified connections with the United States.
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 are subject to the reporting requirements of the Exchange Act, as applied to foreign private issuers. The SEC maintains an internet website at www.sec.gov
that contains reports and other information regarding issuers, including us, that file electronically with the SEC. The information contained on, or that can be accessed
through this website is not part of, and is not incorporated into, this Annual Report.
Whenever a reference is made in this Annual Report to a contract or other document, such reference is not necessarily complete and reference should be made
to the exhibits that are a part of this Annual Report for a copy of the contract or other document.
I.
Subsidiary Information
Not applicable.
J.
Annual Report to Security Holders
Not Applicable
Item 11. Quantitative and Qualitative Disclosures about Market Risk.
Our Risk Management Policy
Our policy is to continuously monitor our exposure to business risks, including the impact of changes in interest rates and currency rates, as well as inflation on
earnings and cash flows. We intend to assess these risks and, when appropriate, take measures to minimize our exposure to the risks.
Foreign Exchange Risk
Financing activities
In connection with the issuance of our Euro-denominated senior unsecured bonds in October 2021 and July 2022, we entered into certain cross-currency swap
agreements to manage the related foreign currency exchange risk by effectively converting the fixed-rate, Euro-denominated Bonds, including the semi-annual interest
payments for the duration of the bonds to fixed-rate U.S. Dollar-denominated debt. The economic effect of the swap agreements is to eliminate the uncertainty of the
cash flows in U.S. Dollars associated with the issuance of the Euro-denominated Bonds. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and
Capital Resources— Borrowings (Financing Arrangements)—Senior Unsecured Bonds.”.
Operating activities
We do not have a material currency exposure risk in connection to our operating activities. We generate all of our revenues in U.S. Dollars and incur less than
10% of our expenses in currencies other than U.S. Dollars. For accounting purposes, expenses incurred in currencies other than the U.S. Dollars are translated into U.S.
Dollars at the exchange rate prevailing on the date of each transaction. As of December 31, 2022, less than 10% 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, 2022. We have not hedged
currency exchange risks and our operating results could be adversely affected as a result.
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Interest Rate Risk
The international shipping industry is capital intensive, requiring significant amounts of investment, a significant portion of which is provided in the form of
long-term debt. Our existing financing arrangements contain interest rates that fluctuate based on changes in base rates. Therefore, we are exposed to the risk that our
interest expense may increase if interest rates rise. Recently, in response to inflationary pressures, central banks have begun to increase interest rates, which translates
into increases in base interest rates that result in an increase to our interest expense on our existing floating rate debt and also result in increases to the interests rates
available to us on new debt financing for our operations. See “Item 3. Key Information—D. Risk Factors —Risks Related to Financing Activities—A significant rise in
interests rates could result in increased interest expense.” In addition, the phase-out of LIBOR may adversely affect interest rates. See “Item 3. Key Information—D.
Risk Factors —Risks Related to Financing Activities—The phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different
benchmark rate, may adversely affect interest rates and our cost of capital.”
Currently we have, and during 2022 we had, no interest rate swap agreements outstanding. A possible market disruption in determining the cost of funds for our
banks resulting in 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 $9.3 million, $4.6 million and $3.7 million for the years ended
December 31, 2022, 2021 and 2020 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 equivalents. 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.
Inflation
As a result of the heightened inflation experienced in 2022, we have incurred increased operating, voyage and administrative costs including higher costs for
dry-docking. As inflation becomes a significant factor in the global economy, inflationary pressures are expected to result in increased operating, voyage and financing
costs. For example, all our management agreements provide for an annual adjustment of management fees according to Consumer Price Index (CPI).
Item 12. Description of Securities Other than Equity Securities.
Not Applicable.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
No material modifications to the rights of security holders.
Item 15. Controls and Procedures.
A.
Disclosure Controls and Procedures
As of December 31, 2022, 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, 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, 2022, 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 decisions regarding required disclosure, were effective in providing reasonable assurance that information that was required to be
disclosed by us in reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission.
B.
Management’s Annual Report on Internal Control over Financial Reporting
Our management (with the management of our General Partner) is responsible for establishing and maintaining adequate internal controls over financial
reporting. Our internal controls were designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of our
Financial Statements for external purposes in accordance with accounting principles generally accepted in the United States.
Our internal controls over financial reporting includes those policies and procedures that 1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets; 2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of our Financial Statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made in
accordance with authorizations of management and the directors of 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 Commission. This evaluation included review of the
documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.
Based on this evaluation, management believes that our internal control over financial reporting was effective as of December 31, 2022.
However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements even when determined to be
effective and can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
relevant policies and procedures may deteriorate.
Deloitte Certified Public Accountants S.A. (“Deloitte”), our independent registered public accounting firm, has audited the Financial Statements included herein
and our internal control over financial reporting and has issued an attestation report on the effectiveness of our internal control over financial reporting which is
reproduced in its entirety in Item 15.C below.
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C.
Attestation Report of the Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Unitholders of Capital Product Partners L.P.
Majuro, Republic of 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, 2022, 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, 2022, 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, 2022 of the Partnership and our report dated April 26, 2023
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
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of 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
April 26, 2023
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 16.
A.
Audit Committee Financial Expert.
Our board of directors has determined that director Abel Rasterhoff qualifies as an audit committee 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.
B.
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 applies to the Partnership
and all of its employees, directors and officers, including its chief executive officer, chief financial officer, chief accounting officer or controller, its agents and persons
performing similar functions, including for the avoidance of doubt any employees, officers or directors of our Managers 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.
86
Table of Contents
C.
Principal Accountant Fees and Services.
Our principal accountant for 2022 and 2021 was Deloitte Certified Public Accountants S.A. (PCAOB ID No. 1163) 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
2022
2021
Audit Fees (1)
$
382.2 $
276.2
Audit-Related Fees (2)
101.7
119.4
Tax Fees (3)
13.5
17.2
Total
$
497.4 $
412.8
(1)
Audit fees represent fees for professional services provided in connection with the audit of our Financial Statements, review of our quarterly consolidated
financial information, audit services provided in connection with other regulatory filings, issuance of consents and assistance with and review of documents filed
with the SEC.
(2)
Audit related fees represent compensation for professional services provided in connection with the review of the prospectus and related services for the public
offering and listing on the Athens Stock Exchange of senior unsecured bonds by CPLP PLC.
(3)
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 2022 and 2021.
D.
Exemptions from the Listing Standards for Audit Committees.
None.
E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
On January 25, 2021, the Partnership’s Board of Directors approved a unit repurchase program, providing the Partnership with authorization to repurchase up to
$30.0 million of units of the Partnership’s common unit, effective for a period of two years. The Partnership may repurchase these units in the open market or in
privately negotiated transactions, at times and prices that are considered to be appropriate by the Partnership. During 2022 the Partnership had purchased 389,962
common units under the program at a total cost of $5.9 million.
The following table presents information with respect to repurchases of common units in 2022:
(a) Total
Number of
Common
Units
Purchased
(b) Average
Price Paid per
Common Unit
(c) Total
Number of
Common
Units
Purchased as
Part of
Publicly
Announced
Plans or
Programs
(d) Maximum
Number (or
Approximate
Dollar Value)
of Common
Units that
May Yet Be
Purchased
Under the
Plans or
Programs
Repurchases of units under the Plan brought forward from 2021
$
25,512,893.43
January 1 – January 31, 2022
—
—
— $
25,512,893.43
February 1 – February 28, 2022
21,008 $
15.366
21,008 $
25,190,086.27
March 1 – March 31, 2022
68,337 $
15.763
68,337 $
24,112,900.51
April 1 – April 30, 2022
28,310 $
16.997
28,310 $
23,631,727.69
May 1 – May 31, 2022
32,019 $
15.393
32,019 $
23,138,844.52
June 1 – June 30, 2022
35,365 $
15.711
35,365 $
22,583,228.58
July 1 – July 31, 2022
26,701 $
14.107
26,701 $
22,206,570.71
August 1 – August 31, 2022
39,805 $
14.697
39,805 $
21,621,567.09
September 1 – September 30, 2022
35,579 $
14.962
35,579 $
21,089,248.94
October 1 – October 31, 2022
32,191 $
14.164
32,191 $
20,633,301.87
November 1 – November 30, 2022
32,242 $
14.867
32,242 $
20,153,971.53
December 1 – December 31, 2022
38,405 $
14,049
38,405 $
19,614,407.27
Total
389,962 $
15.126
389,962 $
19,614,407.27
87
Table of Contents
F.
Change in Registrant’s Certifying Accountant.
Not applicable.
G.
Corporate Governance.
The Nasdaq Global Select Market requires limited partnerships with listed units to comply with its corporate governance standards, subject to certain exceptions
as set forth in Nasdaq Rule 5615(a)(4). 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, a conflicts committee and a compensation 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 6. Directors, Senior Management and Employees—C. Board Practices” and “Item 10. Additional Information— B. Memorandum and Articles of
Association” for more detail regarding our corporate governance practices.
H.
Mine Safety Disclosure.
Not applicable.
I.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
J.
Insider Trading Policies.
Not applicable.
88
Table of Contents
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 (PCAOB ID No. 1163)
F-1
Consolidated Balance Sheets as of December 31, 2022 and 2021
F-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
F-3
Consolidated Statements of Changes in Partners’ Capital for the years ended December 31, 2022, 2021 and 2020
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
F-5
Notes to the Consolidated Financial Statements
F-6
89
Table of Contents
Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
Exhibit
No.
Description
1.1
Certificate of Limited Partnership of Capital Product Partners L.P. (1)
1.2
Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated February 22, 2010 (3)
1.3
Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated September 30, 2011 (4)
1.4
Second Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated May 22, 2012 (6)
1.5
Third Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated March 19, 2013 (7)
1.6
Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of Capital Product Partners L.P., dated August 25, 2014 (9)
1.7
Certificate of Formation of Capital GP L.L.C. (1)
1.8
Limited Liability Company Agreement of Capital GP L.L.C. (1)
1.9
Certificate of Formation of Capital Product Operating GP L.L.C. (1)
2.1
Description of Securities registered under Section 12 of the Exchange Act
2.2
Certain long-term debt instruments, none of which relates to indebtedness that exceeds 10% of the consolidated assets of Capital Product Partners L.P., have
not been filed as exhibits to this Form 20-F. Capital Product Partners L.P. agrees to furnish the Securities and Exchange Commission, upon its request, a copy
of any such instrument defining the rights of holders of long-term debt of Capital Product Partners L.P. and its consolidated subsidiaries.
4.1
Deed of Amendment and Restatement relating to the Loan Agreement with Hamburg Commercial Bank AG and ING Bank N.V., London Branch, dated
March 8, 2019(11)
4.2
Loan Agreement , dated October 6, 2022, between Capital Product Partners L.P. and Hamburg Commercial Bank A.G.
4.3
Deed of Accession, Amendment and Restatement dated September 10, 2021, among Atrotos Gas Carrier Corp., Capital Gas LLC, Capital Product Partners
L.P. and ING Bank N.V., London Branch, relating to a facility agreement December 18, 2020 (15)
4.4
Form of Amended and Restated Term Loan Facility, among Atrotos Gas Carrier Corp., Capital Product Partners L.P. and ING Bank N.V., London Branch,
relating to a facility agreement dated December 18, 2020 (15)
4.5
Amended and Restated Omnibus Agreement, dated September 30, 2011 (4)
4.6
Form of Floating Rate Management Agreement with Capital-Executive Ship Management Corp. (12)
4.7
Form of Floating Rate Management Agreement with Capital Gas Ship Management Corp. (15)
4.8
Administrative Services Agreement with Capital Ship Management (1)
4.9
Amendment 1 to Administrative Services Agreement with Capital Ship Management Corp., dated April 2, 2012 (8)
4.10
IT Agreement, dated April 3, 2007, by and between Capital Ship Management Corp. and Capital Product Partners L.P. (13)
4.11
Addendum No. 1 to IT Agreement, dated April 2, 2012 (13)
4.12
Addendum No. 2 to IT Agreement, dated April 2, 2017 (13)
4.13
Addendum No. 3 to IT Agreement, dated April 2, 2022 (15)
4.14
Master Vessel Acquisition Agreement, dated July 24, 2014 (10)
4.15
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan, dated April 29, 2008 (2)
4.16
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan, amended July 22, 2010 (9)
4.17
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan, amended and restated August 21, 2014 (9)
4.18
Capital Product Partners L.P. 2008 Omnibus Incentive Compensation Plan, amended and restated July 23, 2019 (13)
4.19
Capital Product Partners L.P. Omnibus Incentive Compensation Plan, amended and restated on January 24, 2022 (15)
4.20
Form of Restricted Unit Award of Capital Product Partners L.P. (5)
4.21
Seller’s Credit Agreement, dated January 27, 2021, with Capital Maritime & Trading Corp. (14)
8.1
List of Subsidiaries of Capital Product Partners L.P.
12.1
Rule 13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief Executive Officer
12.2
Rule 13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief Financial Officer
13.1
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*
13.2
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*
101.INS Inline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (Inline XBRL)
90
Table of Contents
(1)
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.
(2)
Previously filed as a Report on Form 6-K with the SEC on April 30, 2008.
(3)
Previously filed as a Report on Form 6-K with the SEC on February 24, 2010.
(4)
Previously filed as a Report on Form 6-K with the SEC on September 30, 2011.
(5)
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.
(6)
Previously furnished as a Report on Form 6-K with the SEC on May 23, 2012.
(7)
Previously furnished as a Report on Form 6-K with the SEC on March 21, 2013.
(8)
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.
(9)
Previously furnished as a Report on Form 6-K with the SEC on August 26, 2014.
(10) Previously furnished as a Report on Form 6-K with the SEC on July 29, 2014.
(11) Previously furnished as Exhibit I to a Report on Form 6-K with the SEC on March 14, 2019.
(12) Previously filed as Exhibit 10.1 to a registration statement on Form F-3 with the SEC on October 25, 2019.
(13) Previously filed as an exhibit to Capital Product Partners L.P.’s Annual Report on Form 20-F for the year ended December 31, 2019 and filed with the SEC on
February 28, 2020.
(14) Previously filed as an exhibit to Capital Product Partners L.P.’s Annual Report on Form 20-F for the year ended December 31, 2020 and filed with the SEC on
April 27, 2021.
(15) Previously filed as an exhibit to Capital Product Partners L.P.’s Annual Report on Form 20-F for the year ended December 31, 2021 and filed with the SEC on
April 27, 2022.
*
Furnished only and not filed
91
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized. CAPITAL PRODUCT PARTNERS L.P.
By:
Capital GP L.L.C., its
general partner
By:
/s/ Gerasimos (Jerry)
Kalogiratos
Name:
Gerasimos (Jerry)
Kalogiratos
Title:
Chief Executive Officer
of Capital GP L.L.C.
Dated: April 26, 2023
92
Table of Contents
INDEX TO FINANCIAL STATEMENTS
CAPITAL PRODUCT PARTNERS L.P.
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 1163)
F-1
Consolidated Balance Sheets as of December 31, 2022 and 2021
F-2
Consolidated Statements of Comprehensive Income / (Loss) for the years ended December 31, 2022, 2021 and 2020
F-3
Consolidated Statements of Changes in Partners’ Capital for the years ended December 31, 2022, 2021 and 2020
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
F-5
Notes to the Consolidated Financial Statements
F-6
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Unitholders of
Capital Product Partners L.P.
Majuro, Republic of 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2022, 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, 2022, 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
April 26, 2023, 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 regulations 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. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, 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.
Critical Audit Matters
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
April 26, 2023
We have served as the Company's auditor since 2006.
F-
1
Table of Contents
Capital Product Partners L.P.
Consolidated Balance Sheets
(In thousands of United States Dollars, except number of units)
As of December 31,
2022
As of December 31,
2021
Assets
Current assets
Cash and cash equivalents
$
144,635 $
20,373
Trade accounts receivable, net
2,102
6,025
Prepayments and other assets
7,534
4,835
Due from related party (Note 4)
3,636
—
Inventories
6,817
5,009
Claims
1,599
1,442
Total current assets
166,323
37,684
Fixed assets
Advances for vessels under construction – related party (Notes 4, 5)
24,000
—
Vessels, net (Note 5)
1,757,897
1,781,858
Total fixed assets
1,781,897
1,781,858
Other non-current assets
Above market acquired charters (Note 6)
32,320
48,605
Deferred charges, net
289
2,771
Restricted cash (Note 7)
10,213
10,614
Prepayments and other assets
5,722
3,638
Total non-current assets
1,830,441
1,847,486
Total assets
$
1,996,764 $
1,885,170
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt, net (including nil and $10,000 payable to related party as of December 31, 2022 and
2021, respectively) (Notes 4, 7)
$
73,213 $
97,879
Trade accounts payable
8,322
9,823
Due to related parties (Note 4)
1,016
2,785
Accrued liabilities (Note 9)
17,476
11,395
Deferred revenue
18,553
8,919
Total current liabilities
118,580
130,801
Long-term liabilities
Long-term debt, net (including $6,000 payable to related party as of December 31, 2022 and 2021) (Notes 4, 7)
1,215,865
1,211,095
Derivative liabilities (Note 8)
13,525
3,167
Below market acquired charters (Note 6)
10,368
14,643
Total long-term liabilities
1,239,758
1,228,905
Total liabilities
1,358,338
1,359,706
Commitments and contingencies (Note 15)
—
—
Partners’ capital
General Partner (348,570 General partner units at December 31, 2022 and 2021) (Note 12)
12,414
10,466
Limited Partners – Common (20,821,946 units issued and 20,255,707 units outstanding and 19,776,946 units issued and
19,394,696 units outstanding as of December 31, 2022 and 2021, respectively) (Note 12)
634,605
519,497
Treasury Units (566,239 units as of December 31, 2022 and 382,250 units as of December 31, 2021) (Note 12)
(3,827)
(4,499)
Accumulated other comprehensive loss
(4,766)
—
Total partners’ capital
638,426
525,464
Total liabilities and partners’ capital
$
1,996,764 $
1,885,170
The accompanying notes are an integral part of these consolidated financial statements.
F-
2
Table of Contents
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,
2022
2021
2020
Revenues (Note 3)
$
299,071 $
184,665 $
140,865
Expenses / (income), net:
Voyage expenses (Note 10)
16,236
10,698
6,301
Vessel operating expenses (Note 10)
58,288
41,199
33,745
Vessel operating expenses - related parties (Notes 4, 10)
9,172
5,923
4,976
General and administrative expenses (including $2,244, $2,013 and $2,049 to related parties, for the years
ended December 31, 2022, 2021 and 2020, respectively) (Notes 4, 13)
10,681
8,662
7,195
Gain on sale of vessels (Note 5)
(47,275)
(46,812)
—
Vessel depreciation and amortization (Note 5)
69,272
46,935
41,405
Operating income
182,697
118,060
47,243
Other income / (expense), net:
Interest expense and finance cost (Note 7)
(55,421)
(20,129)
(16,741)
Other (expense) / income
(1,855)
247
(135)
Total other expense, net
(57,276)
(19,882)
(16,876)
Partnership’s net income
$
125,421 $
98,178 $
30,367
General Partner’s interest in Partnership’s net income (Note 14)
2,157
1,790
558
Partnership’s net income allocable to unvested units (Note 14)
3,662
2,053
685
Common unit holders’ interest in Partnership’s net income (Note 14)
119,602
94,335
29,124
Net income per (Note 14):
• Common unit, basic and diluted
$
6.19 $
5.14 $
1.60
Weighted-average units outstanding:
• Common units, basic and diluted
19,325,030
18,342,413
18,194,186
Partnership’s net income
125,421
98,178
30,367
Other comprehensive loss:
Unrealized loss on derivative instruments (Note 8)
(4,766)
—
—
Partnership’s comprehensive income
$
120,655 $
98,178 $
30,367
The accompanying notes are an integral part of these consolidated financial statements.
F-
3
Table of Contents
Capital Product Partners L.P.
Consolidated Statements of Changes in Partners’ Capital
(In thousands of United States Dollars)
General Partner
Common
Unitholders
Treasury units
Accumulated
Other
Comprehensive
Loss
Total Partners’
capital
Balance at January 1, 2020
$
8,572 $
398,165 $
— $
— $
406,737
Distributions declared / paid (distributions of $ 0.90 per
common unit)
(314)
(16,761)
—
—
(17,075)
Partnership’s net income
558
29,809
—
—
30,367
Equity compensation expense (Note 13)
—
2,049
—
—
2,049
Balance at December 31, 2020
$
8,816 $
413,262 $
— $
— $
422,078
Distributions declared / paid (distributions of $0.40 per
common unit)
(140)
(7,473)
—
—
(7,613)
Partnership’s net income
1,790
96,388
—
—
98,178
Equity compensation expense (Note 13)
—
2,043
—
—
2,043
Issuance of common units in connection with the
acquisition of vessel owning companies (Notes 4, 5, 12)
—
15,277
—
—
15,277
Repurchase of common units (Note 12)
—
—
(4,499)
—
(4,499)
Balance at December 31, 2021
$
10,466 $
519,497 $
(4,499) $
— $
525,464
Distributions declared / paid (distributions of $0.60 per
common unit)
(209)
(11,946)
—
—
(12,155)
Partnership’s net income
2,157
123,264
—
—
125,421
Equity compensation expense (Note 13)
—
3,790
—
—
3,790
Re-issuance of treasury units in connection with the
acquisition of a vessel owning company (Notes 5, 12)
—
—
6,583
—
6,583
Repurchase of common units (Note 12)
—
—
(5,911)
—
(5,911)
Other comprehensive loss (Note 8)
—
—
—
(4,766)
(4,766)
Balance at December 31, 2022
$
12,414 $
634,605 $
(3,827) $
(4,766) $
638,426
The accompanying notes are an integral part of these consolidated financial statements.
F-
4
Table of Contents
Capital Product Partners L.P.
Consolidated Statements of Cash flows
(In thousands of United States Dollars)
For the years ended December 31,
2022
2021
2020
Cash flows from operating activities:
Net income
$
125,421
$
98,178
$
30,367
Adjustments to reconcile net income to net cash provided by operating activities:
Vessel depreciation and amortization (Note 5)
69,272
46,935
41,405
Amortization and write-off of deferred financing costs
2,766
3,122
3,047
Amortization / accretion of above / below market acquired charters (Note 6)
12,010
7,287
11,696
Gain on sale of vessels (Note 5)
(47,275)
(46,812)
—
Equity compensation expense (Note 13)
3,790
2,043
2,049
Change in fair value of derivatives (Note 8)
10,959
3,167
—
Unrealized bonds exchange differences (Note 7)
(10,896)
(3,374)
—
Unrealized cash, cash equivalents and restricted cash exchange differences
(493)
—
—
Changes in operating assets and liabilities:
Trade accounts receivable, net
3,923
(3,170)
(165)
Prepayments and other assets
(3,768)
(201)
(1,384)
Due from related party
(3,636)
—
—
Inventories
(1,808)
(1,481)
(2,057)
Claims
(157)
(696)
339
Trade accounts payable
380
(252)
3,779
Due to related parties
(1,769)
(472)
(1,999)
Accrued liabilities
4,215
2,687
684
Deferred revenue
9,634
6,098
(1,005)
Dry-docking costs paid
—
(1,895)
(6,074)
Net cash provided by operating activities
$
172,568
$
111,164
$
80,682
Cash flows from investing activities:
Vessel acquisitions and improvements including time charter agreements (Notes 5, 6)
(117,233)
(368,096)
(185,247)
Advances for vessels under construction – related party (Note 5)
(24,000)
—
—
Net proceeds from sale of vessels (Note 5)
127,124
193,031
—
Net cash used in investing activities
$
(14,109)
$
(175,065)
$
(185,247)
Cash flows from financing activities:
Proceeds from long-term debt (Note 7)
206,276
204,266
270,850
Deferred financing costs paid
(4,347)
(6,131)
(4,765)
Payments of long-term debt (Note 7)
(218,954)
(145,471)
(153,573)
Repurchase of common units (Note 12)
(5,911)
(4,499)
—
Dividends paid (Note 12)
(12,155)
(7,613)
(17,075)
Net cash (used in) / provided by financing activities
$
(35,091)
$
40,552
$
95,437
Net increase / (decrease) in cash, cash equivalents and restricted cash
$
123,368
$
(23,349)
$
(9,128)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
493
—
—
Cash, cash equivalents and restricted cash at the beginning of the year
$
30,987
$
54,336
$
63,464
Cash, cash equivalents and restricted cash at the end of the year
$
154,848
$
30,987
$
54,336
Supplemental cash flow information
Cash paid for interest
$
49,179
$
15,750
$
15,347
Non-Cash Investing and Financing Activities
Seller’s credit agreements in connection with the acquisition of vessel owning companies (Notes 5, 7)
—
16,000
—
Financing arrangements and credit facility assumed in connection with the acquisition of vessel owning
companies (Notes 5, 7)
—
866,344
—
Issuance of common units in connection with the acquisition of vessel owning companies (Notes 5, 12)
—
15,277
—
Re-issuance of treasury units in connection with the acquisition of a vessel owning company (Notes 5, 12)
6,583
—
—
Capital expenditures included in liabilities
1,663
1,008
2,507
Capitalized dry-docking costs included in liabilities
29
123
1,649
Deferred financing costs included in liabilities
220
112
6
Expenses for sale of vessels included in liabilities (Note 5)
1,300
1,984
—
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents
144,635
20,373
47,336
Restricted cash - Non-current assets
10,213
10,614
7,000
Total cash, cash equivalents and restricted cash shown in the statements of cash flows
$
154,848
$
30,987
$
54,336
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
1. Basis of Presentation and General Information
Capital Product Partners, L.P. was formed on January 16, 2007, under the laws of the Marshall Islands. Capital Product Partners, L.P. and its fully owned subsidiaries
(collectively the “Partnership”) is an international shipping company. As of December 31, 2022, its fleet of 20 high specification vessels consisted of 10 Neo-Panamax
container carrier vessels, three Panamax container carrier vessels, one Cape-size bulk carrier vessel and six X-DF Liquefied natural gas carrier (“LNG/C”) vessels. Its
vessels are capable of carrying a wide range of cargoes including liquefied natural gas, containerized goods and dry bulk cargo under short-term voyage charters and
medium to long-term time charters.
CPLP Shipping Holdings PLC
On August 14, 2021, the Partnership established CPLP Shipping Holdings PLC (“CPLP PLC”) a 100% subsidiary of the Partnership. CPLP PLC was established in
Cyprus as a public limited liability company in accordance with the provisions of the Companies Law of Cyprus, Chapter 113. On July 22, 2022 and October 20, 2021,
the Partnership, through its fully owned subsidiary, CPLP PLC, issued two unsecured bonds of €100,000,000 (the “2022 Bonds”) and €150,000,000 (the “2021 Bonds”)
on the Athens Stock Exchange respectively. The 2022 Bonds and the 2021 Bonds are guaranteed by the Partnership, will mature in July 2029 and October 2026 and
have a coupon payable semi-annually of 4.40% and 2.65% respectively (Note 7).
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
1. Basis of Presentation and General Information - Continued
As of December 31, 2022, the consolidated financial statements include Capital Product Partners, L.P. and the following wholly owned significant subsidiaries which
were all incorporated or formed under the laws of the Marshall Islands, Liberia or Cyprus.
Subsidiary
Date of
Incorporation
Name of Vessel Owned by
Subsidiary
Deadweight
(“DWT”)
Date acquired
by the
Partnership
Date acquired by Capital
Maritime & Trading Corp.
(“CMTC”) or CGC
Operating Corp. (“CGC”)
Capital Product Operating LLC
01/16/2007
—
—
—
—
CPLP Shipping Holdings PLC
08/14/2021
—
—
—
—
CPLP Gas Operating Corp.
08/24/2021
—
—
—
—
Patroklos Marine Corp.
06/17/2008
M/V Cape Agamemnon
179,221
06/09/2011
01/25/2011
Agamemnon Container Carrier Corp.
04/19/2012
M/V Agamemnon (1)
108,892
12/22/2012
06/28/2012
Archimidis Container Carrier Corp.
04/19/2012
M/V Archimidis (1)
108,892
12/22/2012
06/22/2012
Anax Container Carrier S.A.
04/08/2011
M/V Hyundai Prestige
63,010
09/11/2013
02/19/2013
Hercules Container Carrier S.A.
04/08/2011
M/V Hyundai Premium
63,010
03/20/2013
03/11/2013
Iason Container Carrier S.A.
04/08/2011
M/V Hyundai Paramount
63,010
03/27/2013
03/27/2013
Thiseas Container Carrier S.A.
04/08/2011
M/V Hyundai Privilege
63,010
09/11/2013
05/31/2013
Cronus Container Carrier S.A.
07/19/2011
M/V Hyundai Platinum
63,010
09/11/2013
06/14/2013
Dias Container Carrier S.A.
05/16/2013
M/V Akadimos (ex CMA CGM Amazon)
115,534
06/10/2015
06/10/2015
Poseidon Container Carrier S.A.
05/16/2013
M/V Adonis (ex CMA CGM Uruguay) (2)
115,639
09/18/2015
09/18/2015
Atrotos Container Carrier S.A.
10/25/2013
M/V CMA CGM Magdalena (2)
115,639
02/26/2016
02/26/2016
Deka Container Carrier S.A.
03/28/2017
M/V Athenian
118,834
01/22/2020
04/28/2017
Jupiter Container Carrier S.A.
03/28/2017
M/V Athos
118,888
01/23/2020
05/19/2017
Nikitis Container Carrier S.A.
03/28/2017
M/V Aristomenis
118,712
01/23/2020
06/27/2017
Neos Container Carriers Corp.
09/04/2020
M/V Long Beach Express (3)
68,618
02/25/2021
01/07/2021
Maistros Container Carriers Corp.
09/04/2020
M/V Seattle Express (3)
68,411
02/25/2021
01/07/2021
Filos Container Carriers Corp.
09/04/2020
M/V Fos Express (3)
68,579
02/25/2021
01/07/2021
Panormos Container Carrier S.A.
12/17/2020
M/V Manzanillo Express (4)
142,411
10/12/2022
10/12/2022
Assos Gas Carrier Corp.
07/16/2018
LNG/C Aristos I (3)
81,978
09/03/2021
11/12/2020
Dias Gas Carrier Corp.
07/16/2018
LNG/C Aristarchos (3)
81,956
09/03/2021
06/15/2021
Atrotos Gas Carrier Corp.
07/16/2018
LNG/C Aristidis I (3)
81,898
12/16/2021
01/04/2021
Poseidon Gas Carrier Corp.
07/16/2018
LNG/C Attalos (3)
81,850
11/18/2021
08/13/2021
Maximus Gas Carrier Corp.
04/10/2019
LNG/C Asklipios (3)
81,882
11/18/2021
09/29/2021
Kronos Gas Carrier Corp.
02/04/2019
LNG/C Adamastos (3)
82,095
11/29/2021
08/23/2021
(1)Vessels were disposed in 2022
(2)Vessels were disposed in 2021
(3)Vessels were acquired in 2021
(4)Vessel was acquired in 2022
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies
(a) Principles of Consolidation: The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) and include the accounts of the legal entities comprising the Partnership as discussed in Note 1. Intra-group balances and transactions
have been eliminated upon consolidation.
(b) Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of
revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.
(c) Accounting for Revenue, Voyage Expenses and Operating Expenses: Revenue is generated from time or voyage charter contracts.
Time charters contracts
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 in advance. A time
charter generally provides typical warranties and owner protective restrictions. A time charter begins when the vessel is delivered to the charterer and ends when the
vessel is redelivered back to its owner. The time charter contracts are considered operating leases because (i) the vessel is an identifiable asset (ii) the owner of the
vessel does not have substantive substitution rights and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the
economic benefits from such use. Revenues from time charters are recognized ratably on a straight-line basis over the period of the respective charter. Under time
charter agreements, all voyage expenses, except commissions are assumed by the charterer. Operating costs incurred for running the vessel such as crew costs, vessel
insurance, repairs and maintenance and lubricants are paid by the Partnership under time charter agreements.
Voyage charters contracts
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. The Partnership accounts for a voyage charter when all the following criteria are met: (1) the parties to the contract have approved the
contract in the form of a written charter agreement and are committed to perform their respective obligations, (2) the Partnership can identify each party’s rights
regarding the services to be transferred, (3) the Partnership can identify the payment terms for the services to be transferred, (4) the charter agreement has commercial
substance (that is, the risk, timing, or amount of the Partnership’s future cash flows is expected to change as a result of the contract) and (5) it is probable that the
Partnership will collect substantially all of the consideration to which it will be entitled in exchange for the services that will be transferred to the charterer. The
Partnership determined that its voyage charters consist of a single performance obligation which is met evenly as the voyage progresses and begins to be satisfied once
the vessel is ready to load the cargo. The voyage charter party agreement generally has a demurrage/dispatch clause according to which in the case of demurrage, the
charterer reimburses the vessel owner for any potential delays exceeding the allowed lay time as per the charter party clause at the ports visited which is recorded as
demurrage revenue. In the case of dispatch, the owner reimburses the charterer for the earlier discharging of the cargo from the agreed time. Demurrage/despatch
revenues are recognized starting from the point that is determined that the amount can be estimated, and its collection/payment is probable and on a straight-line basis
until the end of the voyage. Revenues from voyage charters are recognized on a straight-line basis over the voyage duration which commences once the vessel is ready
to load the cargo and terminates upon the completion of the discharge of the cargo. Under Accounting Standards Codification (“ASC”) 606, receivables represent an
entity’s unconditional right to consideration, whether billed or unbilled.
In voyage charters, vessel operating expenses and voyage expenses are paid for by the Partnership. The voyage charters are considered service contracts which fall
under the provisions of ASC 606, because the Partnership retains control over the operations of the vessels, such as the routes taken or the vessels’ speed.
Payment terms under voyage charters are disclosed in the relevant voyage charter agreements and generally have standard payment terms of 90% to 95% of the freight
which is paid within three days after the completion of the vessel’s loading.
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(c) Accounting for Revenue, Voyage Expenses and Operating Expenses - Continued:
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 are expensed over
the related charter period. All other voyage expenses are expensed as incurred, except for expenses during the ballast portion of the voyage (period between the contract
date and the date of the vessel’s arrival to the load port). Any expenses incurred during the ballast portion of the voyage such as bunker expenses, canal tolls and port
expenses are deferred and are recognized on a straight-line basis, in voyage expenses, over the voyage duration as the Partnership satisfies the performance obligations
under the contract provided these costs are (1) incurred to fulfill a contract that we can specifically identify, (2) able to generate or enhance resources of the company
that will be used to satisfy performance of the terms of the contract, and (3) expected to be recovered from the charterer. These costs are considered ‘contract fulfillment
costs’ and are included in ‘prepayments and other assets’ in the consolidated balance sheets.
Vessel operating expenses presented in the consolidated financial statements mainly consist of crew, repairs and maintenance, insurance, stores, spares, lubricants, other
operating expenses and management fees payable to the Partnership’s managers.
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 international shipping
markets that utilize the U.S. Dollar as the functional currency. The accounting records of the Partnership are maintained in U.S. Dollars. Transactions involving other
currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets
and liabilities, which are denominated in currencies other than the U.S. Dollar, are translated into the functional currency using the exchange rate at those dates. Gains
or losses resulting from foreign currency transactions are included in “Other income / (expense)” in the 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 and financing arrangements, it must maintain minimum cash deposits.
Such deposits are considered by the Partnership to be restricted cash.
(g) Trade Accounts Receivable, net: The amount shown as trade accounts receivable, net primarily consists of earned revenue that has not been billed yet or that has
been billed but has not yet been collected. At each balance sheet date all potentially uncollectible accounts are assessed individually for purposes of determining the
appropriate write off. For the year ended December 31, 2022, and 2021 the respective write off amounted to $920 and $113, respectively.
(h) 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 transportation. The cost is determined by the first-in, first-out method.
(i) 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.
If 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 recognized 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.
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(j) Fixed Assets: Fixed assets consist of vessels, which are stated at cost, less accumulated depreciation. Vessel cost consists of the contract price for the vessel, any
material expenses incurred during its construction (improvements and delivery expenses, on-site supervision costs incurred during the construction periods, as well as
capitalized interest expense during the construction period). Certain subsequent expenditures for major improvements and regulatory requirements are also capitalized
if it is determined that they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Vessels acquired through
acquisition of businesses are recorded at their acquisition date fair values. Vessels acquired through asset acquisitions are recorded at cost. 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 for the container carrier and bulk carrier vessels and 35 years for the LNG/C vessels.
(k) Impairment of Vessels: An impairment loss on vessels is recognized when indicators of impairment are present and the carrying amount of the vessel is greater than
its fair value and is determined not to be recoverable. In determining future benefits derived from use of the vessels, the Partnership performs an analysis of the
anticipated undiscounted future net cash flows of the related vessel. If the carrying value of the asset, including any related intangible assets and liabilities, 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.
The Partnership has performed an undiscounted cash flow test as of December 31, 2022, and 2021, determining undiscounted projected net operating cash flows for
each vessel for which an indication for impairment was present and compared them to the carrying amount 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, the estimated remaining useful life of the vessels and their estimated residual value. 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, 2022 and 2021.
(l) Deferred charges, net: 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 Partnership has adopted the deferral method of
accounting for dry-docking activities whereby costs incurred are deferred and amortized on a straight-line basis over the period until the next scheduled dry-docking
activity.
(m) Intangible assets: The Partnership records all identified tangible and intangible assets, or any liabilities associated with the acquisition 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 considers whether any value should be
assigned to the attached charter agreement acquired. The value to be assigned to the charter agreement is based on the difference of the contractual charter rate of the
agreement acquired and the prevailing market rate for a charter of equivalent duration at the time of the acquisition, determined by independent appraisers as at that
date. The resulting above-market (assets) or below-market (liabilities) charters are amortized using the straight-line method as a reduction or increase, respectively, to
revenues over the remaining term of the charters (Note 6).
(n) 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, (if any), general partner’s interest in net income (including incentive distribution rights (“IDR”)) 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.
(o) 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 voyage 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.
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(p) 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 administrative expenses in the consolidated statements of comprehensive
income. These units are measured at their fair value equal to the market value of the Partnership’s common units on the grant date. The units that contain a time-based
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 (Note 13).
(q) Treasury Units: The Partnership records the repurchase of its common units at cost based on the settlement dates of repurchase transactions. These units are
classified as treasury units, which is a reduction to partners’ capital. Treasury units are included in authorized and issued units but excluded from outstanding units
(Note 12).
(r) 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; and
Level 3: Inputs are unobservable inputs for the asset or liability.
(s) Derivative Instruments: The Partnership from time to time may enter into derivative instruments to hedge its exposure to foreign exchange or interest rate risks
arising from operational, financing and investment activities. Derivatives are initially measured at fair value; attributable transaction costs are expensed as incurred. The
accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Partnership has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives
designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as
foreign currency risk and interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected
future cash flows are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging
instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the
earnings effect in a cash flow hedge. When the derivatives do qualify for hedge accounting, depending upon the nature of the hedge, changes in fair value of the
derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other comprehensive income (effective
portion) until the hedged item is recognized in the consolidated statements of comprehensive income. The Company may enter into derivative contracts that are
intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting (Note 8).
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
2. Significant Accounting Policies – Continued
(t) Recent Accounting Pronouncements:
Accounting Standards Update (“ASU”) No. 2022-06—Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. In 2020, the Board issued the
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting, which provides optional guidance to
ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to
provide temporary relief during the transition period. The Board included a sunset provision within Topic 848 based on expectations of when the London Interbank
Offered Rate (LIBOR) would cease being published. At the time that Update 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent
that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December
31, 2022, 12 months after the expected cessation date of all currencies and tenors of LIBOR. In March 2021, the FCA announced that the intended cessation date of the
overnight 1, 3, 6, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Because the current relief in
Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in this Update defer the sunset date of
Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments in this
Update apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another
reference rate expected to be discontinued because of reference rate reform. The amendments in this Update are effective for all entities upon issuance of this Update.
The Partnership is currently evaluating the impact of this adoption in its consolidated financial statements and related disclosures.
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
3. Revenues
The following table shows the revenues earned from time and voyage charters contracts for the years ended December 31, 2022, 2021 and 2020:
For the years ended December 31,
2022
2021
2020
Time charters (operating leases)
$
283,962 $
171,134 $
137,893
Voyage charters
15,109
13,531
2,972
Total
$
299,071 $
184,665 $
140,865
As of December 31, 2022, 19 out of 20, of the Partnership’s vessels were employed under time charter agreements with remaining tenor ranging between 0.2 and 9.5
years, while one vessel was employed under a voyage charter. From these time charter agreements 13 include extensions at the charterers’ option that range between 2.3
to 9.2 years. As of December 31, 2021, 20 out of 21, of the Partnership’s vessels were employed under time charter agreements with remaining tenor ranging between
0.4 and 4.7 years, while one vessel was employed under a voyage charter.
As of December 31, 2022 there were no voyage expenses, incurred between the contract date and the date of the vessel’s arrival to the load port and no unearned
revenue related to undelivered performance obligations. As of December 31, 2021 prepayments and other assets include bunker expenses of $168, incurred between the
contract date and the date of the vessel’s arrival to the load port. As of December 31, 2021 the Partnership had unearned revenue related to undelivered performance
obligations of $3,010 which was recognized in the Partnership’s records in the first quarter of 2022.
4. Transactions with Related Parties
CMTC is an international shipping company with a long history of operating and investing in the shipping market and our sponsor. As of December 31, 2022 and 2021,
CMTC may be deemed to beneficially own a 23.1% and 20.0% of our common units respectively.
CGC is a privately held company controlled by Mr. Miltiadis Marinakis the son of Mr. Evangelos M. Marinakis who also controls our general partner Capital GP
L.L.C. (“CGP”) and Capital Gas Corp. On March 30, 2022, CGC transferred all 1,153,846 common units held by it to Capital Gas Corp. As of December 31, 2022
Capital Gas Corp. may be deemed to beneficially own a 5.7% of our common units. As of December 31, 2021, CGC may have been deemed to beneficially own 5.9%
of our common units.
On July 8, 2022, the Partnership fully repaid the amount of $10,000 in line with the CGC Seller’s Credits entered into in August 2021, in connection with the
acquisition of the LNG/C Aristos I and the LNG/C Aristarchos from CGC (Note 7).
On June 6, 2022, the Partnership entered into a Master Vessel Acquisition Agreement (the “Master Agreement”) with CMTC for the acquisition of one 174,000 Cubic
Meters (“CBM”) LNG/C vessel and three 13,312 Twenty-foot Equivalent Unit (“TEU”) container carrier vessels (Note 5). In October 2022, the Partnership acquired
from CMTC the shares of the company owning one of the three 13,312 TEU container carrier vessels, which entered into a floating fee management agreement with
Capital-Executive Ship Management Corp. (“Capital-Executive”), a privately held company ultimately controlled by Mr. Miltiadis Marinakis.
During the year ended December 31, 2021, the Partnership acquired from CGC the shares of the companies owning the LNG/C Aristos I, the LNG/C Aristarchos, the
LNG/C Attalos, the LNG/C Asklipios, the LNG/C Adamastos and the LNG/C Aristidis I (Note 5). Each of these owning companies entered into a floating fee
management agreement with Capital Gas Ship Management Corp. (“Capital-Gas”), a privately held company ultimately controlled by Mr. Miltiadis Marinakis. In
connection with the acquisition of the shares of the companies owning the LNG/C Aristos I and the LNG/C Aristarchos, (Note 5) the Partnership entered into two
separate Seller’s Credit Agreements with CGC (“CGC Seller’s Credits”) in order to defer $10,000 in total, of the purchase price (Note 7), assumed debt amounting to
$304,355 (Note 7) and issued 1,153,846 common units to CGC (Note 12). In connection with the acquisition of the shares of the company owning the LNG/C Attalos,
the LNG/C Asklipios, the LNG/C Adamastos and the LNG/C Aristidis I the Partnership assumed debt amounting to $561,989 (Note 7).
During the year ended December 31, 2021, the Partnership also acquired from CMTC the shares of the companies owning the M/V Long Beach Express, the M/V
Seattle Express and the M/V Fos Express (Note 5). Each of these three owning companies entered into a floating fee management agreement with Capital-Executive. In
connection with the acquisition of these companies the Partnership entered into a Seller’s Credit Agreement with CMTC (“CMTC Seller’s Credit”) in order to defer
$6,000 of the purchase price (Notes 5, 7).
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Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
4. Transactions with Related Parties – Continued
Further to the transactions described above with CGC and CMTC, the Partnership and its subsidiaries have related party transactions with Capital Ship Management
Corp. (“CSM”), Capital-Executive and Capital-Gas (collectively the “Managers”) and the Partnership’s general partner, CGP arising from certain terms of the following
management and administrative services agreements.
1. Floating fee management agreements: Under the terms of these agreements the Partnership compensates its Managers 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 Managers. The
Partnership also pays its Managers 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, 2022, 2021 and 2020, management fees under the management agreements amounted to $9,172, $5,923 and $4,976, respectively, and are
included in “Vessel operating expenses – related parties” in the consolidated statements of comprehensive income.
2. Administrative and service agreements: On April 4, 2007, the Partnership entered into an administrative services agreement with CSM, pursuant to which CSM
has agreed to provide certain administrative management services to the Partnership such as accounting, auditing, legal, insurance, IT and clerical services. In addition,
the Partnership reimburses CSM and CGP for reasonable costs and expenses incurred in connection with the provision of these services, after CSM 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 2015, the Partnership entered into an executive services agreement with CGP,
which was amended further in 2022, according to which CGP provides certain executive officers services for the management of the Partnership’s business as well as
investor relations and corporate support services to the Partnership. For the years ended December 31, 2022, 2021 and 2020 such fees amounted to $2,050, $1,880 and
$1,880, 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
As of
As of
December 31,
2022
December 31,
2021
Assets:
Capital-Executive – advances from the Partnership (a)
$
3,636 $
—
Due from related party
$
3,636 $
—
Advances for vessels under construction – related party (b)
$
24,000 $
—
Liabilities:
CSM – payments on behalf of the Partnership (c)
705
92
Management fee payable to CSM (d)
25
25
Capital-Executive – payments on behalf of the Partnership (c)
—
1,188
Management fee payable to Capital-Executive (d)
—
417
Capital-Gas – payments on behalf of the Partnership (c)
107
721
Management fee payable to Capital-Gas (d)
179
342
Due to related parties
$
1,016 $
2,785
For the years ended December 31,
Consolidated Statements of Comprehensive Income
2022
2021
2020
Vessel operating expenses
$
9,172 $
5,923 $
4,976
General and administrative expenses (e)
2,244
2,013
2,049
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Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
4. Transactions with Related Parties – Continued
(a) Managers - Advances from the Partnership: This line item represents the amount advanced from the Partnership for operating and voyage expenses that will be
paid by the Managers on behalf of the Partnership and its subsidiaries.
(b) Advances for vessels under construction – related party: This line item includes advances paid by the Partnership to CMTC in respect of the Master Agreement.
(c) Managers - Payments on Behalf of the Partnership: This line item represents the amount outstanding for payments for operating and voyage expenses made by the
Managers on behalf of the Partnership and its subsidiaries.
(d) Management fee payable to Managers: The amount outstanding as of December 31, 2022 and 2021 represents the management fee payable to the Managers under
the management agreements.
(e) General and administrative expenses: This line item mainly includes fees relating to internal audit, investor relations and consultancy fees.
5. Vessels, net and advances for vessels under construction
The following table presents an analysis of vessels, net:
Vessel cost
Accumulated
depreciation
Net book value
Balance as at January 1, 2021
$
923,020 $
(210,823) $
712,197
Vessel acquisitions
1,256,858
—
1,256,858
Vessel disposals
(180,358)
36,123
(144,235)
Improvements
374
—
374
Depreciation for the year
—
(43,336)
(43,336)
Balance as at December 31, 2021
$
1,999,894 $
(218,036) $
1,781,858
Vessel acquisitions
121,583
—
121,583
Advances for vessels under construction – related party (Note 4)
24,000
—
24,000
Vessel disposals
(143,692)
63,159
(80,533)
Improvements
1,873
—
1,873
Depreciation for the year
—
(66,884)
(66,884)
Balance as at December 31, 2022
$
2,003,658 $
(221,761) $
1,781,897
Two vessels with an aggregate net book value of $316,910 as of December 31, 2022, have been provided as collateral under the terms of the Partnership’s credit
facilities (Note 7). This excludes 11 vessels financed through sale and lease back agreements, for which the title of ownership is held by the relevant lender, with an
aggregate net book value of $1,173,226 as of December 31, 2022, (Note 7) and seven unencumbered vessels of an aggregate net book value of $267,761 as of
December 31, 2022.
Vessel acquisitions and advances
·
For the year 2022
On June 6, 2022, the Partnership entered into the Master Agreement with CMTC and agreed to exercise its right of first offer in order to acquire one 174,000 CBM
latest generation X-DF LNG/C vessel and three 13,312 TEU hybrid scrubber-fitted dual fuel ready eco container carrier sister vessels from CMTC, for total
consideration of $596,583. On June 21, 2022, the Partnership paid total advances in relation to the above agreement of $30,000.
On October 12, 2022, the Partnership acquired from CMTC the shares of the company owning the M/V Manzanillo Express for a total consideration of $121,583 which
was funded through debt of $105,000 (Note 7), by granting 505,204 common units to CMTC out of the Partnership’s treasury units (Note 12), by a $6,000 advance paid
in June 2022 and cash at hand. The Partnership accounted for this acquisition as acquisition of an asset since the fair value of the vessel and the time charter attached
are concentrated in a single identifiable asset. The Partnership considered whether any value should be assigned to the attached charter party agreement acquired and
concluded that the terms of the agreement were at market on the acquisition date and therefore the total consideration amount was allocated to the vessel’s cost.
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Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
5. Vessels, net and advances for vessels under construction - Continued
Vessel acquisitions and advances - Continued
·
For the year 2022 - Continued
The second container carrier vessel, the M/V Itajai Express was acquired by the Partnership in January 2023 (Note 16). As of December 31, 2022, the Partnership had
paid an advance of $6,000 being part of the advance paid in June 2022 to CMTC in connection with this acquisition.
The third container vessel, to be named “Buenaventura Express”, is currently under construction by Hyundai Samho Heavy Industries Co. Ltd., (“Hyundai Samho”)
and is scheduled for delivery to the Partnership in June 2023, upon its respective delivery from the shipyard. The total consideration for the acquisition of the shares of
the company owning the M/V Buenaventura Express from CMTC is $122,500. As of December 31, 2022, the Partnership had paid an advance of $6,000 being part of
the advance paid in June 2022 to CMTC in connection with this acquisition.
The LNG/C Asterix I, was acquired by the Partnership in February 2023 (Note 16). As of December 31, 2022, the Partnership had paid an advance of $12,000 in June
2022 to CMTC in connection with this acquisition.
·
For the year 2021
On November 29, 2021 the Partnership entered into a Share Purchase Agreement (“SPA”) with CGC for the acquisition of the shares of the company owning a 174,000
CBM LNG/C vessel, namely the LNG/C Adamastos, built in 2021, at Hyundai Heavy Industries Co., Ltd (“Hyundai”) for a total consideration of $220,000. The
LNG/C Adamastos was delivered to the Partnership on November 29, 2021.
On November 18, 2021 the Partnership entered into two separate SPAs with CGC for the acquisition of the shares of the companies owning two 174,000 CBM LNG
vessels, namely the LNG/C Asklipios and the LNG/C Attalos, built in 2021, at Hyundai for a total consideration of $196,000 and $207,000, respectively. The LNG/C
Asklipios and the LNG/C Attalos were delivered to the Partnership on November 18, 2021.
On August 31, 2021 the Partnership entered into three separate SPAs with CGC for the acquisition of the shares of the companies owning three 174,000 CBM LNG/C
vessels, namely the LNG/C Aristos I, built in 2020 and the LNG/Cs Aristarchos and Aristidis I, both built in 2021, at Hyundai for a total consideration of $203,139,
$191,639 and $205,000 respectively. The LNG/C Aristos I and the LNG/C Aristarchos were delivered to the Partnership on September 3, 2021, while the LNG/C
Aristidis I was delivered on December 16, 2021.
On January 27, 2021, the Partnership entered into three separate SPAs with CMTC for the acquisition of the shares of the companies owning three 5,089 TEU sister
container vessels, namely the M/V Long Beach Express, the M/V Seattle Express and the M/V Fos Express, all built in 2008 at Hanjin Heavy Industries S. Korea, for a
total consideration of $40,500. In addition, the Partnership recognized expenses of $250, included in vessels’ cost, in connection with the acquisition of the three
container vessels. The M/V Long Beach Express, the M/V Seattle Express and the M/V Fos Express were delivered to the Partnership on February 25, 2021.
All vessels were acquired with attached charter party agreements.
The Partnership accounted for these acquisitions as acquisition of assets since the fair values of the vessels and the time charters attached are concentrated in a single
identifiable asset. The Partnership considered whether any value should be assigned to the attached charter party agreements acquired and concluded that the contracted
daily charter rate for the LNG/C Aristos I, the LNG/C Aristidis I, the LNG/C Attalos and the LNG/C Adamastos were above the market rate and for the LNG/C
Aristarchos, the LNG/C Asklipios, the M/V Long Beach Express, the M/V Seattle Express and the M/V Fos Express were below the market rate on the acquisition date
and therefore the total consideration was allocated to the vessel’s cost and the above and below market acquired charters, respectively. The Partnership allocated the
cost of the vessels and the time charters acquired on the basis of their relative fair values.
The vessels were recorded in the Partnership’s financial statements at a total value of $1,256,858, reflecting a net reduction of $6,670 from the acquisition cost of
$1,263,528 due to the value of the charters that were attached to the vessels at the time of the respective acquisitions (Note 6).
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Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
5. Vessels, net and advances for vessels under construction - Continued
Improvements
During the year ended December 31, 2022 and 2021, certain of the Partnership’s vessels underwent improvements. The costs of these improvements amounted to
$1,873 and $374 respectively and were capitalized as part of the vessels’ cost. Improvements during the year ended December 31, 2022, included the cost of $1,524
relating to the installation of ballast water treatment (“BWT”) systems for certain of the Partnership’s vessels. During the year ended December 31, 2021, no such
installations took place.
During the year ended December 31, 2022 and 2021, the Partnership paid advances of $1,498 and $336 respectively, relating to the purchase of exhaust gas cleaning
systems (“Scrubbers”) and BWT systems that will be installed to certain of its vessels.
Vessel disposals
On May 30, 2022, the Partnership entered into two separate Memorandum of Agreements (“MOA”) for the sale of the M/V Archimidis and the M/V Agamemnon to an
unaffiliated party for total consideration of $65,000 each. The Partnership decided to enter into these MOAs after receiving the Buyers’ purchase enquiries, which were
opportunistic in nature. Upon entering the MOAs, the Partnership considered that the M/V Archimidis and the M/V Agamemnon met the criteria to be classified as held
for sale. At that time the vessels’ fair value less cost to sell exceeded their carrying amount, so no impairment charge was recognized in the Partnership’s consolidated
statement of comprehensive income for the year ended December 31, 2022. The M/V Archimidis was delivered to its new owner on July 6, 2022, and the M/V
Agamemnon on July 28, 2022.
For the year ended December 31, 2022, the Partnership recognized a gain on sale of vessels analyzed as follows:
Vessel
M/V
Agamemnon
M/V
Archimidis
Total
Sale price
$
65,000 $
65,000 $
130,000
Carrying value on sale
(41,806)
(38,727)
(80,533)
Other sale expenses
(1,099)
(1,093)
(2,192)
Gain on sale
$
22,095 $
25,180 $
47,275
On April 7, 2021, the Partnership entered into two separate MOAs with a third party for the sale of the M/V CMA CGM Magdalena and the M/V Adonis at a price of
$99,000 and $96,000, respectively. The Partnership decided to enter into these MOAs after receiving the Buyers’ purchase enquiries which were opportunistic in
nature. Upon entering the MOAs the Company considered that both vessels met the criteria to be classified as held for sale. At that time the vessels’ fair value less cost
to sell exceeded their carrying amount, so no impairment charge was recognized in the Partnership’s consolidated statement of comprehensive income for the year
ended December 31, 2021. The vessels were delivered to their new owners on May 17, 2021 and December 13, 2021, respectively. For the year ended December 31,
2021, the Partnership recognized a gain on the sale of vessels analyzed as follows:
Vessel
M/V CMA
CGM
Magdalena
M/V Adonis
Total
Sale price
$
99,000 $
96,000 $
195,000
Carrying value on sale
(71,598)
(72,637)
(144,235)
Other sale expenses
(2,018)
(1,935)
(3,953)
Gain on sale
$
25,384 $
21,428 $
46,812
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Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
6. Above / Below market acquired charters
During the year ended December 31, 2022, the Partnership acquired the M/V Manzanillo Express with time charter attached to the vessel, with time charter daily rate
being at market rate for equivalent time charter prevailing at the time of acquisition (Note 5). As a result, no above / below market acquired charter was recognized.
During the year ended December 31, 2021, the Partnership acquired the LNG/C Aristos I, the LNG/C Aristidis I, the LNG/C Attalos and the LNG/C Adamastos with
time charters attached to the vessels, with time charters daily rates being above the market rates for equivalent time charters prevailing at the time of acquisitions (Note
5). During the year ended December 31, 2021, the Partnership acquired the LNG/C Aristarchos, the LNG/C Asklipios, the M/V Long Beach Express, the M/V Seattle
Express and the M/V Fos Express with time charters attached to the vessels with time charters daily rates being below the market rates for equivalent time charters
prevailing at the time of acquisitions (Note 5). The fair value of the time charters attached to the vessels representing the difference between the time charters rates at
which the vessels were fixed and the market rates for comparable charters as determined by reference to market data on the acquisition dates were recorded as “Above
market acquired charters” under other non-current assets or “Below market acquired charters” under long-term liabilities in the consolidated balance sheet as of the
acquisition dates respectively. The fair values of the time charters attached were determined using Level 2 inputs being market values on the acquisition dates (Note 8).
Above and below market acquired time charters are amortized or accreted using the straight-line method over the remaining period of the time charters acquired as a
reduction or addition to time charter revenues. For the years ended December 31, 2022 and 2021 such amortization to time charter revenues for the above market
acquired time charters amounted to $16,285 and $9,949, respectively. For the years ended December 31, 2022 and 2021 such accretion to time charter revenues for the
below market acquired time charters amounted to $4,275 and $2,662, respectively.
The following table presents an analysis of above / below market acquired charters:
Above market
acquired
charters
Below market
acquired
charters
Carrying amount as at January 1, 2021
$
34,579 $
—
Additions
23,975
(17,305)
(Amortization) / accretion
(9,949)
2,662
Carrying amount as at December 31, 2021
$
48,605 $
(14,643)
(Amortization) / accretion
(16,285)
4,275
Carrying amount as at December 31, 2022
$
32,320 $
(10,368)
As of December 31, 2022, the remaining carrying amount of unamortized above / below market acquired time charters will be amortized / accreted in future years as
follows:
For the year ending December 31,
Above market
acquired
charters
Below market
acquired
charters
2023
$
15,407 $
(4,275)
2024
11,301
(4,287)
2025
3,935
(1,806)
2026
1,677
—
Total
$
32,320 $
(10,368)
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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 credit facilities, sale and lease back agreements and unsecured bonds:
As of December 31, 2022 As of December 31, 2021 Rate of interest
Credit facilities
(i)
Issued in September 2017 fully repaid in August 2022 (the “2017 credit facility”)
$
— $
106,047 Margin + Libor
(ii) Issued in January 2020 fully repaid in August 2022 (the “2020 credit facility”)
—
32,480 Margin + Libor
(iii) Issued in January 2021 maturing in February 2026 (the “CMTC Seller’s Credit”)
6,000
6,000
Fixed rate
(iv) Issued in August 2021 fully repaid in July 2022 (the “CGC Seller’s Credit”)
—
5,000
Fixed rate
(v) Issued in August 2021 fully repaid in July 2022 (the “CGC Seller’s Credit”)
—
5,000
Fixed rate
(vi) Assumed in December 2021 maturing in December 2027 (the “2021 credit facility”)
110,827
120,566 Margin + Libor
(vii) Issued in October 2022 maturing in October 2028 (the “2022 credit facility”)
105,000
—
Margin +
Secured
Overnight
Financing Rate
(“SOFR”)
Sale and lease back agreements
(viii) Issued in January 2020 maturing in January 2025 (the “2020 CMBFL”)
29,700
32,900 Margin + Libor
(ix) Issued in January 2020 maturing in January 2025 (the “2020 CMBFL”)
29,700
32,900 Margin + Libor
(x) Issued in May 2020 maturing in May 2027 (the “ICBCFL”)
41,996
45,660 Margin + Libor
(xi) Issued in January 2021 maturing in February 2026 (the “2021 CMBFL - Panamax”)
8,083
9,184 Margin + Libor
(xii) Issued in January 2021 maturing in February 2026 (the “2021 CMBFL - Panamax”)
8,083
9,184 Margin + Libor
(xiii) Issued in January 2021 maturing in February 2026 (the “2021 CMBFL - Panamax”)
8,083
9,184 Margin + Libor
(xiv) Assumed in September 2021 maturing in October 2027 (the “2021 Bocomm”)
138,888
144,744 Margin + Libor
(xv) Assumed in September 2021 maturing in May 2028 (the “2021 Bocomm”)
132,217
151,299 Margin + Libor
(xvi) Assumed in November 2021 maturing in August 2028 (the “2021 CMBFL - LNG/C”)
139,183
146,315 Margin + Libor
(xvii) Assumed in November 2021 maturing in September 2028 (the “2021 CMBFL - LNG/C”)
138,072
147,493 Margin + Libor
(xviii) Assumed in November 2021 maturing in July 2036 (the “2021 Shin Doun”)
136,778
142,609
Fixed rate
Unsecured Bonds
(xix) Issued in October 2021 maturing in October 2026 (the “2021 Bonds”)
159,966
170,862
Fixed rate
(xx) Issued in July 2022 maturing in July 2029 (the “2022 Bonds”)
106,644
—
Fixed rate
Total long-term debt
1,299,220
1,317,427
Less: Deferred loan and financing arrangements issuance costs
10,142
8,453
Total long-term debt, net
1,289,078
1,308,974
Less: Current portion of long-term debt
75,438
100,144
Add: Current portion of deferred loan and financing arrangements issuance costs
2,225
2,265
Long-term debt, net
$
1,215,865 $
1,211,095
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
7. Long-Term Debt – Continued
Changes in the credit facilities for the years 2022 and 2021 are as follows:
·
For the year 2022
“2022 Sale and lease back agreement”
On December 23, 2022 the Partnership entered into a new sale and lease back agreement of up to $108,000, for the purpose of partially financing the acquisition of the
shares of the company owning the M/V Itajai Express (Notes 5, 16). The full amount of the sale and lease back agreement was drawn on January 6, 2023 and has a
duration of eight years.
“2022 credit facility” (vii)
On October 6, 2022 the Partnership entered into a new credit facility of up to $105,000, for the purpose of partially financing the acquisition of the shares of the
company owning the M/V Manzanillo Express (Note 5). The full amount of the facility was drawn on October 11, 2022 and has a duration of six years.
“2017 credit facility” (i)
On August 10, 2022 the Partnership fully repaid the remaining balance of the 2017 credit facility (i), amounting to $65,822. On July 28, and July 6, 2022 the
Partnership repaid part of the 2017 credit facility, amounting to $14,228 and $13,789 as a result of the sale of the M/V Agamemnon and the M/V Archimidis
respectively (Note 5).
“2020 credit facility” (ii)
On August 5, 2022 the Partnership fully repaid the remaining balance of the 2020 credit facility, amounting to $29,900.
“CGC Seller’s Credit” (iv) and (v)
On July 8, 2022 the Partnership fully repaid the amount of $10,000 in line with the two CGC Seller’s Credits that the Partnership entered into on August 31, 2021 in
order to defer $5,000 of the purchase price of each of the LNG/C Aristos I and the LNG/C Aristarchos, acquired on September 3, 2021 (Notes 4, 5). The CGC Seller’s
Credits bared no interest and were payable within one year from the vessel’s delivery date.
“2022 Bonds” (xx)
On July 22, 2022 the Partnership, through its wholly owned subsidiary, CPLP PLC (the “Issuer”), issued unsecured bonds on the Athens Stock Exchange of an amount
of €100,000,000 or $106,664 (translated as of December 31, 2022). The 2022 Bonds are guaranteed by the Partnership and have a seven year duration and pay a fixed
coupon of 4.40%, payable semi-annually. The settlement occurred on July 26, 2022.
The 2022 Bonds contain requirements such as that the ratio of EBITDA to net interest expenses be no less than 2:1, a restricted cash requirement and that the ratio of
net total indebtedness to the total assets of the Partnership adjusted for the market value of the fleet not exceed 0.75:1. In addition, the 2022 Bonds require that:
· the Partnership maintain a pledged Debt Service Reserve Account (“DSRA”) with a minimum balance €100,000;
· the Partnership deposit to the DSRA 50% of any cash disbursements to unitholders (e.g., dividends) exceeding $20,000 per annum, capped at 1/3 of the par value
of the 2022 Bonds outstanding at the time; and
· if the Partnership’s Market Value Adjusted Net Assets (“MVAN”) falls below $300,000 then to deposit to the DSRA the difference between the MVAN and the
$300,000 (capped to 1/3 of the par value of the 2022 Bonds outstanding).
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
7. Long-Term Debt – Continued
·
For the year 2021
“2021 credit facility” (vi)
On December 16, 2021, upon the completion of the acquisition of the LNG/C Aristidis I (Note 5) the Partnership assumed the outstanding balance of $123,001, of the
credit facility that the company owning the vessel had entered into with ING Bank N.V., London Branch (“2021 credit facility”). The loan agreement for the LNG/C
Aristidis I has a remaining duration, from the date of the vessel’s acquisition from the Partnership, of six years.
“2021 Shin Doun” (xviii)
On November 29, 2021, upon the completion of the acquisition of the LNG/C Adamastos (Note 5) the Partnership assumed the outstanding balance of $143,103, of the
sale and leaseback agreement that the company owning the vessel had entered into with a subsidiary of Shin Doun Kisen Co., Ltd. (“Shin Doun”). The lease agreement
for the LNG/C Adamastos has a remaining duration, from the date of the vessel’s acquisition from the Partnership, of 14.7 years.
“2021 CMBFL - LNG/C” (xvi) and (xvii)
On November 18, 2021, upon the completion of the acquisition of the LNG/C Attalos and the LNG/C Asklipios (Note 5) the Partnership assumed the outstanding
balances of $146,315 and $149,570, respectively, of the two separate sale and leaseback agreements that the companies owning the vessels had entered into with two
subsidiaries of CMB Financial Leasing Co., Ltd (“CMBFL”). The lease agreements for the LNG/C Attalos and the LNG/C Asklipios have remaining durations, from
the date of the vessels’ acquisition from the Partnership of 6.7 and 6.9 years respectively.
“2021 Bocomm” (xiv) and (xv) and “CGC Seller’s Credit” (iv) and (v)
On September 3, 2021, upon the completion of the acquisition of the LNG/C Aristos I and the LNG/C Aristarchos (Note 5) the Partnership assumed the outstanding
balances of $148,920 and $155,435, respectively, of the two separate sale and leaseback agreements that the companies owning the vessels had entered into with two
subsidiaries of Bank of Communications Financial Leasing Co., Ltd (“Bocomm”). The lease agreements for the LNG/C Aristos I and the LNG/C Aristarchos have a
remaining duration from the date of the vessel’s acquisition from the Partnership of 6.1 and 6.7 years respectively. Furthermore, on August 31, 2021 the Partnership
entered into two CGC Seller’s Credits (iv) and (v) to defer $5,000 of the purchase price for each vessel (Notes 4, 5). The CGC Seller’s Credits bear no interest and are
payable within one year from the vessel’s delivery date.
“2021 CMBFL - Panamax” (xi), (xii) and (xiii) and “CMTC Seller’s Credit” (iii)
On January 22, 2021, the Partnership entered into three separate sale and lease back agreements with CMBFL for up to $10,010 each in order to partially finance the
acquisition of the share of the companies owning the vessels M/V Long Beach Express, M/V Seattle Express and M/V Fos Express (Note 5). Each lease agreement has
a duration of five years. Furthermore, on January 27, 2021 the Partnership entered into a Seller’s Credit with CMTC (iii) to defer $6,000 of the purchase price for up to
five years from the delivery of the vessels (Notes 4, 5).
“2021 Bonds” (xix)
On October 20, 2021 the Partnership, through its wholly subsidiary, CPLP PLC (the “Issuer”), issued unsecured bonds on the Athens Stock Exchange of an amount of
€150,000,000 or $170,862 (translated as of December 31, 2021). The 2021 Bonds are guaranteed by the Partnership and have a five year duration and pay a fixed
coupon of 2.65%, payable semi-annually. The settlement occurred on October 22, 2021 and the proceeds were used to partially finance the acquisition of the shares of
the companies owning the LNG/C Attalos, the LNG/C Asklipios and the LNG/C Adamastos. The 2021 Bonds contain requirements such as that the ratio of EBITDA to
net interest expenses be no less than 2:1, a restricted cash requirement and that the ratio of net total indebtedness to the total assets of the Partnership adjusted for the
market value of the fleet not exceed 0.75:1. In addition, the 2021 Bonds require that:
· the Partnership maintain a pledged (DSRA) with a minimum balance €100,000;
· the Partnership deposit to the DSRA 50% of any cash disbursements to unitholders (e.g., dividends) exceeding $20,000 per annum, capped at 1/3 of the par value
of the 2021 Bonds outstanding at the time; and
· if the Partnership’s MVAN falls below $300,000 then to deposit to the DSRA the difference between the MVAN and the $300,000 (capped to 1/3 of the par value
of the 2021 Bonds outstanding).
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
7. Long-Term Debt – Continued
·
For the year 2021 – Continued
“ICBCFL” (x)
On May 27, 2020 the Partnership drew down the total amount of $155,350 pursuant to three separate agreements entered into in May 2020 with ICBC Financial
Leasing Co., Ltd. (“ICBCFL”), for the sale and lease back of three vessels previously under the 2017 credit facility (the “Re-financing”), namely the M/V Akadimos,
the M/V Adonis and the M/V CMA CGM Magdalena, and fully repaid the then outstanding balance relating to these three vessels under the 2017 credit facility
amounting to $116,515. The leases have a duration of seven years. Following the sale of the M/V CMA CGM Magdalena and the M/V Adonis, in May and December
2021, respectively, the Partnership fully repaid the amount of $96,205 related to the two of the three ICBCFL agreements.
All the Partnership’s sale and leaseback agreements were classified as financing arrangements since the existence of various purchase options retained by the
Partnership commencing from the first-year anniversary and including either an obligation or an option to acquire each vessel at expiration at a predetermined price,
precludes the transfer of control over the vessels.
During the years ended December 31, 2022 and 2021 the Partnership prepaid the amount of $133,739 and $96,205, as a result from the sale of its vessels (Note 5) and
the full repayment of 2017 and 2020 credit facilities respectively, and repaid the amount of $85,215 and $49,266, respectively, in line with the amortization schedule of
its credit facilities and financing arrangements.
The Partnership’s credit facilities and sale and lease back agreements contain customary ship finance covenants, including restrictions on changes in management and
ownership of the mortgaged vessels, the incurrence of additional indebtedness and the mortgaging of vessels and requirements such as that the ratio of EBITDA to net
interest expenses be no less than 2:1, a minimum cash requirement of $500 per vessel, that the ratio of net total indebtedness to the total assets of the Partnership
adjusted for the market value of the fleet not exceed 0.75:1. The Partnership’s credit facilities and financing arrangements also contain a collateral maintenance
requirement under which the aggregate fair market value of the collateral vessels should not be less than 125% of the outstanding amounts under the 2022 credit facility
and the ICBCFL, 120% of the outstanding amount under the 2020 CMBFL, the 2021 CMBFL-Panamax and the 2021 credit facility, 110% of the outstanding amount
under the 2021 CMBFL-LNG/C and 111% of the outstanding amount under the 2021 Bocomm. Also, the vessel-owning companies may pay dividends or make
distributions only 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, 2022, and 2021 the Partnership was in compliance with all financial covenants.
The Partnership’s credit facilities and sale and lease back agreements include a general assignment of the earnings, insurances and requisition compensation of the
respective collateral vessel or vessels. They also require additional security, such as pledge and charge on current accounts and mortgage interest insurance.
As of December 31, 2022, there were $108,000 undrawn under the Partnership’s credit facilities and financing arrangements. The full amount was drawn on January 6,
2023, with the purpose of partially financing the acquisition of the shares of the company owning the M/V Itajai Express (Note 16).
For the years ended December 31, 2022, 2021 and 2020, the Partnership recorded interest expense of $52,465, $16,586 and $13,761 respectively, which is included in
“Interest expense and finance cost” in the consolidated statements of comprehensive income.
For the years ended December 31, 2022, 2021 and 2020 the weighted average interest on the Partnership’s long-term debt was 4.1%, 2.9% and 3.6% respectively.
The required annual payments to be made subsequently to December 31, 2022 are as follows:
For the year ending December 31,
Amount
2023
$
75,437
2024
68,097
2025
107,161
2026
237,826
2027
238,752
Thereafter
571,947
Total
$
1,299,220
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Table of Contents
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 carrying value of cash and cash equivalents and restricted cash, are considered Level 1 items as they represent liquid assets with short-term maturities, trade
receivables, amounts due to related parties, trade accounts payable and accrued liabilities approximate their fair value.
The fair value of variable rate long-term debt (Note 7) approximates the recorded value, due to its variable interest being based on the LIBOR and the SOFR rates and
due to the fact that the lenders have the ability to pass on their funding cost to the Partnership under certain circumstances, which reflects their current assessed risk. We
believe the terms of our loans are similar to those that could be procured as of December 31, 2022. LIBOR and SOFR rates are observable at commonly quoted
intervals for the full term of the loans and hence bank loans are considered Level 2 items in accordance with the fair value hierarchy.
The fair value of the fixed rate long-term debt (Note 7 ((iii) and (xviii)) as of December 31, 2022 was approximately $121,720 (carrying value: $142,778) and was
determined by using Level 2 inputs being the discounted expected cash flows of the outstanding amount.
The 2022 Bonds and the 2021 Bonds (Note 7 ((xix) and (xx))) have a fixed rate, and their estimated fair values as of December 31, 2022 were determined through
Level 1 inputs of the fair value hierarchy (quoted price under the ticker symbols CPLPB1 and CPLPB2 on Athens Stock Exchange) and were approximately $228,424
(carrying value: $266,610).
There were no Level 3 items.
Derivative instruments
In connection with the issuance of the 2022 Bonds and the 2021 Bonds (Note 7), the Partnership entered into certain cross-currency swap agreements to manage the
related foreign currency exchange risk by effectively converting the fixed-rate, Euro-denominated Bonds, including the semi-annual interest payments for the period
from July 26, 2022 to July 26, 2029 and from October 21, 2021 to October 21, 2025, respectively to fixed-rate, U.S. Dollar-denominated debt. The economic effect of
the swap agreements is to eliminate the uncertainty of the cash flows in U.S. Dollars associated with the issuance of the 2022 Bonds and the 2021 Bonds by fixing the
principal amount of the 2022 Bonds and the 2021 Bonds, with a fixed annual interest rate. The cross-currency swap agreement related to the 2022 Bonds was
designated as an accounting hedge.
Derivative instruments not designated as hedges are not speculative and are used to manage the Partnership’s exposure to identified risks but do not meet the strict
hedge accounting requirements and/or the Partnership has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging
relationships are recorded directly in the consolidated statements of comprehensive income.
Changes in the fair value of derivatives designated as accounting hedges are recorded in the consolidated statements of other comprehensive income (effective portion),
until the hedged item is recognized in the consolidated statements of comprehensive income.
The following table summarizes the terms of the cross-currency swap agreements and their respective fair value as of December 31, 2022.
Derivative Liabilities:
Effective Date
Termination
Date
Notional
Amount in
thousands
EURO
Notional
Amount in
United States
Dollars
Fixed Rate the
Partnership
receives in
EURO
Fixed Rate the
Partnership
pays in United
States Dollars
Fair Value
December 31,
2022 in United
States Dollars
21/10/2021
21/10/2025
120,000
139,716
2.65%
3.655%
$
10,068
21/10/2021
21/10/2025
30,000
34,929
2.65%
3.690%
2,641
26/07/2022
26/07/2029
100,000
101,800
4.40%
6.550%
816
Total Fair
Value
$
13,525
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
8. Financial Instruments – Continued
(a) Fair value of financial instruments – Continued
Derivative instruments – Continued
The following tables summarize the effect of the cross-currency swap agreements for the years ended December 31, 2022, 2021 and 2020.
Derivative designated as accounting hedge
Amount of gain / (loss) recognized in other
comprehensive loss
2022
2021
2020
Cross-currency swap agreement related to the 2022 Bonds
$
(1,757)
$
—
$
—
Reclassification to other income / (expense), net
(3,009)
—
—
Total recognized in other comprehensive loss
$
(4,766)
$
—
$
—
Derivatives not designated as accounting hedges
Amount of gain / (loss) recognized in other income /
(expense), net
2022
2021
2020
Change in fair value of derivatives related to the 2021 Bonds
$
(9,542)
$
(3,167)
$
—
Realized interest income / (expense), net of derivatives related to the 2021 Bonds
(2,258)
(374)
—
Total recognized in other income / (expense), net
$
(11,800)
$
(3,541)
$
—
The estimated net expense that is expected to be reclassified within the next 12 months from Other Comprehensive Loss to earnings in respect of the settlements on
cross-currency swaps amounts to $1,987.
The fair value of the cross-currency swap agreements is presented net of accrued interest expense which is recorded in “Accrued liabilities” in the consolidated balance
sheets.
Items Measured at Fair Value on a recurring Basis - Fair Value Measurements
Recurring Measurements 2022:
December 31,
2022
Quoted prices
in active
markets for
identical
assets (Level
1)
Significant
other
Observable
inputs (Level
2)
Unobservable
Inputs (Level
3)
Cross Currency SWAP (120,000)
$
10,068
$
—
$
10,068
$
—
Cross Currency SWAP (30,000)
2,641
—
2,641
—
Cross Currency SWAP (100,000)
816
—
816
—
Total
$
13,525
$
—
$
13,525
$
—
The fair value (Level 2) of cross-currency swap derivative agreements is the present value of the estimated future cash flows that we would receive or pay to terminate
the agreements at the balance sheet date, taking into account, as applicable, current interest rates, foreign exchange rates and the credit worthiness of both us and the
derivative counterparty. This line item is presented in “Derivative liabilities” in the consolidated balance sheets.
(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, net. The Partnership places its cash and cash equivalents, consisting mostly of deposits, with a limited number creditworthy financial institutions
rated by qualified rating agencies. Most of the Partnership’s revenues were derived from a few charterers.
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Table of Contents
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:
As of December 31,
2022
2021
Accrued loan interest and loan fees
$
8,139 $
3,355
Accrued operating expenses
4,746
4,076
Accrued capitalized expenses
1,246
371
Accrued voyage expenses and commissions
2,003
2,472
Accrued general and administrative expenses
1,342
1,121
Total
$
17,476 $
11,395
10. Voyage Expenses and Vessel Operating Expenses
Voyage expenses and vessel operating expenses consist of the following:
For the years ended December 31,
2022
2021
2020
Voyage expenses:
Commissions
$
6,134 $
4,278 $
2,809
Bunkers
7,365
4,204
1,349
Port expenses
1,819
1,633
624
Other
918
583
1,519
Total
$
16,236 $
10,698 $
6,301
Vessel operating expenses:
Crew costs and related costs
$
34,385 $
22,575 $
16,624
Insurance expense
5,261
4,029
2,388
Spares, repairs, maintenance and other expenses
8,103
6,784
8,836
Stores and lubricants
7,512
5,288
4,593
Management fees (Note 4)
9,610
6,295
4,976
Other operating expenses
2,589
2,151
1,304
Total
$
67,460 $
47,122 $
38,721
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Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
11. Income Taxes
Under the laws of the Marshall Islands and Liberia, the countries in which the vessel-owning subsidiaries were incorporated, these companies are not subject to tax on
international shipping income. However, they are subject to registration and tonnage taxes in the country in which the vessels are registered and managed from, and
such taxes have been included in “Vessel operating expenses” in the 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 and time charter) earned by the foreign corporation and (b) more than 50% of the voting power and value of the foreign
corporation’s stock is “primarily and regularly traded on an established securities market” in the United States and certain other requirements are satisfied (the
“Publicly-Traded Test”). Each of the jurisdictions where the Partnership’s vessel-owning subsidiaries are incorporated 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 an established securities market. The Partnership has satisfied the Publicly-Traded Test for the years ended
December 31, 2022, 2021 and 2020 and the vessel-owning subsidiaries are exempt from United States federal income taxation with respect to U.S.-source shipping
income.
CPLP PLC is incorporated in Cyprus and does not conduct any substantive operations of its own. No provision for Cyprus income tax has been made in the financial
statements as CPLP PLC had no assessable income for the year ended December 31, 2022 and the period from August 14, 2021 (inception) to December 31, 2021.
12. Partners’ Capital
General: The Partnership’s Limited Partnership Agreement (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 be distributed to unit holders.
Definition of Available Cash: Available Cash, for each fiscal quarter, consists of all cash on hand at the end of the quarter:
•
less the amount of cash reserves established by our board of directors to:
• provide for the proper conduct of the Partnership’s business (including reserves for future capital expenditures and for our anticipated credit needs);
• comply with applicable law, any of the Partnership’s debt instruments, or other agreements; or
• provide funds for distributions to the Partnership’s unit holders 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 Partnership Agreement.
General Partner Interest and IDRs: As of December 31, 2022, the general partner has a 1.69% interest in the Partnership (excluding treasury units) 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. 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 unit holders 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 unit holders and general partner in any available cash from operating
surplus that is being distributed up to and including the corresponding amount in the column “Total Quarterly Distribution Target Amount 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 unit holders 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 transferred its IDR.
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
12. Partners’ Capital - Continued
Marginal Percentage
Interest
in Distributions
Total Quarterly
Distribution Target Amount per
Unit
Unitholders
General
Partner
Minimum Quarterly Distribution
$1.6275
98%
2%
First Target Distribution
up to $1.6975
98%
2%
Second Target Distribution
above $1.6975 up to $1.8725
85%
15%
Third Target Distribution
above $1.8725 up to $2.0475
75%
25%
Thereafter
above $2.0475
65%
35%
Following the 2014’s annual general meeting, CGP unilaterally notified the Partnership that it has decided to waive its rights to receive quarterly incentive distributions
between $1.6975 and $1.75. This waiver effectively increases the First Target Distribution and the lower band of the Second Target Distribution (as referenced in the
table above) from $1.6975 to $1.75.
Distributions of Available Cash from Operating Surplus: Our Partnership Agreement requires that we make distributions of available cash from operating surplus for
any quarter after the subordination period in the following manner assuming that the Partnership’s general partner maintains a 2% general partner interest:
• first, 98% to all unit holders, pro rata, and 2% 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.
Common Units
On October 12, 2022, the Partnership transferred 505,204 common units to CMTC out of the Partnership’s Treasury units with a value at the time of transfer of $6,583,
in connection with the acquisition of the M/V Manzanillo Express from CMTC (Notes 4, 5).
On September 3, 2021, the Partnership issued 1,153,846 common units to CGC, as part of the consideration for the acquisition of the LNG/C Aristos I and the LNG/C
Aristarchos (Notes 4, 5).
On January 25, 2021, the Partnership’s Board of Directors approved a unit repurchase plan for an amount of $30,000 to be used for repurchasing the Partnership’s
common units over the period of up to two years through January 2023. The Partnership could repurchase these units in the open market or in privately negotiated
transactions, at times and prices that were considered to be appropriate by the Partnership. For the years ended December 31, 2022 and 2021, the Partnership completed
the repurchase of 389,962 and 382,250 units paying an average price per unit of $15.13 and $11.74 plus repurchasing expenses, respectively. These units are held as
treasury units and are recorded as a reduction in the Partnership’s Partners’ Capital as of December 31, 2022 and 2021, respectively.
On January 26, 2023, the Partnership’s Board of Directors authorized a new unit repurchase plan, replacing the earlier plan (the “Repurchase Plan”) (Note 16).
During 2022, the Partnership reserve for issuance a maximum number of 750,000 restricted common units. As a result, the total number of restricted common units
reserved and issued is 1,045,000 under its Omnibus Incentive Compensation Plan (Note 13).
As of December 31, 2022 and 2021 our partners’ capital included the following units:
As of December 31,
2022 As of December 31,
2021
Common units
20,255,707
19,394,696
General partner units
348,570
348,570
Treasury Units
566,239
382,250
Total partnership units
21,170,516
20,125,516
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
13. Omnibus Incentive Compensation Plan
In January 2022, the board of directors adopted an amended and restated Compensation Plan (the “Plan”), to reserve for issuance a maximum number of 750,000
restricted common units. As a result, the total number of restricted common units reserved and issued is 1,045,000. On March 18, 2022, the Partnership awarded
743,800 unvested units to Employees and Non-Employees with a grant-date fair value of $15.18 per unit. Awards granted to certain Employees and Non-Employees
would vest in three equal installments. One third of the units awarded, namely 247,933 units vested on December 31, 2022. On December 30, 2022, the Partnership
awarded 1,969 unvested units with a grant-date fair value of $13.65 per unit. The units were fully vested on December 31, 2022.
The unvested units accrue distributions as declared and paid, which distributions 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 Partners’ capital. As of
December 31, 2022 the unvested units accrued $223 of distributions.
There were no forfeitures of awards during the years ended December 31, 2022 and 2021. The Partnership estimated the forfeitures of unvested units to be immaterial.
For the years ended December 31, 2022, 2021 and 2020 the equity compensation expense included in “General and administrative expenses” in the consolidated
statements of comprehensive income was $3,790, $2,043 and $2,049, respectively. As of December 31, 2022 the total compensation cost relating to non-vested awards
was $7,528 and is expected to be recognized over a period of two years. The Partnership uses the straight-line method to recognize the cost of the awards.
The following table contains details of our plan:
Equity compensation plan
Unvested Units
Units
Amount
Unvested on January 1, 2021
412,916
4,637
Vested
(412,916)
(4,637)
Unvested on December 31, 2021
— $
—
Granted
745,769
11,318
Vested
(249,902)
(3,790)
Unvested on December 31, 2022
495,867 $
7,528
14. Net Income Per Unit
The general partner’s and common unit holders’ interests in net income are calculated as if all net income for periods subsequent to April 4, 2007, were distributed
according to the terms of the Partnership Agreement, regardless of whether those earnings would or could be distributed. The Partnership Agreement does not provide
for the distribution of net income; rather, it provides for the distribution of available cash (Note 12), which is a contractually-defined term that generally means all cash
on hand at the end of each quarter after establishment of cash reserves determined by the Partnership’s board of directors to provide for the proper resources for the
Partnership’s business. Unlike available cash, net income is affected by non-cash items. The Partnership follows the guidance relating to the Application of the Two-
Class Method and its application to Master Limited Partnerships, which considers whether the incentive distributions of a master limited partnership represent a
participating security when 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 cumulative arrearages on common unit
distributions, has the right to receive an increasing percentage of cash distributions (Note 12).
For the year ended December 31, 2022, the Partnership excluded the effect of 745,769 non-vested unit awards, from which 249,902 vested on December 31, 2022, in
calculating dilutive EPU for its common unitholders as they were anti-dilutive.
For the year ended December 31, 2021, the Partnership excluded the effect of 412,916 units, which vested on December 31, 2021, as they were anti-dilutive.
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Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
14. Net Income Per Unit - Continued
For the year ended December 31, 2020, the Partnership excluded the effect of 412,916, unvested units under the omnibus incentive compensation plan in calculating
dilutive EPU for its common unit holders as they were anti-dilutive.
The non-vested units are participating securities because they received distributions from the Partnership and these distributions did not have to be returned to the
Partnership if the non-vested units were forfeited by the grantee.
The Partnership’s net income for the years ended December 31, 2022, 2021 and 2020 did not exceed the First Target Distribution Level, and as a result, the assumed
distribution of net income did not result in the use of increasing percentages to calculate CGP’s interest in net income.
The two-class method used to calculate EPU from continuing operations is as follows:
BASIC AND DILUTED
2022
2021
2020
Numerators
Partnership’s net income
$
125,421 $
98,178 $
30,367
Less:
General Partner’s interest in Partnership’s net income
2,157
1,790
558
Partnership’s net income allocable to unvested units
3,662
2,053
685
Common unit holders’ interest in Partnership’s net income
$
119,602 $
94,335 $
29,124
Denominators
Weighted average number of common units outstanding, basic and diluted
19,325,030
18,342,413
18,194,186
Net income per common unit:
Basic and Diluted
$
6.19 $
5.14 $
1.60
15. Commitments and Contingencies
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 accrues the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the
probable exposure.
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.
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.
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29
Table of Contents
Capital Product Partners L.P.
Notes to the Consolidated Financial Statements
(In thousands of United States Dollars)
15. Commitments and Contingencies - Continued
Commitments
(a) Lease Commitments: Future minimum charter hire receipts, excluding any profit share revenue that may arise, based on non-cancellable time charter contracts, as
of December 31, 2022 were:
Year ending December 31,
Amount
2023
267,528
2024
232,017
2025
165,569
2026
98,334
2027
95,404
Thereafter
275,852
Total
1,134,704
(b) Vessels’ Acquisitions Commitments: As of December 31, 2022, the Partnership had outstanding commitments relating to acquisitions of vessels, amounting to
$451,000 and which are payable within the next twelve months and will be financed by debt and cash at hand (Notes 5, 16).
(c) Vessels’ Equipment Commitments: As of December 31, 2022, the Partnership had outstanding commitments relating to the purchase of Scrubbers and BWT
systems on certain of its vessels, amounting to $5,009 and which are payable within the next twelve months.
16. Subsequent Events
(a) Dividends: On January 26, 2023, the board of directors of the Partnership declared a cash distribution of $0.15 per common unit for the fourth quarter of 2022. The
fourth quarter common unit cash distribution was paid on February 10, 2023, to unit holders of record on February 7, 2023.
(b) Sale and lease back agreements: On February 7, 2023, the Partnership entered into a new sale and lease back agreement of up to $184,000, for the purpose of
partially financing the acquisition of the shares of the company owning the LNG/C Asterix I (Note 5). The full amount of the sale and lease back agreement was drawn
on February 17, 2023 and has a duration of 10 years.
On March 14, 2023, the Partnership fully repaid the 2021 CMBFL - Panamax sale and lease back agreements, with original maturity in February 2026, amounting to
$23,423.
(c) Vessel acquisitions: On January 10, 2023, the Partnership acquired from CMTC the shares of the company owning the M/V Itajai Express for a total consideration
of $122,500 which was funded through debt of $108,000 (Note 7), a cash deposit advanced in June 2022 (Note 5) and cash at hand. On February 17, 2023, the
Partnership acquired from CMTC the shares of the company owning the LNG/C Asterix I, for a total consideration of $230,000 which was funded through debt of
$184,000, a cash deposit advanced in June 2022 (Note 5) and cash at hand.
(d) New unit repurchase programme: On January 26, 2023, the Partnership’s Board of Directors authorized a new Repurchase Plan. Pursuant to the Repurchase Plan,
the Partnership may purchase up to $30,000 of its common units through January 2025, at times and prices that are considered by us to be appropriate. The Partnership
expects to repurchase units under the Repurchase Plan in the open market or in privately negotiated transactions, but are not obligated under the terms of the
Repurchase Plan to repurchase any units, and, at any time, may suspend, delay or discontinue the Repurchase Plan.
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Table of Contents
Exhibit 2.1
DESCRIPTION OF SECURITIES
REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
As of December 31, 2022 Capital Product Partners L.P. (the “Partnership,” “CPLP,” “we,” “us” or “our”) had the following
series of securities registered pursuant to
Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on
which registered
Common units representing limited partnership
interests
CPLP
Nasdaq Global Select Market
Capitalized
terms used but not defined herein have the meanings given to them in our annual report on Form 20-F for the fiscal year ended December 31,
2022 (the “Annual report”).
COMMON UNITS
The following is a description of the material terms of CPLP’s common units representing limited partner interests. Because it is a summary, the following description
is not
complete and is subject to and qualified in its entirety by reference to CPLP’s limited partnership agreement, as amended (the “Partnership Agreement”) and
applicable Marshall Islands law in effect on the date hereof.
References to provisions of the Partnership Agreement are qualified in their entirety by reference to the full
Partnership Agreement, included as Exhibit I to our Report on Form 6-K, filed with the SEC on February 24, 2010, as Exhibit I to our
Report on Form 6-K dated
September 30, 2011, as Exhibit II to our Report on Form 6-K/A dated May 23, 2012, as Exhibit II to our Report on Form 6-K dated March 21, 2013 and as Exhibit A to
Exhibit I to our Report on Form 6-K dated August 26,
2014.
General
As at December 31, 2022, 20,255,707 common units were issued and outstanding. The common units are in registered form.
Transfer Agent and Registrar
Duties
Computershare
serves as registrar and transfer agent for the common units. We pay all fees charged by the transfer agent for transfers of common units, except the
following, which must be paid by common unitholders:
•
surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
•
special charges for services requested by a holder of a common unit; and
•
other similar fees or charges.
There is no charge to unitholders for disbursements of our cash distributions. We will indemnify
the transfer agent, its agents and each of their stockholders, directors,
officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any
gross negligence or intentional misconduct of the indemnified person or entity.
Resignation or Removal
The transfer
agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective upon our appointment of a
successor transfer agent and registrar and its acceptance of the appointment. If a successor has
not been appointed or has not accepted its appointment within 30 days
after notice of the resignation or removal, our general partner may, at the direction of our board of directors, act as the transfer agent and registrar until a successor is
appointed.
THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our Partnership Agreement.
Organization and
Duration
We were organized on January 16, 2007 and have perpetual existence.
Purpose
Our purpose under the Partnership Agreement is to engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or
other
arrangement to engage indirectly in, any business activity that may lawfully be conducted by a limited partnership pursuant to the MILPA and, in connection
therewith, to exercise all of the rights and powers conferred upon the us pursuant to the
agreements relating to such business activity, and do anything necessary or
appropriate to the foregoing.
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 liquidator, 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.
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 Partnership 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 exceptions 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 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. Currently, our board comprises seven members.
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. 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
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.”
Amendment of the operating agreement of the
operating company (as defined in our
Partnership
Agreement)
Unit majority if such amendment would adversely affect our limited partners in any
material respect.
Merger of our partnership or the sale of all or
substantially all of our
assets
Unit majority and approval of our General Partner and board of directors. Please read
“—Merger, Sale, or
Other Disposition of Assets.”
Dissolution of our partnership
Election by the General Partner and our Board of Directors that is approved by the
Unit majority. 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 our General Partner.”
Removal of the General Partner
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. Please read “—Withdrawal or
Removal of our General Partner.”
Transfer of the general partner interest in us
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
he incentive distribution rights are freely transferable. Please read
“—Transfer of Incentive Distribution
Rights.”
Transfer of ownership interests in the General
Partner
No approval required at any time. Please read “—Transfer of Ownership
Interests in General 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 specifically 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 partnership, 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 distribution 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 partnership 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.
We intend to
fund acquisitions through borrowings and the issuance of additional common units or other equity securities and the assumption 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 1.7%. 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 assign 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.
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 directors. 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:
(1)
increase the obligations of any limited partner without its consent, unless such increase is
deemed to occur as a result of an amendment approved in
accordance with sub-paragraph (2) below;
(2)
have a material adverse effect on the rights or preferences of any class of partnership interests
in relation to other classes of partnership 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;
(3)
increase the obligations of, restrict in any way any action by or rights of, or reduce in any way
the amounts distributable, reimbursable 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
(6)
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.
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).
No Unitholder Approval
Our board of directors may
generally make amendments to our Partnership Agreement without the approval of any limited partner to reflect:
(1)
a change in our name, the location of our principal place of business, our registered agent or our registered office;
(2)
the admission, substitution, withdrawal or removal of partners in accordance with our Partnership Agreement;
(3)
a change that our board of directors determines to be necessary or appropriate for us to qualify or to continue our qualification as a limited
partnership or a
partnership in which the limited partners have limited liability under the laws of any jurisdiction;
(4)
an amendment that is necessary, upon the advice of our counsel, to prevent us or our directors or
our General Partner or its directors, 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;
(5)
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;
(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;
(8)
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;
(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;
(3)
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;
(4)
are necessary or appropriate for any action taken by our board of directors relating to splits or
combinations of units under the provisions 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.
All amendments reflecting matters described in (1) through (4) 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.
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 another limited liability entity. The unitholders are not entitled to dissenters’
rights of appraisal under our Partnership Agreement or applicable 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)
the election by our General Partner and our board of directors to dissolve us, if approved by the holders of units representing a unit
majority;
(2)
the sale, exchange, or other disposition of all or substantially all of our assets and properties and our subsidiaries;
(3)
the entry of a decree of judicial dissolution of us;
(4)
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
(5)
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 business 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.”
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 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 outstanding 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
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, including, 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 general 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 Partnership Agreement.
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 selected 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 fairness 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 “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Considerations—U.S.
Federal Income Taxation of U.S. Holders—Sale, Exchange or Other Disposition of Common Units” and “Item 10. Additional Information—E. Taxation —Material
U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of Non-U.S. Holders—Disposition of Common Units” in the Annual Report.
Board of
Directors
Under our Partnership Agreement, our General Partner delegates to our board of directors the
authority to oversee and direct our operations, policies and management
on an exclusive basis, and such delegation will be binding on any successor General Partner of the partnership. Our board of directors shall consist 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.
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;
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 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 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 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.
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 limited 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 attaching 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.
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 nominating a person for
election to our board, determining the presence of a quorum or for other similar purposes
under our Partnership 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 exceptions 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 will be fully paid, and unitholders will not be required to make additional contributions. By
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.
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:
(1)
our General Partner;
(2)
any departing general partner;
(3)
any person who is or was an affiliate of our general partner or any departing general partner;
(4)
any person who is or was an officer, director, member, partner fiduciary or trustee of any entity described in (1), (2) or (3) above;
(5)
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;
(6)
any person designated by our board of directors; and
(7)
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 containing 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.
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 partner, 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 attorney 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 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 registration 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 statement be filed. We are
obligated
to pay all expenses incidental to the registration, excluding underwriting discounts and commissions.
Transfer of Common
Units
By 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. Each transferee:
represents that the transferee has the capacity, power and authority to become bound by our Partnership Agreement;
is bound by our Partnership Agreement;
grants the powers
of attorney set forth in the Partnership Agreement; and gives the consents and waivers contained in our Partnership Agreement.
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 absolute owner for all purposes, except
as otherwise required by law or stock exchange regulations.
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 absolute 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 are 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.
Distributions of Available Cash
For further
discussion of distributions of available cash, please read “Item 8. Financial Information—How We Make Cash Distributions” in our Annual Report.
General
Within
approximately 45 days after the end of each quarter, subject to legal limitations, we distribute all of our available cash to unitholders 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;
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 (on a pre-reverse split-adjusted basis) $0.2325 per unit, which is
equal to $0.93 per unit per year, or (on a reverse split-adjusted basis) $1.6275 per
unit, which is equal to $6.51 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).
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 maintain 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 determined 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.
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 distribution, 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.
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 or anticipated cash needs.
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 distributions to our unitholders may be
restricted.
We have generally declared distributions on our common units in January, April, July and October of
each year and paid those distributions in the subsequent month
according to our distribution policy, which has changed from time to time.
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 liquidation. We will apply the proceeds
of liquidation in the manner set forth below. 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:
the initial unit price of the common units issued in our initial public
offering (adjusted as our board of directors determines to be appropriate to give effect to
any distribution, subdivision or combination, such as the reverse unit split we effected in March 2019 in connection with the DSS Transaction) (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:
the initial unit price of the common units issued in our initial public
offering (adjusted as our board of directors determines to be appropriate to give
effect to any distribution, subdivision or combination, such as the reverse unit split we effected in March 2019 in connection with the DSS
Transaction) (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 (as adjusted) (less any prior capital surplus distributions and any prior cash distributions made in connection with a
partial
liquidation); and
thereafter, 50.0% to all unitholders, pro rata, 48.0% to holders of incentive distribution rights and
2.0% to our General Partner.
The preceding paragraph is based on the assumption that our General Partner maintains its initial
2.0% general partner interest and has not transferred the incentive
distribution rights and that we do not issue additional classes of equity securities. As of the date of the Annual Report, our General Partner holds a 1.7% general
partner
interest.
Dated ___ October 2022
CAPITAL PRODUCT PARTNERS L.P.
as Borrower
and
THE BANKS AND FINANCIAL INSTITUITONS
listed in schedule 1
as Lenders
and
HAMBURG COMMERCIAL BANK AG
as Agent, Mandated Lead Arranger, Bookrunner
and Security Trustee
LOAN
AGREEMENT
relating to
a senior secured term loan facility of up to US$105,000,000
to provide finance secured on one 2022-built Neo-Panamax container carrier of 13,278 TEU to be named "MANZANILLO EXPRESS"
Index
Clause Page
1 Interpretation
2
2 Facility
26
3 Position of the Lenders
27
4 Drawdown
27
5 Interest
29
6 Interest Periods
31
7 Default Interest
32
8 Repayment and Prepayment
33
9 Conditions Precedent
36
10 Representations and Warranties
37
11 General Undertakings
42
12 Corporate Undertakings
49
13 Insurance
51
14 Ship Covenants
59
15 Security Cover
65
16 Payments and Calculations
67
17 Application of Receipts
69
18 Application of Earnings
71
19 Events of Default
73
20 Fees and Expenses
78
21 Indemnities
80
22 No Set-Off or Tax Deduction
83
23 Illegality, etc.
86
24 Increased Costs
86
25 Set-Off
88
26 Transfers and Changes in Lending Offices
89
27 Variations and Waivers
94
28 Notices
97
29 Bail-In
99
30 Confidential Information
100
31 Supplemental
103
32 Law and Jurisdiction
104
Schedules
Schedule 1
106
Part A Lenders and Original Commitments
106
Part B Lenders and Contributions
107
Schedule 2 Drawdown Notice
108
Schedule 3 Condition Precedent Documents
109
Part A
109
Part B
111
Part C
113
Schedule 4 Transfer Certificate
114
Schedule 5 Power of Attorney
118
Schedule 6 Form of Compliance Certificate
119
Schedule 7 Reference Rate Terms
121
Schedule 8 Daily Non-Cumulative Compounded RFR Rate
123
Schedule 9 Cumulative Compounded RFR Rate
125
Execution
Execution Pages
126
THIS AGREEMENT is made on ___ October 2022
PARTIES
(1)
CAPITAL PRODUCT PARTNERS L.P., a limited partnership formed in the Republic of the Marshall Islands whose registered address is at Trust
Company Complex, Ajeltake Road, Ajeltake Island, Majuro MH96960, the
Marshall Islands as "Borrower"
(2)
THE BANKS AND FINANCIAL INSTITUTIONS listed in Part A of Schedule 1, as "Lenders"
(3)
HAMBURG COMMERCIAL BANK AG, acting through its office is at Gerhart-Hauptmann-Platz 50, D-20095 Hamburg, Germany, as "Agent"
(4)
HAMBURG COMMERCIAL BANK AG, acting through its office is at Gerhart-Hauptmann-Platz 50, D-20095 Hamburg, Germany, as
"Mandated Lead
Arranger"
(5)
HAMBURG COMMERCIAL BANK AG, acting through its office is at Gerhart-Hauptmann-Platz 50, D-20095 Hamburg, Germany, as
"Bookrunner"
(6)
HAMBURG COMMERCIAL BANK AG, acting through its office is at Gerhart-Hauptmann-Platz 50, D-20095 Hamburg, Germany, as "Security
Trustee"
BACKGROUND
The Lenders have agreed to make available to the Borrower a senior secured post-delivery term loan facility, in a single advance, in
an amount of up
to the lesser of:
(i)
$105,000,000; and
(ii)
60 per cent. of the Initial Market Value of the Ship,
for the purpose
of partly financing, on post-delivery terms, the Market Value of the Ship.
OPERATIVE
PROVISIONS
1
EUROPE/71630549v6
1
INTERPRETATION
1.1
Definitions
Subject to Clause 1.5, in this Agreement:
"Account" means each of the Earnings Account and the Retention Account and, in the plural, means all of
them.
"Account Pledge" means, in relation to each Account, a pledge agreement creating security in respect
of that Account in the Agreed Form
and, in the plural, means all of them.
"Accounting Information" means the
annual audited consolidated financial statements or, as the case may be, the quarterly unaudited
consolidated financial statements, each in respect of the Borrower and the Group, to be provided by the Borrower to the Agent in
accordance with Clause 11.6.
"Agency and Trust Deed" means the agency and trust deed executed or to be
executed between the Borrower and the Creditor Parties in
the Agreed Form.
"Agent" means Hamburg Commercial
Bank AG, acting in such capacity through its office at Gerhart-Hauptmann-Platz 50, D-20095
Hamburg, Germany, or any successor of it appointed under clause 5 of the Agency and Trust Deed.
"Agreed Form" means in relation to any document, that document in the form approved in writing by the Agent
(acting on the instructions
of all the Lenders) or as otherwise approved in accordance with any other approval procedure specified in any relevant provisions of any
Finance Document.
"Annex VI" means Annex VI of the Protocol of 1997 to amend the International Convention for the Prevention of
Pollution from Ships 1973
(Marpol), as modified by the Protocol of 1978 relating thereto;
"Approved Broker"
means each of Arrow Valuations Ltd, Barry Rogliano Salles, H. Clarkson & Co. Ltd., Maersk Brokers K/S, Howe Robinson
Partners, Fearnleys AS and Simpson, Spence and Young (or any affiliate of such person through which valuations are commonly
issued) and,
in plural, means all of them.
"Approved Charter" means a time charter evidenced by a
recapitulation email dated 7 June 2021 and made between the Owner as owner
and Hapag Lloyd AG as charterer expiring, subject to the terms thereof, for a period of minimum 120 months plus or minus 90 days and
providing
for a gross hire rate of not less than $39,000.
"Approved Classification Society" means a first class
classification society acceptable to the Agent in the highest classification rating
available, being one of Lloyd's Registry, American Bureau of Shipping (ABS), Det Norske Veritas (DNV), Bureau Veritas (BV), Korean Registry
of Shipping, Nippon Kaiji
Kyoykai or Registro Italiano Navale, which as at the date of this Agreement is ABS.
"Approved Flag" means
the Liberian, the Marshall Islands, the Maltese, the Panamanian, the Greek or the Isle of Man flag or such other
flag as the Agent may approve (such approval not to be unreasonably withheld or delayed) as the flag on which the Ship is or, as the
case
may be, shall be registered, which as at the date of this Agreement is the Liberian flag.
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"Approved Flag State" means the Republic of Liberia, the Republic of the Marshall Islands,
the Republic of Malta, the Republic of Panama,
Greece, the Isle of Man or any other country in which the Agent may approve (such approval not to be unreasonably withheld or delayed)
that the Ship is or, as the case may be, shall be registered.
"Approved Manager" means:
(a)
Capital-Executive Ship Management Corp., a corporation incorporated in the Republic of the Marshall Islands, having its registered
address at Trust Company House, Trust Company Complex, Ajeltake Road, Ajeltake Island,
Majuro, the Marshall Islands; or
(b)
Capital Ship Management Corp., a company incorporated in Panama having its registered office at Hong Kong Bank Building, 6th
floor, Samuel Lewis Avenue, Panama, Republic of Panama; or
(c)
any other experienced and capable management company which the Agent (acting on the instructions of the Majority Lenders) may
approve (such approval not to be unreasonably withheld or delayed or conditioned) from time
to time as the commercial, technical
and/or operational manager of the Ship and, in the plural, means all of them, being as at the date of this Agreement Capital-
Executive Ship Management Corp..
"Approved Manager's Undertaking" means a letter of undertaking including (inter alia) an assignment of an
Approved Manager's rights,
title and interest in the Insurances executed or, as the context may require, to be executed by that Approved Manager in favour of the
Security Trustee in the Agreed Form agreeing certain matters in relation to that
Approved Manager, serving as manager of the Ship and
subordinating its rights against the Ship and the Owner to the rights of the Creditor Parties under the Finance Documents and, in the plural,
means all of them.
"Article 55 BRRD" means Article 55 of Directive 2014/59/EU establishing a framework for the recovery and
resolution of credit institutions
and investment firms.
"Assignable Charter" means any time charterparty
(including any Approved Charter), consecutive voyage charter or contract of
affreightment in respect of the Ship having a duration (or capable of exceeding a duration) of 12 months or more and any guarantee of the
obligations of the charterer under
such charter or any bareboat charter in respect of the Ship (irrespective of its duration) and any
guarantee of the obligations of the charterer under such bareboat charter, entered or to be entered into by the Owner and a charterer or,
as the
context may require, bareboat charterer and, in the plural, means all of them.
"Availability Period" means
the period commencing on the date of this Agreement and ending on the earlier of:
(a)
1 December 2022 (or such later date as the Agent may, with the authorisation of all the Lenders, agree with the Borrower); and
(b)
the date on which the Total Commitments are fully borrowed, cancelled or terminated.
"Bail-In Action" means the exercise of any Write-down and Conversion Powers.
"Bail-In Legislation" means:
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EUROPE/71630549v6
(a)
in relation to an EEA Member Country which has implemented, or which at any time implements, Article 55 BRRD, the relevant
implementing law or regulation as described in the EU Bail-In Legislation Schedule from time
to time;
(b)
in relation to any state other than such an EEA Member Country and the United Kingdom, any analogous law or regulation from
time to time which requires contractual recognition of any Write-down and Conversion Powers
contained in that law or regulation;
and
(c)
in relation to the United Kingdom, the UK Bail-In Legislation.
"Balloon
Instalment" has the meaning given in Clause 8.1.
"Bareboat Charter Security Agreement" means, in
relation to an Assignable Charter which is a bareboat charter (which charter may be
entered into by the Owner subject to Clause 14.12(a)), an agreement or agreements whereby the Security Trustee receives an
assignment
of the rights of the Owner under the bareboat charter and certain undertakings from the Owner and the relevant charterer and, if so
agreed by the Security Trustee (acting with the authorisation of the Majority Lenders), agrees to give
certain undertakings to that charterer,
in an Agreed Form and, in the plural, means all of them.
"Basel III"
means, together:
(a)
the agreements on capital requirements, a leverage ratio and liquidity standards contained in "Basel III: A global regulatory
framework for more resilient banks and banking systems", "Basel III:
International framework for liquidity risk measurement,
standards and monitoring" and "Guidance for national authorities operating the countercyclical capital buffer" published by the
Basel Committee on Banking Supervision in December
2010, each as amended, supplemented or restated;
(b)
the rules for global systemically important banks contained in "Global systemically important banks: assessment methodology and
the additional loss absorbency requirement - Rules text" published by the Basel
Committee on Banking Supervision in November
2011, as amended, supplemented or restated; and
(c)
any further guidance or standards published by the Basel Committee on Banking Supervision relating to "Basel III".
"Borrower" means Capital Product Partners L.P., a limited partnership formed in the Republic of the Marshall
Islands whose registered
address is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro MH96960, the Marshall Islands.
"Break Costs" has the meaning given in Clause 21.2.
"Builder" means Hyundai Samho Heavy Industries Co., Ltd., of South Korea.
"Business Day" means a day (other than a Saturday or Sunday) on which banks are open for general business:
(a)
in Hamburg and New York regarding the fixing of any interest rate which is required to be determined under this Agreement or any
Finance Document;
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(b)
in Hamburg and New York and, until the Delivery Date, also in Korea in respect of any payment which is required to be made under
a Finance Document;
(c)
in Hamburg and Piraeus regarding any other action to be taken under this Agreement or any other Finance Document; and
(d)
in relation to:
(i)
any date for payment or purchase of dollars; or
(ii)
the determination of the first day or the last day of an Interest Period or otherwise in relation to the determination of the
length of or rate for an Interest Period,
a day which is an Additional Business Day.
"Cancellation Notice" has the meaning given in Clause 8.7.
"Central Bank Rate" has the meaning given to that term in the Reference Rate Terms;
"Central Bank Rate Adjustment" has the meaning given to that term in the Reference Rate Terms;
"Central Bank Rate Spread" has the meaning given to that term in the Reference Rate Terms;
"Change of Control" means:
(a)
any person or group of persons acting in concert gaining direct or indirect control of the Borrower or the Owner other than the
Permitted Holders; and/or
(b)
any person or group of persons acting in concert (save for any passive institutional investor) acquiring ownership of more common
units in the capital of the Borrower than the Permitted Holders;
and/or
(c)
on and from the Delivery Date, the Borrower ceasing to directly or indirectly own 100 per cent. of, or ceasing to control, the Owner;
and/or
(d)
Capital GP L.L.C. of the Republic of the Marshall Islands ceasing to be the Borrower's general partner, provided that no Change of
Control shall be deemed to have occurred under this paragraph (d) if the common units
in the capital of the Borrower (save for any
passive institutional investor) are in direct or indirect control by the Permitted Holders.
"Charterparty Assignment" means, in relation to an Assignable Charter, an assignment of the rights of the Owner
which is a party to that
Assignable Charter and any guarantee of such Assignable Charter executed or, as the context may require, to be executed by the Owner in
favour of the Security Trustee in the Agreed Form and, in the plural, means all of
them.
"Code" means the US Internal Revenue Code of 1986.
"Commitment" means, in relation to a Lender, the amount set opposite its name in Part A of Schedule 1, or, as
the case may require, the
amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this
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Agreement (and "Total Commitments" means the aggregate of the Commitments of all the Lenders).
"Compliance Certificate" means a certificate in the form set out in Schedule 6 (or in any other form which the
Agent approves or
reasonably requires) to be provided at the times and in the manner set out in Clause 11.21.
"Compounded Reference Rate" means in relation to any RFR Banking Day during the Interest Period of the Loan or
any part of the Loan,
the percentage rate per annum which is the Daily Non-Cumulative Compounded RFR Rate for that RFR Banking Day;
"Compounding Methodology Supplement" means, in relation to the Daily Non-Cumulative Compounded RFR Rate or the
Cumulative
Compounded RFR Rate, a document which:
(a)
is agreed in writing by the Borrower and the Agent (in its own capacity) and the Agent (acting on the instructions of the Lenders);
(b)
specifies a calculation methodology for that rate; and
(c)
has been made available to the Borrower and each Creditor Party;
"Confidential Information" means all information relating to the Borrower, any Security Party, any Approved Manager, the Group, the
Finance Documents or the Loan of which a
Creditor Party becomes aware in its capacity as, or for the purpose of becoming, a Creditor Party
or which is received by a Creditor Party in relation to, or for the purpose of becoming a Creditor Party under, the Finance Documents or the
Loan from
either:
(a)
any member of the Group or any of its advisers; or
(b)
another Creditor Party, if the information was obtained by that Creditor Party directly or indirectly from any member of the Group
or any of its advisers,
in whatever form, and includes information given orally and any document, electronic
file or any other way of representing or
recording information which contains or is derived or copied from such information but excludes:
(i)
information that:
(A)
is or becomes public information other than as a direct or indirect result of any breach by that Creditor Party of
Clause 30; or
(B)
is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers;
or
(C)
is known by that Creditor Party before the date the information is disclosed to it in accordance with paragraphs (a)
or (b) above or is lawfully obtained by that Creditor Party after that date, from a source which is,
as far as that
Creditor Party is aware, unconnected with the Group and which, in either case, as far as that Creditor Party is aware,
has not been obtained in breach of, and is not otherwise subject to, any obligation of
confidentiality.
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"Confidentiality
Undertaking" means a confidentiality undertaking in substantially the appropriate form recommended by the LMA from
time to time or in any other form agreed between the Borrower and the Agent.
"Contractual Currency" has the meaning given in Clause 21.6.
"Contribution" means, in relation to a Lender, the part of the Loan which is owing to that Lender.
"Corporate Guarantee" means, in relation to the Owner, a guarantee of the obligations of the Borrower under this
Agreement and the
other Finance Documents executed or, as the context may require, to be executed by the Owner in the Agreed Form.
"Creditor Party" means the Agent, the Security Trustee, the Mandated Lead Arranger, any Lender, whether as at
the date of this Agreement
or at any later time and, in the plural, means all of them.
"Cumulative Compounded RFR
Rate" means, in relation to an Interest Period for the Loan or any part of the Loan, the percentage rate per
annum determined by the Agent (or by any other Creditor Party which agrees to determine that rate in place of the Agent) in
accordance
with the methodology set out in Schedule 9 or in any relevant Compounding Methodology Supplement;
"Daily
Non-Cumulative Compounded RFR Rate" means, in relation to any RFR Banking Day during an Interest Period for the Loan or any
part of the Loan, the percentage rate per annum determined by the Agent (or by any other Creditor Party which agrees
to determine that
rate in place of the Agent) in accordance with the methodology set out in Schedule 8 or in any relevant Compounding Methodology
Supplement;
"Daily Rate" means the rate specified as such in the Reference Rate Terms.
"Deed of Covenant" means if required by the laws of the Approved Flag State, a deed of covenant collateral to
the Mortgage on the Ship
and creating charges over (inter alia) the Ship, her Earnings, her Insurances, any Requisition Compensation and the benefit of any
warranties of quality in favour of the Owner under the
Shipbuilding Contract in the Agreed Form.
"Delivery Date" means the
date on which the Ship is delivered by the Builder to the Owner under the Shipbuilding Contract.
"Disruption
Event" means either or both of:
(a)
a material disruption to those payment or communications systems or to those financial markets which are, in each case, required
to operate in order for payments to be made in connection with the Loan (or otherwise in
order for the transactions contemplated
by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or
(b)
the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or
payments operations of a Party preventing that, or any other, Party:
(i)
from performing its payment obligations under the Finance Documents; or
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(ii)
from communicating with other Parties in accordance with the terms of the Finance Documents,
and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted.
"Dollars" and "$" means the lawful currency for the time being of the United States of
America.
"Drawdown Date" means, the date requested by the Borrower for the Loan to be borrowed, or (as the
context requires) the date on which
the Loan is actually borrowed.
"Drawdown Notice" means a notice in the
form set out in Schedule 2 (or in any other form which the Agent approves or reasonably
requires).
"EEA Member Country" means any member state of the European Union, Iceland, Liechtenstein and Norway.
"Earnings" means all moneys whatsoever which are now, or later become, payable (actually or contingently) to the
Owner or the Security
Trustee and which arise out of the use or operation of the Ship, including (but not limited to):
(a)
except to the extent that they fall within paragraph (b):
(i)
all freight, hire and passage moneys;
(ii)
compensation payable to the Owner or the Security Trustee in the event of requisition of the Ship for hire;
(iii)
remuneration for salvage and towage services;
(iv)
demurrage and detention moneys;
(v)
damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of
the Ship; and
(vi)
all moneys which are at any time payable under any Insurances in respect of loss of hire; and
(b)
if and whenever the Ship is employed on terms whereby any moneys falling within paragraphs (a)(i) to (vi) are pooled or shared
with any other person, that proportion of the net receipts of the relevant pooling or
sharing arrangement which is attributable to
the Ship.
"Earnings Account" means an account in
the name of the Owner with the Agent in Hamburg designated "Panormos Container Carrier S.A. -
Earnings Account" or any other account (with that or another office of the Agent) which replaces such account and is designated by the
Agent as
the Earnings Account for the purposes of this Agreement.
"EBITDA" means, in respect of any relevant period,
the aggregate amount of consolidated or combined pre-tax profits of the Group before
extraordinary or exceptional items, depreciation, interest, repayment of principal in respect of any loan, rentals under finance leases and
similar charges
payable.
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"Environmental Claim" means:
(a)
any claim by any governmental, judicial or regulatory authority which arises out of an Environmental Incident or an alleged
Environmental Incident or which relates to any Environmental Law; or
(b)
any claim by any other person which relates to an Environmental Incident or to an alleged Environmental Incident,
and "claim" means a claim for damages, compensation, fines, penalties or any other payment of any kind whether or not similar
to the
foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of
enforcement or regulatory action, including the arrest or attachment of any asset.
"Environmental Incident" means:
(a)
any release of Environmentally Sensitive Material from the Ship; or
(b)
any incident in which Environmentally Sensitive Material is released from a vessel other than the Ship and which involves a collision
between the Ship and such other vessel or some other incident of navigation or
operation, in either case, in connection with which
the Ship is actually to be arrested, attached, detained or injuncted and/or the Ship and/or the Owner which is the owner thereof
and/or any operator or manager of the Ship is at fault or otherwise
liable to any legal or administrative action; or
(c)
any other incident in which Environmentally Sensitive Material is released otherwise than from the Ship and in connection with
which the Ship is actually or potentially liable to be arrested and/or where the Owner
which is the owner thereof and/or any
operator or manager of the Ship is at fault or otherwise liable to any legal or administrative action.
"Environmental Law" means any law, regulation, convention and agreement relating to pollution or protection of
the environment, to the
carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material.
"Environmentally Sensitive Material" means oil, oil products and any other substance (including any chemical,
gas or other hazardous or
noxious substance) which is (or is capable of being or becoming) polluting, toxic or hazardous.
"EU Bail-In Legislation Schedule" means the document described as such and published by the Loan Market
Association (or any successor
person) from time to time.
"Event of Default" means any of the events or
circumstances described in Clause 19.1.
"FATCA" means:
(a)
sections 1471 to 1474 of the Code or any associated regulations;
(b)
any treaty, law or regulation of any other jurisdiction, or relating to an intergovernmental agreement between the US and any other
jurisdiction, which (in either case) facilitates the implementation of any law or
regulation referred to in paragraph (a) above; or
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(c)
any agreement pursuant to the implementation of any treaty, law or regulation referred to in paragraphs (a) or (b) above with the
US Internal Revenue Service, the US government or any governmental or taxation
authority in any other jurisdiction.
"FATCA
Deduction" means a deduction or withholding from a payment under a Finance Document required by FATCA.
"FATCA Exempt Party" means a Party that is entitled to receive payments free from any FATCA Deduction.
"Fee Letter" means any letter or letters dated on or about the date of this Agreement between the Creditor
Parties (or any of them) and the
Borrower setting out any of the fees referred to in Clause 20.
"Final Repayment Date" means the date falling on the earlier of (i) the date falling on the sixth anniversary of
the Drawdown Date and (ii) 1
December 2028.
"Finance Documents" means
together:
(a)
this Agreement;
(b)
the Side Letter;
(c)
the Agency and Trust Deed;
(d)
the Account Pledges;
(e)
the Corporate Guarantee;
(f)
any Subordination Agreement;
(g)
any Subordinated Debt Security;
(h)
the Mortgage;
(i)
the General Assignment;
(j)
any Deed of Covenant;
(k)
the Charterparty Assignment;
(l)
any Bareboat Charter Security Agreement;
(m)
any Approved Manager's Undertaking;
(n)
any Reference Rate Supplement;
(o)
any Compounding Methodology Supplement;
(p)
any other document (whether creating a Security Interest or not) which is executed at any time by the Borrower, the Owner, any
Approved Manager or any other person as security for, or to establish any form of
subordination or priorities arrangement in
relation to, any amount payable to the Lenders under this Agreement or any of the other documents referred to in this definition;
and
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(q)
any other document designated as such by the Agent and the Borrower,
and, in the singular,
means any of them.
"Financial Indebtedness" means, in relation to a person (the "debtor"), any
actual or contingent liability of the debtor:
(a)
for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor;
(b)
under any loan stock, bond, note or other security issued by the debtor;
(c)
under any acceptance credit, guarantee or letter of credit facility made available to the debtor;
(d)
under a financial lease, a deferred purchase consideration arrangement or any other agreement having the commercial effect of a
borrowing or raising of money by the debtor;
(e)
under any foreign exchange transaction, any interest or currency swap, exchange or any other kind of derivative transaction entered
into by the debtor or, if the agreement under which any such transaction is entered
into requires netting of mutual liabilities, the
liability of the debtor for the net amount;
(f)
under receivables sold or discounted (other than any receivables to the extent that they are sold on a non-recourse basis); or
(g)
under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person which would
fall within (a) to (f) if the references to the debtor referred to the other
person.
"Financial Year" means, in relation to the Borrower, the Owner and the Group, each
period of one year commencing on 1 January in
respect of which its individual or, as the case may be, consolidated accounts are or ought to be prepared.
"Fleet Vessels" means all of the vessels (including, but not limited to, the Ship) from time to time wholly
owned by members of the Group
(each a "Fleet Vessel").
"GAAP" means generally accepted
accounting principles as from time to time in effect in the US including IFRS.
"General Assignment" means a
general assignment of (inter alia) the Earnings, the Insurances, any Requisition Compensation relative to
the Ship and the benefit of any warranties of quality in favour of the Owner under the Shipbuilding
Contract in the Agreed Form.
"Group" means, together, the Owner, the Borrower and each of their
respective subsidiaries (direct or indirect) from time to time during
the Security Period and "member of the Group" shall be construed accordingly;
"IACS" means the International Association of Classification Societies.
"IFRS" means international accounting standards within the meaning of the IAS Regulations 1606/2002 to the
extent applicable to the
relevant financial statements.
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"Initial Market Value" means the Market Value of the Ship calculated in accordance with
the valuations relative thereto referred to in
paragraph 5 of Part B of Schedule 3.
"Instalment" has the
meaning given in Clause 8.1.
"Insurances" means:
(a)
all policies and contracts of insurance (including, without limitation, any loss of hire insurance) and any reinsurance, policies or
contracts, including entries of the Ship in any protection and indemnity or war
risks association, effected in respect of the Ship, its
Earnings or otherwise in relation to it whether before, on or after the date of this Agreement; and
(b)
all rights (including, without limitation, any and all rights or claims which the Owner may have under or in connection with any cut-
through clause relative to any reinsurance contract relating to the aforesaid
policies or contracts of insurance) and other assets
relating to, or derived from, any of the foregoing, including any rights to a return of a premium and any rights in respect of any
claim whether or not the relevant policy, contract of insurance
or entry has expired on or before the date of this Agreement;
"Interest Payment" means the
aggregate amount of interest that is, or is scheduled to become, payable under any Finance Document;
"Interest
Period" means a period determined in accordance with Clause 6.
"ISM Code" means the International
Safety Management Code (including the guidelines on its implementation), adopted by the
International Maritime Organisation as the same may be amended or supplemented from time to time (and the terms "safety management
system",
"Safety Management Certificate" and "Document of Compliance" have the same meanings as are given to them in the ISM Code).
"ISPS Code" means the International Ship and Port Facility Security Code as adopted by the International
Maritime Organisation, as the
same may be amended or supplemented from time to time.
"ISSC" means a valid
and current International Ship Security Certificate issued under the ISPS Code.
"Lender" means, subject to
Clause 26.6, a bank or financial institution listed in Part A of Schedule 1 and acting through its branch indicated
in Part A of Schedule 1 (or through another branch notified to the Agent under Clause 26.16) or its transferee, successor or
assign.
"Leverage Ratio" means, any relevant time, the ratio (expressed as a percentage) of:
(a)
the aggregate Financial Indebtedness of the Group net of any Liquid Assets; and
(b)
the Market Value Adjusted Total Assets (including, without limitation, the Ship).
"Liquid Assets" means, at any relevant time hereunder, the aggregate of:
(a)
cash in hand or held with banks or other financial institutions of the Borrower and/or any other member of the Group in Dollars or
another currency freely convertible into
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Dollars, which is free of any Security Interest (other than a Permitted Security Interest and other than ordinary bankers'
liens which
have not been enforced or become capable of being enforced);
(b)
any other short-term financial investment which is free of any Security Interest (other than a Permitted Security Interest);
(c)
any cash equivalent of the Borrower and/or any other member of the Group; and
(d)
any marketable securities of the Borrower and/or any other member of the Group,
as stated in
the latest Accounting Information.
"Loan" means the principal amount for the time being outstanding under
this Agreement.
"Lookback Period" means the number of days specified as such in the Reference Rate
Terms;
"LSW 1189" means the London Standard Wording for marine insurances which incorporates the German
Direct Mortgage Clause.
"Major Casualty" means any casualty to the Ship in respect of which the claim or the
aggregate of the claims against all insurers, before
adjustment for any relevant franchise or deductible, exceeds $3,000,000 or the equivalent in any other currency.
"Majority Lenders" means:
(a)
before the Loan is advanced, Lenders whose Commitments total 66 2/3 per cent. of the Total Commitments; and
(b)
after the Loan is advanced, Lenders whose Contributions total 66 2/3 per cent. of the Loan.
"Mandated Lead Arranger" means Hamburg Commercial Bank AG, acting in such capacity through its office at
Gerhart-Hauptmann-Platz
50, D-20095 Hamburg, Germany, or any successor.
"Margin" means 2.15 per cent. per
annum.
"Market Disruption Credit Adjustment Spread" means any rate which is specified as such in the
Reference Rate Terms;
"Market Disruption Rate" means the rate specified as such in the Reference Rate
Terms;
"Market Value" means, in relation to the Ship or other Fleet Vessel, the market value of that Ship or
Fleet Vessel determined in accordance
with Clause 15.3.
"Market Value Adjusted Total Assets" means, at any
time, the Total Assets adjusted to reflect the aggregate Market Value of all the Fleet
Vessels.
"Material Adverse
Change" means any event or series of events which, in the opinion of the Majority Lenders, is likely to have a Material
Adverse Effect.
"Material Adverse Effect" means a material adverse effect which, in the reasonable opinion of the Majority
Lenders, has an effect on:
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EUROPE/71630549v6
(a)
the business, property, assets, liabilities, operations or condition (financial or otherwise) of the Borrower and/or any Security Party
taken as a whole;
(b)
the ability of the Borrower and/or any Security Party to (i) comply with or perform any of its obligations or (ii) discharge any of its
liabilities, under any Finance Document as they fall due; or
(c)
the validity, legality or enforceability of any Finance Document.
"Maximum Loan Amount" means an amount up to the lesser of (i) $105,000,000 and (ii) 60 per cent. of the Initial
Market Value of the Ship.
"Mortgage" means the first preferred or, as the case may be, priority ship
mortgage on the Ship in the Agreed Form as from time to time
amended.
"Net Interest Expense" means, as at any date of
calculation, the aggregate of all interest payable by any member of the Group on any
Financial Indebtedness (excluding any amounts owing by one member of the Group to another member of the Group) and any net amounts
payable under interest rate hedge
agreements for the 12-month period commencing on the date of calculation less any income received
from any Liquid Assets as stated in the latest Accounting Information.
"Notifying Lender" has the meaning given in Clause 21.2 or Clause 23.1 as the context requires.
"Original Financial Statements" means the consolidated annual financial statements of the Group for the
Financial Year which ended on 31
December 2021.
"Owner" means Panormos Container Carrier S.A., a corporation
incorporated in the Republic of the Marshall Islands whose registered
address is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, the Marshall Islands MH 96960.
"Participating Member State" means any member state of the European Union that has the Euro as its lawful
currency in accordance with
legislation of the European Union relating to Economic and Monetary Union.
"Party" means a party to a Finance Document.
"Payment Currency" has the meaning given in Clause 21.6.
"Permitted Holders" has the meaning given in the Side Letter.
"Permitted Security Interests" means:
(a)
Security Interests created by the Finance Documents;
(b)
liens for unpaid master's and crew's wages in accordance with usual maritime practice;
(c)
liens for salvage;
(d)
liens arising by operation of law for not more than 2 months' prepaid hire under any charter in relation to the Ship not prohibited
by this Agreement;
(e)
liens for master's disbursements incurred in the ordinary course of trading and any other lien arising by operation of law or
otherwise in the ordinary course of the
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trading, chartering, operation, repair or maintenance of the Ship, provided such liens do not secure amounts more than 30
days
overdue (unless the overdue amount is being contested by the Owner in good faith by appropriate steps) and subject, in the case of
liens for repair or maintenance, to Clause 14.13(d);
(f)
any Security Interest created in favour of a plaintiff or defendant in any proceedings or arbitration as security for costs and expenses
while the Borrower is prosecuting or defending such proceedings or arbitration
in good faith; and
(g)
Security Interests arising by operation of law in respect of taxes which are not overdue for payment or in respect of taxes being
contested in good faith by appropriate steps and in respect of which appropriate
reserves have been made.
"Pertinent Document" means:
(a)
any Finance Document;
(b)
any policy or contract of insurance contemplated by or referred to in Clause 13 or any other provision of this Agreement or another
Finance Document;
(c)
any other document contemplated by or referred to in any Finance Document; and
(d)
any document which has been or is at any time sent by or to a Servicing Bank in contemplation of or in connection with any Finance
Document or any policy, contract or document falling within paragraphs (b) or
(c).
"Pertinent Jurisdiction" in relation to a company, means:
(a)
England and Wales;
(b)
the country under the laws of which the company is incorporated or formed;
(c)
a country in which the company has the centre of its main interests or which the company's central management and control is or
has recently been exercised;
(d)
a country in which the overall net income of the company is subject to corporation tax, income tax or any similar tax;
(e)
a country in which assets of the company (other than securities issued by, or loans to, related companies) having a substantial value
are situated, in which the company maintains a branch or permanent place of
business, or in which a Security Interest created by
the company must or should be registered in order to ensure its validity or priority; and
(f)
a country the courts of which have jurisdiction to make a winding up, administration or similar order in relation to the company,
whether as a main or territorial or ancillary proceedings, or which would have such
jurisdiction if their assistance were requested by
the courts of a country referred to in paragraphs (b) or (c).
"Pertinent Matter" means:
(a)
any transaction or matter contemplated by, arising out of, or in connection with a Pertinent Document; or
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(b)
any statement relating to a Pertinent Document or to a transaction or matter falling within paragraph (a),
and covers any such transaction, matter or statement, whether entered into, arising or made at any time before the signing of this
Agreement or
on or at any time after that signing.
"Potential Event of Default" means an event or circumstance which,
with the giving of any notice, the lapse of time, a determination of the
Majority Lenders and/or the satisfaction of any other condition, would constitute an Event of Default.
"Prepayment Date" has the meaning given in Clause 15.2.
"Prepayment Notice" has the meaning given in Clause 8.5(b).
"Reference Rate Terms" means the terms set out in Schedule 7 or in any Reference Rate Supplement;
"Reference Rate Supplement" means a document which:
(a)
is agreed in writing by the Borrower and the Agent (in its own capacity) and the Agent (acting on the instructions of the Lenders);
(b)
specifies the relevant terms which are expressed in this Agreement to be determined by reference to the Reference Rate Terms;
and
(c)
has been made available to the Borrower and each Creditor Party;
"Relevant Market" means the market specified as such in the Reference Rate Terms;
"Relevant Nominating Body" means any applicable central bank,
regulator or other supervisory authority or a group of them, or any
working group or committee sponsored or chaired by, or constituted at the request of, any of them or the Financial Stability Board;
"Relevant Person" has the meaning given in Clause 19.9.
"Repayment Date" means a date on which a repayment is required to be made under Clause 8.
"Replacement Reference Rate" means a reference rate which is:
(a)
formally designated, nominated or recommended as the replacement for the RFR by:
(i)
the administrator of the RFR (provided that the market or economic reality that such reference rate measures is the same
as that measured by the RFR); or
(ii)
any Relevant Nominating Body,
and if replacements have, at the relevant time,
been formally designated, nominated or recommended under both paragraphs, the
"Replacement Reference Rate" will be the replacement under paragraph (ii) above;
(b)
in the opinion of the Lenders, generally accepted in the international or any relevant domestic syndicated loan markets as the
appropriate successor to the RFR; or
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(c)
in the reasonable opinion of the Lenders, an appropriate successor or alternative to the RFR;
"Reporting Day" means the day specified as such in the Reference Rate Terms;
"Reporting Time" means the relevant time (if any) specified as such in the Reference Rate Terms;
"Resolution Authority" means any body which has authority to exercise any Write-down and Conversion Powers.
"Restricted Party" means a person that is:
(a)
listed on, or owned or controlled by a person listed on any Sanctions List;
(b)
located in, organised under the laws of, or owned or controlled by, or acting on behalf of, a person located in or organised under the
laws of a country or territory which is a subject of country-wide or
territory-wide Sanctions (any such country or territory, a
"Sanctioned Country"); or
(c)
otherwise a subject of Sanctions.
"Requisition Compensation"
includes all compensation or other moneys payable by reason of any act or event such as is referred to in
paragraph (b) of the definition of "Total Loss".
"Retention Account" means an account in the name of the Borrower with the Agent in Hamburg designated
"Capital Product Partners L.P. -
Retention Account" and having account number 1200082878 or any other account (with that or another office of the Agent) which replaces
such account and is designated by the Agent as the Retention Account
for the purposes of this Agreement.
"RFR" means the rate specified as such in the Reference Rate Terms;
"RFR Banking Day" means any day specified as such in the Reference Rate Terms;
"RFR Replacement Event" means:
(a)
the methodology, formula or other means of determining the RFR has, in the opinion of the Lenders, materially changed;
(b)
(i)
the administrator of the RFR or its supervisor publicly announces that such administrator is insolvent; or
(ii)
information is published in any order, decree, notice, petition or filing, however described, of or filed with a court, tribunal,
exchange, regulatory authority or similar administrative, regulatory or judicial body
which reasonably confirms that the
administrator of the RFR is insolvent,
provided that, in each case, at that
time, there is no successor administrator to continue to provide the RFR;
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(c)
the administrator of the RFR publicly announces that it has ceased or will cease, to provide the RFR permanently or indefinitely and,
at that time, there is no successor administrator to continue to provide the
RFR;
(d)
the supervisor of the administrator of the RFR publicly announces that the RFR has been or will be permanently or indefinitely
discontinued; or
(e)
the administrator of the RFR or its supervisor publicly announces that the RFR may no longer be used; or
(f)
the administrator of the RFR (or the administrator of an interest rate which is a constituent element of the RFR) determines that the
RFR should be calculated in accordance with its reduced submissions or other
contingency or fallback policies or arrangements and
either:
(i)
the circumstance(s) or event(s) leading to such determination are not (in the opinion of the Lenders) temporary; or
(ii)
the RFR is calculated in accordance with any such policy or arrangement for a period which is no less than 10 Additional
Business Days; or
(g)
in the opinion of the Lenders and the Borrower, the RFR is otherwise no longer appropriate for the purposes of calculating interest
under this Agreement;
"Sanctions" means any trade, economic or financial sanctions laws, regulations, embargoes or restrictive
measures administered, enacted
or enforced by:
(a)
the Security Council of the United Nations;
(b)
the United States;
(c)
the United Kingdom;
(d)
the European Union;
(e)
any member state of the European Union;
(f)
any country to which any Security Party or the Borrower or any Approved Manager or any affiliate of any of them is bound; or
(g)
the governments and official institutions or agencies of any of the foregoing, including without limitation, the Office of Foreign
Assets Control of the US Department of Treasury ("OFAC"), the United
States Department of State, and Her Majesty’s Treasury
("HMT")
((a) to (g) together
"Sanctions Authorities" and each a "Sanctions Authority").
"Sanctions
List" means the "Specially Designated Nationals and Blocked Persons" list maintained by OFAC, the "Consolidated List of
Financial Sanctions Targets and Investment Ban List" maintained by HMT, or any similar list
maintained by, or public announcement of a
Sanctions designation made by, a Sanctions Authority, each as amended, supplemented or substituted from time to time.
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"Sale and Purchase Agreement" means the Sale and Purchase Agreement made between (i)
Capital Maritime & Trading Corp as seller and
(ii) the Borrower or another wholly owned subsidiary of the Borrower for the sale and the purchase for 100% of the issued shares of the
Owner.
"Secured Liabilities" means all liabilities which the Borrower, the Owner, the other Security Parties or any of
them have, at the date of this
Agreement or at any later time or times, under or in connection with any Finance Document or any judgment relating to any Finance
Document; and for this purpose, there shall be disregarded any total or partial
discharge of these liabilities, or variation of their terms,
which is effected by, or in connection with, any bankruptcy, liquidation, arrangement or other procedure under the insolvency laws of any
country.
"Security Cover Ratio" means, at any relevant time, the aggregate of (i) the Market Value of the Ship and (ii)
the net realisable value of any
acceptable additional security provided at that time under Clause 15, at that time, expressed as a percentage of the Loan.
"Security Interest" means:
(a)
a mortgage, charge (whether fixed or floating) or pledge, any maritime or other lien or any other security interest of any kind;
(b)
the rights of a plaintiff under an action in rem in which the vessel concerned has been arrested or a writ has been issued or similar
step taken; and
(c)
any arrangement entered into by a person (A) the effect of which is to place another person (B) in a position which is similar, in
economic terms, to the position in which B would have been had he held a security
interest over an asset of A; but paragraph (c)
does not apply to a right of set off or combination of accounts conferred by the standard terms of business of a bank or financial
institution.
"Security Party" means the Owner, the Borrower and any other person (except a Creditor Party, any Approved
Manager which is not a
member of the Group, the Builder and any charterer (other than a bareboat or demise charterer which is a member of Hapag Lloyd)) who,
as a surety or mortgagor, as a party to any subordination or priorities arrangement, or in
any similar capacity, executes a document falling
within the final paragraph of the definition of "Finance Documents" and, in the plural, means all of them.
"Security Period" means the period commencing on the date of this Agreement and ending on the date on which the
Agent notifies the
Borrower, the Security Parties and the other Creditor Parties that:
(a)
all amounts which have become due for payment by the Borrower or any Security Party or any Approved Manager under the
Finance Documents have been paid;
(b)
no amount is owing or has accrued (without yet having become due for payment) under any Finance Document;
(c)
neither the Borrower nor any Security Party nor any Approved Manager has any future or contingent liability under Clauses 20, 21
or 22 or any other provision of this Agreement or another Finance Document;
and
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(d)
the Agent, the Mandated Lead Arranger, the Security Trustee and the Majority Lenders do not consider that there is a significant
risk that any payment or transaction under a Finance Document would be set aside, or
would have to be reversed or adjusted, in
any present or possible future bankruptcy of the Borrower or a Security Party or in any present or possible future proceeding
relating to a Finance Document or any asset covered (or previously covered) by a
Security Interest created by a Finance Document.
"Security Trustee" means Hamburg Commercial
Bank AG, acting in such capacity through its office at Gerhart-Hauptmann-Platz 50, D-
20095, Hamburg, Germany, or any successor of it appointed under clause 5 of the Agency and Trust Deed.
"Servicing Bank" means the Agent or the Security Trustee.
"Ship" means the 2022-built Neo-Panamax container carrier vessel of approximately 13,278 TEU currently build by
the Builder having
builder's Hull No. 8071 to be registered in the ownership of the Owner with IMO number 9520039 and with the name "MANZANILLO
EXPRESS".
"Shipbuilding Contract" means, in relation to
the Ship, the Shipbuilding Contract dated 18 December 2020 (as from time to time amended
and/or supplemented) and made between (i) the Builder and (ii) the Owner for the construction by the Builder of the Ship to be owned by
the Owner and its
purchase by the Owner.
"Side Letter" means a letter dated on or about the date of this Agreement specifying
the Permitted Holders to be executed by the Agent,
the Borrower and the Owner in the Agreed Form.
"Subordinated
Creditor" means a Security Party, the general or a limited partner of the Borrower or any other person who becomes a
Subordinated Creditor in accordance with this Agreement.
"Subordinated Debt Security" means a document creating a Security Interest in relation to any Subordinated Debt
in the Agreed Form.
"Subordinated Debt" in relation to a Subordinated Creditor, has the meaning given to it
in the Subordination Agreement entered into by
that Subordinated Creditor.
"Subordination Agreement" means a
subordination agreement entered into or to be entered into by a Subordinated Creditor, the Borrower
and the Security Trustee in the Agreed Form.
"Total Assets" means, as at any date of calculation or, as the case may be, for any accounting period, the
aggregate value of all assets of the
Group on a consolidated basis (including, without limitation, the Ship), as stated in the latest Accounting Information.
"Total Loss" means:
(a)
actual, constructive, compromised, agreed or arranged total loss of the Ship;
(b)
any expropriation, confiscation, requisition or acquisition of the Ship, whether for full consideration, a consideration less than its
proper value, a nominal consideration or without any consideration, which is
effected by any government or official authority or by
any person or persons claiming to be or to represent a government or official authority unless it is within 1 month from the date of
such occurrence redelivered to
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the full control of the Owner excluding a requisition for hire for a fixed period not exceeding 90 days without any right to
an
extension;
(c)
any condemnation of the Ship by any tribunal or by any competent person or any competent person claiming to be a tribunal; and
(d)
any arrest, capture, seizure, confiscation or detention of the Ship (including any hijacking or theft) unless it is within 3 months
redelivered to the full control of the Owner.
"Total Loss Date" means:
(a)
in the case of an actual loss of the Ship, the date on which it occurred or, if that is unknown, the date when the Ship was last heard
of;
(b)
in the case of a constructive, compromised, agreed or arranged total loss of the Ship, the earlier of:
(i)
30 days after the date on which a notice of abandonment is given to the insurers; and
(ii)
the date of any compromise, arrangement or agreement made by or on behalf of the Owner with the Ship's insurers in
which the insurers agree to treat the Ship as a total loss; and
(c)
in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent that the event
constituting the total loss occurred.
"Transfer Certificate" has the meaning given in Clause 26.2.
"Trust Property" has the meaning given in clause 3.1 of the Agency and Trust Deed.
"UK Bail-In Legislation" means Part 1 of the United Kingdom Banking Act 2009 and any other law or regulation
applicable in the United
Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutes or their affiliates (otherwise
than through liquidation, administration or other insolvency proceedings).
"Underlying Documents" means the Approved Charter, any other Assignable Charter
and a Shipbuilding Contract and, in the singular,
means any of them.
"US" means the United States of America.
"US Tax Obligor" means:
(a)
the Borrower, if it is resident for tax purposes in the US; or
(b)
the Borrower or a Security Party some or all whose payments under the Finance Documents are from sources within the US for US
federal income tax purposes.
"Write-down and Conversion Powers" means:
(a)
in relation to any Bail-In Legislation described in the EU Bail-In Legislation Schedule from time to time, the powers described as such
in relation to that Bail-In Legislation in the EU Bail-In Legislation
Schedule;
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(b)
in relation to the UK Bail-In Legislation, any powers under that UK Bail-In Legislation to cancel, transfer or dilute shares issued by a
person that is a bank or investment firm or other financial institution or
affiliate of a bank, investment firm or other financial
institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which
that liability arises, to convert all or part of that
liability into shares, securities or obligations of that person or any other person, to
provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation
in respect of that
liability or any of the powers under that UK Bail-In Legislation that are related to or ancillary to any of those
powers; and
(c)
in relation to any other applicable Bail-In Legislation:
(i)
any powers under that Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment
firm or other financial institution or affiliate of a bank, investment firm or other
financial institution, to cancel, reduce,
modify or change the form of a liability of such a person or any contract or instrument under which that liability arises, to
convert all or part of that liability into shares, securities or obligations of
that person or any other person, to provide that
any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in
respect of that liability or any of the powers under that Bail-In
Legislation that are related to or ancillary to any of those
powers; and
(ii)
any similar or analogous powers under that Bail-In Legislation.
1.2
Construction of certain terms
In this Agreement:
"acting in concert" means a group of persons who, pursuant to an agreement or understanding (whether formal or
informal), actively co-
operate, through the acquisition directly or indirectly of equity in the Borrower or the Owner, either directly or indirectly, to obtain or
consolidate control of the Borrower or the Owner;
"administration notice" means a notice appointing an administrator, a notice of intended appointment and any
other notice which is
required by law (generally or in the case concerned) to be filed with the court or given to a person prior to, or in connection with, the
appointment of an administrator;
"affiliate" means, in relation to any person, a subsidiary of that person or a holding company of that person or
any other subsidiary of that
holding company;
"approved" means, for the purposes of Clause 13,
approved in writing by the Agent at its discretion;
"asset" includes every kind of property, asset, interest
or right, including any present, future or contingent right to any revenues or other
payment;
"company"
includes any partnership, joint venture and unincorporated association;
"control" means the power (whether
by way of ownership of equity, proxy, contract, agency or otherwise) to:
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EUROPE/71630549v6
(a)
cast, or control the casting of, more than 50 per cent. of the maximum number of votes that might be cast at a meeting of the
limited partners of the Borrower or at a general meeting of the shareholders of the Owner;
or
(b)
appoint or remove all, or the majority, of the directors of the Borrower or officers of the Borrower's general partner or officers or
directors of the Owner; or
(c)
give directions with respect to the operating and financial policies of the Borrower or the Owner with which the directors of the
Borrower or officers of the Borrower's general partner or officers or directors of the
Owner are obliged to comply;
(d)
approve a merger or consolidation of the Borrower and/or the Owner and/or the sale or other dispositions of the Owner or any of
them; and/or
(e)
approve a complete liquidation or dissolution of the Borrower or the Owner;
"consent" includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration,
notarisation and legalisation;
"contingent liability" means a liability which is not certain to arise and/or
the amount of which remains unascertained;
"document" includes a deed; also a letter or fax;
"excess risks" means the proportion of claims for general average, salvage and salvage charges not recoverable
under the hull and
machinery policies in respect of the Ship in consequence of its insured value being less than the value at which the Ship is assessed for the
purpose of such claims;
"expense" means any kind of cost, charge or expense (including all legal costs, charges and expenses) and any
applicable value added or
other tax;
"gross negligence" means a form of negligence which is distinct from
ordinary negligence, in which the due diligence and care which are
generally to be exercised have been disregarded to a particularly high degree, in which the plainest deliberations have not been made and
that which should be most obvious to
everybody has not been followed;
"law" includes any order or decree, any form of delegated legislation, any
treaty or international convention and any regulation or
resolution of the Council of the European Union, the European Commission, the United Nations or its Security Council;
"legal or administrative action" means any legal proceeding or arbitration and any administrative or regulatory
action or investigation;
"liability" includes every kind of debt or liability (present or future, certain or
contingent), whether incurred as principal or surety or
otherwise;
"months" shall be construed in accordance
with Clause 1.3;
"obligatory insurances" means all insurances effected, or which the Owner is obliged to
effect, under Clause 13 or any other provision of
this Agreement or another Finance Document;
"parent
company" has the meaning given in Clause 1.4;
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"person" includes any individual, any partnership, any company; any state, political
sub-division of a state and local or municipal authority;
and any international organisation;
"policy",
in relation to any insurance, includes a slip, cover note, certificate of entry or other document evidencing the contract of insurance
or its terms;
"protection and indemnity risks" means the usual risks covered by a protection and indemnity association managed
in London, including
pollution risks and the proportion (if any) of any sums payable to any other person or persons in case of collision which are not recoverable
under the hull and machinery policies by reason of the incorporation in them of clause
1 of the Institute Time Clauses (Hulls) (1/10/83) or
clause 6 of the International Hull Clauses (1/11/02) (1/11/03) or clause 8 of the Institute Time Clauses (Hulls) (1/11/1995) or the Institute
Amended Running Down Clause (1/10/71) or any
equivalent provision;
"regulation" includes any regulation, rule, official directive, request or guideline
(either having the force of law or compliance with which is
reasonable in the ordinary course of business of the party concerned) of any governmental, intergovernmental or supranational body,
agency (monetary or otherwise), department, central bank,
regulatory, self-regulatory or other authority or organisation;
"subsidiary" has the meaning given in Clause
1.4;
"successor" includes any person who is entitled (by assignment, novation, merger or otherwise) to any
person's rights under this
Agreement or any other Finance Document (or any interest in those rights) or who, as administrator, liquidator or otherwise, is entitled to
exercise those rights; and in particular references to a successor include a
person to whom those rights (or any interest in those rights) are
transferred or pass as a result of a merger, division, reconstruction or other reorganisation of it or any other person;
"tax" includes any present or future tax, duty, impost, levy or charge of any kind which is imposed by any
state, any political sub-division of
a state or any local or municipal authority (including any such imposed in connection with exchange controls), and any connected penalty,
interest or fine; and
"war risks" includes the risk of mines and all risks excluded by clauses 29, 30 or 31 of the International Hull
Clauses (1/11/02), clauses 29 or
30 of the International Hull Clauses (1/11/03), clauses 24, 25 or 26 of the Institute Time Clauses (Hulls) (1/11/95) or clauses 23, 24 or 25 of
the Institute Time Clauses (Hulls) (1/10/83) or any equivalent
provision.
(a)
a Lender's "cost of funds" in relation to its participation in the Loan or any part of the Loan is a reference to the average cost (determined
either on an actual or a notional basis) which that
Lender would incur if it were to fund, from whatever source(s) it may reasonably select,
an amount equal to the amount of that participation in the Loan or the relevant part of the Loan for a period equal in length to the Interest
Period of the Loan
or the relevant part of the Loan;
(b)
a reference to a page or screen of an information service displaying a rate shall include:
(i)
any replacement page of that information service which displays that rate; and
(ii)
the appropriate page of such other information service which displays that rate from time to time in place of that information
service,
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EUROPE/71630549v6
and, if such page or service ceases to be available, shall include any other page or service displaying
that rate specified by the Agent after
consultation with the Borrower;
(c)
a reference to a "Central Bank Rate" shall include any successor rate to, or replacement rate for, that rate;
(d)
any Reference Rate Supplement overrides anything in:
(i)
Schedule 7 (Reference Rate Terms); or
(ii)
any earlier Reference Rate Supplement; and
(e)
a Compounding Methodology Supplement relating to the Daily Non-Cumulative Compounded RFR Rate or the Cumulative Compounded
RFR Rate overrides anything relating to that rate in:
(i)
Schedule 8 (Daily Non-Cumulative Compounded RFR Rate) or Schedule 9 (Cumulative Compounded RFR Rate), as the case may be;
or
(ii)
any earlier Compounding Methodology Supplement.
1.3
Meaning of "month"
A period of one or more "months" ends on the day
in the relevant calendar month numerically corresponding to the day of the calendar
month on which the period started ("the numerically corresponding day"), but:
(a)
on the Business Day following the numerically corresponding day if the numerically corresponding day is not a Business Day or, if there is no
later Business Day in the same calendar month, on the Business Day
preceding the numerically corresponding day; or
(b)
on the last Business Day in the relevant calendar month, if the period started on the last Business Day in a calendar month or if the last
calendar month of the period has no numerically corresponding
day,
and "month" and "monthly" shall be construed accordingly.
1.4
Meaning of "subsidiary"
A company (S) is a subsidiary of another company (P) if:
(a)
a majority of the issued shares in S (or a majority of the issued shares in S which carry unlimited rights to capital and income distributions)
are directly owned by P or are indirectly attributable to P;
or
(b)
P has direct or (other than for the purposes of the definition of "Group") indirect control over a majority of the voting rights attaching to the
issued shares of S; or
(c)
P has the direct or (other than for the purposes of the definition of "Group") indirect power to appoint or remove a majority of the directors
of S; or
(d)
P otherwise has the direct or (other than for the purposes of the definition of "Group") indirect power to ensure that the affairs of S are
conducted in accordance with the wishes of P,
and any company of which S is a subsidiary is a parent company of S.
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1.5
General Interpretation
In this Agreement:
(a)
references to, or to a provision of, a Finance Document or any other document are references to it as amended or supplemented, whether
before the date of this Agreement or otherwise;
(b)
references to, or to a provision of, any law include any amendment, extension, re-enactment or replacement, whether made before the
date of this Agreement or otherwise;
(c)
words denoting the singular number shall include the plural and vice versa;
(d)
in relation to each Creditor Party that is incorporated in Germany or otherwise notifies the Agent that it has become subject to the
regulation below (each a "Restricted Lender"), each Clause
referring to Sanctions and/or Restricted Party shall only apply for the benefit of
that Restricted Lender to the extent that the relevant sanctions provisions would not result in (i) any violation of, conflict with or liability
under EU Regulation
(EC) 2271/96 or (ii) a violation or conflict with section 7 foreign trade rules (AWV) (Auâenwirtschaftsverordnung) (in
connection with section 2 paragraph 15 trade law (AWG) Auâenwirtschaftsgesetz) or a similar anti-boycott
statute (the "Mandatory
Restrictions"). In connection with any determination or direction relating to any part of a Clause of which a Restricted Lender does not have
the benefit due to a Mandatory Restriction, and any consequential
determinations to be made or actions to be taken as a result of the initial
determination or action relating to any part of that Clause, for so long as they remain subject to a Mandatory Restriction, the commitments
of that Restricted Lender will be
excluded for the purpose of determining whether the consent of the Lenders has been obtained or
whether the determination or direction by the Lenders has been made; and
(e)
Clauses 1.1 to 1.5 apply unless the contrary intention appears.
1.6
Headings
In interpreting a Finance Document or any provision of a Finance Document, all
clause, sub-clause and other headings in that and any other
Finance Document shall be entirely disregarded.
2
FACILITY
2.1
Amount of facility
Subject to the other provisions of this Agreement, the Lenders shall make
available to the Borrower a senior secured term loan facility of up
to $105,000,000, in a single advance, for the purpose stated in the preamble to this Agreement.
2.2
Lenders' participations in the Loan
Subject to the other provisions of this Agreement, each
Lender shall participate in the Loan in the proportion which, as at the Drawdown
Date, its Commitment bears to the Total Commitments.
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3
POSITION OF THE LENDERS
3.1
Interests several
The rights of the Lenders under this Agreement are several.
3.2
Individual right of action
Each Lender shall be entitled to sue for any amount which has
become due and payable by the Borrower to it under this Agreement
without joining the Agent, the Security Trustee or any other Lender as additional parties in the proceedings.
3.3
Proceedings requiring Majority Lender consent
Except as provided in Clause 3.2, no Lender may
commence proceedings against the Borrower or any Security Party or any Approved
Manager in connection with a Finance Document without the prior consent of the Majority Lenders.
3.4
Obligations several
The obligations of the Lenders under this Agreement are several; and a
failure of a Lender to perform its obligations under this Agreement
shall not result in:
(a)
the obligations of the other Lenders being increased; nor
(b)
the Borrower, any Security Party, any Approved Manager or any other Lender being discharged (in whole or in part) from its obligations
under any Finance Document;
and in no circumstances shall a Lender have any responsibility for a failure of another Lender to perform its obligations under this
Agreement.
4
DRAWDOWN
4.1
Request for the Loan
Subject to the following conditions, the Borrower may request the Loan to
be borrowed by ensuring that the Agent receives a completed
Drawdown Notice not later than 11.00 a.m. (Hamburg time) 3 Business Days prior to the Drawdown Date.
4.2
Availability
The conditions referred to in Clause 4.1 are that:
(a)
the Drawdown Date has to be a Business Day during the Availability Period;
(b)
the amount of the Loan shall not exceed the Maximum Loan Amount;
(c)
any undrawn portion of the Total Commitments in respect of the borrowing of the Loan shall be automatically cancelled as at the
Drawdown Date; and
(d)
the amount of the Loan shall not exceed the Total Commitments.
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4.3
Notification to Lenders of receipt of the Drawdown Notice
The Agent shall promptly notify the
Lenders that it has received the Drawdown Notice and shall inform each Lender of:
(a)
the amount of the Loan and the Drawdown Date;
(b)
the amount of that Lender's participation in the Loan; and
(c)
the duration of the first Interest Period.
4.4
Drawdown Notice irrevocable
The Drawdown Notice must be signed by a duly authorised signatory
of the Borrower; and once served, the Drawdown Notice cannot be
revoked without the prior consent of the Agent, acting on the authority of the Majority Lenders.
4.5
Lenders to make available Contributions
Subject to the provisions of this Agreement, each
Lender shall, on and with value on the Drawdown Date, make available to the Agent for
the account of the Borrower the amount due from that Lender on the Drawdown Date under Clause 2.2.
4.6
Disbursement of the Loan
Subject to the provisions of this Agreement, the Agent shall on the
Drawdown Date pay to the Borrower the amounts which the Agent
receives from the Lenders under Clause 4.5 and the payment to the Borrower shall be made:
(a)
to the account which the Borrower specifies in the Drawdown Notice; and
(b)
in like funds as the Agent received the payments from the Lenders.
The payment by the Agent
under this Clause 4.6 shall constitute the making of the Loan and the Borrower shall at that time become
indebted, as principal and direct obligor, to each Lender in an amount equal to that Lender's participation in the Loan.
4.7
Prepositioning of funds
The Agent (at its sole discretion) may, at the Borrower's request,
agree to preposition and, as the case may be, remit on the relevant
Drawdown Date the amounts which the Agent receives from the Lenders in respect of the Loan by making payment of such amounts:
(a)
to such account of the Builder and with such bank (the "Prepositioning Bank") and, as the case may be, to the Retention Account, as the
Borrower may have agreed with the Agent in advance of that
Drawdown Date and as specified in the relevant Drawdown Notice;
(b)
in like funds as the Agent received the payments from the Lenders; and
(c)
on terms that:
(i)
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(A)
in relation to any remittance to the Prepositioning Bank, such amounts shall be held to the order of the Agent until the
conditions described in the remittance message (the "Remittance Message") with
which the conditional payment is effected
for transfer of funds to the Builder are fulfilled or, if earlier, such time as the Agent confirms in writing to the Prepositioning
Bank that the Loan may be released to the Builder in accordance with Clause
4.8;
(B)
in relation to any remittance to the Retention Account, such amounts shall be held therein until the conditions described in
the Drawdown Notice are fulfilled at which time such amounts shall be released to the
Borrower pursuant to the
instructions included in the Drawdown Notice. In the event that such conditions are not fulfilled on the Delivery Date the
Agent shall debit the Retention Account and apply such amounts towards repayment of the
Loan;
(ii)
such prepositioning and, as the case may be, remittance shall constitute the making of the Loan and the Borrower shall at that time
become indebted, as principal and direct obligors, to each Lender in an amount equal
to that Lender's participation in the Loan; and
(iii)
the date on which the Loan (or any part of the Loan) is prepositioned and, as the case may be, remitted shall constitute its
Drawdown Date.
4.8
Disbursement of Loan
If the Agent has agreed to the Borrower's request under Clause 4.7, the
Agent shall, on the Ship's delivery, instruct the Prepositioning Bank
to release the amount of the Loan to the Builder subject to the Agent having received all the documents described in Part B of Schedule 3 in
form and substance satisfactory to the
Agent and its lawyers and further subject to the other provisions of Clause 9.1 unless the funds
representing the Loan will be released by the Prepositioning Bank pursuant to the Remittance Message.
5
INTEREST
5.1
Payment of normal interest
Subject to the provisions of this Agreement, interest on the Loan
in respect of each Interest Period shall be paid by the Borrower on the last
day of that Interest Period.
5.2
Normal rate of interest
(a)
The rate of interest on the Loan for any day during an Interest Period is the percentage rate per annum which is the aggregate of:
(i)
the Margin; and
(ii)
the Compounded Reference Rate for that day.
(b)
If any day during an Interest Period for the Loan is not a RFR Banking Day, the rate of interest on the Loan for that day will be the rate
applicable to the immediately preceding RFR Banking Day.
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5.3
Payment of accrued interest
In the case of an Interest Period of longer than three months,
accrued interest shall be paid every three months during that Interest Period
and on the last day of that Interest Period.
5.4
Notifications
(a)
The Agent shall promptly upon an Interest Payment being determinable notify:
(i)
the Borrower of that Interest Payment;
(ii)
each Lender of the proportion of that Interest Payment which relates to that Lender's participation in the Loan or the relevant part
of the Loan; and
(iii)
each Lender and the Borrower of, to the extent it is then determinable, the Market Disruption Rate (if any) relating to the Loan or
the relevant part of the Loan.
This paragraph (a) shall not apply to any Interest Payment determined pursuant to Clause 5.7.
(b)
The Agent shall promptly notify the Borrower of each rate of interest notified pursuant to sub-paragraph (ii) of paragraph (a) of Clause 5.7
relating to the Loan or the relevant part of the Loan.
(c)
The Agent shall promptly notify each Lender and the Borrower of the determination of a rate of interest relating to the Loan or the relevant
part of the Loan to which Clause 5.7 applies.
(d)
This Clause 5.4 shall not require the Agent to make any notification to any Party on a day which is not a Business Day.
5.5
Interest calculation if no RFR or Central Bank Rate
If:
(a)
there is no RFR or Central Bank Rate for the purposes of calculating the Daily Non-Cumulative Compounded RFR Rate for an RFR Banking
Day during an Interest Period for the Loan or any part of the Loan;
and
(b)
"Cost of funds will apply as a fallback" is specified in the Reference Rate Terms,
Clause 5.7 shall apply to the Loan or the relevant part of the Loan for that Interest Period.
5.6
Market disruption
If:
(a)
a Market Disruption Rate is specified in the Reference Rate Terms; and
(b)
before the Reporting Time for the Loan, the Agent receives notifications from a Lender or Lenders (whose Contributions exceed 10 per cent.
of the Loan) that its cost of funds relating to its participation in the Loan
would be in excess of that Market Disruption Rate,
then Clause 5.7 shall apply to the Loan or the relevant part of the Loan
for the relevant Interest Period.
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5.7
Cost of funds
(a)
If this Clause 5.7 applies to the Loan or any part of the Loan for an Interest Period, Clause 5.2 shall not apply to the Loan or any part of the
Loan for that Interest Period and the rate of interest on the Loan or the relevant part of the Loan for that Interest Period shall be the
percentage rate per annum which is the sum of:
(i)
the Margin; and
(ii)
the rate notified to the Agent by each Lender as soon as practicable and in any event by the Reporting Time for the Loan, to be that
which expresses as a percentage rate per
annum its cost of funds relating to its participation in the Loan or the relevant part of the
Loan.
(b)
If this Clause 5.7 applies and the Agent or the Borrower so require, the Agent and the Borrower shall enter into negotiations (for a period of
not
more than 30 days) with a view to agreeing a substitute basis for determining the rate of interest or (as the case may be) an alternative
basis for funding.
(c)
Subject to Clause 27.4, any substitute or alternative basis agreed pursuant to paragraph (b) above shall, with the prior consent of all the
Lenders and the Borrower, be binding on all Parties.
(d)
If paragraph (e) below does not apply and any rate notified to the Agent under sub-paragraph (ii) of paragraph (a) above is less than zero,
the relevant rate shall be deemed to be zero.
(e)
If this Clause 5.7 applies pursuant to Clause 5.6 and:
(i)
a Lender's rate notified pursuant to sub-paragraph (ii) of paragraph (a) above is less than the relevant Cumulative Compounded RFR
Rate; or
(ii)
a Lender does not notify a rate to the Agent by the time specified in sub-paragraph (ii) of paragraph (a) above,
that Lender's cost of funds relating to its participation in the Loan or the relevant part of the Loan for that Interest Period shall be deemed,
for the purposes of sub-paragraph (ii) of paragraph (a) above, to be the Cumulative Compounded RFR Rate for the Loan or the relevant part
of the Loan.
(f)
If this Clause 5.7 applies, the Agent shall, as soon as practicable, notify the Borrower.
5.8
Suspension of drawdown
If Clauses 5.5 or 5.6 apply before the Loan is made the Lenders'
obligations to make the Loan shall be suspended while the circumstances
referred to in the Agent's notice continue.
6
INTEREST PERIODS
6.1
Commencement of Interest Periods
The first Interest Period applicable to the Loan shall
commence on the Drawdown Date and each subsequent Interest Period shall
commence on the expiry of the preceding Interest Period.
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6.2
Duration of normal Interest Periods
Subject to Clauses 6.3, and
6.4, each Interest Period shall be:
(a)
3, 6 or 12 months as notified by the Borrower to the Agent not later than 11.00 a.m. (Hamburg time) 3 Business Days before the
commencement of the Interest Period; or
(b)
such other period (as proposed by the Borrower to the Agent not later than 11:00 a.m. (Hamburg time) 5 Business Days before the
commencement of the Interest Period in respect of the Loan) as the Agent may, with the
authorisation of the Majority Lenders, agree with
the Borrower; or
(c)
3 months, if the Borrower fails to notify the Agent by the time specified in paragraph (a) or if no such other period is agreed with the
Borrower and the Agent in accordance with paragraph (b).
6.3
Duration of Interest Periods for Instalments
In respect of an amount due to be repaid under
Clause 8 on a particular Repayment Date, an Interest Period in respect of the Loan to which
that Repayment Date relates shall end on that Repayment Date.
6.4
Non-availability of matching deposits for Interest Period selected
If, after the Borrower has
selected, or proposed and the Lenders have agreed, an Interest Period longer than three months, any Lender
notifies the Agent by 1.00 p.m. (Hamburg time) on the second Business Day before the commencement of the Interest Period that it is not
satisfied that deposits in Dollars for a period equal to the Interest Period will be available to it in the Relevant Market when the Interest
Period commences, the Interest Period shall be three months.
7
DEFAULT INTEREST
7.1
Payment of default interest on overdue amounts
The Borrower shall pay interest in accordance
with the following provisions of this Clause 7 on any amount payable by the Borrower under
any Finance Document which the Agent, the Security Trustee or the other designated payee does not receive on or before the relevant
date, that is:
(a)
the date on which the Finance Documents provide that such amount is due for payment; or
(b)
if a Finance Document provides that such amount is payable on demand, the date on which the demand is served; or
(c)
if such amount has become immediately due and payable under Clause 19.4, the date on which it became immediately due and payable.
7.2
Default rate of interest
Interest shall accrue on an overdue amount from (and including) the
relevant date until the date of actual payment (as well after as before
judgment) at the rate per annum determined by the Agent to be 2.50 per cent. above:
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(a)
in the case of an overdue amount of principal, the higher of the rates set out at paragraphs (a) and (b) of Clause 7.3; or
(b)
in the case of any other overdue amount, the rate set out at paragraph (b) of Clause 7.3.
7.3
Calculation of default rate of interest
The rates referred to in Clause 7.2 are:
(a)
the rate applicable to the overdue principal amount immediately prior to the relevant date (but only for any unexpired part of any then
current Interest Period applicable to it);
(b)
the aggregate of the Margin plus, in respect of successive Interest Periods of any duration (including at call) up to three months which the
Agent may select from time to time, a rate from time to time determined by
the Agent by reference to each Lender’s "cost of funds" (as
such term is referred to in paragraph (a) of Clause 1.2).
7.4
Notification of interest periods and default rates
The Agent shall promptly notify the Lenders
and the Borrower of each interest rate determined by the Agent under Clause 7.3 and of each
period selected by the Agent for the purposes of paragraph (b) of Clause 7.3of that Clause; but this shall not be taken to imply that the
Borrower is liable
to pay such interest only with effect from the date of the Agent's notification.
7.5
Payment of accrued default interest
Subject to the other provisions of this Agreement, any
interest due under this Clause shall be paid on the last day of the period by reference
to which it was determined; and the payment shall be made to the Agent for the account of the Creditor Party to which the overdue
amount is due.
7.6
Compounding of default interest
Any such interest which is not paid at the end of the period
by reference to which it was determined shall thereupon be compounded.
8
REPAYMENT AND PREPAYMENT
8.1
Amount of Instalments
The Borrower shall repay the Loan by:
(a)
24 equal consecutive quarterly instalments, each in the amount of $1,330,000 (each an "Instalment" and, together, the "Instalments"); and
(b)
together with the last instalment, a balloon instalment in the amount of $73,080,000 (the "Balloon Instalment"),
Provided that, if the amount of the Loan advanced is less than $105,000,000, each Instalment and the Balloon Instalment
shall be reduced
by an amount equal to the undrawn amount on a pro rata basis.
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8.2
Repayment Dates
The first Instalment shall be repaid on the date falling three months after
the Drawdown Date, each subsequent Instalment shall be repaid
at three-monthly intervals thereafter and the last Instalment, shall be repaid together with the Balloon Instalment, on the Final Repayment
Date.
8.3
Final Repayment Date
On the Final Repayment Date the Borrower shall additionally pay to the
Agent for the account of the Creditor Parties all other sums then
accrued or owing under any Finance Document.
8.4
Voluntary prepayment
Subject to the following conditions, the Borrower may prepay the whole or
any part of the Loan on the last day of an Interest Period.
8.5
Conditions for voluntary prepayment
The conditions referred to in Clause 8.4 are that:
(a)
a partial prepayment shall be in an amount equal to $1,000,000 or a higher integral multiple thereof (or such other amount acceptable to
the Agent in its discretion);
(b)
the Agent has received from the Borrower at least 5 Business Days' prior irrevocable written notice (in each case, a "Prepayment Notice")
specifying the amount to be prepaid and the date on which the
prepayment is to be made;
(c)
the Borrower has provided evidence satisfactory to the Agent that any consent required by the Borrower or any Security Party in
connection with the prepayment has been obtained and remains in force, and that any
regulation relevant to this Agreement which affects
the Borrower or any Security Party has been complied with; and
(d)
the Borrower has complied with Clause 8.11, on or prior to the date of prepayment.
8.6
Optional facility cancellation
The Borrower shall be entitled, upon giving to the Agent not
less than 5 Business Days' prior written notice, to cancel, in whole or in part,
and, if in part, by an aggregate amount not less than an amount equal to $1,000,000 or a higher integral multiple thereof (or such other
amount acceptable to the Agent
in its sole discretion), the undrawn balance of the Total Commitments (the "Cancellation Notice") which
notice shall be irrevocable. Upon such cancellation taking effect on expiry of a Cancellation Notice the several obligations of
the Lenders to
make their respective Commitments available in relation to the portion of the Total Commitments to which such Cancellation Notice relates
shall terminate.
8.7
Cancellation Notice or Prepayment Notice
The Agent shall notify the Lenders promptly upon
receiving a Cancellation Notice or Prepayment Notice, and shall provide, in the case of a
Prepayment Notice, any Lender which so requests with a copy of any document delivered by the Borrower under Clause 8.5(c).
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8.8
Mandatory prepayment on sale or Total Loss
The Borrower shall be obliged to prepay the Loan if
the Ship:
(a)
is sold, on or before the date on which the sale is completed by delivery of the Ship to the buyer; or
(b)
becomes a Total Loss, on the earlier of the date falling 150 days after the Total Loss Date and the date of receipt by the Security Trustee of
the proceeds of insurance relating to such Total Loss.
8.9
Effect of Prepayment Notice and Cancellation Notice
Neither a Prepayment Notice nor a
Cancellation Notice may be withdrawn or amended without the consent of the Agent, given with the
authorisation of the Majority Lenders, and:
(a)
in the case of a Prepayment Notice, the amount specified in that Prepayment Notice shall become due and payable by the Borrower on the
date for prepayment specified in that Prepayment Notice; and
(b)
in the case of a Cancellation Notice, the amount cancelled shall be permanently cancelled and may not be borrowed.
8.10
Right of repayment and cancellation in relation to a single Lender
(a)
If:
(i)
any sum payable to any Lender by the Borrower or a Security Party or any Approved Manager is required to be increased under
paragraph (b) of Clause 22.2 or under that Clause as incorporated by reference or in full in
any other Finance Document; or
(ii)
any Lender claims indemnification from the Borrower under Clause 24.1; or
(iii)
the Agent receives notification from a Relevant Lender under Clause 5.6,
the Borrower may:
(A)
whilst in the case of sub-paragraphs (i) and (ii) above the circumstance giving rise to the requirement for that increase or
indemnification continues; or
(B)
whilst in the case of sub-paragraph (iii) above the situation in relation to the Relevant Lender continues,
give the Agent notice of cancellation of the Commitment of that Lender and its intention to procure the repayment of that Lender's
participation
in the Loan.
(b)
On receipt of a notice of cancellation referred to in paragraph (a) above, the Commitment of that Lender shall immediately be reduced to
zero.
(c)
On the last day of each Interest Period which ends after the Borrower have given notice of cancellation under paragraph (a) above in
relation to a Lender (or, if earlier, the date specified by the Borrower in that
notice), the Borrower shall repay that Lender's participation in
the Loan.
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8.11
Amounts payable on prepayment
A prepayment shall be made together with accrued interest (and
any other amount payable under Clause 21 or otherwise) in respect of the
amount prepaid and, if the prepayment is not made on the last day of an Interest Period together with any sums payable under Clause 21.2
but without premium or penalty.
8.12
Application of partial prepayment
Each partial prepayment made pursuant to Clauses 8.4, 8.10,
15.2, 19.2 or 23.3, shall be applied between the Instalments and the Balloon
Instalment pro rata.
8.13
No reborrowing
No amount prepaid or cancelled may be (re)borrowed.
9
CONDITIONS PRECEDENT
9.1
Documents, fees and no default
Each Lender's obligation to contribute to the Loan is subject
to the following conditions precedent:
(a)
that, on or before the service of the Drawdown Notice, the Agent receives:
(i)
the documents described in Part A of Schedule 3 in form and substance satisfactory to the Agent and its lawyers; and
(ii)
payment in full of any fees payable by the Borrower pursuant to Clause 20.1 which are due and payable on or before the Drawdown
Date;
(b)
that, on the Drawdown Date but prior to the making of the Loan, the Agent receives:
(i)
the documents described in Part B of Schedule 3 in form and substance satisfactory to the Agent and its lawyers save for any
documents that the Agent agrees at the Borrower's request to receive after any
prepositioning of funds but before the
disbursement of the Loan;
(ii)
payment in full of any fees payable by the Borrower pursuant to Clause 20.1 which are due and payable on or before the Drawdown
Date; and
(iii)
payment of any expenses payable pursuant to Clause 20.2 which are due and payable on the Drawdown Date;
(c)
that both at the date of the Drawdown Notice and at the Drawdown Date and, if applicable, the date on which the Loan is disbursed:
(i)
no Event of Default or Potential Event of Default has occurred or would result from the borrowing of the Loan;
(ii)
the representations and warranties in Clause 10 and those of the Borrower or any Security Party or any Approved Manager which
are set out in the other Finance Documents would be true and not misleading if repeated on
each of those dates with reference to
the circumstances then existing;
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(iii)
none of the circumstances contemplated by Clause 5.6 has occurred and is continuing; and
(iv)
there has been no Material Adverse Change; and
(d)
that, if the Security Cover Ratio was tested immediately following the making of the Loan, the Borrower would not be obliged to provide
additional security or prepay part of the Loan under that Clause 15.1;
and
(e)
that the Agent has received, and found to be acceptable to it, any further opinions, consents, agreements and documents in connection
with the Finance Documents which the Agent may, with the authorisation of the
Majority Lenders, request by notice to the Borrower prior
to the Drawdown Date.
9.2
Waiver of conditions precedent
If the Majority Lenders, at their discretion, permit the Loan
to be borrowed before certain of the conditions referred to in Clause 9.1 are
satisfied, the Borrower shall ensure that those conditions are satisfied within 5 Business Days after the Drawdown Date (or such longer
period as the Agent may, with the
authorisation of the Majority Lenders, specify).
9.3
Conditions Subsequent
The Borrower shall use its best endeavours to deliver
or cause to be delivered to the Agent within 10 Business Days after the Drawdown
Date, the additional documents and other evidence listed in Part C of Schedule 3 in form and substance satisfactory to the Agent.
10
REPRESENTATIONS AND WARRANTIES
10.1
General
The Borrower represents and warrants to each Creditor Party as follows.
10.2
Status
The Borrower is a limited partnership (comprised of a single general partner and
multiple limited partners) formed and validly existing and
in good standing under the laws of the Republic of Marshall Islands.
10.3
Partnership interests and ownership
The Borrower's partnership interests consist of 15,676,365
common units held by third-party unitholders, 4,175,007 common units held by
Capital Maritime & Trading Corp., 348,570 general partner units.
10.4
Power
The Borrower or, as the case may be, the Owner has the capacity, and has taken all
action and obtained all consents necessary for it:
(a)
in the case of the Owner, to execute the Underlying Documents to which it is a party and to register the Ship in its ownership under the
applicable Approved Flag;
(b)
to execute the Finance Documents to which the Borrower is a party; and
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EUROPE/71630549v6
(c)
in the case of the Borrower, to borrow under this Agreement and, in the case of the Borrower and/or the Owner, to make all the payments
contemplated by, and to comply with, those Finance Documents to which it is a
party.
10.5
Consents in force
All the consents referred to in Clause 10.4 remain in force and nothing has
occurred which makes any of them liable to revocation.
10.6
Legal validity; effective Security Interests
The Finance Documents to which the Borrower is a
party, do now or, as the case may be, will, upon execution and delivery (and, where
applicable, registration as provided for in the Finance Documents):
(a)
constitute the Borrower's legal, valid and binding obligations enforceable against the Borrower in accordance with their respective terms;
and
(b)
create legal, valid and binding Security Interests (having the priority specified in the relevant Finance Document) enforceable in accordance
with their respective terms over all the assets to which they, by their
terms, relate,
subject to any relevant insolvency laws affecting creditors' rights generally.
10.7
No third party Security Interests
Without limiting the generality of Clause 10.6, at the time
of the execution and delivery of each Finance Document to which the Borrower is
a party:
(a)
the Borrower will have the right to create all the Security Interests which that Finance Document purports to create; and
(b)
no third party will have any Security Interest (except for Permitted Security Interests) or any other interest, right or claim over, in or in
relation to any asset to which any such Security Interest, by its terms,
relates.
10.8
No conflicts
The execution by the Borrower and each Security Party of each Finance Document
and each Underlying Document to which it is a party, and
the borrowing by the Borrower of the Loan (or any part thereof), and its compliance with each Finance Document and each Underlying
Document to which it is a party:
(a)
will not involve or lead to a contravention of:
(i)
any law or regulation; or
(ii)
the constitutional documents of the Borrower or any Security Party; or
(iii)
any contractual or other obligation or restriction which is binding on the Borrower or any Security Party or any of its assets, and
(b)
will not have a Material Adverse Effect; and
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(c)
is for the corporate benefit of the Borrower or the relevant Security Party.
10.9
No withholding taxes
All payments which the Borrower is liable to make under the Finance
Documents to which it is a party may be made without deduction or
withholding for or on account of any tax payable under any law of any Pertinent Jurisdiction.
10.10
No default
No Event of Default or Potential Event of Default has occurred.
10.11
Information
All information which has been provided in writing by or on behalf of the Borrower
or any Security Party or, to the best of the Borrower's
knowledge by or on behalf of any Approved Manager who is not a member of the Group, to any Creditor Party in connection with any
Finance Document satisfied the requirements of Clause 11.5; all audited and unaudited accounts and financial statements which have been
so provided satisfied the requirements of Clause 11.7 and are true, correct and not misleading and present fairly and accurately the
financial position of the Borrower, the Owner or the Group (as the case may be); and there has been no change in the financial position or
state of affairs of the Borrower, the Owner or the Group (or any member thereof) from that disclosed in the
latest of those accounts which
is likely to have a Material Adverse Effect.
10.12
No litigation
No legal or administrative action involving the Borrower or any Security Party
or any Approved Manager (including action relating to any
alleged or actual breach of the ISM Code or the ISPS Code) has been commenced or taken or, to the Borrower's knowledge, is likely to be
commenced or taken which would, in either case, be
likely to have a Material Adverse Effect.
10.13
Validity and completeness of Underlying Documents
Each Underlying Document constitutes valid,
binding and enforceable obligations of the parties thereto in accordance with its terms and:
(a)
each of the copies of that Underlying Document delivered to the Agent before the date of this Agreement is a true and complete copy; and
(b)
no amendments or additions to that Underlying Document have been agreed nor has any party which is a party to that Underlying
Document, waived any of their respective rights thereunder.
10.14
Compliance with certain undertakings
At the date of this Agreement, the Borrower is in
compliance with Clauses 11.2, 11.4, 11.9, 11.13, 13, 14.3 and 14.10.
10.15
Taxes paid
The Borrower has paid all taxes applicable to, or imposed on or in relation to the
Borrower and its business.
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10.16
ISM Code and ISPS Code compliance
All requirements of the ISM Code and the ISPS Code as they
relate to the Borrower, the Owner, an Approved Manager and the Ship have
been complied with.
10.17
No Money laundering
The Borrower:
(a)
will not, and will procure that no Security Party, to the extent applicable, will, in connection with this Agreement or any of the other Finance
Documents, contravene or permit any subsidiary to contravene, any law,
official requirement or other regulatory measure or procedure
implemented to combat "money laundering" (as defined in Article 1 of Directive 2015/849/EC of the Council of the European Communities)
and comparable United States Federal and
state laws. The Borrower shall further submit any documents and declarations on request, if
such documents or declarations are required by any Creditor Party to comply with its domestic money laundering and/or legal identification
requirements;
and
(b)
confirms that it is the beneficiary within the meaning of the German Anti Money Laundering Act (Gesetz über das Aufspüren von Gewinnen
aus schweren Straftaten (Geldwäschegesetz)), acting for its own
account and not for or on behalf of any other person for each part of the
Loan made or to be made available to it under this Agreement. That is to say, it acts for its own account and not for or on behalf of anyone
else.
The Borrower will promptly inform the Agent by written notice, if it is not or ceases to be the beneficiary and will provide in writing the
name
and address of the beneficiary.
The Agent shall promptly notify the Lenders of any written notice it receives under this
Clause 10.17.
10.18
No immunity
Neither the Borrower nor any of its assets is entitled to immunity on grounds of
sovereignty or otherwise from any legal action or
proceeding (including, without limitation, suit, attachment prior to judgement, execution or other enforcement).
10.19
Corrupt Practices
It has observed and, to the best of its knowledge and belief, parties acting
on its behalf have observed in the course of acting for it, all
applicable laws and regulations relating to bribery and corrupt practices.
10.20
Choice of law
The choice of the laws of England to govern this Agreement and those other
Finance Documents which are expressed to be governed by the
laws of England, the laws of Germany to govern the Account Pledges and the laws of the applicable Approved Flag State to govern the
Mortgages constitutes a valid choice of law and the
submission by the Borrower or, as the case may be, the relevant Security Parties
thereunder to the non-exclusive jurisdiction of the Courts of England and, in the case of the Account Pledges, Germany or, in the case of the
Mortgages, the applicable
Approved Flag State is a valid submission and does not contravene the laws of England or, in the case of the
Account Pledges, Germany or, in the case of the Mortgage, the applicable Approved Flag State or the laws of any other Pertinent
Jurisdiction,
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will be applied by the courts of any Pertinent Jurisdiction if this Agreement or those other Finance Documents or any
claim thereunder
comes under their jurisdiction upon proof of the relevant provisions of the laws of England or, in the case of the Account Pledges, Germany
or, in the case of the Mortgage, the applicable Approved Flag State.
10.21
Pari passu ranking
The obligations of the Borrower and each Security Party under the Finance
Documents to which it is a party are direct, general and
unconditional obligations and rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors except for
obligations mandatorily preferred by law applying to
companies generally.
10.22
Sanctions
(a)
Neither the Borrower, nor any Security Party, nor any Approved Manager, nor any member of the Group or any of their respective directors
or officers or, to the Borrower's or the relevant Security Party's or any
Approved Manager's, or the relevant member of the Group's best
knowledge (after due and careful inquiry), any of the Borrower's or such Security Party's or any Approved Manager's or such member of the
Group’s employees, affiliates, agents or
representatives:
(i)
is a Restricted Party;
(ii)
has been engaged in any transaction, activity or conduct that could reasonably be expected to result in its becoming a Restricted
Party;
(iii)
has or intends to have any business operations or other dealings:
(A)
in any Sanctioned Country which may result in a violation of any Sanctions applicable to it;
(B)
with any Specially Designated National (SDN) on OFAC’s SDN list or with a designated person targeted by asset freeze
sanctions imposed by the UN, EU, Switzerland or HMT or owned or controlled by any such SDN or
designated person; or
(C)
involving commodities or services of a Sanctioned Country origin or shipped to, through, or from a Sanctioned Country, or
on Sanctioned Country owned or registered vessels or aircraft, or finance or subsidise any of
the foregoing exceeding 5 per
cent. aggregated in comparison to the Borrower's or each Owner's total assets or revenues;
(iv)
has received notice of, or is otherwise aware of, any claim, action, suit, proceedings or investigation involving it with respect to
Sanctions; and/or
(v)
is acting on behalf of or at the direction of any Restricted Party.
(b)
Each member of the Group, has taken, to the extent applicable to it, reasonable measures to ensure compliance with any Sanctions and will
not use any part of the proceeds from the Loan or any part of the Loan in a
manner which may result in a violation of any Sanctions by any
person.
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(c)
The representations and warranties provided for in this Clause 10.22 are only given by, and/or (as applicable) shall only apply to, any
member of the Group which is a German Relevant Person (as defined in Clause 19.9)
or any other member of the Group bound by any
applicable statutory anti-boycott law or regulation insofar as the giving of and compliance with such representations and warranties do not
and will not result in a violation of or conflict with or
liability under section 7 of the German Foreign Trade Regulation
(Außenwirtschaftsverordnung, AWV) (in conjunction with section 4 and section 19 paragraph 3 no. 1 a) of the German Foreign Trade Act
(Außenwirtschaftsgesetz,
AWG)), any provision of Council Regulation (EC) 2271/96 or any similar applicable anti-boycott law or regulation.
(d)
In relation to a Restricted Lender, the representations and warranties provided for in this Clause 10.22 shall only apply for the benefit of
that Restricted Lender to the extent that such benefit and the exercise of
any rights based on such representations and warranties will not
result in a violation of or conflict with or liability under section 7 of the German Foreign Trade Regulation (Außenwirtschaftsverordnung,
AWV) (in conjunction with
section 4 and section 19 paragraph 3 no. 1 a) of the German Foreign Trade Act (Außenwirtschaftsgesetz, AWG)),
any provision of Council Regulation (EC) 2271/96 or any similar applicable anti-boycott law or regulation. In connection with
any
amendment, waiver, determination or direction relating to any part of this Clause 10.22 of which a Restricted Lender does not have the
benefit, the commitments of that Restricted Lender will be disregarded for all purposes when determining
whether the consent of the
Majority Lenders or such other applicable quorum has been obtained or whether the determination or direction by the Majority Lenders or
such other applicable quorum has been made.
10.23
Repetition
The representations and warranties in this Clause 10 shall be deemed to be repeated
by the Borrower:
(a)
on the date of service of the Drawdown Notice;
(b)
on the Drawdown Date; and
(c)
with the exception of Clauses 10.3, 10.9, 10.10, 10.11, 10.12 and 10.14 on the first day of each Interest Period and on the date of any
Compliance Certificate issued pursuant to Clause 11.21,
as if made with reference to the facts and circumstances existing on each such day.
11
GENERAL UNDERTAKINGS
11.1
General
The Borrower undertakes with each Creditor Party to comply with the following
provisions of this Clause 11 at all times during the Security
Period except as the Agent, acting with the authorisation of the Majority Lenders, may otherwise permit in writing.
11.2
Title; negative pledge
The Borrower will:
(a)
on and from the Delivery Date, hold (directly or indirectly) the legal title to, and own the entire beneficial interest in the Owner, the Ship,
her Insurances and Earnings, free from all Security Interests and other
interests and rights of every kind, except for those created by the
Finance
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Documents and the effect of assignments contained in the Finance Documents and except for Permitted Security Interests;
and
(b)
not create or permit to arise any Security Interest (except for Permitted Security Interests) over any other asset, present or future, other
than Security Interests arising in the normal course of the Borrower's
business of acquiring, operating and (re)financing vessels.
11.3
No disposal of assets
The Borrower will not, and shall procure that the Owner will not,
transfer, lease or otherwise dispose of:
(a)
all or a substantial part of its assets, whether by one transaction or a number of transactions, whether related or not;
(b)
any debt payable to it or any other right (present, future or contingent right) to receive a payment, including any right to damages or
compensation,
but paragraph (a) does not apply to:
(i)
any charter of the Ship;
(ii)
any sale of the Ship, subject to (A) the net sale proceeds of such sale being in an amount sufficient to make the mandatory
prepayment of the Loan pursuant to Clause 8.8 and (B) no
Event of Default has occurred, which is continuing at the relevant time;
(iii)
in the case of the Borrower, if such transfer, lease or disposal results in (A) the Borrower being in breach of any of its obligations
under Clause 12.5 or (B) the occurrence of an Event of Default.
11.4
No other liabilities or obligations to be incurred
The Borrower will not, and shall procure
that the Owner will not, incur any liability or obligation (including, without limitation, any Financial
Indebtedness or any obligations under a guarantee) except:
(a)
liabilities and obligations under the Finance Documents and the Underlying Documents to which it is or, as the case may be, will be a party;
(b)
in the case of the Owner, liabilities or obligations reasonably incurred in the normal course of its business of trading, operating and
chartering, maintaining and repairing the Ship (including, without limitation,
any Financial Indebtedness owing to the Borrower); and
(c)
in the case of the Borrower, liabilities or obligations reasonably incurred in the normal course of its business of acquiring, operating and
financing or refinancing vessels (and issuing relevant guarantees),
acquiring shares in vessel owning companies (or their holding companies)
and financing from any type of lender of such acquisitions and all other matters incidental thereto (including, without limitation, any
Financial Indebtedness owing to the
partners of the Borrower, subject to the Borrower ensuring on or prior to the Drawdown Date, that the
rights of each creditor thereunder are fully subordinated in writing pursuant to a Subordination Agreement).
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11.5
Information provided to be accurate
All financial and other information, including but not
limited to factual information, exhibits and reports, which is provided in writing by or
on behalf of the Borrower under or in connection with any Finance Document will be true, correct and not misleading and will not omit any
material fact or
consideration.
11.6
Provision of financial statements
The Borrower will send or procure that there are sent to the
Agent or, in relation to the consolidated audited annual financial statements of
the Group referred to in paragraph (a) of this Clause 11.6, notify the Agent that they have been made available to the public and
promptly
after each request of the Agent send:
(a)
as soon as possible, but in no event later than 120 days after the end of each Financial Year of the Borrower the consolidated audited
annual financial statements of the Group for that Financial Year (commencing with
the financial statements for the Financial Year which
ended on 31 December 2021);
(b)
as soon as possible, but in no event later than 60 days after the end of each 3-month period ending on 31 March, 30 June, 30 September, 31
December in each Financial Year of the Borrower the quarterly consolidated
unaudited financial statements of the Group, in each case, for
that 3-month period (commencing with the financial statements for the 3-month period, ending on 30 June 2022), duly certified as to their
correctness by the chief financial officer of
the Borrower; and
(c)
promptly after each request by the Agent, such further financial or other information in respect of the Borrower, the Ship, the Owner, the
other Security Parties and the Group (including, without limitation any sale
and purchase agreements, investment brochure(s), shipbuilding
contracts and charter agreements) as may be requested by the Agent.
11.7
Form of financial statements
All financial statements delivered under Clause 11.6 will:
(a)
be prepared in accordance with all applicable laws and GAAP and, in the case of any audited financial statements, be certified by an
independent and reputable auditor having requisite experience selected and appointed
by the Borrower;
(b)
give a true and fair view of the state of affairs of the Borrower and the Group at the date of those accounts and of its profit for the period to
which those accounts relate; and
(c)
fully disclose or provide for all significant liabilities of the Borrower and the Group.
11.8
Creditor notices
The Borrower will send the Agent:
(a)
whilst an Event of Default is in existence, at the same time as they are dispatched; and
(b)
at all other times, upon the Agent's request,
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copies of all communications which are despatched to the Borrower's partners or creditors or any class of them.
11.9
Consents
The Borrower will, and shall procure, where applicable, that the Owner will, maintain
in force and promptly obtain or renew, and will
promptly send certified copies to the Agent of, all consents required:
(a)
for the Borrower and the Owner to perform their respective obligations under any Finance Document and/or any Underlying Document to
which each is or, as the case may be, will be a party;
(b)
for the validity or enforceability of any Finance Document and/or any Underlying Document to which each is or, as the case may be, will be
a party; and
(c)
for the Owner to continue to own and operate the Ship,
and the Borrower will, and shall
procure that the Owner will, comply (or procure compliance as the case may be) with the terms of all such
consents.
11.10
Maintenance of Security Interests
The Borrower will:
(a)
at its own cost, do all that it reasonably can to ensure that any Finance Document validly creates the obligations and the Security Interests
which it purports to create; and
(b)
without limiting the generality of paragraph (a), at its own cost, promptly register, file, record or enrol any Finance Document with any court
or authority in all Pertinent Jurisdictions, pay any stamp, registration
or similar tax in all Pertinent Jurisdictions in respect of any Finance
Document, give any notice or take any other step which, in the opinion of the Majority Lenders, is or has become necessary or desirable for
any Finance Document to be valid,
enforceable or admissible in evidence or to ensure or protect the priority of any Security Interest which
it creates.
11.11
Notification of litigation
The Borrower will provide the Agent with details of any legal or
administrative action involving the Borrower, the Owner, the Ship, the
Earnings or the Insurances in respect of the Ship, any Security Party or to the best of Borrower's knowledge in respect of any Approved
Manager who is not a member of the Group
in relation to the Ship, as soon as such action is instituted or it becomes apparent to the
Borrower that it is likely to be instituted, unless it is clear that the legal or administrative action cannot be considered material in the
context of any
Finance Document and the Borrower shall procure that reasonable measures are taken to defend any such legal or
administrative action.
11.12
No amendment to the Underlying Documents
The Borrower shall not, and shall procure that the
Owner will not, waive or fail to enforce, the Underlying Documents to which it is a party
or any of its provisions and promptly notify the Agent of any material amendment or supplement to any Underlying Document.
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11.13
Principal place of business
The Borrower will maintain its place of business, and keep its
corporate documents and records, at the address stated in Clause 28.2(a); and
the Borrower will not establish, or do anything as a result of which it would be deemed to have, a place of business in any country other
than Greece.
11.14
Confirmation of no default
The Borrower will, within five Business Days after service by the
Agent of a written request, serve on the Agent a notice which is signed by
the authorised representative of the Borrower or an officer of the Borrower's general partner and which:
(a)
states that no Event of Default or Potential Event of Default has occurred; or
(b)
states that no Event of Default or Potential Event of Default has occurred, except for a specified event or matter, of which all material details
are given.
The Agent may serve requests under this Clause 11.14 from time to time but only if asked to do so by a Lender
or Lenders having
Contributions exceeding 10 per cent. of the Loan (if the Loan has not been advanced) or Commitments exceeding 10 per cent. of the Total
Commitments and this Clause 11.14 does not affect the
Borrower's obligations under Clause 11.15.
11.15
Notification of default
The Borrower will notify the Agent as soon as the Borrower becomes
aware of:
(a)
the occurrence of an Event of Default or a Potential Event of Default; or
(b)
any matter which indicates that an Event of Default or a Potential Event of Default may have occurred,
and will keep the Agent fully up-to-date with all developments.
11.16
Provision of further information
The Borrower shall, and shall procure that the Owner will as
soon as practicable after receiving the request, provide the Agent with any
additional financial or other information relating:
(a)
to the Borrower, the Owner, the Ship, the Earnings or the Insurances of any Ship; or
(b)
to any other matter relevant to, or to any provision of, a Finance Document,
which may be
requested by the Agent, the Security Trustee or any Lender at any time.
11.17
General and administrative costs
The Borrower shall ensure that the payment of all the general
and administrative costs of the Borrower and the Owner in connection with
the ownership and operation of the Ship (including, without limitation, the payment of the management fees pursuant to any management
agreement) shall be fully subordinated to
the payment obligations of the Borrower and the Owner under this Agreement and the other
Finance Documents throughout the Security Period.
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11.18
Provision of copies of SEC filings
The Borrower will send to the Agent copies of all filings
made with, and reports submitted to, the US Securities and Exchange Commission
promptly after making such filings or submitting such reports Provided that any such filings or reports which are made available to the
public shall be considered
to have been delivered to the Agent.
11.19
Provision of copies and translation of documents
The Borrower will supply the Agent with a
sufficient number of copies of the documents referred to above to provide one copy for each
Creditor Party; and if the Agent so requires in respect of any of those documents, the Borrower will provide a certified English translation
prepared by a
translator approved by the Agent or have them legalised and/or notarised by a competent authority.
11.20
"Know your customer" checks
If:
(a)
the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of
this Agreement;
(b)
any change in the status of the general partner of the Borrower or any Security Party after the date of this Agreement; or
(c)
a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior
to such assignment or transfer,
obliges the Agent or any Lender (or, in the case of paragraph (c), any prospective new Lender) to comply with "know your customer" or
similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall
promptly upon the request of the Agent or the Lender concerned supply, or procure the supply of, such documentation
and other evidence
as is reasonably requested by the Agent (for itself or on behalf of any Lender) or the Lender concerned (for itself or, in the case of the event
described in paragraph (c), on behalf of any prospective new Lender) in order for the
Agent, the Lender concerned or, in the case of the
event described in paragraph (c), any prospective new Lender to carry out and be satisfied it has complied with all necessary "know your
customer" or other similar checks under all
applicable laws and regulations pursuant to the transactions contemplated in the Finance
Documents.
11.21
Compliance Certificate
(a)
The Borrower shall supply to the Agent, together with each set of financial statements delivered pursuant to paragraphs (a) and (b) of
Clause 11.6 or, in the case of paragraph (a) of Clause 11.6, together with
the notification that the consolidated audited annual financial
statements of the Group have been made available to the public, a Compliance Certificate.
(b)
Each Compliance Certificate shall be duly signed by the chief financial officer of the Borrower, evidencing (inter alia) the Borrower's
compliance (or not, as the case may be) with the provisions of Clauses 12.5 and
15.1 (setting out calculations in reasonable details as to
such compliance or not).
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11.22
No Money laundering
(a)
The Borrower:
(i)
will not, and will procure that no Security Party, to the extent applicable, will, in connection with this Agreement or any of the other
Finance Documents, contravene, or permit any subsidiary to contravene, any law,
official requirement or other regulatory measure
or procedure implemented to combat "money laundering" (as defined in Article 1 of the Directive 2015/849/EC of the European
Parliament and of the Council of the European Union of 20 May
2015) and any comparable US federal and state laws; and
(ii)
shall further submit any documents and declarations on request, if such documents or declarations are required by any Creditor
Party to comply with its domestic money laundering and/or legal identification
requirements.
(b)
The Borrower:
(i)
shall confirm to the Agent that it is the beneficiary within the meaning of the German Anti Money Laundering Act (Gesetz über das
Aufspüren von Gewinnen aus schweren Straftaten
(Geldwäschegesetz)), acting for its own account and not for or on behalf of any
other person for each part of the Loan made or to be made available to it under this Agreement (that is to say, it acts for its own
account and not for or on
behalf of anyone else); and
(ii)
will promptly inform the Agent by written notice, if it is not or ceases to be the beneficiary and will provide in writing the name and
address of the beneficiary.
(c)
The Agent shall promptly notify the Lenders of any written notice it receives under sub-paragraph (ii) of paragraph (b) of Clause 11.22
above.
11.23
Sanctions
(a)
The Borrower undertakes that neither it nor its subsidiaries will, directly or indirectly,
(i)
engage in any activities in conflict with or in violation of any Sanctions and, in particular,
(ii)
use the proceeds of the Loan or any part of the Loan to lend, contribute or otherwise make available such proceeds to any
subsidiary, joint venture partner or other person that is a Restricted Party;
(iii)
directly or indirectly fund all or part of any repayment or prepayment of the Loan with funds that are the property of, are
beneficially owned directly or indirectly by, or are derived from any transaction with or
action involving a Restricted Party; or
(iv)
otherwise act in any manner with respect to such proceeds which would result in a violation by any person (including any Creditor
Party or any person participating in the transaction, whether as initial purchaser,
advisor, investor or otherwise) of Sanctions.
(b)
The undertakings provided for in this Clause 11.22 are only given by, and/or (as applicable) shall only apply to, any member of the Group
which is a German Relevant Person or any other member of the Group bound by any
applicable statutory anti-boycott law or regulation
insofar
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EUROPE/71630549v6
as the giving of and compliance with such undertakings do not and will not result in a violation of or conflict with or
liability under section 7
of the German Foreign Trade Regulation (Außenwirtschaftsverordnung, AWV) (in conjunction with section 4 and section 19 paragraph 3 no.
1 a) of the German Foreign Trade Act (Außenwirtschaftsgesetz,
AWG)), any provision of Council Regulation (EC) 2271/96 or any other
applicable anti-boycott or similar applicable laws or regulation.
(c)
In relation to a Restricted Lender, the undertakings provided for in this Clause 11.22 shall only apply for the benefit of that Restricted
Lender to the extent that such benefit and the exercise of any rights based on
such undertakings will not result in a violation of or conflict
with or liability under section 7 of the German Foreign Trade Regulation (Außenwirtschaftsverordnung, AWV) (in conjunction with section 4
and section 19 paragraph 3 no. 1
a) of the German Foreign Trade Act (Außenwirtschaftsgesetz, AWG)), any provision of Council Regulation
(EC) 2271/96 or any similar applicable anti-boycott law or regulation. In connection with any amendment, waiver, determination or
direction relating to any part of this Clause 11.22 of which a Restricted Lender does not have the benefit, the Commitments of that
Restricted Lender will be disregarded for all purposes when determining whether the consent of the Majority Lenders
(or such other
applicable quorum) has been obtained or whether the determination or direction by the Majority Lenders (or such other applicable
quorum) has been made.
12
CORPORATE UNDERTAKINGS
12.1
General
The Borrower also undertakes with each Creditor Party to comply with the following
provisions of this Clause 12 at all times during the
Security Period except as the Agent, acting with the authorisation of the Majority Lenders, may otherwise permit in writing.
12.2
Maintenance of status
The Borrower will maintain its separate existence and remain in good
standing under the laws of the Republic of the Marshall Islands.
12.3
Negative undertakings
The Borrower will not:
(a)
change the nature of its business; or
(b)
pay any dividend or make any other form of distribution or effect any form of redemption, purchase, return or reduction of its partnership
interests unless:
(i)
no Event of Default has occurred and is continuing at the relevant time (including, without limitation, any failure by the Borrower to
satisfy the covenants contained in Clauses 12.5 and 15.1);
(ii)
no Event of Default will result from the payment of a dividend or the making of any other form of distribution; and
(iii)
it has first supplied to the Agent any Compliance Certificate required to be supplied at the relevant time to the Agent pursuant to
Clause 11.21 evidencing compliance
with
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the provisions of Clauses 12.5 and 15.1 for the period covered by the latest financial statements delivered to the Agent
pursuant to
Clause 11.6;
(c)
provide any form of credit or financial assistance to:
(i)
a person who is directly or indirectly interested in the Borrower's partnership interests; or
(ii)
any company in or with which such a person is directly or indirectly interested or connected,
or enter into any transaction with or involving such a person or company on terms which are, in any respect, less favourable to the
Borrower
than those which it could obtain in a bargain made at arms' length;
(d)
allow the Owner to open or maintain any account with any bank or financial institution except accounts with the Agent and the Security
Trustee for the purposes of the Finance Documents;
(e)
enter into any form of amalgamation, merger or de-merger, acquisition, divesture, split-up or any form of reconstruction or reorganisation
unless:
(i)
the surviving entity following such amalgamation, merger or de-merger, acquisition, divesture, split-up or any form of
reconstruction or reorganisation is the Borrower; and
(ii)
no Event of Default has occurred which is continuing nor any Event of Default (including, without limitation, any breach of Clause
12.5) will occur as a result of such amalgamation,
merger or de-merger, acquisition, divesture, split-up or any form of reconstruction
or reorganisation;
(f)
change, or allow the Owner to change, its Financial Year; or
(g)
change its auditors without notifying the Agent promptly after the occurrence of such change.
12.4
Subordination of rights of Borrower
All rights which the Borrower at any time has against the
Owner or its assets shall be fully subordinated to the rights of the Lenders under
the Finance Documents; and in particular, the Borrower shall not during the Security Period:
(a)
claim, or in a bankruptcy of the Owner prove for, any amount payable to the Borrower by the Owner, whether in respect of this or any other
transaction;
(b)
take or enforce any Security Interest for any such amount; or
(c)
claim to set-off any such amount against any amount payable by the Borrower to the Owner.
12.5
Financial Covenants
The Borrower shall ensure that at all times:
(a)
the Leverage Ratio shall be less than 75 per cent.;
(b)
the Borrower and other members of the Group maintain immediately freely available and unencumbered bank or cash deposits (including
time deposits and the amounts standing to
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the credit of the Retention Account) in an amount of not less than the product of (i) $500,000 and (ii) the number of
Fleet Vessels at the
time; and
(c)
the ratio of EBITDA to Net Interest Expense shall be no less than 2:1.
12.6
Equal treatment
(a)
The Borrower confirms that as at the date of this Agreement the financial covenants, including without limitation the asset cover ratio
requirement set out in Clause 15.1 and the
dividend restrictions set out in Clause 12.3(b), applicable to the Borrower pursuant to this
Agreement, place no lender or other credit provider of the Borrower or any other member of the Group in a more favourable
position than
that applicable to the Creditor Parties pursuant to the Finance Documents.
(b)
If, in the opinion of the Agent (acting on the instructions of the Lenders), the Borrower or any other member of the Group agrees with any
lender or other credit provider in the context of a financing made or to be
made available to that member of the Group, financial covenants
including without limitation any asset cover ratio and dividend restrictions (the "Covenants"), which place such lender or credit provider in
a more favourable position
than that applicable to the Creditor Parties pursuant to the Finance Documents, the Borrower shall, or shall
procure that any Security Party or any other member of the Group shall give the Creditor Parties the benefit of such Covenants which, in
the
opinion of the Creditor Parties, would place them in an equivalent position as that applicable to the other lender or credit provider at
the relevant time. The Borrower and the Owner shall also enter, if required by the Agent (acting on the
instructions of all Lenders), into a
supplemental agreement to this Agreement or, as the case may be, any of the other Finance Documents, to amend each such document
accordingly (with such supplemental agreement or agreements being entered into on
or immediately after the date on which the
Covenants are granted).
12.7
Borrower's and Owner's subsidiaries
The Borrower and Owner have provided the Agent on or
before the date of this Agreement with a list of their subsidiaries as included in
their annual audited financial statements (together with any information requested by the Agent pursuant to Clause 11.6(c) in
respect of
such subsidiaries) and shall ensure to include an updated list of their active subsidiaries in each set of financial statements to be provided to
the Agent pursuant to Clause 11.6.
13
INSURANCE
13.1
General
The Borrower also undertakes with each Creditor Party to procure that the Owner
complies with the following provisions of this Clause 13
as from the Drawdown Date and at all times thereafter during the Security Period except as the Agent, acting with the authorisation of the
Majority Lenders, may otherwise permit in
writing.
13.2
Maintenance of obligatory insurances
The Borrower shall procure that the Owner shall keep the
Ship insured at its own expense against:
(a)
fire and usual marine risks (including hull and machinery and excess risks);
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(b)
war risks (including, without limitation, protection and indemnity war risks with a separate limit not less than hull value of the Ship);
(c)
protection and indemnity risks (including, without limitation protection and indemnity war risks in excess of the amount for war risks (hull)
and oil pollution liability risks in each case in the highest amount
available in the international insurance market); and
(d)
any other risks the insurance of which the Security Trustee acting on the instructions of the Majority Lenders, having regard to practices,
recommendations and other circumstances prevailing at the relevant time, may
from time to time require by notice to the Borrower
(excluding loss of hire insurance).
13.3
Terms of obligatory insurances
The Borrower shall procure that the Owner shall effect such
insurances in such amounts in such currency and upon such terms and
conditions (including, without limitation, any LSW 1189 or, in the opinion of the Security Trustee, comparable mortgage clause) as shall
from time to time be approved in writing by
the Security Trustee in its sole discretion, but in any event as follows:
(a)
in Dollars;
(b)
in the case of fire and usual marine risks and war risks, on an agreed value basis in an amount equal to at least the higher of:
(i)
an amount equal to 120 per cent. of the aggregate of:
(A)
the Loan; and
(B)
the principal amount secured by any equal or prior ranking Security Interest on the Ship; and
(ii)
the Market Value of the Ship,
(c)
in the case of oil pollution liability risks, for an amount equal to the highest level of cover from time to time available under basic protection
and indemnity club entry (with the International Group of Protection
and Indemnity Clubs) and the international marine insurance market
(currently $1,000,000,000 for any one accident or occurrence);
(d)
in relation to protection and indemnity risks in respect of the full value and tonnage of the Ship;
(e)
in relation to war risks insurance, extended to cover piracy and terrorism where excluded under the fire and usual marine risks insurance;
(f)
on approved terms and conditions;
(g)
such other risks of whatever nature and howsoever arising in respect of which insurance would be maintained by a prudent owner of a
vessel similar to the Ship; and
(h)
through approved brokers and with approved insurance companies and/or underwriters which have a Standard & Poor's rating of at least
BBB- or a comparable rating by any other rating agency acceptable to the
Security Trustee (acting on the instructions of the Majority
Lenders)
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or, in the case of war risks and protection and indemnity risks, in approved war risks and protection and indemnity risks
associations which
are members of the International Group of Protection and Indemnity Clubs.
13.4
Further protections for the Creditor Parties
In addition to the terms set out in Clause 13.3,
the Borrower shall procure that the obligatory insurances shall:
(a)
the Borrower, the Owner and any and all third parties who are named assured or co-assured under any obligatory insurance shall assign
their interest in any and all obligatory insurances and other Insurances if so
required by the Agent;
(b)
whenever the Security Trustee requires, the obligatory insurances name (or be amended to name) the Security Trustee as additional named
assured for its rights and interests, warranted no operational interest and with
full waiver of rights of subrogation they may have under any
applicable law against the Security Trustee but without the Security Trustee thereby being liable to pay (but having the right to pay)
premiums, calls or other assessments in respect of
such insurance;
(c)
the interest of the Security Trustee as assignee and as loss payee shall be duly endorsed on all slips, cover notes, policies, certificates of
entry or other instruments of insurance in respect of the obligatory
insurances;
(d)
the obligatory insurances shall name the Security Trustee as sole loss payee with such directions for payment as the Security Trustee may
specify;
(e)
the obligatory insurances shall provide that all payments by or on behalf of the insurers under the obligatory insurances to the Security
Trustee shall be made without set-off, counterclaim or deductions or condition
whatsoever;
(f)
the obligatory insurances shall provide that the insurers shall waive, to the fullest extent permitted by English law, their entitlement (if any)
(whether by statute, common law, equity, or otherwise) to be subrogated
to the rights and remedies of the Security Trustee in respect of
any rights or interests (secured or not) held by or available to the Security Trustee in respect of the Secured Liabilities, until the Secured
Liabilities shall have been fully repaid
and discharged, except that the insurers shall not be restricted by the terms of this paragraph (f) from
making personal claims against persons (other than the Owner or any Creditor Party) in circumstances where the insurers have fully
discharged
their liabilities and obligations under the relevant obligatory insurances;
(g)
the obligatory insurances shall provide that the obligatory insurances shall be primary without right of contribution from other insurances
effected by the Security Trustee or any other Creditor
Party;
(h)
the obligatory insurances shall provide that the Security Trustee may make proof of loss if the Owner fails to do so; and
(i)
the obligatory insurances shall provide that if any obligatory insurance is cancelled, or if any substantial change is made in the coverage
which adversely affects the interest of the Security Trustee, or if any
obligatory insurance is allowed to lapse for non-payment of premium,
such cancellation, charge or lapse shall only be effective against the Security Trustee 14 days (or 7
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days in the case of war risks) after receipt by the Security Trustee of prior written notice from the insurers of such
cancellation, change or
lapse.
13.5
Renewal of obligatory insurances
The Borrower shall procure that the Owner shall:
(a)
at least 10 days before the expiry of any obligatory insurance effected by it:
(i)
notify the Security Trustee of the brokers, underwriters, insurance companies and any protection and indemnity or war risks
association through or with whom the Owner proposes to renew that obligatory insurance and of
the proposed terms of renewal;
and
(ii)
seek the Security Trustee's approval to the matters referred to in paragraph (i);
(b)
at least 7 days before the expiry of any obligatory insurance, renew that obligatory insurance in accordance with the Security Trustee's
approval pursuant to paragraph (a); and
(c)
procure that the approved brokers and/or the war risks and protection and indemnity associations with which such a renewal is effected
shall promptly after the renewal notify the Security Trustee in writing of the
terms and conditions of the renewal.
13.6
Copies of policies; letters of undertaking
The Borrower shall procure that the Owner shall
ensure that all approved brokers provide the Security Trustee with pro forma copies of all
cover notes and policies relating to the obligatory insurances which they are to effect or renew and of a letter or letters of undertaking in a
form required
by the Security Trustee and including undertakings by the approved brokers that:
(a)
they will have endorsed on each policy, immediately upon issue, a loss payable clause and a notice of assignment complying with the
provisions of Clause 13.4;
(b)
they will hold such policies, and the benefit of such insurances, to the order of the Security Trustee in accordance with the said loss payable
clause;
(c)
they will advise the Security Trustee immediately of any change to the terms of the obligatory insurances;
(d)
they will notify the Security Trustee, not less than 14 days before the expiry of the obligatory insurances, in the event of their not having
received notice of renewal instructions from the Owner or its agents and,
in the event of their receiving instructions to renew, they will
promptly notify the Security Trustee of the terms of the instructions; and
(e)
they will not set off against any sum recoverable in respect of a claim relating to the Ship under such obligatory insurances any premiums or
other amounts due to them or any other person whether in respect of the
Ship or otherwise, they waive any lien on the policies, or any
sums received under them, which they might have in respect of such premiums or other amounts, and they will not cancel such obligatory
insurances by reason of non-payment of such
premiums or other amounts, and will arrange for a separate policy to be issued in respect of
the Ship forthwith upon being so requested by the Security Trustee.
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13.7
Copies of certificates of entry; letters of undertaking
The Borrower shall procure that the
Owner shall ensure that any protection and indemnity and/or war risks associations in which the Ship is
entered provides the Security Trustee with:
(a)
a certified copy of the certificate of entry for the Ship;
(b)
a letter or letters of undertaking in such form as may be required by the Security Trustee;
(c)
where required to be issued under the terms of insurance/indemnity provided by the Owner's protection and indemnity association, a
certified copy of each United States of America voyage quarterly declaration (or other
similar document or documents) made by the Owner
in accordance with the requirements of such protection and indemnity association; and
(d)
a certified copy of each certificate of financial responsibility for pollution by oil or other Environmentally Sensitive Material issued by the
relevant certifying authority or, as the case may be, protection and
indemnity associations in relation to the Ship (if applicable).
13.8
Deposit of original policies
The Borrower shall procure that the Owner shall ensure that all
policies relating to obligatory insurances effected by it are deposited with
the approved brokers through which the insurances are effected or renewed.
13.9
Payment of premiums
The Borrower shall procure that the Owner shall punctually pay all
premiums or other sums payable in respect of the obligatory insurances
effected by it and produce all relevant receipts when so required by the Security Trustee.
13.10
Guarantees
The Borrower shall procure that the Owner shall ensure that any guarantees required
by a protection and indemnity or war risks association
are promptly issued and remain in full force and effect.
13.11
Compliance with terms of insurances
The Borrower shall procure that the Owner shall not do or
omit to do (or permit to be done or not to be done) any act or thing which would
or might render any obligatory insurance invalid, void, voidable or unenforceable or render any sum payable under an obligatory insurance
repayable in whole or in part;
and, in particular:
(a)
the Borrower shall procure that the Owner shall take all necessary action and comply with all requirements which may from time to time be
applicable to the obligatory insurances, and (without limiting the obligation
contained in Clause 13.6(c)) ensure that the obligatory
insurances are not made subject to any exclusions or qualifications to which the Security Trustee has not given its prior approval;
(b)
the Borrower shall procure that the Owner shall not make any changes relating to the classification or classification society or manager or
operator of the Ship approved by the underwriters of the obligatory
insurances;
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(c)
the Borrower shall procure that the Owner shall make (and promptly supply copies to the Agent (upon its request)) of all quarterly or other
voyage declarations which may be required by the protection and indemnity
risks association in which the Ship is entered to maintain cover
for trading to the United States of America and Exclusive Economic Zone (as defined in the United States Oil Pollution Act 1990 or any other
applicable legislation) and, if applicable,
shall procure that each Approved Manager complies with this requirement; and
(d)
the Borrower shall procure that the Owner shall not employ the Ship, nor allow it to be employed, otherwise than in conformity with the
terms and conditions of the obligatory insurances, without first obtaining the
consent of the insurers and complying with any requirements
(as to extra premium or otherwise) which the insurers specify.
13.12
Alteration to terms of insurances
The Borrower shall procure that the Owner shall not make or
agree to any alteration to the terms of any obligatory insurance or waive any
right relating to any obligatory insurance.
13.13
Settlement of claims
The Borrower shall procure that the Owner shall not settle, compromise or
abandon any claim under any obligatory insurance for Total Loss
or for a Major Casualty, and shall do all things necessary and provide all documents, evidence and information to enable the Security
Trustee to collect or recover any moneys which at
any time become payable in respect of the obligatory insurances and shall do all things
necessary to ensure such collection or recovery is made.
13.14
Provision of copies of communications
The Borrower shall procure that the Owner shall provide
the Security Trustee with copies of all written communications:
(a)
in the case of:
(i)
an Event of Default, for as long as such Event of Default is continuing;
(ii)
a Major Casualty, for as long as such Major Casualty has not been rectified and/or the relevant insurances proceeds have not been
paid to the Security Trustee, pursuant to the Finance Documents; and
(iii)
a Total Loss during the period commencing on the Total Loss Date and ending on the earlier of (A) the date falling 120 days after the
Total Loss Date and (B) the date of receipt by the Security Trustee of the proceeds
of insurance relating to such Total Loss,
at the time of each such communication regarding the above-mentioned events; and
(b)
at all other times, upon the Security Trustee's request,
between the Owner and:
(i)
the approved brokers;
(ii)
the approved protection and indemnity and/or war risks associations; and
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(iii)
the approved insurance companies and/or underwriters, which relate directly or indirectly to:
(A)
the Owner's obligations relating to the obligatory insurances including, without limitation, all requisite declarations and
payments of additional premiums or calls;
(B)
any credit arrangements made between the Owner and any of the persons referred to in paragraphs (a) or (b) relating
wholly or partly to the effecting or maintenance of the obligatory insurances; and
(C)
a claim under any obligatory insurances of the Ship.
13.15
Provision of information and further undertakings
In addition, the Borrower shall procure that
the Owner shall promptly provide the Security Trustee (or any persons which it may designate)
with any information which the Security Trustee (or any such designated person) requests for the purpose of:
(a)
obtaining or preparing any report from an independent marine insurance broker as to the adequacy of the obligatory insurances effected or
proposed to be effected; and/or
(b)
effecting, maintaining or renewing any such insurances as are referred to in Clause 13.17 or dealing with or considering any matters relating
to any such insurances,
and the Borrower shall procure that the Owner shall:
(c)
do all things necessary and provide the Agent and the Security Trustee with all documents and information to enable the Security Trustee to
collect or recover any moneys in respect of the Insurances which are payable
to the Security Trustee pursuant to the Finance Documents;
and
(d)
promptly provide the Agent with full information regarding any Major Casualty or in consequence whereof the Ship has become or may
become a Total Loss and agree to any settlement of such casualty or other accident or
damage to the Ship only with the Agent's prior
written consent,
and the Borrower shall procure that the Owner shall, forthwith
upon demand, indemnify the Security Trustee in respect of all fees and
other expenses incurred by or for the account of the Security Trustee in connection with any such report as is referred to in paragraph (a).
13.16
Mortgagee's interest and additional perils insurances
The Security Trustee shall be entitled
from time to time to effect, maintain and renew all or any of the following insurances in such
amounts, on such terms, through such insurers and generally in such manner as the Majority Lenders may from time to time consider
appropriate:
(a)
a mortgagee's interest insurance in relation to the Ship providing for the indemnification of the Creditor Parties for any losses under or in
connection with any Finance Document in an amount of up to 120 per cent. of
the aggregate of:
(i)
the Loan; and
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EUROPE/71630549v6
(ii)
the principal amount secured by any equal or prior ranking Security Interest on the Ship,
which
directly or indirectly result from loss of or damage to the Ship or a liability of the that or of the Owner, being a loss or damage
which is prima facie covered by an obligatory insurance but in respect of which there is a non-payment (or reduced
payment) by the
underwriters by reason of, or on the basis of an allegation concerning:
(A)
any act or omission on the part of the Owner, of any operator, charterer, manager or sub-manager of the Ship or of any
officer, employee or agent of the Owner or of any such person, including any breach of warranty or
condition or any non-
disclosure relating to such obligatory insurance;
(B)
any act or omission, whether deliberate, negligent or accidental, or any knowledge or privity of the Owner, any other person
referred to in paragraph (i) above, or of any officer, employee or agent of the Owner or of
such a person, including the
casting away or damaging of the Ship and/or the Ship being unseaworthy; and/or
(C)
any other matter capable of being insured against under a mortgagee's interest marine insurance policy whether or not
similar to the foregoing; and
(b)
a mortgagee's interest additional perils insurance in relation to the Ship providing for the indemnification of the Creditor Parties against,
among other things, any possible losses or other consequences of any
Environmental Claim, including the risk of expropriation, arrest or
any form of detention of a Ship, the imposition of any Security Interest over the Ship and/or any other matter capable of being insured
against under a mortgagee's interest
additional perils policy whether or not similar to the foregoing, and in an amount of up to 110 per
cent. of the aggregate of:
(i)
the Loan; and
(ii)
the principal amount secured by any equal or prior ranking Security Interest on the Ship,
and
the Borrower shall upon demand fully indemnify the Security Trustee in respect of all premiums and other expenses which are incurred
in connection with or with a view to effecting, maintaining or renewing any such insurance or dealing with, or
considering, any matter
arising out of any such insurance.
13.17
Review of insurance requirements
The Agent (acting on the instructions of the Majority
Lenders) shall be entitled to review the requirements of this Clause 13 from time to
time in order to take account of any changes in circumstances after the date of this Agreement which are, in the opinion of the Agent
(acting on the instructions of
the Majority Lenders), significant and capable of affecting the Owner, the Ship and its Insurances (including,
without limitation, changes in the availability or the cost of insurance coverage or the risks to which the Owner may be subject) and the
Borrower and the Owner shall upon demand fully indemnify the Agent in respect of all documented fees and other expenses incurred by or
for the account of the Agent in appointing an independent marine insurance broker or adviser to conduct such
review.
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13.18
Modification of insurance requirements
The Agent (acting on the instructions of the Majority
Lenders) shall notify the Borrower and the Owner of any proposed modification under
Clause 13.18 to the requirements of this Clause 13 which the Agent reasonably considers appropriate in the circumstances, and such
modification shall take effect on
and from the date it is notified in writing to the Borrower and the Owner as an amendment to this Clause
13 and shall bind the Borrower and the Owner accordingly.
13.19
Compliance with mortgagee's instructions
The Security Trustee shall be entitled (without
prejudice to or limitation of any other rights which it may have or acquire under any Finance
Document) to require the Ship to remain at any safe port or to proceed to and remain at any safe port designated by the Security Trustee
until the Owner
implements any amendments to the terms of the obligatory insurances and any operational changes required as a result of
a notice served under Clause 13.19.
14
SHIP COVENANTS
14.1
General
The Borrower also undertakes with each Creditor Party to procure that the Owner
complies as from the Drawdown Date and at all times
thereafter during the Security Period with the following provisions of this Clause 14 except as the Agent, with the authorisation of the
Majority Lenders, may otherwise permit (in the case of
Clauses 14.2, 14.3(b) and 14.13 such authorisation not to be unreasonably withheld
or delayed by any Lender).
14.2
Ship's name and registration
The Borrower shall procure that the Owner shall keep the Ship
registered in its name under the Approved Flag; shall not do, omit to do or
allow to be done anything as a result of which such registration might be cancelled or imperilled; and shall not change the name or port of
registry of the Ship.
14.3
Repair and classification
The Borrower shall procure that the Owner and each Approved Manager
shall, keep the Ship in a good and safe condition and state of
repair, sea and cargo worthy in all respects:
(a)
consistent with first-class ship ownership and management practice;
(b)
so as to maintain the highest class available for vessels of the same type, specification and age as the Ship free of overdue
recommendations and conditions, with the Approved Classification Society;
and
(c)
so as to comply with all laws and regulations applicable to vessels registered at ports in the applicable Approved Flag State or to vessels
trading to any jurisdiction to which the Ship may trade from time to time,
including but not limited to the ISM Code and the ISPS Code,
and the Agent shall be given power of attorney in the form
attached as Schedule 5 to act on behalf of the Owner in order to, inspect the
class records and any files held by the classification society and to require the classification society to provide the Agent or any of its
nominees
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with any information, document or file, it might request and the classification society shall be fully entitled to rely
hereon without any
further inquiry.
14.4
Classification society undertaking
The Borrower shall procure that the Owner shall instruct
the classification society referred to in Clause 14.3 (and procure that the
classification society undertakes with the Security Trustee):
(a)
to send to the Security Trustee, following receipt of a written request from the Security Trustee, certified true copies of all original class
records and any other related records held by the classification society
in relation to the Ship;
(b)
to allow the Security Trustee (or its agents), at any time and from time to time, to inspect the original class and related records of the Ship
at the offices of the classification society and to take copies of
them;
(c)
to notify the Security Trustee immediately in writing if the classification society:
(i)
receives notification from the Borrower or the Owner or any person that the Ship's classification society is to be changed; or
(ii)
becomes aware of any facts or matters which may result in or have resulted in a change, suspension, discontinuance, withdrawal or
expiry of the Ship's class under the rules or terms and conditions of the Owner's or
the Ship's membership of the classification
society;
(d)
following receipt of a written request from the Security Trustee:
(i)
to confirm that the Owner is not in default of any of its contractual obligations or liabilities to the classification society and, without
limiting the foregoing, that it has paid in full all fees or other charges
due and payable to the classification society; or
(ii)
if the Owner is in default of any of its contractual obligations or liabilities to the classification society, to specify to the Security
Trustee in reasonable detail the facts and circumstances of such default, the
consequences thereof, and any remedy period agreed
or allowed by the classification society.
14.5
Modification
The Borrower shall procure that the Owner shall make no modification or repairs
to, or replacement of, the Ship or equipment installed on
it which would or might materially alter the structure, type or performance characteristics of the Ship or materially reduce its value.
14.6
Removal of parts
The Borrower shall procure that the Owner shall not remove any material part
of the Ship, or any item of equipment installed on the Ship
unless the part or item so removed is forthwith replaced by a suitable part or item which is in the same condition as or better condition
than the part or item removed, is free from any
Security Interest or any right in favour of any person other than the Security Trustee and
becomes on installation on the Ship the property of the Owner and subject to the security constituted by the Mortgage and any Deed of
Covenant
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Provided that the Owner may install equipment owned by a third party if the equipment can be removed without any
risk of damage to the
Ship.
14.7
Surveys
The Borrower shall procure that the Owner shall submit the Ship regularly to all
periodical or other surveys which may be required for
classification purposes and, if so required by the Security Trustee provide the Security Trustee, with copies of all survey reports.
14.8
Inspection
The Borrower shall procure that the Owner shall permit the Security Trustee (by
surveyors or other persons appointed by it for that
purpose) to board the Ship at all reasonable times to inspect its condition or to satisfy themselves about proposed or executed repairs and
shall afford all proper facilities for such inspections
at the Owner's expense and if the inspector or surveyor appointed by the Security
Trustee under this Clause is of the opinion that there are any technical, commercial or operational actions being undertaken or omitted to
be undertaken by the Owner
or the Approved Manager which adversely affect the operation or value of the Ship, the Borrower shall
procure that the Owner shall forthwith (at the Owner's expense) on the Security Trustee's demand remedy such action or inaction and
provide the
Security Trustee with evidence that it has taken such remedial action Provided that the Owner shall be obliged to pay for one
inspection per calendar year during the Security Period unless an Event of Default has occurred and is continuing in
which case it shall pay
for all inspections made whilst such Event of Default is in existence.
14.9
Prevention of and release from arrest
The Borrower shall procure that the Owner shall promptly
discharge:
(a)
all liabilities which give or may give rise to maritime or possessory liens on or claims enforceable against the Ship and the Earnings or the
Insurances of the Ship;
(b)
all taxes, dues and other amounts charged in respect of the Ship and the Earnings or the Insurances of the Ship; and
(c)
all other outgoings whatsoever in respect of the Ship and the Earnings or the Insurances of the Ship,
and, forthwith upon receiving notice of the arrest of the Ship, or of its detention in exercise or purported exercise of any lien or claim, the
Owner shall procure its release by providing bail or otherwise as the circumstances may require.
14.10
Compliance with laws etc.
The Borrower shall procure that the Owner shall:
(a)
comply, or procure compliance with the ISM Code, the ISPS Code, all Environmental Laws and all other laws or regulations relating to the
Ship, its ownership, operation and management or to the business of the
Owner;
(b)
not employ the Ship nor allow its employment in any manner contrary to any law or regulation in any relevant jurisdiction including but not
limited to the ISM Code and the ISPS Code; and
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(c)
in the event of hostilities in any part of the world (whether war is declared or not), not cause or permit the Ship to enter or trade to any
zone which is declared a war zone by any government or by the Ship's war
risks insurers unless the prior written consent of the Security
Trustee has been given and the Owner has (at its expense) effected any special, additional or modified insurance cover which the Security
Trustee may require.
14.11
Provision of information
The Borrower shall procure that the Owner shall promptly provide the
Security Trustee with any information which it requests regarding:
(a)
the Ship, its employment, position and engagements;
(b)
the Earnings and payments and amounts due to the master and crew of the Ship;
(c)
any expenses incurred, or likely to be incurred, in connection with the operation, maintenance or repair of the Ship and any payments made
in respect of the Ship;
(d)
any towages and salvages; and
(e)
its compliance, each Approved Manager's compliance and the compliance of the Ship with the ISM Code and the ISPS Code,
and, upon the Security Trustee's request, provide copies of any current charter relating to the Ship, of any current charter guarantee and
copies of the Owner's or each Approved Manager's Document of Compliance, Safety Management Certificate and the ISSC.
14.12
Notification of certain events
The Borrower shall procure that the Owner:
(a)
within 30 days after entering into any demise or bareboat charter for any period in respect of its Ship or any other Assignable Charter in
respect of its Ship, notify the Agent and provide certified true and complete
copies of such charter and, if applicable, any charter guarantee
and that:
(i)
the Owner executes in favour of the Security Trustee a specific assignment of all its rights, title and interest in and to such charter
and any charter guarantee in the form of a Charterparty
Assignment;
(ii)
to use its reasonable endeavours to procure that (1) the charterer and any charter guarantor agree to acknowledge to the Security
Trustee the specific assignment of such charter and charter guarantee by executing an
acknowledgement substantially in the form
included in the relevant Charterparty Assignment and (2) that the Mortgage over the Ship has been registered prior to the entry
into such charter, the charterer provides to the Security Trustee a letter of
undertaking pursuant to which the charterer
subordinates all its claims against the Owner and the Ship to the claims of the Creditor Parties under or in connection with the
Finance Documents in the Agreed Form;
(iii)
in the case where such charter is a demise charter the charterer undertakes to the Security Trustee (1) to comply with all of the
Owner's undertakings with regard to the employment, insurances, operation, repairs and
maintenance of its Ship contained in
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this Agreement, the Mortgage, any Deed of Covenant and the General Assignment in relation to the Ship and (2) to execute a
Bareboat Charter Security Agreement, including (inter alia) an assignment of its interest in the insurances of the Ship in Agreed
Form;
(iv)
the Agent's receipt of a copy of the charter and its failure or neglect to act, delay or acquiescence in connection with the Owner's
entering into such charter shall not in any way constitute an acceptance by the
Agent of whether or not the Earnings under the
charter are sufficient to meet the debt service requirements under this Agreement nor shall it in any way affect the Agent's or the
Security Trustee's entitlement to exercise its rights under the
Finance Documents pursuant to Clause 19 upon the occurrence of an
Event of Default arising as a result of an act or omission of the charterer; and
(v)
the Owner delivers to the Agent such other documents equivalent to those referred to at paragraphs 2, 3, 4, 5, 7, 8, 11 and 12 of
Part A of Schedule 3, as the Agent may require;
and
(b)
immediately notify the Security Trustee by letter, of:
(i)
its entry into any agreement or arrangement for the postponement of any date on which any Earnings are due, the reduction of the
amount of any Earnings or otherwise for the release or adverse alteration of any right
of the Owner to any Earnings;
(ii)
its entry into any time or consecutive voyage charter in respect of the Ship for a term which exceeds, or which by virtue of any
optional extensions may exceed, three months;
(iii)
any casualty which is or is likely to be or to become a Major Casualty;
(iv)
any occurrence as a result of which the Ship has become or is, by the passing of time or otherwise, likely to become a Total Loss;
(v)
any requirement, condition or recommendation made by any insurer or classification society or by any competent authority which is
not immediately complied with;
(vi)
any arrest or detention of the Ship, any exercise or purported exercise of any lien on the Ship or its Earnings or any requisition of the
Ship for hire;
(vii)
any intended dry docking of the Ship;
(viii)
any Environmental Claim made against the Owner or in connection with the Ship, or any Environmental Incident;
(ix)
any claim for breach of the ISM Code or the ISPS Code being made against the Owner, any Approved Manager or otherwise in
connection with the Ship;
(x)
its intention to de-activate or lay up the Ship; or
(xi)
any other matter, event or incident, actual or threatened, the effect of which will or could lead to the ISM Code or the ISPS Code not
being complied with,
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and the Owner shall keep the Security Trustee advised in writing on a regular basis and in such detail as the Security
Trustee shall
require of the Owner's, each Approved Manager's or any other person's response to any of those events or matters.
14.13
Restrictions on chartering, appointment of managers etc.
The Borrower shall procure that the
Owner shall not, in relation to the Ship:
(a)
enter into any charter in relation to the Ship under which more than 2 months' hire (or the equivalent) is payable in advance;
(b)
charter the Ship otherwise than on bona fide arm's length terms at the time when the Ship is fixed;
(c)
appoint a manager of the Ship other than an Approved Manager or agree to any alteration to the terms of any Approved Manager's
appointment; or
(d)
put the Ship into the possession of any person for the purpose of work being done upon it in an amount exceeding or likely to exceed
$3,000,000 (or the equivalent in any other currency) unless that person has first
given to the Security Trustee and in terms satisfactory to it
a written undertaking not to exercise any lien on the Ship or its Earnings for the cost of such work or for any other reason.
14.14
Notice of Mortgage
The Borrower shall procure that the Owner shall keep the Mortgage
registered against the Ship as a valid first preferred or, as the case may
be, priority mortgage, carry on board the Ship a certified copy of that Mortgage and place and maintain in a conspicuous place in the
navigation room and the Master's cabin
of the Ship a framed printed notice stating that the Ship is mortgaged by the Owner to the Security
Trustee.
14.15
Sharing of Earnings
The Borrower shall procure that no Owner shall enter into any agreement or
arrangement for the sharing of any Earnings (other than (i) any
profit sharing agreement with a charterer which takes effect above an agreed minimum charter hire rate payable to the Owner under a
charter and (ii) any pool agreement, in either case,
on bona fide arm's length terms).
14.16
ISPS Code
The Borrower shall procure that the Owner complies with the ISPS Code and in
particular, without limitation, shall:
(a)
procure that the Ship and the company responsible for the Ship's compliance with the ISPS Code comply with the ISPS Code; and
(b)
maintain for the Ship an ISSC; and
(c)
notify the Agent immediately in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the ISSC.
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14.17
Green Passport and green scrapping
The Borrower shall procure that the Owner shall:
(a)
obtain and maintain throughout the Security Period an Inventory of Hazardous Material in respect of the Ship owned by it; and
(b)
provide the Agent with a copy of the Inventory of Hazardous Materials for the Ship owned by it and each update to, or amendment of, such
Inventory of Hazardous Materials from time to time during the Security
Period;
(c)
maintain a safe, sustainable and socially responsible policy with respect to the dismantling of the Ship owned by it and that Ship being taken
out of service;
(d)
ensure that, if during the Security Period, the Ship owned by it is sold for scrapping or sold to an intermediary with the intention of being
scrapped, that Ship is recycled at a recycling yard which conducts its
recycling business in a socially and environmentally responsible
manner, in accordance with the provisions of:
(i)
the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships 2009 in relation to non-EU flagged vessels;
(ii)
the International Maritime Organisation's Guidelines for the development of the Inventory of Hazardous Materials (Resolution
MEPC.269(68)) in relation to non-EU flagged vessels;
(iii)
Regulation (EU) No. 127/2013 adopted by the EU Parliament and the Council of the European Union on 20 November 2013 in
relation to EU flagged vessels;
(iv)
any other applicable laws or regulations relating to ship scrapping or ship recycling; and
(e)
comply with Annex VI or any replacement of Annex VI and shall in particular, without limitation:
(i)
procure that the relevant Ship’s master and crew are familiar with, and that the Ship owned by it complied with, Annex VI; and
(ii)
maintain for the Ship owned by it throughout the Security Period a valid and current IAPPC and provide a copy to the Agent.
14.18
Sustainability reporting
The Borrower shall, at its own cost, starting with the
calendar year ending 31 December 2022, supply or procure the supply by the
Approved Classification Society to the Agent of all information regarding the annual emissions in respect of each Ship for the preceding
calendar year as provided to the
IMO.
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15
SECURITY COVER
15.1
Minimum required security cover
Clause 15.2 applies if the Agent notifies the Borrower that
the Security Cover Ratio is below 125 per cent.
15.2
Prepayment; provision of additional security
If the Agent serves a notice on the Borrower
under Clause 15.1, the Borrower shall prepay such part at least of the Loan as will eliminate
the shortfall on or before the date falling 21 Business Days after the date on which the Agent's notice is served under Clause 15.1 (the
"Prepayment Date") unless at least 5 calendar days before the Prepayment Date the Borrower has provided, or ensured that a third party
has provided, additional security acceptable to the Agent (acting on the instructions of the
Majority Lenders) which, in the opinion of the
Majority Lenders, has a net realisable value at least equal to the shortfall and is documented in such terms as the Agent may, with the
authorisation of the Majority Lenders, approve or require.
15.3
Valuation of Ship
(a)
The Market Value of a Ship for the purpose of determination of the Initial Market Value of the Ship, is that shown by one valuation issued by
an Approved Broker, selected and appointed by the Agent.
(b)
The Market Value of the Ship or other Fleet Vessel at any other date is that shown by taking the arithmetic mean of two valuations
requested by the Agent to be issued by two Approved Brokers, selected and appointed by
the Borrower (unless the Borrower does not
select or appoint two Approved Brokers within 14 days after the Agent's request, in which case the Agent shall select and appoint one
Approved Broker and the Market Value of the Ship or other Fleet Vessel
shall be that shown by the single valuation issued by such Approved
Broker).
(c)
Each valuation referred to in paragraphs (a) and (b) above shall be prepared:
(i)
as at a date not more than 30 days previously;
(ii)
with or without physical inspection of the Ship (as the Agent may require); and
(iii)
on the basis of a sale for prompt delivery for cash on normal arm's length commercial terms as between a willing seller and a willing
buyer, free of any existing charter or other contract of
employment
Provided that if the higher of the two valuations in respect of the Ship or other Fleet Vessel issued for
the purpose of determination of its
Market Value pursuant to paragraph (b) of this Clause 15.3 shows a value of more than 15 per cent. of that shown by the lower of the two
valuations, a third valuation shall be requested from a third Approved
Broker selected and appointed by the Agent to be prepared in
accordance with this Clause 15.3 and the Market Value of the Ship or other Fleet Vessel in such circumstances shall be the arithmetic mean
of all three valuations.
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15.4
Value of additional vessel security
The net realisable value of any additional security which
is provided under Clause 15.2 and which consists of a Security Interest over a
vessel shall be that shown by a valuation complying with the requirements of Clause 15.3.
15.5
Valuations binding
Any valuation under Clause 15.2, 15.3 or 15.4 shall be binding and
conclusive as regards the Borrower, as shall be any valuation which the
Majority Lenders make of any additional security which does not consist of or include a Security Interest.
15.6
Provision of information
The Borrower shall promptly provide the Agent and any Approved Broker
or expert acting under Clause 15.3 or 15.4 with any information
which the Agent or that Approved Broker or expert may request for the purposes of the valuation; and, if the Borrower fails to provide the
information by the date specified in the
request, the valuation may be made on any basis and assumptions which that Approved Broker or
the Majority Lenders (or the expert appointed by them) consider prudent.
15.7
Payment of valuation expenses
Without prejudice to the generality of the Borrower's
obligations under Clauses 20.2, 20.3 and 21.3, the Borrower shall, on demand, pay
the Agent the documented amount of the fees and expenses of any Approved Broker or expert instructed by the Agent under this Clause
and all legal and other expenses
incurred by any Creditor Party in connection with any matter arising out of this Clause.
15.8
Frequency of valuations
The Borrower acknowledges and agrees that the Agent may commission
valuation(s) of the Ship at such times as the Agent (acting on the
instructions of the Lenders) shall deem necessary and, in any event, not less than once during each 6-month period of the Security Period.
The Borrower shall be responsible for the
cost of two valuations per year, unless an Event of Default or Potential Event of Default is
continuing
16
PAYMENTS AND CALCULATIONS
16.1
Currency and method of payments
All payments to be made by the Lenders or by the Borrower
under a Finance Document shall be made to the Agent or to the Security
Trustee, in the case of an amount payable to it:
(a)
by not later than 11.00 a.m. (New York City time) on the due date;
(b)
in same day Dollar funds settled through the New York Clearing House Interbank Payments System (or in such other Dollar funds and/or
settled in such other manner as the Agent shall specify as being customary at the
time for the settlement of international transactions of
the type contemplated by this Agreement);
(c)
in the case of an amount payable by a Lender to the Agent or by the Borrower to the Agent or any Lender, to the account of the Agent at J.P.
Morgan Chase Bank (SWIFT Code CHASUS33)
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(Account No. 001 1331 808 in favour of Hamburg Commercial Bank AG, SWIFT Code HSHNDEHH; Reference "Capital Product
Partners L.P. -
US$105m facility") or to such other account with such other bank as the Agent may from time to time notify to the Borrower and the other
Creditor Parties; and
(d)
in the case of an amount payable to the Security Trustee, to such account as it may from time to time notify to the Borrower and the other
Creditor Parties.
16.2
Payment on non-Business Day
If any payment by the Borrower under a Finance Document would
otherwise fall due on a day which is not a Business Day:
(a)
the due date shall be extended to the next succeeding Business Day; or
(b)
if the next succeeding Business Day falls in the next calendar month, the due date shall be brought forward to the immediately preceding
Business Day,
and interest shall be payable during any extension under paragraph (a) at the rate payable on the original due date.
16.3
Basis for calculation of periodic payments
(a)
Any interest, commission or fee accruing under a Finance Document will accrue from day to day and the amount of any such interest,
commission or fee is calculated:
(i)
on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the Relevant Market
differs, in accordance with that market practice; and
(ii)
subject to paragraph (b) below, without rounding.
(b)
The aggregate amount of any accrued interest, commission or fee which is, or becomes, payable by the Borrower or any Security Party or
any Approved Manager under a Finance Document shall be rounded to two decimal
places.
16.4
Distribution of payments to Creditor Parties
Subject to Clauses 16.5, 16.6 and 16.7:
(a)
any amount received by the Agent under a Finance Document for distribution or remittance to a Lender or the Security Trustee shall be
made available by the Agent to that Lender or, as the case may be, the Security
Trustee by payment, with funds having the same value as
the funds received, to such account as the Lender or the Security Trustee may have notified to the Agent not less than 5 Business Days
previously; and
(b)
amounts to be applied in satisfying amounts of a particular category which are due to the Lenders generally shall be distributed by the
Agent to each Lender pro rata to the amount in that category which is due to
it.
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16.5
Permitted deductions by Agent
Notwithstanding any other provision of this Agreement or any
other Finance Document, the Agent may, before making an amount available
to a Lender, deduct and withhold from that amount any sum which is then due and payable to the Agent from that Lender under any
Finance Document or any sum which the Agent is
then entitled under any Finance Document to require that Lender to pay on demand.
16.6
Agent only obliged to pay when monies received
Notwithstanding any other provision of this
Agreement or any other Finance Document, the Agent shall not be obliged to make available to
the Borrower or any Lender any sum which the Agent is expecting to receive for remittance or distribution to the Borrower or that Lender
until the Agent has
satisfied itself that it has received that sum.
16.7
Refund to Agent of monies not received
If and to the extent that the Agent makes available a
sum to the Borrower or a Lender, without first having received that sum, the Borrower
or (as the case may be) the Lender concerned shall, on demand:
(a)
refund the sum in full to the Agent; and
(b)
pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding or other loss, liability or
expense incurred by the Agent as a result of making the sum available before
receiving it.
16.8
Agent may assume receipt
Clause 16.7 shall not affect any claim which the Agent has under the
law of restitution, and applies irrespective of whether the Agent had
any form of notice that it had not received the sum which it made available.
16.9
Creditor Party accounts
Each Creditor Party shall maintain accounts showing the amounts owing
to it by the Borrower, each Security Party and any Approved
Manager under the Finance Documents and all payments in respect of those amounts made by the Borrower, any Security Party and any
Approved Manager.
16.10
Agent's memorandum account
The Agent shall maintain a memorandum account showing the amounts
advanced by the Lenders and all other sums owing to the Agent,
the Security Trustee and each Lender from the Borrower, each Security Party and any Approved Manager under the Finance Documents and
all payments in respect of those amounts made by the
Borrower, any Security Party and any Approved Manager.
16.11
Accounts prima facie evidence
If any accounts maintained under Clauses 16.9 and 16.10 show an
amount to be owing by the Borrower or a Security Party or an Approved
Manager to a Creditor Party, those accounts shall be prima facie evidence that that amount is owing to that Creditor Party.
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17
APPLICATION OF RECEIPTS
17.1
Normal order of application
Except as any Finance Document may otherwise provide, any sums
which are received or recovered by any Creditor Party under or by virtue
of any Finance Document shall be applied:
(a)
FIRST: in or towards satisfaction of any amounts then due and payable under the Finance Documents in the following order and
proportions:
(i)
first, in or towards satisfaction pro rata of all amounts then due and payable to the Creditor Parties under the Finance Documents
(including, but without limitation, all amounts payable by the Borrower under Clauses
20, 21 and 22 of this Agreement or by the
Borrower or any Security Party or any Approved Manager under any corresponding or similar provision in any other Finance
Document) other than those amounts referred to at paragraphs (ii), and
(iii);
(ii)
secondly, in or towards satisfaction pro rata of any and all amounts of interest or default interest payable to the Creditor Parties
under the Finance Documents; and
(iii)
thirdly, in or towards satisfaction pro rata of the Loan;
(b)
SECONDLY: in retention (in an interest bearing account) of an amount equal to any amount not then due and payable under any Finance
Document but which the Agent, by notice to the Borrower, the Security Parties and the
other Creditor Parties, states in its opinion will
either or may become due and payable in the future and, upon those amounts becoming due and payable, in or towards satisfaction of
them in accordance with the provisions of Clause 17.1(a);
and
(c)
THIRDLY: any surplus shall be paid to the Borrower or to any other person appearing to be entitled to it.
17.2
Application by any covered bond Lender
If and to the extent that any Lender includes the Loan
and/or a Mortgage in its covered bond register, any enforcement proceeds recovered
under any of the Finance Documents and attributable to that Lender under the relevant Finance Document shall, notwithstanding the
provisions of Clause 17.1(a), be
applied by it first to the part of the Loan that corresponds to that Lender's Contribution registered in its
covered bond register and thereafter in the following order:
(a)
first, in or towards satisfaction of the amounts set out under Clause 17.1(a)(i);
(b)
secondly, in or towards satisfaction of the amounts set out under Clause 17.1(a)(ii); and
(c)
thirdly, in or towards satisfaction pro rata of any part of the Loan that corresponds to any unregistered part of that Lender's contribution.
17.3
Variation of order of application
The Agent may, with the authorisation of the Majority
Lenders, by notice to the Borrower, the Security Parties and the other Creditor
Parties provide for a different manner of application from that set out in Clause 17.1 (but not, for the avoidance of doubt, that set out in
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Clause 17.2) either as regards a specified sum or sums or as regards sums in a specified category or categories.
17.4
Notice of variation of order of application
The Agent may give notices under Clause 17.3 from
time to time; and such a notice may be stated to apply not only to sums which may be
received or recovered in the future, but also to any sum which has been received or recovered on or after the third Business Day before the
date on which the notice
is served.
17.5
Appropriation rights overridden
This Clause 17 and any notice which the Agent gives under
Clause 17.3 shall override any right of appropriation possessed, and any
appropriation made, by the Borrower or any Security Party or any Approved Manager.
18
APPLICATION OF EARNINGS
18.1
Payment of Earnings
The Borrower undertakes with each Creditor Party that, throughout the
Security Period:
(a)
it shall, and it shall procure that the Owner will, maintain the Accounts with the Agent; and
(b)
it shall procure that the Owner ensures that all Earnings of the Ship are paid (subject only to the provisions of the General Assignment and
any Deed of Covenant to which the Owner is a party) to the Earnings Account
for the Ship.
18.2
Monthly retentions
The Borrower undertakes with each Creditor Party to ensure that, on and
from the date on which an Event of Default or a Potential Event of
Default has occurred and at monthly intervals thereafter during the Security Period whilst such an Event of Default or Potential Event of
Default is continuing, there are transferred
to the Retention Account out of the Earnings received in the Earnings Accounts during the
preceding month:
(a)
one-third of the amount of the Instalment falling due under Clause 8.1 on the next Repayment Date; and
(b)
the relevant fraction of the aggregate amount of interest on the Loan which is payable on the next due date for payment of interest for the
Loan under this Agreement,
and the Borrower irrevocably authorises the Agent to make those transfers (in its sole discretion and without any obligation) if the Borrower
fails to do so.
The "relevant fraction", in relation to paragraph (b), is a fraction of which the numerator is 1 and the
denominator the number of months
comprised in the then current Interest Period applicable to the Loan (or if the current Interest Period ends after the next due date for
payment of interest under this Agreement, the number of months from the later
of the commencement of the current Interest Period or
the last due date for payment of interest to the next due date for payment of interest under this Agreement).
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18.3
Shortfall in Earnings
If the aggregate Earnings received in the Earnings Accounts are
insufficient at any time for the required amount to be transferred to the
Retention Account under Clause 18.2, the Borrower shall immediately pay the amount of the insufficiency into the Retention Account.
18.4
Application of retentions
Until an Event of Default or a Potential Event of Default occurs,
the Agent shall, to the extent there are sufficient funds standing to the
credit of the Retention Account, on each Repayment Date and on each due date for the payment of interest in respect of the Loan under
this Agreement distribute to the Lenders
in accordance with Clause (a) so much of the then balance on the Retention Account as equals:
(a)
the Instalment due on that Repayment Date pursuant to Clause 8.1; or
(b)
the amount of interest in respect of the Loan payable on that interest payment date,
in
discharge of the Borrower's liability for that Instalment or that interest.
18.5
Interest accrued on the Accounts
Any credit balance on each Account shall bear interest at the
rate from time to time offered by the Agent to its customers for Dollar
deposits of similar amounts and for periods similar to those for which such balances appear to the Agent likely to remain on that Account.
18.6
Release of accrued interest
Interest accruing under Clause 18.5 shall be credited to the
relevant Account and may be released to the Borrower pursuant to Clause
18.10.
18.7
Location of Accounts
The Borrower shall promptly:
(a)
comply or, as the case may be, procure compliance by the Owner, with any requirement of the Agent as to the location or re-location of the
Accounts (or any of them); and
(b)
execute or, as the case may be, procure the execution by the Owner of, any documents which the Agent specifies to create or maintain in
favour of the Security Trustee a Security Interest over (and/or rights of
set-off, consolidation or other rights in relation to) the Accounts.
18.8
Debits for fees, expenses etc.
The Agent shall be entitled (but not obliged) from time to time
to debit the Earnings Account without prior notice in order to discharge any
amount due and payable under Clauses 20 or 21 to a Creditor Party or payment of which any Creditor Party has become entitled to demand
under Clauses 20 or 21.
18.9
Borrower's obligations unaffected
The provisions of this Clause 18 (as distinct from a
distribution effected under Clause 18.4) do not affect:
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(a)
the liability of the Borrower to make payments of principal and interest on the due dates; or
(b)
any other liability or obligation of the Borrower or any Security Party or any Approved Manager under any Finance Document.
18.10
Restriction on withdrawal
During the Security Period no sum may be withdrawn by the Borrower
from the Retention Account (other than interest accruing thereon
pursuant to Clause 18.6, provided that no Event of Default which is continuing has occurred), without the prior written consent of the
Agent.
The Owner may, in any calendar month, after having transferred and/or after having taken into account all amounts due or which will
become due
to be transferred to the Retention Account in such calendar month in accordance with Clause 18.2, withdraw any surplus (a
"Surplus") from its Earnings Account as it may think fit for purposes permitted by this Agreement and the
other Finance Documents
Provided always that if an Event of Default which is continuing has occurred, the Borrower shall procure that any Surplus shall remain on
the relevant Earnings Account and the Owner may only withdraw the Surplus (or
any part thereof) with the prior written consent of the
Agent (acting upon the instructions of the Majority Lenders) in order to satisfy the documented and properly incurred operating expenses
of the Ship.
19
EVENTS OF DEFAULT
19.1
Events of Default
An Event of Default occurs if:
(a)
the Borrower, any Security Party or any Approved Manager fails to pay when due or (if so payable) on demand any sum payable under a
Finance Document or under any document relating to a Finance Document
unless:
(i)
its failure to pay is caused by:
(A)
administrative or technical error; or
(B)
a Disruption Event; and
(ii)
payment is made within 3 Business Days of its due date; or
(b)
any breach occurs of Clauses 9.2, 9.3, 11.2, 11.3, 11.20, 11.23, 12.2, 12.3, 12.5 or 15.2 Provided that in respect of any breach of Clause 9.2,
9.3, 11.2 or 12.3(a), (c), (d), (f) and (g) which, in the opinion
of the Majority Lenders, is capable of remedy, such default continues
unremedied 14 days after written notice from the Agent requesting action to remedy the same (subject to any other applicable grace period
specified in a Finance Document or
otherwise agreed by the Agent); or
(c)
any breach by the Borrower, any Security Party or any Approved Manager occurs of any provision of a Finance Document (other than a
breach covered by paragraphs (a) or (b)) which, in the opinion of the Majority
Lenders, is capable of remedy, and such default continues
unremedied 14 Business Days after written notice from the Agent requesting action to remedy the same (subject to any other applicable
grace period specified in a Finance Document or otherwise
agreed by the Agent); or
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(d)
(subject to any applicable grace period specified in the Finance Document) any breach by the Borrower, any Security Party or any Approved
Manager occurs of any provision of a Finance Document (other than a breach
falling within paragraphs (a), (b) or (c)); or
(e)
any representation, warranty or statement made or repeated by, or by an officer of, the Borrower, a Security Party or any Approved
Manager in a Finance Document or in the Drawdown Notice or any other notice or
document relating to a Finance Document is untrue or
misleading when it is made or repeated; or
(f)
any of the following occurs in relation to any Financial Indebtedness of a Relevant Person, which in the case of any member of the Group,
equals $25,000,000 (or the equivalent in any other currency) or more or, as
regards Financial Indebtedness arising under different
documents or transactions, an aggregate amount of $25,000,000 (or the equivalent in any other currency) or more:
(i)
any Financial Indebtedness of a Relevant Person is not paid when due or, if so payable, on demand; or
(ii)
any Financial Indebtedness of a Relevant Person becomes due and payable or capable of being declared due and payable prior to its
stated maturity date as a consequence of any event of default; or
(iii)
a lease, hire purchase agreement or charter creating any Financial Indebtedness of a Relevant Person is terminated by the lessor or
owner or becomes capable of being terminated as a consequence of any termination
event; or
(iv)
any overdraft, loan, note issuance, acceptance credit, letter of credit, guarantee, foreign exchange or other facility, or any swap or
other derivative contract or transaction, relating to any Financial Indebtedness
of a Relevant Person ceases to be available or
becomes capable of being terminated as a result of any event of default, or cash cover is required, or becomes capable of being
required, in respect of such a facility as a result of any event of
default; or
(v)
any Security Interest securing any Financial Indebtedness of a Relevant Person becomes enforceable; or
(g)
any of the following occurs in relation to a Relevant Person:
(i)
a Relevant Person becomes, in the opinion of the Majority Lenders, unable to pay its debts as they fall due; or
(ii)
any assets of a Relevant Person are subject to any form of execution, attachment, arrest, sequestration or distress or any form of
freezing order, which in the case of the Borrower relate to a sum of, or sums
aggregating, $20,000,000 (or the equivalent in any
other currency) or more unless such execution, attachment, arrest, sequestration or distress is dismissed, withdrawn, released or
lifted within 10 Business Days of the occurrence of such event;
or
(iii)
any administrative or other receiver is appointed over any asset of a Relevant Person; or
(iv)
an administrator is appointed (whether by the court or otherwise) in respect of a Relevant Person; or
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(v)
any formal declaration of bankruptcy or any formal statement to the effect that a Relevant Person is insolvent or likely to become
insolvent is made by a Relevant Person or by the directors of a Relevant Person or, in
any proceedings, by a lawyer acting for a
Relevant Person; or
(vi)
a provisional liquidator is appointed in respect of a Relevant Person, a winding up order is made in relation to a Relevant Person or a
winding up resolution is passed by a Relevant Person; or
(vii)
a resolution is passed, an administration notice is given or filed, an application or petition to a court is made or presented or any
other step is taken by (aa) a Relevant Person, (bb) the members or directors of a
Relevant Person, (cc) a holder of Security Interests
which together relate to all or substantially all of the assets of a Relevant Person, or (dd) a government minister or public or
regulatory authority of a Pertinent Jurisdiction for or with a view
to the winding up of that or another Relevant Person or the
appointment of a provisional liquidator or administrator in respect of that or another Relevant Person, or that or another Relevant
Person ceasing or suspending business operations or
payments to creditors, save that this paragraph does not apply to a fully
solvent winding up of a Relevant Person other than the Borrower or the Owner which is, or is to be, effected for the purposes of an
amalgamation or reconstruction previously
approved by the Majority Lenders and effected not later than three months after the
commencement of the winding up; or
(viii)
an administration notice is given or filed, an application or petition to a court is made or presented or any other step is taken by a
creditor of a Relevant Person (other than a holder of Security Interests which
together relate to all or substantially all of the assets
of a Relevant Person) for the winding up of a Relevant Person or the appointment of a provisional liquidator or administrator in
respect of a Relevant Person in any Pertinent Jurisdiction,
unless the proposed winding up, appointment of a provisional liquidator
or administration is being contested in good faith, on substantial grounds and not with a view to some other insolvency law
procedure being implemented instead and either (aa)
the application or petition is dismissed or withdrawn within 30 days of being
made or presented, or (bb) within 30 days of the administration notice being given or filed, or the other relevant steps being taken,
other action is taken which will
ensure that there will be no administration and (in both cases (aa) or (bb)) the Relevant Person will
continue to carry on business in the ordinary way and without being the subject of any actual, interim or pending insolvency law
procedure;
or
(ix)
a Relevant Person or its directors take any steps (whether by making or presenting an application or petition to a court, or
submitting or presenting a document setting out a proposal or proposed terms, or otherwise)
with a view to obtaining, in relation to
that or another Relevant Person, any form of moratorium, suspension or deferral of payments, reorganisation of debt (or certain
debt) or arrangement with all or a substantial proportion (by number or value)
of creditors or of any class of them or any such
moratorium, suspension or deferral of payments, reorganisation or arrangement is effected by court order, by the filing of
documents with a court, by means of a contract or in any other way at all;
or
(x)
any meeting of the members or directors, or of any committee of the board or senior management, of a Relevant Person is held or
summoned for the purpose of considering a resolution or proposal to authorise or take any
action of a type described
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in paragraphs (iv) to (ix) or a step preparatory to such action, or (with or without such a meeting) the members, directors
or such a
committee resolve or agree that such an action or step should be taken or should be taken if certain conditions materialise or fail to
materialise; or
(xi)
in a country other than England, any event occurs, any proceedings are opened or commenced or any step is taken which, in the
opinion of the Majority Lenders is similar to any of the foregoing; or
(h)
the Borrower or the Owner or any other Security Party ceases or suspends carrying on its business or a part of its business which, in the
opinion of the Majority Lenders, is material in the context of this Agreement;
or
(i)
it becomes unlawful in any Pertinent Jurisdiction or impossible:
(i)
for the Borrower, the Owner, any other Security Party or any Approved Manager to discharge any liability under a Finance
Document or to comply with any other obligation which the Majority Lenders consider material
under a Finance Document; or
(ii)
for the Agent, the Security Trustee or the Lenders to exercise or enforce any right under, or to enforce any Security Interest created
by, a Finance Document; or
(j)
any official consent necessary to enable the Owner to own, operate or charter its Ship or to enable the Borrower, any Security Party or any
Approved Manager to comply with any provision which the Majority Lenders
consider material of a Finance Document or any Underlying
Document is not granted, expires without being renewed, is revoked or becomes liable to revocation or any condition of such a consent is
not fulfilled; or
(k)
if the common units of the Borrower cease to be quoted on the Nasdaq National Market in New York or any other internationally
recognised stock exchange acceptable to the Lenders and this was an unplanned event which
was not notified to the Agent first or if the
whole of the issued share capital of the Ship is not wholly-owned by the Borrower; or
(l)
it evidently appears to the Majority Lenders that, without their prior consent, a Change of Control has occurred; or
(m)
any provision which the Majority Lenders consider material of a Finance Document proves to have been or becomes invalid or
unenforceable, or a Security Interest created by a Finance Document proves to have been or
becomes invalid or unenforceable or such a
Security Interest proves to have ranked after, or loses its priority to, another Security Interest or any other third party claim or interest; or
(n)
the security constituted by a Finance Document is in any way imperilled or in jeopardy; or
(o)
the Borrower, any other Security Party or any Approved Manager or any other person (other than a Creditor Party) repudiates any of the
Finance Documents to which the Borrower, that Security Party or Approved Manager
or person is a party or evidences an intention to do so;
or
(p)
any other event occurs or any other circumstances arise or develop including, without limitation:
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(i)
a change in the financial position, state of affairs or prospects of the Borrower, the Owner or any other Security Party; or
(ii)
any accident or other event involving any Ship or another vessel owned, chartered or operated by a Relevant Person; or
(iii)
the threat or commencement of legal or administrative action involving the Borrower, a Ship, any Approved Manager (but in
relation to an Approved Manager which is not member of the Group, only insofar it relates to a
Ship) or any Security Party; or
(iv)
the withdrawal of any material license or governmental or regulatory approval in respect of the Ship, the Borrower, the Owner, any
other Security Party or any Approved Manager or the Borrower's or any Security Party's
business (unless such withdrawal can be
contested with the effect of suspension and is in fact so contested in good faith by the Borrower, that Security Party or that
Approved Manager or solely in relation to the Approved Manager, a new Approved
Manager is appointed),
which constitutes a Material Adverse Change.
19.2
Actions following an Event of Default
On, or at any time after, the occurrence of an Event of
Default:
(a)
the Agent may, and if so instructed by the Majority Lenders, the Agent shall:
(i)
serve on the Borrower a notice stating that all or part of the Commitments and of the other obligations of each Lender to the
Borrower under this Agreement are cancelled; and/or
(ii)
serve on the Borrower a notice stating that all or part of the Loan together with accrued interest and all other amounts accrued or
owing under this Agreement are immediately due and payable or are due and payable on
demand; and/or
(iii)
take any other action which, as a result of the Event of Default or any notice served under paragraph (i) or (ii), the Agent and/or the
Lenders are entitled to take under any Finance Document or any applicable law;
and/or
(b)
the Security Trustee may, and if so instructed by the Agent, acting with the authorisation of the Majority Lenders, the Security Trustee shall
take any action which, as a result of the Event of Default or any notice
served under paragraph (a)(i) or (a)(ii), the Security Trustee, the
Agent, the Mandated Lead Arranger and/or the Lenders are entitled to take under any Finance Document or any applicable law.
19.3
Termination of Commitments
On the service of a notice under Clause 19.2(a)(i), the Commitments
and all other obligations of each Lender to the Borrower under this
Agreement shall be cancelled.
19.4
Acceleration of Loan
On the service of a notice under Clause 19.2(a)(ii), all or, as the case
may be, the part of the Loan specified in the notice together with
accrued interest and all other amounts accrued or owing from the Borrower or any Security Party or any Approved Manager under this
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Agreement and every other Finance Document shall become immediately due and payable or, as the case may be, payable on
demand.
19.5
Multiple notices; action without notice
The Agent may serve notices under Clauses 19.2(a)(i)
or 19.2(a)(ii) simultaneously or on different dates and it and/or the Security Trustee
may take any action referred to in Clause 19.2 if no such notice is served or simultaneously with or at any time after the service of both or
either of such
notices.
19.6
Notification of Creditor Parties and Security Parties
The Agent shall send to each Lender, the
Security Trustee, each Security Party and any Approved Manager a copy or the text of any notice
which the Agent serves on the Borrower under Clause 19.2; but the notice shall become effective when it is served on the Borrower, and no
failure or
delay by the Agent to send a copy or the text of the notice to any other person shall invalidate the notice or provide the Borrower,
any Security Party or any Approved Manager with any form of claim or defence.
19.7
Creditor Party's rights unimpaired
Nothing in this Clause shall be taken to impair or restrict
the exercise of any right given to individual Lenders under a Finance Document or
the general law; and, in particular, this Clause is without prejudice to Clause 3.1.
19.8
Exclusion of Creditor Party liability
No Creditor Party, and no receiver or manager appointed
by the Security Trustee, shall have any liability to the Borrower or a Security Party:
(a)
for any loss caused by an exercise of rights under, or enforcement of a Security Interest created by, a Finance Document or by any failure or
delay to exercise such a right or to enforce such a Security Interest;
or
(b)
as mortgagee in possession or otherwise, for any income or principal amount which might have been produced by or realised from any
asset comprised in such a Security Interest or for any reduction (however caused) in
the value of such an asset,
except that this does not exempt a Creditor Party or a receiver or manager from liability for
losses shown to have been directly and mainly
caused by the dishonesty or the wilful misconduct of such Creditor Party's own officers and employees or (as the case may be) such
receiver's or manager's own partners or employees.
19.9
Relevant Persons
In this Clause 19, a "Relevant Person" means the Borrower
and any Security Party.
19.10
Interpretation.
In Clause 19.1(f) references to an event of default or a termination event
include any event, howsoever described, which is similar to an
event of default in a facility agreement or a termination event in a finance lease; and in Clause 19.1(g) "petition" includes an application.
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20
FEES AND EXPENSES
20.1
Structuring and commitment fees
The Borrower shall pay to the Agent:
(a)
a non-refundable structuring fee in an amount equal to 0.75 per cent. of the amount actually drawn on the Drawdown Date, which shall be
due and payable on the Drawdown Date; and
(b)
a non-refundable commitment fee at the rate of 1 per cent. per annum on the undrawn or uncancelled amount of the Total Commitments,
payable quarterly in arrears to the Agent for distribution among the Lenders pro rata
to their Commitments, during the period from (and
including) the date of this Agreement to the earlier of (i) the Drawdown Date and (ii) the last day of the Availability Period (and on the last
day of such period).
20.2
Costs of negotiation, preparation etc.
The Borrower shall pay to the Agent on its demand the
amount of all reasonable and documented legal and other expenses incurred by the
Agent or the Security Trustee in connection with the negotiation, preparation, execution or registration of any Finance Document or any
related document or with any
transaction contemplated by a Finance Document or a related document.
20.3
Costs of variations, amendments, enforcement etc.
The Borrower shall pay to the Agent, on the
Agent's demand, for the account of the Creditor Party concerned, the amount of all legal and
other expenses (reasonable and documented other than in respect of paragraph (d) below) incurred by a Creditor Party in connection with:
(a)
any amendment or supplement (or any proposal for such an amendment or supplement) requested (or, in the case of a proposal, made) by
or on behalf of the Borrower and relating to a Finance Document or any other
Pertinent Document;
(b)
any consent, waiver or suspension of rights by the Lenders, the Majority Lenders or the Creditor Party concerned or any proposal for any of
the foregoing requested (or, in the case of a proposal, made) by or on behalf
of the Borrower under or in connection with a Finance
Document or any other Pertinent Document;
(c)
the valuation of any security provided or offered under and pursuant to Clause 15 or any other matter relating to such security;
(d)
any step taken by the Lender concerned with a view to the preservation, protection, exercise or enforcement of any rights or Security
Interest created by a Finance Document or for any similar purpose including,
without limitation, any proceedings to recover or retain
proceeds of enforcement or any other proceedings following enforcement proceedings until the date all outstanding indebtedness to the
Creditor Parties under the Finance Documents and any other
Pertinent Document is repaid in full;
(e)
any amendment or supplement (or any proposal for such an amendment or supplement) in connection with a Finance Document or any
other Pertinent Document required as contemplated in Clause 27.4; or
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(f)
any amendment or supplement as a result of (i) the introduction of or any change in (or in the interpretation, administration or application
of) any law or regulation or (ii) compliance with any law or regulation made
after the date of this Agreement.
There shall be recoverable under paragraph (d) the full amount of all legal expenses,
whether or not such as would be allowed under rules
of court or any taxation or other procedure carried out under such rules.
20.4
RFR transition costs
The Borrower shall on demand reimburse each of the Agent and the Security
Trustee for the amount of all costs and expenses (including
legal fees) reasonably incurred by each Creditor Party in connection with:
(a)
the negotiation or entry into of any Reference Rate Supplement or Compounding Methodology Supplement; or
(b)
any amendment, waiver or consent relating to:
(i)
any Reference Rate Supplement or Compounding Methodology Supplement; or
(ii)
any change arising as a result of an amendment required pursuant to any of Clause 5.7 or 27.4, including without limitation any
costs relating to amendments to the Finance Documents and/or any registration
requirements.
20.5
Documentary taxes
The Borrower shall promptly pay any tax payable on or by reference to any
Finance Document, and shall, on the Agent's demand, fully
indemnify each Creditor Party against any claims, expenses, liabilities and losses resulting from any failure or delay by the Borrower to pay
such a tax.
20.6
Certification of amounts
A notice which is signed by two officers of a Creditor Party, which
states that a specified amount, or aggregate amount, is due to that
Creditor Party under this Clause 20 and which indicates (by specifying a detailed breakdown unless the Agent is unable to provide a detailed
breakdown due to administrative reasons
and relevant supporting documentation on best effort basis) the matters in respect of which the
amount, or aggregate amount, is due shall be prima facie evidence that the amount, or aggregate amount, is due.
21
INDEMNITIES
21.1
Indemnities regarding borrowing and repayment of Loan
The Borrower shall fully indemnify the
Agent and each Lender on the Agent's demand and the Security Trustee on its demand in respect of
all claims, expenses, liabilities and losses which are made or brought against or incurred by that Creditor Party, or which that Creditor Party
reasonably and with due diligence estimates that it will incur, as a result of or in connection with:
(a)
the Loan not being borrowed on the date specified in the Drawdown Notice for any reason other than a default by the Lender claiming the
indemnity after the Drawdown Notice has been served in accordance with the
provisions of this Agreement;
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(b)
the receipt or recovery of all or any part of the Loan or an overdue sum otherwise than on the last day of an Interest Period or other
relevant period;
(c)
any failure (for whatever reason) by the Borrower to make payment of any amount due under a Finance Document on the due date or, if so
payable, on demand (after giving credit for any default interest paid by the
Borrower on the amount concerned under Clause 7) including,
but not limited to, any costs and expenses of enforcing any Security Interests created by the Finance Documents and any claims, liabilities
and losses which may be brought against, or
incurred by, a Creditor Party when enforcing any Security Interests created by the Finance
Documents; and
(d)
the occurrence and/or continuance of an Event of Default or a Potential Event of Default and/or the acceleration of repayment of the Loan
under Clause 19 (including, without limitation, any costs, expenses or
liabilities incurred for a Creditor Party in relation to any Insurances
taken or arranged by that Creditor Party following the occurrence of an Event of Default in relation to port risks, new liability insurance or
any other type of
insurance),
and in respect of any tax (other than tax on its overall net income and a FATCA Deduction) for which a Creditor
Party is liable in connection
with any amount paid or payable to that Creditor Party (whether for its own account or otherwise) under any Finance Document.
21.2
Break Costs
If a Lender (the "Notifying Lender") notifies the Agent that as a
consequence of receipt or recovery of all or any part of the Loan (a
"Payment") on a day other than the last day of an Interest Period applicable to the sum received or recovered the Notifying Lender has or
will, with effect from a
specified date, incur Break Costs:
(a)
the Agent shall promptly notify the Borrower of a notice it receives from a Notifying Lender under this Clause 21.2;
(b)
the Borrower shall, within three Business Days of the Agent's demand, pay to the Agent for the account of the Notifying Lender the amount
of such Break Costs; and
(c)
the Notifying Lender shall, as soon as reasonably practicable, following a request by the Borrower, provide a certificate confirming the
amount of the Notifying Lender's Break Costs for the Interest Period in which
they accrue, such certificate to be, in the absence of manifest
error, conclusive and binding on the Borrower.
In this Clause
21.2, "Break Costs" means the amount specified as such in the Reference Rate Terms.
21.3
Other breakage costs
Without limiting its generality, Clause 21.1 covers any claim, expense,
liability or loss, including (without limitation):
(a)
a loss of a prospective profit, incurred by a Lender in borrowing, liquidating or re-employing deposits from third parties acquired,
contracted for or arranged to fund, effect or maintain all or any part of its
Contribution and/or any overdue amount (or an aggregate
amount which includes its Contribution or any overdue amount) other than claims, expenses, liabilities and losses which are shown to have
been directly and mainly caused by the gross negligence
or wilful misconduct of the officers or employees of the Creditor Party concerned;
and
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(b)
any applicable legal fees.
21.4
Miscellaneous indemnities
The Borrower shall fully indemnify each Creditor Party severally on
their respective demands, without prejudice to any of their other rights
under any of the Finance Documents, in respect of all claims, expenses, liabilities and losses which may be made or brought against or
sustained or incurred by a Creditor
Party, in any country, as a result of or in connection with:
(a)
any action taken, or omitted or neglected to be taken, under or in connection with any Finance Document by the Agent, the Security
Trustee or any other Creditor Party or by any receiver appointed under a Finance
Document;
(b)
investigating any event which the Creditor Party concerned reasonably believes constitutes an Event of Default or Potential Event of Default;
(c)
acting or relying on any notice, request or instruction which the Creditor Party concerned reasonably believes to be genuine, correct and
appropriately authorised; or
(d)
any other Pertinent Matter,
other than claims, expenses, liabilities and losses which are
shown to have been directly and mainly caused by the dishonesty, gross
negligence or wilful misconduct of the officers or employees of the Creditor Party concerned.
21.5
Environmental Indemnity
Without prejudice to the generality of Clauses 21.1 and 21.4, this
Clause 21.5 covers any claims, demands, proceedings, taxes, losses,
liabilities or expenses of every kind which arise, or are asserted, under or in connection with any law relating to safety at sea, pollution or
the protection of the environment,
the ISM Code or the ISPS Code or any Environmental Law.
21.6
Currency indemnity
If any sum due from the Borrower or any Security Party or any Approved
Manager to a Creditor Party under a Finance Document or under
any order, award or judgment relating to a Finance Document (a "Sum") has to be converted from the currency in which the Finance
Document provided for the Sum to be paid
(the "Contractual Currency") into another currency (the "Payment Currency") for the purpose
of:
(a)
making, filing or lodging any claim or proof against the Borrower or any Security Party or any Approved Manager, whether in its liquidation,
any arrangement involving it or otherwise; or
(b)
obtaining an order, judgment or award from any court or other tribunal in relation to any litigation or arbitration proceedings; or
(c)
enforcing any such order, judgment or award,
the Borrower shall as an independent obligation,
within three Business Days of demand, indemnify the Creditor Party to whom that Sum is
due against any cost, loss or liability arising when the payment actually received by that Creditor Party is converted at the available rate of
exchange back into
the Contractual Currency including any discrepancy between (A) the rate
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of exchange actually used to convert the Sum from the Payment Currency into the Contractual Currency and (B) the available
rate of
exchange.
In this Clause 21.6, the "available rate of exchange" means the rate at which the Creditor Party
concerned is able at the opening of business
(London time) on the Business Day after it receives the Sum to purchase the Contractual Currency with the Payment Currency.
The Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency other than
that in
which it is expressed to be payable.
If any Creditor Party receives any Sum in a currency other than the Contractual Currency, the Borrower
shall indemnify in full the Creditor
Party concerned against any cost, loss or liability arising directly or indirectly from any conversion of such Sum to the Contractual Currency.
This Clause 21.6 creates a separate liability of the Borrower which is distinct from its other liabilities under the Finance Documents and
which
shall not be merged in any judgment or order relating to those other liabilities.
21.7
Certification of amounts
A notice which is signed by two officers of a Creditor Party, which
states that a specified amount, or aggregate amount, is due to that
Creditor Party under this Clause 21 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of
which the amount, or aggregate amount, is due
shall be prima facie evidence that the amount, or aggregate amount, is due.
21.8
Sums deemed due to a Lender
For the purposes of this Clause 21, a sum payable by the Borrower
to the Agent or the Security Trustee for distribution to a Lender shall be
treated as a sum due to that Lender.
22
NO SET-OFF OR TAX DEDUCTION
22.1
No deductions
All amounts due from the Borrower under a Finance Document shall be paid:
(a)
without any form of set off, counter-claim, cross-claim or condition; and
(b)
free and clear of any tax deduction except a tax deduction which the Borrower is required by law to make.
22.2
Grossing-up for taxes
If, at any time, the Borrower is required by law, regulation or
regulatory requirement to make a tax deduction from any payment due under
a Finance Document:
(a)
the Borrower shall notify the Agent as soon as it becomes aware of the requirement;
(b)
the amount due in respect of the payment shall be increased by the amount necessary to ensure that, after the making of such tax
deduction, each Creditor Party receives on the due date for such payment (and retains
free from any liability relating to the tax deduction) a
net
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amount which is equal to the full amount which it would have received had no such tax deduction been required to be made;
and
(c)
the Borrower shall pay the full amount of the tax required to be deducted to the appropriate taxation authority promptly in accordance
with the relevant law, regulation or regulatory requirement, and in any event
before any fine or penalty arises.
22.3
Indemnity and evidence of payment of taxes
The Borrower shall fully indemnify each Creditor
Party on the Agent's demand in respect of all claims, expenses, liabilities and losses
incurred by any Creditor Party by reason of any failure of the Borrower to make any tax deduction or by reason of any increased payment
not being made on the due
date for such payment in accordance with Clause 22.2. Within 30 days after making any tax deduction, the
Borrower shall deliver to the Agent any receipts, certificates or other documentary evidence satisfactory to the Agent that the tax had been
paid to the appropriate taxation authority.
22.4
Exclusion of tax on overall net income
In this Agreement "tax deduction"
means any deduction or withholding from any payment due under a Finance Document for or on
account of any present or future tax except:
(a)
tax on a Creditor Party's overall net income; and
(b)
a FATCA Deduction.
22.5
FATCA Information
(a)
Subject to paragraph (c) below, each Party shall, within ten Business Days of a reasonable request by another Party:
(i)
confirm to that other Party whether it is:
(A)
a FATCA Exempt Party; or
(B)
not a FATCA Exempt Party; and
(ii)
supply to that other Party such forms, documentation and other information relating to its status under FATCA as that other Party
reasonably requests for the purposes of that other Party's compliance with FATCA;
and
(iii)
supply to that other Party such forms, documentation and other information relating to its status as that other Party reasonably
requests for the purposes of that other Party's compliance with any other law,
regulation or exchange of information regime.
(b)
If a Party confirms to another Party pursuant to sub-paragraph (i) of paragraph (a) above that it is a FATCA Exempt Party and it subsequently
becomes aware that it is not, or has ceased to be a FATCA Exempt Party,
that Party shall notify that other Party reasonably promptly.
(c)
Paragraph (a) above shall not oblige any Creditor Party to do anything and sub-paragraph (iii) of paragraph (a) above shall not oblige any
other Party to do anything which would or might in its reasonable opinion
constitute a breach of:
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(i)
any law or regulation;
(ii)
any fiduciary duty; or
(iii)
any duty of confidentiality.
(d)
If a Party fails to confirm whether or not it is a FATCA Exempt Party or to supply forms, documentation or other information requested in
accordance with sub-paragraphs (i) or (ii) of paragraph (a) above (including,
for the avoidance of doubt, where paragraph (c) above applies),
then such Party shall be treated for the purposes of the Finance Documents (and payments under them) as if it is not a FATCA Exempt Party
until such time as the Party in question
provides the requested confirmation, forms, documentation or other information.
(e)
If a Lender knows or has reason to know that the Borrower is a US Tax Obligor, or where the Agent reasonably believes that its obligations
under FATCA require it, each Lender shall, within ten Business Days
of:
(i)
where the Lender knows or has reason to know that the Borrower is a US Tax Obligor and the relevant Lender is a Party as at the
date of this Agreement, the date of this Agreement;
(ii)
where the Lender knows or has reason to know that the Borrower is a US Tax Obligor and the relevant Lender became a Party after
the date of this Agreement, the date on which the relevant Transfer Certificate became
effective; or
(iii)
the date of a request from the Agent,
supply to the Agent:
(iv)
a withholding certificate on US Internal Revenue Service Form W-8 or Form W-9 (or any successor form) (as applicable); or
(v)
any withholding statement and other documentation, authorisations and waivers as the Agent may require to certify or establish
the status of such Lender under FATCA.
The Agent shall provide any withholding certificate, withholding statement, documentation, authorisations and waivers it receives from a
Lender
pursuant to this paragraph (e) to the Borrower, to the extent required for compliance with FATCA or any other law or regulation, and
shall be entitled to rely on any such withholding certificate, withholding statement, documentation, authorisations
and waivers provided
without further verification. The Agent shall not be liable for any action taken by it under or in connection with this paragraph (e).
(f)
Each Lender agrees that if any withholding certificate, withholding statement, documentation, authorisations and waivers provided to the
Agent pursuant to paragraph (e) above is or becomes materially inaccurate or
incomplete, it shall promptly update such withholding
certificate, withholding statement, documentation, authorisations and waivers or promptly notify the Agent in writing of its legal inability to
do so. The Agent shall provide any such updated
withholding certificate, withholding statement, documentation, authorisations and waivers
to the Borrower, to the extent required for compliance with FATCA or any other law or regulation. The Agent shall not be liable for any
action taken by it
under or in connection with this paragraph (f).
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22.6
FATCA Deduction
(a)
Each Party may make any FATCA Deduction as it reasonably determines it is required to make by FATCA, and any payment required in
connection with that FATCA Deduction, and no Party shall be required to increase any
payment in respect of which it makes such a FATCA
Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction.
(b)
Each Party shall promptly, upon becoming aware that it must make a FATCA Deduction (or that there is any change in the rate or the basis of
such FATCA Deduction), notify the Party to whom it is making the payment and,
in addition, shall notify the Borrower and the Agent and the
Agent shall notify the other Creditor Parties.
23
ILLEGALITY, ETC.
23.1
Illegality
This Clause 22.4 applies if a Lender (the "Notifying Lender")
notifies the Agent that it has become, or will with effect from a specified date,
become:
(a)
unlawful or prohibited as a result of the introduction of a new law, an amendment to an existing law or a change in the manner in which an
existing law is or will be interpreted or applied; or
(b)
contrary to, or inconsistent with, any regulation,
for the Notifying Lender to perform,
maintain or give effect to any of its obligations under this Agreement in the manner contemplated by
this Agreement or to fund or maintain the Loan.
23.2
Notification of illegality
The Agent shall promptly notify the Borrower, the Security Parties,
the Security Trustee and the other Lenders of the notice under Clause
23.1 which the Agent receives from the Notifying Lender.
23.3
Prepayment; termination of Commitment
On the Agent notifying the Borrower under Clause 23.2,
the Notifying Lender's Commitment shall be immediately cancelled; and thereupon
or, if later, on the date specified in the Notifying Lender's notice under Clause 23.1 as the date on which the notified event would become
effective the Borrower shall
prepay the Notifying Lender's Contribution on the last day of the then current Interest Period in accordance
with Clauses 8.11 and 8.12.
24
INCREASED COSTS
24.1
Increased costs
This Clause 24 applies if a Lender (the "Notifying Lender")
notifies the Agent that the Notifying Lender considers that as a result of:
(1)
the introduction or alteration after the date of this Agreement of a law or an alteration after the date of this Agreement in the manner in
which a law is interpreted or applied (disregarding any effect which relates
to the application to payments under this Agreement of a tax on
the Lender's overall net income); or
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(2)
complying with any regulation (including any which relates to capital adequacy or liquidity controls or which affects the manner in which
the Notifying Lender allocates capital resources to its obligations under this
Agreement) which is introduced, or altered, or the
interpretation or application of which is altered, after the date of this Agreement; or
(3)
the implementation or application of or compliance with the "International Convergence of Capital Measurement and Capital Standards, a
Revised Framework" published by the Basel Committee on Banking
Supervision in June 2004 in the form existing on the date of this
Agreement (the "Basel II Accord") or any other law or regulation implementing the Basel II Accord or any of the approaches provided for
and allowed to be used by
banks under or in connection with the Basel II Accord, in each case when compared to the cost of complying with
such regulations as determined by the Agent (or parent company of it) on the date of this Agreement (whether such implementation,
application or compliance is by a government, regulator, supervisory authority, the Notifying Lender or its holding company); or
(4)
the implementation or application of or compliance with Basel III or any law or regulation which implements or applies Basel III (regardless
of the date on which it is enacted, adopted or issued and regardless of
whether any such implementation, application or compliance is by a
government, regulator, the Notifying Lender or any of its affiliates),
the Notifying Lender (or a parent company of it) has incurred or will incur an "increased cost".
24.2
Meaning of "increased cost"
In this Clause 24, "increased cost"
means, in relation to a Notifying Lender:
(a)
an additional or increased cost incurred as a result of, or in connection with, the Notifying Lender having entered into, or being a party to,
this Agreement or a Transfer Certificate, of funding or maintaining its
Commitment or Contribution or performing its obligations under this
Agreement, or of having outstanding all or any part of its Contribution or other unpaid sums;
(b)
a reduction in the amount of any payment to the Notifying Lender under this Agreement or in the effective return which such a payment
represents to the Notifying Lender or on its capital;
(c)
an additional or increased cost of funding all or maintaining all or any of the advances comprised in a class of advances formed by or
including the Notifying Lender's Contribution or (as the case may require) the
proportion of that cost attributable to the Contribution; or
(d)
a liability to make a payment, or a return foregone, which is calculated by reference to any amounts received or receivable by the Notifying
Lender under this Agreement,
but not an item attributable to a change in the rate of tax on the overall net income of the Notifying Lender (or a parent company of it) or
an
item covered by the indemnity for tax in Clause 21.1 or by Clause 22 or a FATCA Deduction required to be made by a Party.
For the purposes
of this Clause 24.2 the Notifying Lender may in good faith allocate or spread costs and/or losses among its assets and
liabilities (or any class of its assets and liabilities) on such basis as it considers appropriate.
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24.3
Notification to Borrower of claim for increased costs
The Agent shall promptly notify the
Borrower and the Security Parties of the notice which the Agent received from the Notifying Lender
under Clause 24.1.
24.4
Payment of increased costs
The Borrower shall pay to the Agent within 5 Business Days after
the Agent's demand, for the account of the Notifying Lender the amounts
which the Agent from time to time notifies the Borrower that the Notifying Lender has specified to be necessary to compensate the
Notifying Lender for the increased cost.
24.5
Notice of prepayment
If the Borrower is not willing to continue to compensate the Notifying
Lender for the increased cost under Clause 24.4 (Payment of
increased costs), the Borrower may give the Agent not less than 14 days' notice of their intention to prepay the Notifying Lender's
Contribution at the end of an Interest Period.
24.6
Prepayment; termination of Commitment
A notice under Clause 24.5 (Notice of prepayment)
shall be irrevocable; the Agent shall promptly notify the Notifying Lender of the
Borrower's notice of intended prepayment; and:
(1)
on the date on which the Agent serves that notice, the Commitment of the Notifying Lender shall be cancelled; and
(2)
on the date specified in its notice of intended prepayment, the Borrower shall prepay (without premium or penalty) the Notifying Lender's
Contribution, together with accrued interest thereon at the applicable rate
plus the Margin.
24.7
Application of prepayment
Clause 8 (Repayment and Prepayment) shall apply in relation
to the prepayment.
25
SET-OFF
25.1
Application of credit balances
Each Creditor Party may without prior notice to the Borrower
but with prior notice to the Agent:
(a)
apply any balance (whether or not then due) which at any time stands to the credit of any account in the name of the Borrower at any
office in any country of that Creditor Party in or towards satisfaction of any sum
then due from the Borrower to that Creditor Party under
any of the Finance Documents; and
(b)
for that purpose:
(i)
break, or alter the maturity of, all or any part of a deposit of the Borrower;
(ii)
convert or translate all or any part of a deposit or other credit balance into Dollars; and
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(iii)
enter into any other transaction or make any entry with regard to the credit balance which the Creditor Party concerned considers
appropriate.
25.2
Existing rights unaffected
No Creditor Party shall be obliged to exercise any of its rights
under Clause 25.1; and those rights shall be without prejudice and in addition
to any right of set-off, combination of accounts, charge, lien or other right or remedy to which a Creditor Party is entitled (whether under
the general law or any
document).
25.3
Sums deemed due to a Lender
For the purposes of this Clause 24.3, a sum payable by the
Borrower to the Agent or the Security Trustee for distribution to, or for the
account of, a Lender shall be treated as a sum due to that Lender; and each Lender's proportion of a sum so payable for distribution to, or
for the account of, the Lenders
shall be treated as a sum due to such Lender.
25.4
No Security Interest
This Clause 24.3 gives the Creditor Parties a contractual right of
set-off only, and does not create any equitable charge or other Security
Interest over any credit balance of the Borrower.
26
TRANSFERS AND CHANGES IN LENDING OFFICES
26.1
Transfer by Borrower
The Borrower may not assign or transfer any of its rights, liabilities or
obligations under any Finance Document.
26.2
Transfer by a Lender
Subject to Clause 26.4, a Lender (the "Transferor
Lender") may at any time cause:
(a)
its rights in respect of all or part of its Contribution; or
(b)
its obligations in respect of all or part of its Commitment; or
(c)
a combination of (a) and (b); or
(d)
all or part of its credit risk under this Agreement and the other Finance Documents,
to be
syndicated to or, (in the case of its rights) assigned, pledged or transferred to, or (in the case of its obligations) pledged or assumed by
any other bank or financial institution or to a trust, fund or other entity, provided such other entity is
regularly engaged in, or established
for the purpose of, making, purchasing or investing in loans, securities or other financial assets (a "Transferee Lender") by delivering to the
Agent a completed certificate in the form set out
in Schedule 4 with any modifications approved or required by the Agent (a "Transfer
Certificate") executed by the Transferor Lender and the Transferee Lender.
However any rights and obligations of the Transferor Lender in its capacity as Agent or Security Trustee will have to be dealt with separately
in accordance with the Agency and Trust Deed.
The prior consent of the Borrower (such consent not to be unreasonably withheld, delayed or
conditioned) is required for a syndication or,
(in the case of its rights) assignment, pledge or
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transfer, or (in the case of its obligations) pledge or assumption pursuant to this Clause
26.2, unless:
(i)
the Transferee Lender is another Lender or an affiliate or a company or financial institution which is in the same ownership or
control as one of the Lenders; or
(ii)
an Event of Default has occurred at the relevant time.
With respect to the Transferor Lender's
notice requesting the Borrower's consent under this Clause 26.2, such consent shall be deemed
granted if the Borrower has failed to object to such request by written notice to the Transferor Lender within five Business Days from the
Borrower's
receipt of the Transferor Lender's notice.
The Borrower shall not be liable for any costs or expenses of the Transferor Lender, the
Transferee Lender or any other party under or in
connection with any assignment or other transfer pursuant to this Clause 26.2.
26.3
Transfer Certificate, delivery and notification
As soon as reasonably practicable after a
Transfer Certificate is delivered to the Agent, it shall (unless it has reason to believe that the
Transfer Certificate may be defective):
(a)
sign the Transfer Certificate on behalf of itself, the Borrower, the Security Parties, the Security Trustee and each of the other Lenders;
(b)
on behalf of the Transferee Lender, send to the Borrower and each Security Party letters or faxes notifying them of the Transfer Certificate
and attaching a copy of it; and
(c)
send to the Transferee Lender copies of the letters or faxes sent under paragraph (b) above.
26.4
Effective Date of Transfer Certificate
A Transfer Certificate becomes effective on the date,
if any, specified in the Transfer Certificate as its effective date, Provided that it is
signed by the Agent under Clause 26.3 on or before that date.
26.5
No transfer without Transfer Certificate
Except as provided in Clause 26.17, no assignment or
transfer of any right or obligation of a Lender under any Finance Document is binding
on, or effective in relation to, the Borrower, any Security Party, the Agent or the Security Trustee unless it is effected, evidenced or perfected
by a Transfer
Certificate.
26.6
Lender re-organisation; waiver of Transfer Certificate
However, if a Lender enters into any
merger, de-merger or other reorganisation as a result of which all its rights or obligations vest in
another person (the "successor"), the successor shall become a Lender with the same Commitment and Contribution as were held by the
predecessor Lender only upon receipt by the Agent of a notice to this effect and evidence that all rights and obligations have automatically
and by operation of law vested in the successor by virtue of the merger, de-merger or other reorganisation,
without the need for the
execution and delivery of a Transfer Certificate; the Agent shall in that event inform the Borrower and the Security Trustee accordingly.
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26.7
Effect of Transfer Certificate
A Transfer Certificate takes effect in accordance with English
law as follows:
(a)
to the extent specified in the Transfer Certificate, all rights and interests (present, future or contingent) which the Transferor Lender has
under or by virtue of the Finance Documents are assigned to the Transferee
Lender absolutely, free of any defects in the Transferor Lender's
title and of any rights or equities which the Borrower or any Security Party had against the Transferor Lender;
(b)
the Transferor Lender's Commitment is discharged to the extent specified in the Transfer Certificate;
(c)
the Transferee Lender becomes a Lender with the Contribution previously held by the Transferor Lender and a Commitment of an amount
specified in the Transfer Certificate;
(d)
the Transferee Lender becomes bound by all the provisions of the Finance Documents which are applicable to the Lenders generally,
including those about pro-rata sharing and the exclusion of liability on the part of,
and the indemnification of, the Agent and the Security
Trustee and, to the extent that the Transferee Lender becomes bound by those provisions (other than those relating to exclusion of
liability), the Transferor Lender ceases to be bound by
them;
(e)
any part of the Loan which the Transferee Lender advances after the Transfer Certificate's effective date ranks in point of priority and
security in the same way as it would have ranked had it been advanced by the
transferor, assuming that any defects in the transferor's title
and any rights or equities of the Borrower or any Security Party against the Transferor Lender had not existed;
(f)
the Transferee Lender becomes entitled to all the rights under the Finance Documents which are applicable to the Lenders generally,
including but not limited to those relating to the Majority Lenders and those under
Clause 5.6 and Clause 20, and to the extent that the
Transferee Lender becomes entitled to such rights, the Transferor Lender ceases to be entitled to them; and
(g)
in respect of any breach of a warranty, undertaking, condition or other provision of a Finance Document or any misrepresentation made in
or in connection with a Finance Document, the Transferee Lender shall be
entitled to recover damages by reference to the loss incurred by
it as a result of the breach or misrepresentation, irrespective of whether the original Lender would have incurred a loss of that kind or
amount.
The rights and equities of the Borrower or any Security Party referred to above include, but are not limited to, any right of set off and any
other kind of cross-claim.
26.8
Maintenance of register of Lenders
During the Security Period the Agent shall maintain a
register in which it shall record the name, Commitment, Contribution and
administrative details (including the lending office) from time to time of each Lender holding a Transfer Certificate and the effective date (in
accordance with Clause 26.4) of
the Transfer Certificate; and the Agent shall make the register available for inspection by any Lender, the
Security Trustee and the Borrower during normal banking hours, subject to receiving at least three Business Days' prior notice.
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26.9
Reliance on register of Lenders
The entries on that register shall, in the absence of manifest
error, be conclusive in determining the identities of the Lenders and the
amounts of their Commitments and Contributions and the effective dates of Transfer Certificates and may be relied upon by the Agent and
the other parties to the Finance
Documents for all purposes relating to the Finance Documents.
26.10
Authorisation of Agent to sign Transfer Certificates
The Borrower, the Security Trustee and
each Lender irrevocably authorise the Agent to sign Transfer Certificates on its behalf. The Borrower
and each Security Party irrevocably agrees to the transfer procedures set out in this Clause 26 and to the extent the cooperation of the
Borrower
and/or any Security Party shall be required to effect any such transfer, the Borrower and such Security Party shall take all
necessary steps to afford such cooperation Provided that this shall not result in any additional costs to the
Borrower or such Security Party.
26.11
Registration fee
In respect of any Transfer Certificate, the Agent shall be entitled to
recover a registration fee of $2,500 from the Transferor Lender or (at the
Agent's option) the Transferee Lender.
26.12
Sub-participation; subrogation assignment
A Lender may sub-participate or include in a
securitisation or similar transaction all or any part of its rights and/or obligations under or in
connection with the Finance Documents without the Borrower's prior consent and without serving a notice thereon; the Lenders may
assign without the
Borrower's prior consent and without serving a notice thereon all or any part of the rights referred to in the preceding
sentence to an insurer or surety who has become subrogated to them.
26.13
Sub-division, split, modification or re-tranching
Any Lender may, in its sole discretion,
sub-divide, split, sever, modify or re-tranche its Contribution into one or more parts subject to the
overall cost of its Contribution to the Borrower remaining unchanged, if such changes are necessary in order to achieve a successful
execution of a
securitisation, syndication or any other capital market exit in respect of its Contribution (or any applicable part thereof).
26.14
Borrower's cooperation and confidentiality
(a)
The Borrower shall, and shall procure that the Owner and any other Security Party shall:
(i)
provide the Creditor Parties (or any of them) with all information deemed, reasonably, necessary by the Creditor Parties (or any of
them) for the purposes of any transfer, syndication or sub-participation to be
effected pursuant to this Clause 26; and
(ii)
procure that the directors of the Borrower, officers of the Borrower's general partner, and the directors and officers of the Owner or
any other Security Party are available to participate in any meeting with any
Transferee Lender or any rating agency at such times
and places as the Creditor Parties may reasonably request on notice (to be served on the Borrower reasonably in advance) to the
Borrower, the Owner or that Security Party.
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(b)
The Borrower shall not and shall ensure that no Security Party will publish any details regarding the Loan or any of the Finance Documents
without the prior written consent of the Agent (excluding any specific
disclosure required to be made by the Borrower in compliance with
any law or regulation applicable to it as a result of its listing on NASDAQ stock exchange).
26.15
Change of lending office
A Lender may change its lending office by giving notice to the Agent
and the change shall become effective on the later of:
(a)
the date on which the Agent receives the notice; and
(b)
the date, if any, specified in the notice as the date on which the change will come into effect.
26.16
Notification
On receiving such a notice, the Agent shall notify the Borrower and the Security
Trustee; and, until the Agent receives such a notice, it shall
be entitled to assume that a Lender is acting through the lending office of which the Agent last had notice.
26.17
Security over Lenders' rights
In addition to the other rights provided to Lenders under this
Clause 26, each Lender may without consulting with or obtaining consent
from the Borrower or any Security Party or any Approved Manager, at any time charge, assign or otherwise create a Security Interest in or
over (whether by way of collateral or
otherwise) all or any of its rights under any Finance Document to secure obligations of that Lender
including, without limitation:
(a)
any charge, assignment or other Security Interest to secure obligations to a federal reserve or central bank; and
(b)
in the case of any Lender which is a fund, any charge, assignment or other Security Interest granted to any holders (or trustee or
representatives of holders) of obligations owed, or securities issued, by that Lender
as security for those obligations or securities,
except that no such charge, assignment or Security Interest shall:
(i)
release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge,
assignment or Security Interest for the Lender as a party to any of the Finance Documents;
or
(ii)
require any payments to be made by the Borrower or any Security Party or grant to any person any more extensive rights than those
required to be made or granted to the relevant Lender under the Finance
Documents.
26.18
Securitisation
The Borrower shall, and the Borrower shall procure that each Security Party and
Approved Manager will, assist the Agent and/or any Lender
in achieving a successful securitisation (or similar transaction) in respect of the Loan and the Finance Documents and such Security Party's
and such Approved Manager's reasonable costs for
providing such assistance shall be met by the relevant Lender. The Borrower, if
requested by the Agent, shall provide documentation evidencing the purchase price of the Ship when acquired by the Borrower.
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26.19
No additional costs
If a Transferor Lender assigns or transfers any of its rights or
obligations under the Finance Documents and as a result of circumstances
existing at the date the assignment or transfer occurs, the Borrower or a Security Party would be obliged to make a payment to the
Transferee Lender under Clause 26.2 or under
that clause as incorporated by reference or in full in any other Finance Document, then the
Transferee Lender is only entitled to receive payment under that clause to the same extent as the Transferor Lender would have been if the
assignment or
transfer had not occurred.
27
VARIATIONS AND WAIVERS
27.1
Required consents
(a)
Subject to Clause 27.2 any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and
the Borrower and any such amendment or waiver will be binding on all Creditor Parties
and the Borrower.
(b)
Any instructions given by the Majority Lenders will be binding on all the Creditor Parties.
(c)
The Agent may effect, on behalf of any Creditor Party, any amendment or waiver permitted by this Clause.
27.2
Exceptions
(a)
An amendment or waiver that has the effect of changing or which relates to:
(i)
the definition of "Majority Lenders" or "Finance Documents" " or "RFR Replacement Event" in Clause 1.1;
(ii)
an extension to the date of payment of any amount under the Finance Documents;
(iii)
a reduction in the Margin or a reduction in the amount of any payment of principal, interest fees, commission or other amount
payable under any of the Finance Documents;
(iv)
an increase in or an extension of any Lender's Commitment;
(v)
any provision which expressly requires the consent of all the Lenders; or
(vi)
Clause 3 (Position of the Lenders), Clause 11.5, 11.6, 11.7, Clause 11.16, Clause 26 or Clause
27.4 or this Clause 27.2;
(vii)
the definitions of "Restricted Party", "Sanctions Authorities" or "Sanctions List" in Clause 1.1 (Definitions) or Clause 11.23;
(viii)
any release of any Security Interest, guarantee, indemnities or subordination arrangement created by any Finance Document;
(ix)
any change of the currency in which the Loan is provided or any amount is payable under any of the Finance Documents;
(x)
any change to the Replacement Reference Rate pursuant to Clause 27.4;
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(xi)
an extension of the Availability Period in relation to the Loan; or
(xii)
a change in Clauses 16.4 or 22,
may not be effected without the prior written consent of all
Lenders.
(b)
An amendment or waiver which relates to the rights or obligations of the Agent, a Mandated Lead Arranger or the Security Trustee may not
be effected without the consent of the Agent, that Mandated Lead Arranger or the
Security Trustee, as the case may be.
(c)
The Borrower and a Creditor Party may amend or waive a term of a Fee Letter to which they are party.
27.3
Exclusion of other or implied variations
Except for a document which satisfies the
requirements of Clauses 27.1 and 27.2, no document, and, subject to Clause 27.4, no act, course
of conduct, failure or neglect to act, delay or acquiescence on the part of the Creditor Parties or any of them (or any person acting on behalf
of any of
them) shall result in the Creditor Parties or any of them (or any person acting on behalf of any of them) being taken to have varied,
waived, suspended or limited, or being precluded (permanently or temporarily) from enforcing, relying on or
exercising:
(a)
a provision of this Agreement or another Finance Document; or
(b)
an Event of Default; or
(c)
a breach by the Borrower or a Security Party of an obligation under a Finance Document or the general law; or
(d)
any right or remedy conferred by any Finance Document or by the general law,
and there shall
not be implied into any Finance Document any term or condition requiring any such provision to be enforced, or such right
or remedy to be exercised, within a certain or reasonable time.
27.4
Changes to reference rates
(a)
If a RFR Replacement Event has occurred in relation to the RFR, the Agent (acting on the instructions of all Lenders) shall be entitled to:
(i)
replace the RFR with a Replacement Reference Rate;
(ii)
adjust the pricing on the Replacement Reference Rate by the amendment of the Margin or otherwise, in each case at its discretion,
to reduce or eliminate, to the extent reasonably practicable, any transfer of economic
value from one Party to another as a result of
the application of that Replacement Reference Rate (and if any adjustment or method for calculating any adjustment has been
formally designated, nominated or recommended by the Relevant Nominating Body,
the adjustment shall be determined on the
basis of that designation, nomination or recommendation); and
(iii)
amend this Agreement for the purpose of any of:
(A)
providing for the use of a Replacement Reference Rate in place of the RFR;
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(B)
aligning any provision of any Finance Document to the use of that Replacement Reference Rate;
(C)
enabling that Replacement Reference Rate to be used for the calculation of interest under this Agreement (including,
without limitation, any consequential changes required to enable that Replacement Reference Rate to
be used for the
purposes of this Agreement);
(D)
implementing market conventions applicable to that Replacement Reference Rate;
(E)
providing for appropriate fallback (and market disruption) provisions for that Replacement Reference Rate; or
(F)
adjusting the pricing in accordance with paragraph (ii) above.
(b)
The Agent shall promptly notify the Borrower and each Creditor Party of any replacement of the RFR, any adjustment of pricing and any
amendment of this Agreement made pursuant to paragraph (a) above, which shall take
effect immediately as from (and including) the date
specified in such notification.
(c)
If required by the Agent (acting on the instructions of all Lenders), the Borrower shall (and shall procure that each other Security Party and
Approved Manager shall) enter into such supplemental, replacement or other
agreement in relation to any Finance Document as the Agent
may specify to extend the effect of any of the amendments referred to in paragraph (a) above to such Finance Document.
(a)
An amendment or waiver that relates to, or has the effect of, aligning the means of calculation of interest on the Loan under this
Agreement to any recommendation of a Relevant Nominating Body which:
(i)
relates to the use of the RFR on a compounded basis in the international or any relevant domestic syndicated loan markets; and
(ii)
is issued on or after the date of this Agreement,
may be made with the consent of the Agent
(acting on the instructions of the Lenders).
27.5
Deemed consent
With respect to:
(a)
the replacement of the RFR with a Replacement Reference Rate in accordance with sub-paragraph (i) of paragraph (a) of Clause 27.4 (and
the designation of such benchmark as permitted under sub-paragraphs (b) and (c) of
the definition of "Replacement Reference Rate");
(b)
the adjustment of pricing in accordance with sub-paragraph (ii) of paragraph (a) Clause 27.4;
(c)
any amendment of any Finance Document as contemplated in sub-paragraph (iii) of paragraph (a) of Clause 27.4; and
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(d)
any other amendment, variation, waiver, suspension or limit requested by a Borrower or any Security Party which requires the approval of
all the Lenders or the Majority Lenders (as the case may
be),
the Agent shall provide each Lender with written notice of such request accompanied by such detailed background
information as may be
reasonably necessary (in the opinion of the Agent) to determine whether to approve such action. A Lender shall be deemed to have
approved such action if such Lender fails to object to such action by written notice to the Agent
within 10 days of that Lender's receipt of
the Agent's notice or such other time as the Agent may state in the relevant notice as being the time available for approval of such action.
28
NOTICES
28.1
General
Unless otherwise specifically provided, any notice under or in connection with any
Finance Document shall be given by letter or fax; and
references in the Finance Documents to written notices, notices in writing and notices signed by particular persons shall be construed
accordingly.
28.2
Addresses for communications
A notice by letter or fax shall be sent:
(a)
to the Borrower:
c/o Capital-Executive Ship Management Corp.
3, Iassonos Street
185 37 Piraeus
Greece
E-mail: n.kalapotharakos@capitalmaritime.com
for the attention of:
Capital Product Partners L.P./Chief Financial Officer
(b)
to a Lender:
At the address next to its name in Part A of Schedule 1
or (as the case may require) in the relevant Transfer
Certificate.
for the attention of:
the Manager
(c)
to the Agent and Security Trustee:
for general matters:
Hamburg Commercial Bank AG
UB 25 Shipping
Shipping Clients International
Gerhart-Hauptmann-Platz 50
20095 Hamburg
Germany
Fax No: +30 210 429 5323/Email: Matthias.evers@hcom-bank.com
Attn: Mr Loukas Lagaras/Mr Matthias Evers
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for credit administrative matters: Hamburg Commercial Bank AG
Loan and Collateral Management
Shipping International
Gerhart-Hauptmann-Platz 50
20095
Hamburg
Germany
Fax No: +49 40 3333 34118
or to such other address as the relevant Party may notify the Agent or, if the relevant Party is the Agent or the Security Trustee, the
Borrower,
the Lenders and the Security Parties.
28.3
Effective date of notices
Subject to Clauses 28.4 and 28.5:
(a)
a notice which is delivered personally or posted shall be deemed to be served, and shall take effect, at the time when it is delivered; and
(b)
a notice which is sent by fax shall be deemed to be served, and shall take effect, 2 hours after its transmission is completed.
28.4
Service outside business hours
However, if under Clause 28.3 a notice would be deemed to be
served:
(a)
on a day which is not a business day in the place of receipt; or
(b)
on such a business day, but after 5 p.m. local time,
the notice shall (subject to Clause 28.5)
be deemed to be served, and shall take effect, at 9 a.m. on the next day which is such a business
day.
28.5
Illegible notices
Clauses 28.3 and 28.4 do not apply if the recipient of a notice notifies the
sender within 1 hour after the time at which the notice would
otherwise be deemed to be served that the notice has been received in a form which is illegible in a material respect.
28.6
Valid notices
A notice under or in connection with a Finance Document shall not be invalid by
reason that its contents or the manner of serving it do not
comply with the requirements of this Agreement or, where appropriate, any other Finance Document under which it is served if:
(a)
the failure to serve it in accordance with the requirements of this Agreement or other Finance Document, as the case may be, has not
caused any party to suffer any significant loss or prejudice; or
(b)
in the case of incorrect and/or incomplete contents, it should have been reasonably clear to the party on which the notice was served what
the correct or missing particulars should have been.
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28.7
Electronic communication
Any communication from the Agent or the other Creditor
Parties made by electronic means will be sent unsecured and without electronic
signature, however, the Borrower may request the Agent and the other Creditor Parties at any time in writing to change the method of
electronic communication from
unsecured to secured electronic mail communication.
The Borrower hereby acknowledges and accepts the risks associated with the use of
unsecured electronic mail communication including,
without limitation, risk of delay, loss of data, confidentiality breach, forgery, falsification and malicious software. The Agent and the other
Creditor Parties shall not be liable in any way for
any loss or damage or any other disadvantage suffered by the Borrower resulting from
such unsecured electronic mail communication.
If the
Borrower or any Security Party wish to cease all electronic communication, they shall give written notice to the Agent and the other
Creditor Parties accordingly after receipt of which notice the Parties shall cease all electronic communication.
For as long as electronic communication is an accepted form of communication, the Parties shall:
(a)
notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of
information by that means; and
(b)
notify each other of any change to their respective addresses or any other such information supplied to them.
28.8
English language
Any notice under or in connection with a Finance Document shall be in
English.
28.9
Meaning of "notice"
In this Clause 0, "notice" includes any demand,
consent, authorisation, approval, instruction, waiver or other communication.
29
BAIL-IN
29.1
Contractual recognition of bail-in
Notwithstanding any other term of any Finance Document or
any other agreement, arrangement or understanding between the parties to a
Finance Document, each Party acknowledges and accepts that any liability of any party to a Finance Document under or in connection with
the Finance Documents may be subject
to Bail-In Action by the relevant Resolution Authority and acknowledges and accepts to be bound
by the effect of:
(a)
any Bail-In Action in relation to any such liability, including (without limitation):
(i)
a reduction, in full or in part, in the principal amount, or outstanding amount due (including any accrued but unpaid interest) in
respect of any such liability;
(ii)
a conversion of all, or part of, any such liability into shares or other instruments of ownership that may be issued to, or conferred
on, it; and
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(iii)
a cancellation of any such liability; and
a variation of any term of any Finance Document to
the extent necessary to give effect to any Bail-In Action in relation to any such liability.
30
CONFIDENTIAL INFORMATION
30.1
Confidentiality
Each Creditor Party agrees to keep all Confidential Information confidential
and not to disclose it to anyone, save to the extent permitted by
Clause 30.2 or 30.3 and to ensure that all Confidential Information is protected with security measures and a degree of care that would
apply to its own confidential information.
30.2
Disclosure of Confidential Information
Any Creditor Party may disclose:
(a)
to any of its affiliates and Related Funds and any of its or their officers, directors, employees, professional advisers, auditors, partners and
representatives such Confidential Information as that Creditor Party
shall consider appropriate if any person to whom the Confidential
Information is to be given pursuant to this paragraph (a) is informed in writing of its confidential nature and that some or all of such
Confidential Information may be
price-sensitive information except that there shall be no such requirement to so inform if the recipient is
subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of
confidentiality in relation to the Confidential Information;
(b)
to any person:
(i)
to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under
one or more Finance Documents or which succeeds (or which may potentially succeed)
it as Agent or Security Trustee and, in each
case, to any of that person's affiliates, Related Funds, representatives and professional advisers;
(ii)
with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation
to, or any other transaction under which payments are to be made or may be made
by reference to, one or more Finance
Documents and/or the Borrower and/or any Security Party and to any of that person's affiliates, Related Funds, representatives and
professional advisers;
(iii)
appointed by any Creditor Party or by a person to whom sub-paragraph (i) or (ii) of paragraph (b) above applies to receive
communications, notices, information or documents delivered pursuant to the Finance Documents
on its behalf;
(iv)
who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction
referred to in sub-paragraph (i) or (ii) of paragraph (b) above;
(v)
to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking,
taxation or other regulatory
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authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation;
(vi)
to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitrations,
administrative or other investigations, proceedings or disputes;
(vii)
to whom or for whose benefit that Creditor Party charges, assigns or otherwise creates Security (or may do so) pursuant to Clause
26.17 (Security over Lenders' rights);
(viii)
who is a Party, a member of the Group or any related entity of the Borrower and/or any Security Party;
(ix)
as a result of the registration of any Finance Document as contemplated by any Finance Document or any legal opinion obtained in
connection with any Finance Document; or
(x)
with the consent of the Borrower;
in each case, such Confidential Information as that Creditor
Party shall consider appropriate if:
(A)
in relation to sub-paragraphs (i), (ii) and (iii) of paragraph (b) above, the person to whom the Confidential Information is to
be given has entered into a Confidentiality Undertaking except that there shall be no
requirement for a Confidentiality
Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality
of the Confidential Information;
(B)
in relation to sub-paragraph (iv) of paragraph (b) above, the person to whom the Confidential Information is to be given has
entered into a Confidentiality Undertaking or is otherwise bound by requirements of
confidentiality in relation to the
Confidential Information they receive and is informed that some or all of such Confidential Information may be price-
sensitive information;
(C)
in relation to sub-paragraphs (v), (vi) and (vii) of paragraph (b) above, the person to whom the Confidential Information is to
be given is informed of its confidential nature and that some or all of such Confidential
Information may be price-sensitive
information except that there shall be no requirement to so inform if, in the opinion of that Creditor Party, it is not
practicable so to do in the circumstances;
(c)
to any person appointed by that Creditor Party or by a person to whom sub-paragraph (i) or (ii) of paragraph (b) above applies to provide
administration or settlement services in respect of one or more of the Finance
Documents including without limitation, in relation to the
trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable
such service provider to provide any of the services
referred to in this paragraph (c) if the service provider to whom the Confidential
Information is to be given has entered in to a confidentiality agreement substantially in the form of the LMA Master Confidentiality
Undertaking for Use With
Administration/Settlement Service Providers or such other form of confidentiality undertaking agreed between
the Borrower and the relevant Creditor Party;
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(d)
to any rating agency (including its professional advisers) such Confidential Information as may be required to be disclosed to enable such
rating agency to carry out its normal rating activities in relation to the
Finance Documents and/or the Borrower and/or any Security Party.
(e)
Each Creditor Party is released from its respective obligations of secrecy and from banking confidentiality under any law or regulation
applicable to it. This permission set out in paragraphs (a) and (d) of this
Clause 30.2 is given for the purposes of giving relief from banking
secrecy and confidentiality requirements. It is not intended as and is no declaration of consent in accordance with the DS_GVO (EU
Regulation 2016/679, General Data Protection
Regulation).
30.3
Disclosure to numbering service providers
(a)
Any Creditor Party may disclose to any national or international numbering service provider appointed by that Creditor Party to provide
identification numbering services in respect of this Agreement, the Loan and/or
the Borrower and/or any Security Party the following
information:
(i)
names of the Borrower and the Security Parties;
(ii)
country of domicile of the Borrower and the Security Parties;
(iii)
place of incorporation of the Borrower and the Security Parties;
(iv)
date of this Agreement;
(v)
Clause 32;
(vi)
the names of the Agent and the Mandated Lead Arranger;
(vii)
date of each amendment and restatement of this Agreement;
(viii)
amount of Total Commitments;
(ix)
currency of the Loan;
(x)
type of facility;
(xi)
ranking of Loan;
(xii)
Final Repayment Date;
(xiii)
changes to any of the information previously supplied pursuant to sub-paragraphs (i) to (xii) above; and
(xiv)
such other information agreed between such Creditor Party and the Borrower,
to enable such
numbering service provider to provide its usual syndicated loan numbering identification services.
(b)
The Parties acknowledge and agree that each identification number assigned to this Agreement, the Loan and/or the Borrower and/or any
Security Party by a numbering service provider and the information associated with
each such number may be disclosed to users of
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its services in accordance with the standard terms and conditions of that numbering service provider.
(c)
The Borrower represents, on behalf of itself and each Security Party, that none of the information set out in sub-paragraphs (i) to (xiv) of
paragraph (a) above is, nor will at any time be, unpublished price-sensitive
information.
(d)
The Agent shall notify the Borrower and the other Creditor Parties of:
(i)
the name of any numbering service provider appointed by the Agent in respect of this Agreement, the Loan and/or the Borrower
and/or any Security Party; and
(ii)
the number or, as the case may be, numbers assigned to this Agreement, the Loan and/or the Borrower and/or any Security Party
by such numbering service provider.
30.4
Entire agreement
This Clause 30 constitutes the entire agreement between the Parties in
relation to the obligations of the Creditor Parties under the Finance
Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential
Information.
30.5
Inside information
Each of the Creditor Parties acknowledges that some or all of the
Confidential Information is or may be price-sensitive information and that
the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and
market abuse and each of the
Creditor Parties undertakes not to use any Confidential Information for any unlawful purpose.
30.6
Notification of disclosure
Each of the Creditor Parties agrees (to the extent permitted by law
and regulation) to inform the Borrower:
(a)
of the circumstances of any disclosure of Confidential Information made pursuant to sub-paragraph (v) of paragraph (b) of Clause 30.2
except where such disclosure is made to any of the persons referred to in that
paragraph during the ordinary course of its supervisory or
regulatory function; and
(b)
upon becoming aware that Confidential Information has been disclosed in breach of this Clause 30.
30.7
Continuing obligations
The obligations in this Clause 30 are continuing and, in particular,
shall survive and remain binding on each Creditor Party for a period of 12
months from the earlier of:
(a)
the date on which all amounts payable by the Borrower under or in connection with this Agreement have been paid in full and all
Commitments have been cancelled or otherwise cease to be available; and
(b)
the date on which such Creditor Party otherwise ceases to be a Creditor Party.
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31
SUPPLEMENTAL
31.1
Rights cumulative, non-exclusive
The rights and remedies which the Finance Documents give to
each Creditor Party are:
(a)
cumulative;
(b)
may be exercised as often as appears expedient; and
(c)
shall not, unless a Finance Document explicitly and specifically states so, be taken to exclude or limit any right or remedy conferred by any
law.
31.2
Severability of provisions
If any provision of a Finance Document is or subsequently becomes
void, unenforceable or illegal, that shall not affect the validity,
enforceability or legality of the other provisions of that Finance Document or of the provisions of any other Finance Document.
31.3
Counterparts
A Finance Document may be executed in any number of counterparts.
31.4
Third party rights
A person who is not a party to this Agreement has no right under the
Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the
benefit of any term of this Agreement.
31.5
Benefit and binding effect
The terms of this Agreement shall be binding upon, and shall enure
to the benefit of, the Parties hereto and their respective (including
subsequent) successors and permitted assigns and transferees.
31.6
Electronic Disclosure
(a)
The Borrower and the Owner each hereby recognise as binding any relevant documents (whether signed or not) to fulfil the disclosure of
the financial circumstances in accordance with Sec. 18 of the German Banking Act
(KWG) that were or are, after the date of this Agreement,
submitted to Hamburg Commercial Bank AG electronically or on data carriers through the Borrower, any Security Party or any third party
and declare such documents as complete and
correct.
(b)
Any documents submitted to Hamburg Commercial Bank AG electronically or on data carriers in accordance with Sec. 18 of the German
Banking Act (KWG) have the same legal significance as any signed documents in paper
form.
32
LAW AND JURISDICTION
32.1
English law
This Agreement and any non-contractual obligations arising out of or in connection
with it shall be governed by, and construed in
accordance with, English law.
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32.2
Exclusive English jurisdiction
Subject to Clause 32.3, the courts of England shall have
exclusive jurisdiction to settle any Dispute.
32.3
Choice of forum for the exclusive benefit of the Creditor Parties
Clause 32.2 is for the
exclusive benefit of the Creditor Parties, each of which reserves the right:
(a)
to commence proceedings in relation to any Dispute in the courts of any country other than England and which have or claim jurisdiction to
that Dispute; and
(b)
to commence such proceedings in the courts of any such country or countries concurrently with or in addition to proceedings in England or
without commencing proceedings in England.
The Borrower shall not commence any proceedings in any country other than England in relation to a Dispute.
32.4
Process agent
The Borrower irrevocably appoints Curzon Maritime Ltd. at their office for the
time being, presently at 60 Sloane Avenue SW3 3DD, London,
England to act as its agent to receive and accept on its behalf any process or other document relating to any proceedings in the English
courts which
are connected with a Dispute.
32.5
Creditor Party rights unaffected
Nothing in this Clause 32 shall exclude or limit any right
which any Creditor Party may have (whether under the law of any country, an
international convention or otherwise) with regard to the bringing of proceedings, the service of process, the recognition or enforcement of
a judgment or any similar or
related matter in any jurisdiction.
32.6
Meaning of "proceedings" and "Dispute"
In this Clause 32,
"proceedings" means proceedings of any kind, including an application for a provisional or protective measure and a
"Dispute" means any dispute arising out of or in connection with this Agreement (including a
dispute relating to the existence, validity or
termination of this Agreement) or any non-contractual obligation arising out of or in connection with this Agreement.
THIS AGREEMENT has been entered into on the date stated at the beginning of this Agreement.
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SCHEDULE 1
PART A
LENDERS AND ORIGINAL COMMITMENTS
Lender
Lending Office
Commitment
(US Dollars)
Hamburg Commercial Bank AG
Gerhart-Hauptmann-Platz 50
20095 Hamburg
Germany
105,000,000
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PART B
LENDERS AND CONTRIBUTIONS
Lender
Lending Office
Contribution
(%)
Hamburg Commercial Bank AG
Gerhart-Hauptmann-Platz 50
20095 Hamburg
Germany
100%
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PART C
SCHEDULE 2
DRAWDOWN NOTICE
To: Hamburg Commercial Bank AG
Gerhart-Hauptmann-Platz 50
20095 Hamburg
Germany
Attention: Loans Administration
[l]
1
We refer to the loan agreement (the "Loan Agreement") dated [l] and made between (i) ourselves, as Borrower, (ii) the Lenders referred to
therein, (iii) yourselves
as Mandated Lead Arranger and (iv) yourselves as Agent and Security Trustee in connection with a secured term loan
facility of up to $105,000,000. Terms defined in the Loan Agreement have their defined meanings when used in this Drawdown
Notice.
2
We request to borrow the Loan as follows:
(a)
Amount of the Loan: $[l];
(b)
Drawdown Date: [l];
(c)
Duration of the first Interest Period shall be [l] months; and
(d)
Payment instructions: account in our name and numbered [l] with [l] of
[l].
3
We represent and warrant that:
(a)
the representations and warranties in Clause 10 of the Loan Agreement would remain true and not misleading if repeated on the date of
this Drawdown Notice with reference to the circumstances now existing;
and
(b)
no Event of Default or Potential Event of Default has occurred or will result from the borrowing of the Loan.
4
This Drawdown Notice cannot be revoked without the prior consent of the Majority Lenders.
5
[We authorise you to deduct the commitment fee(s) payable pursuant to in Clause 20.1(b)].
_______________________
[Authorised Person]
for and on behalf of
CAPITAL PRODUCT PARTNERS L.P.
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SCHEDULE 3
CONDITION PRECEDENT DOCUMENTS
PART A
The following are the documents referred to in Clause 9.1(a) required before service of the Drawdown Notice.
1
A duly executed original of:
(a)
this Agreement;
(b)
the Side Letter;
(c)
the Corporate Guarantee;
(d)
the Agency and Trust Deed;
(e)
any Subordination Agreement;
(f)
any Subordinated Debt Security; and
(g)
the Account Pledges,
(and of each document required to be delivered under each of them).
2
Copies of the certificate of incorporation and constitutional documents of the Borrower, the Owner, any other Security Party, any Approved
Manager and any company registration documents in respect of the Borrower and
any Security Party (including, without limitation, any
corporate register excerpts) required by the Agent and a list of all members of the Group (as included in the Borrower's annual audited
financial statements).
3
Copies of resolutions of the directors of the Borrower and the directors of and shareholders of the Owner authorising the execution of each
of the Finance Documents to which each is a party and, in the case of the
Borrower, authorising named representatives to give the
Drawdown Notice and other notices under this Agreement.
4
The original of any power of attorney under which any Finance Document is executed on behalf of the Borrower, the Owner and any other
Security Party and if required any Approved Manager.
5
Copies of all consents which the Borrower or any Security Party requires to enter into, or make any payment under, any Finance Document
or any Underlying Document.
6
The originals of any mandates or other documents required in connection with the opening or operation of the Accounts.
7
Documentary evidence that the agent for service of process named in Clause 32 has accepted its appointment.
8
Copies of any Approved Charter and any related charter guarantee and of all documents signed or issued by the Borrower, the Owner or
any party thereto (or any of them) under or in connection with such documents
together, with such documentary evidence as the Agent
and
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its legal advisers may require in relation to the due authorisation and execution of all such documents by the parties
thereto.
9
Documents establishing that the Ship is or will be managed by the Approved Manager(s) on terms acceptable to the Lenders.
10
The Original Financial Statements.
11
A declaration signed by an officer of the Borrower's general partner describing in reasonable detail and any Security Interest falling under
paragraph (f) of the definition of "Permitted Security Interests"
existing, to the knowledge of the Borrower, at the date of this Agreement.
12
A copy of the Sale and Purchase Agreement and of all documents signed or issued by the parties thereto under or in connection with the
Sale and Purchase Agreement.
13
Such documentary evidence as the Agent and its legal advisors may require in relation to the due authorisation and execution of the Sale
and Purchase agreement by each of the parties thereto.
14
Any documents required by the Agent in respect of the Borrower, the Owner, any other Security Party and any Approved Manager (and
their respective partners or shareholders, as applicable) to satisfy the Lenders'
"know your customer" and money laundering requirements
including, without limitation, updated organisational charts, updated FATCA and CRS forms.
15
Favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of Liberia, the Marshall Islands and
such other relevant jurisdictions as the Agent may require.
16
If the Agent so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator
approved by the Agent.
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PART B
The following are the documents referred to in Clause 9.1(b) required before the Drawdown Date:
1
A duly executed original of each Mortgage, any Deed of Covenant, each General Assignment, and any Charterparty Assignment relating to
any Assignable Charter (and of each document
required to be delivered under each of them), each in respect of the Ship.
2
A copy of the relevant invoice from the Builder to be provided by the Builder to the Owner pursuant to the Shipbuilding Contract.
3
Documentary evidence that:
(a)
the issued shares of the Owner have been (or on the Delivery Date will be) unconditionally transferred by Capital Maritime & Trading Corp
to, and received by the buyer (as such term is defined in the Sale and
Purchase Agreement) and that the contract price (as such term is
defined in the Sale and Purchase Agreement) and all other sums due to Capital Maritime & Trading Corp. under the Sale and Purchase
Agreement, have been paid in
full.
(b)
the Ship has been unconditionally delivered by the Builder to, and accepted by, the Owner under the Shipbuilding Contract and that the full
acquisition cost payable and all other sums due to the Builder under the
Shipbuilding Contract, other than the sums to be financed by the
Loan, have been paid or will be paid simultaneously with the Loan to the Builder;
(c)
the Ship is definitively and permanently registered in the name of the Owner under the Approved Flag in accordance with the laws of the
applicable Approved Flag State;
(d)
the Ship is in the absolute and unencumbered ownership of the Owner save as contemplated by the Finance Documents;
(e)
the Ship maintains the class specified in Clause 14.3(b) with a first class classification society which is a member of IACS (other than the
China Classification Society and the Russian Maritime Registry of Shipping)
as the Agent may approve free of all overdue recommendations
and conditions of such classification society;
(f)
the Mortgage relating to the Ship has been duly registered or recorded against the Ship as a valid first preferred or, as the case may be,
priority mortgage in accordance with the laws of the applicable Approved Flag
State;
(g)
the Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of insurances have been
complied with; and
(h)
the Ship has been delivered to the relevant charterer in accordance with the terms of its Approved Charter.
4
In respect of the Approved Manager of the Ship:
(a)
the Approved Manager's Undertaking relative to the Ship (and of each document required to be delivered under each of them);
(b)
copies of the Approved Manager's Document of Compliance and of the Ship's Safety Management Certificate (together with any other
details of the applicable safety management system which the Agent
requires);
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(c)
a copy of the Inventory of Hazardous Materials relating to the Ship; and
(d)
a copy of the ISSC in respect of the Ship.
5
One valuation of the Ship prepared pursuant to Clause 15.3, stated to be for the purposes of this Agreement, which shows a value of the
Ship in an amount which satisfies the condition set out in Clause
9.1(d).
6
A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances for the
Ship as the Agent may require.
7
Favourable legal opinions from lawyers appointed by the Agent on such matters concerning the law of each Approved Flag State, Liberia,
Marshall Islands and such other relevant jurisdictions as the Agent may
require.
8
If the Agent so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator
approved by the Agent.
9
Evidence satisfactory to the Agent of payment of all fees due and payable in accordance with the Finance Documents.
10
The most recent survey report or other comparable document in respect of the physical condition of the Ship.
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PART C
The following are the documents referred to in Clause 9.3 and the Borrower shall use its best endeavours to deliver or cause to be delivered to the
Agent no later than 30 Business Days after the Drawdown Date.
The duly executed charterer's acknowledgment to the assignment of the Approved Charter
pursuant to the Charterparty Assignment.
Each of the documents specified in paragraphs 3 and 4 of Part A shall be notarised or legalised by a
competent authority acceptable to the Agent
and every other copy document delivered under this Schedule shall be certified as a true and up to date copy by a director or the secretary (or
equivalent officer) of the Borrower.
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SCHEDULE 4
TRANSFER CERTIFICATE
The Transferor and the Transferee accept exclusive responsibility for ensuring that this Certificate and the transaction to which it relates comply
with
all legal and regulatory requirements applicable to them respectively.
To: Hamburg Commercial Bank AG for itself and for and on behalf of the
Borrower, each Security Party, the Security Trustee and each Lender, as
defined in the Loan Agreement referred to below.
[l]
1
This Certificate relates to a Loan Agreement (the "Loan Agreement") dated [l] and made between (1) Capital Product Partners L.P. (the
"Borrower") as
Borrower, (2) the banks and financial institutions named therein as Lenders, (3) Hamburg Commercial Bank AG as Agent (4)
Hamburg Commercial Bank AG as Mandated Lead Arranger and (5) Hamburg Commercial Bank AG as Security Trustee for a loan
facility of
up to US$105,000,000.
2
In this Certificate, terms defined in the Loan Agreement shall, unless the contrary intention appears, have the same meanings and:
"Relevant Parties" means the Agent, the Borrower, each Security Party, the Security Trustee and each Lender;
"Transferor" means [full name] of [lending office]; and
"Transferee" means [full name] of [lending office].
3
The effective date of this Certificate is [l] Provided that this Certificate shall not come into effect unless it is signed by the Agent on or
before that
date.
4
The Transferor assigns to the Transferee absolutely all rights and interests (present, future or contingent) which the Transferor has as Lender
under or by virtue of the Loan Agreement and every other Finance Document
in relation to [l] per cent. of its Contribution, which
percentage represents $[l].
5
By virtue of this Certificate and Clause 26 of the Loan Agreement, the Transferor is discharged [entirely from its Commitment which
amounts to $[l]] [from [l] per cent. of its Commitment, which percentage represents $[l]] and, subject to Clause 26.7 of the Loan
Agreement, from all obligations connected therewith, the
Transferee acquires a Commitment of $[l].
6
The Transferee undertakes with the Transferor and each of the Relevant Parties that the Transferee will observe and perform all the
obligations under the Finance Documents which Clause 26 of the Loan Agreement
provides will become binding on it upon this Certificate
taking effect.
7
The Agent, at the request of the Transferee (which request is hereby made) accepts, for the Agent itself and for and on behalf of every other
Relevant Party, this Certificate as a Transfer Certificate taking effect in
accordance with Clause 26 of the Loan Agreement.
8
The Transferor:
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EUROPE/71630549v6
(a)
warrants to the Transferee and each Relevant Party that:
(i)
the Transferor has full capacity to enter into this transaction and has taken all corporate action and obtained all consents which are
in connection with this transaction; and
(ii)
this Certificate is valid and binding as regards the Transferor;
(b)
warrants to the Transferee that the Transferor is absolutely entitled, free of encumbrances, to all the rights and interests covered by the
assignment in paragraph 4 above; and
(c)
undertakes with the Transferee that the Transferor will, at its own expense, execute any documents which the Transferee reasonably
requests for perfecting in any relevant jurisdiction the Transferee's title under this
Certificate or for a similar purpose.
9
The Transferee:
(a)
confirms that it has received a copy of the Loan Agreement and each of the other Finance Documents;
(b)
agrees that it will have no rights of recourse on any ground against either the Transferor, the Agent, the Mandated Lead Arranger, the
Security Trustee or any Lender in the event that:
(i)
any of the Finance Documents prove to be invalid or ineffective;
(ii)
the Borrower or any Security Party fails to observe or perform its obligations, or to discharge its liabilities, under any of the Finance
Documents;
(iii)
it proves impossible to realise any asset covered by a Security Interest created by a Finance Document, or the proceeds of such
assets are insufficient to discharge the liabilities of the Borrower or any Security
Party under the Finance Documents;
(c)
agrees that it will have no rights of recourse on any ground against the Agent, the Mandated Lead Arranger, the Security Trustee or any
Lender in the event that this Certificate proves to be invalid or
ineffective;
(d)
warrants to the Transferor and each Relevant Party that:
(i)
it has full capacity to enter into this transaction and has taken all corporate action and obtained all consents which it needs to take
or obtain in connection with this transaction; and
(ii)
this Certificate is valid and binding as regards the Transferee; and
(e)
confirms the accuracy of the administrative details set out below regarding the Transferee.
10
The Transferor and the Transferee each undertake with the Agent, the Mandated Lead Arranger and the Security Trustee severally, on
demand, fully to indemnify the Agent and/or the Security Trustee and/or the Mandated
Lead Arranger in respect of any claim, proceeding,
liability or expense (including all legal expenses) which they or either of them may incur in connection with this Certificate or any matter
arising out of it, except such as are shown to have been
mainly and directly caused by the gross and culpable negligence or dishonesty of
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EUROPE/71630549v6
the Agent's, any Mandated Lead Arranger's or the Security Trustee's own officers or employees.
11
The Transferee shall repay to the Transferor on demand so much of any sum paid by the Transferor under paragraph 10 as exceeds one-half
of the amount demanded by the Agent, the Mandated Lead Arranger or the Security
Trustee in respect of a claim, proceeding, liability or
expense which was not reasonably foreseeable at the date of this Certificate; but nothing in this paragraph shall affect the liability of each
of the Transferor and the Transferee to the Agent,
the Mandated Lead Arranger or the Security Trustee for the full amount demanded by it.
[Name of
Transferor] [Name
of Transferee]
By: By:
Date: Date:
Agent
Signed for itself and for and on behalf of itself
as Agent and for every other Relevant Party
Hamburg Commercial
Bank AG
By:
Date:
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Administrative Details of
Transferee
Name of Transferee:
Lending
Office:
Contact Person
(Loan Administration
Department):
Telephone:
Fax:
Contact Person
(Credit Administration
Department):
Telephone:
Fax:
Account for payments:
Notes:
This Transfer Certificate alone may not be
sufficient to transfer a proportionate share of the Transferor's interest in the security constituted by the
Finance Documents in the Transferor's or Transferee's jurisdiction. It is the responsibility of each Lender to ascertain whether any other
documents
are required for this purpose.
Paragraph 4 deals with assignment of rights and can be used together with paragraph 5 if the parties have
agreed to a combination of assignment
of rights and transfer of obligations.
Paragraph 5 deals with transfer of obligations and should be removed if
the parties have agreed to an assignment only.
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SCHEDULE 5
POWER OF ATTORNEY
Know all men by these presents that PANORMOS CONTAINER CARRIER S.A. (the "Company"), a corporation incorporated in the Republic
of the
Marshall Islands and having its registered address at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro MH96960, the Marshall Islands
irrevocably and by way of security appoints Hamburg Commercial Bank AG (the
"Attorney") of Gerhart-Hauptmann-Platz 50, D-20095 Hamburg,
Germany its attorney, to act in the name of the Company and to exercise any right, entitlement or power of the Company in relation to
[l] (the
"Classification Society") and/or to the classification records of any vessel owned, controlled or operated by the Company including, without
limitation, such powers or entitlement
as the Company may have to inspect the class records and any files held by the Classification Society in
relation to any such vessel and to require the Classification Society to provide to the Attorney or to any of its nominees any information,
document
or file which the Attorney may request
Ratification of actions of attorney. For the avoidance of doubt and without limiting the
generality of the above, it is confirmed that the Company
hereby ratifies any action which the Attorney takes or purports to take under this Power of Attorney and the Classification Society shall be entitled
to rely hereon without further
enquiry.
Delegation. The Attorney may exercise its powers hereunder through any officer or through any nominee and/or may sub delegate to any
person or
persons (including a Receiver and persons designated by him) all or any of the powers (including the discretions) conferred on the Attorney
hereunder, and may do so on terms authorising successive sub delegations.
This Power of Attorney was executed by the Company as a Deed on [l].
EXECUTED as a DEED by )
[l] )
acting by )
its [President/Secretary )
Treasurer] )
in the presence of: )
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SCHEDULE 6
FORM OF COMPLIANCE CERTIFICATE
To: Hamburg Commercial Bank AG
Gerhart-Hauptmann-Platz 50
D-20095 Hamburg
Germany
as Agent
[l] 20[l]
Dear Sirs,
We refer to a loan agreement dated [l] (the "Loan Agreement") and made between (amongst others) (i) Hamburg Commercial Bank AG as Agent
and (ii) Capital Product Partners L.P. as Borrower in relation to a term loan facility of up
to $105,000,000.
Words and expressions defined in the Loan Agreement shall have the same meaning when used in this compliance certificate.
We enclose with this certificate a copy of the [unaudited consolidated financial statements of the Group for the 3-month period ended [31 March]
[30
June][30 September][31 December] 20[l]]/[the audited consolidated annual financial statements of the Group for the financial year ended 31
December 20[l]]. The
financial statements (i) have been prepared in accordance with all applicable laws and GAAP consistently applied, (ii) give a
true and fair view of the state of affairs of the Group at the date of the financial statements and of its profit for the
period to which the financial
statements relate and (iii) fully disclose or provide for all significant liabilities of the Group.
The Borrower and
the Owner represent that no Event of Default or Potential Event of Default has occurred as at the date of this certificate [except
for the following matter or event [set out all material details of matter or event]]. In addition as of [l], the Borrower confirms compliance with the
financial covenants set out in Clause 12.5 and the security cover ratio set out in Clause 15.1,
of the Loan Agreement for the [3-month period]
[Financial Year] ending on the date of this certificate.
We now certify that, on the basis of the
calculations appended to this Certificate, as at [l]:
(a)
the Leverage Ratio of the Borrower is less than 75 per cent.;
(b)
the aggregate amount of immediately freely available and unencumbered bank or cash deposits held by the Borrower and the other
members of the Group is $[l] (representing an
amount [equal to] [in excess of] the product of $500,000 and [l], being the number of Fleet
Vessels as at the last day of the financial period to which the financial statements of the Borrower attached to
this certificate relate);
(c)
the ratio of EBITDA to Net Interest Expense is no less than [l]:1; and
(d)
the Security Cover Ratio is [l] per cent..
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This certificate shall be
governed by, and construed in accordance with, English law.
______________________________
for and on behalf of
CAPITAL PRODUCT PARTNERS L.P.
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SCHEDULE 7
REFERENCE RATE TERMS
Currency:
Dollars.
Cost of funds as a fallback
Cost of funds will apply as a fallback.
Definitions
Additional Business Days:
An RFR Banking Day.
Break Costs:
Any cost or amount which is incurred or suffered by a Lender to the extent that it is attributable to a payment by
the Borrower to the Agent of any amount of principal due or which would have become due under this Agreement
prior to the date upon which such amount should have been repaid in accordance with the terms and conditions
of this Agreement.
Central Bank Rate:
(a) The short-term interest rate target set by the US Federal Open Market Committee as
published by
the Federal Reserve Bank of New York from time to time; or
(b) if that target is not a single figure, the arithmetic mean of:
(i)
the upper bound of the short-term interest rate target range set by the US Federal Open
Market Committee and published by the Federal Reserve Bank of New York;
and
(ii)
the lower bound of that target range.
Central Bank Rate Adjustment: In relation to the Central Bank Rate prevailing at close of business on any RFR Banking Day, the arithmetic mean
(calculated by the Agent or by any other Creditor Party which agrees to make the calculation in place of the Agent)
of the Central Bank Rate Spreads for the five most immediately preceding RFR Banking Days for which the RFR is
available.
Central Bank Rate Spread:
In relation to any RFR Banking Day, the difference (expressed as a percentage rate per annum) (calculated by the
Agent or by any other Creditor Party which agrees to make the calculation in place of the Agent) between: (i) the
RFR for that RFR Banking Day and (ii) the Central Bank Rate prevailing at the close of business on that RFR Banking
Day.
Daily Rate:
The "Daily Rate" for any RFR Banking Day is:
(a)
the RFR for that RFR Banking Day; or
(b)
if the RFR is not available for that RFR Banking Day, the percentage rate per annum which is the
aggregate of:
(i) the Central Bank Rate for that
RFR Banking Day; and
(ii)
the applicable Central Bank Rate Adjustment; or
(c) if paragraph (b) above applies but the Central Bank Rate for that RFR Banking
Day is not available,
the percentage rate per annum which is the aggregate of:
(i) the most recent Central Bank Rate for a day which is no more than five
RFR Banking Days
before that RFR Banking Day; and
(ii)
the applicable Central Bank Rate Adjustment,
rounded, in either case, to five decimal places and if, in either case, that rate
is less than zero, the Daily Rate shall
be deemed to be zero.
Lookback Period:
Five RFR Banking Days.
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Market Disruption Credit
Adjustment Spread:
Length of Interest Period Credit Adjustment Spread for USD ≤ 1
Month 0.11448% ˃ 1 Month and ≤ 3 Months
0.26161% ˃ 3 Months and ≤ 6 Months 0.42826% ˃ 6 Months and ≤ 12Months 0.71513%
Market Disruption Rate
The percentage rate per annum which is the
aggregate of:
(a)
the Cumulative Compounded RFR Rate for the Interest Period of the Loan; and
(b) the applicable Market Disruption Credit Adjustment Spread.
Relevant Market:
The market for overnight cash borrowing collateralised by US Government securities.
Reporting Day:
The Business Day which follows the day which is the Lookback Period prior to the last day of the
Interest
Period.
RFR:
The secured overnight financing rate (SOFR) administered by the Federal Reserve Bank of New York
(or any
other person which takes over the administration of that rate) published by the Federal Reserve Bank of
New York (or any other person which takes over the publication of that rate).
RFR Banking Day:
Any day other than:
(a)
a Saturday or Sunday; and
(b) a day on which the Securities Industry and Financial Markets Association (or any
successor
organisation) recommends that the fixed income departments of its members be closed for the
entire day for purposes of trading in US Government securities.
Reporting Time
Deadline to report market
disruption in accordance with
Clause 5.6
Close of business in London on the Reporting Day for the Loan.
Deadline for Lenders to report
their cost of funds in
accordance with Clause
5.7
Close of business on the date falling 2 Business Days after the Reporting Day for the Loan or the
relevant
part of the Loan (or, if earlier, on the date falling 2 Business Days before the date on which interest is due
to be paid in respect of the Interest Period for the Loan or the relevant part of the Loan).
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SCHEDULE 8
DAILY NON-CUMULATIVE COMPOUNDED RFR RATE
The "Daily Non-Cumulative Compounded RFR Rate" for any RFR Banking Day "i" during an Interest Period for the Loan or any
part of the Loan is
the percentage rate per annum (without rounding, to the extent reasonably practicable for the Creditor Party performing the calculation, taking
into account the capabilities of any software used for that purpose) calculated as
set out below:
where:
"UCCDRi" means the Unannualised Cumulative Compounded Daily Rate for that RFR Banking Day
"i";
"UCCDRi-1" means, in relation to that RFR Banking Day "i", the
Unannualised Cumulative Compounded Daily Rate for the immediately
preceding RFR Banking Day (if any) during that Interest Period;
"dcc" means 360 or, in any case where market practice in the Relevant Market is to use a different number for quoting the
number of days
in a year, that number;
"ni" means the number of calendar days from, and including, that RFR
Banking Day "i" up to, but excluding, the following RFR Banking Day;
and
the "Unannualised Cumulative Compounded
Daily Rate" for any RFR Banking Day (the "Cumulated RFR Banking Day") during that Interest
Period is the result of the below calculation (without rounding, to the extent reasonably practicable for the Creditor Party
performing the
calculation, taking into account the capabilities of any software used for that purpose):
where:
"ACCDR" means the Annualised Cumulative Compounded Daily Rate for that Cumulated RFR Banking Day;
"tni" means the number of calendar days from, and including, the first day of the Cumulation Period to, but
excluding, the RFR Banking Day
which immediately follows the last day of the Cumulation Period;
"Cumulation Period" means
the period from, and including, the first RFR Banking Day of that Interest Period to, and including, that
Cumulated RFR Banking Day;
"dcc" has the meaning given to that term above; and
the "Annualised Cumulative Compounded Daily Rate" for that Cumulated RFR Banking Day is the percentage rate per annum (rounded to
five decimal places) calculated as set out below:
where:
"d0" means the number of RFR Banking Days in the Cumulation Period;
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"Cumulation Period" has the meaning given to that term above;
"i" means a series of whole numbers from one to d0, each representing the relevant RFR Banking Day in chronological
order in the
Cumulation Period;
"DailyRatei-LP" means, for any RFR Banking Day "i" in the
Cumulation Period, the Daily Rate for the RFR Banking Day which is the applicable
Lookback Period prior to that RFR Banking Day "i";
"ni" means, for any RFR Banking Day "i" in the Cumulation Period, the number of calendar days from,
and including, that RFR Banking Day
"i" up to, but excluding, the following RFR Banking Day;
"dcc" has the
meaning given to that term above; and
"tni" has the meaning given to that term above.
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SCHEDULE 9
CUMULATIVE COMPOUNDED RFR RATE
The "Cumulative Compounded RFR Rate" for any Interest Period for the Loan or any part of the Loan is the percentage rate per annum
(rounded to
the same number of decimal places as is specified in the definition of "Annualised Cumulative Compounded Daily Rate" in Schedule 8 (Daily Non-
Cumulative Compounded RFR Rate)) calculated as set out below:
where:
"d0" means the number of RFR Banking Days during the Interest Period;
"i" means a series of whole numbers from one to d0, each representing the relevant RFR Banking Day in chronological order
during the Interest
Period;
"DailyRatei-LP" means for any RFR Banking Day "i" during the Interest
Period, the Daily Rate for the RFR Banking Day which is the applicable
Lookback Period prior to that RFR Banking Day "i";
"ni" means, for any RFR Banking Day "i", the number of calendar days from, and including, that RFR Banking
Day "i" up to, but excluding, the
following RFR Banking Day;
"dcc" means 360 or, in any case where market practice
in the Relevant Market is to use a different number for quoting the number of days in a year,
that number; and
"d" means the number
of calendar days during that Interest Period.
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EXECUTION PAGES
BORROWER
SIGNED
by )
as
attorney-in-fact )
for and on behalf
of )
CAPITAL PRODUCT PARTNERS
L.P. )
in the presence
of: )
LENDERS
SIGNED
by )
)
for and on behalf
of )
HAMBURG COMMERCIAL BANK AG
)
in the presence
of: )
MANDATED LEAD ARRANGER
SIGNED
by )
)
for and on behalf
of )
HAMBURG COMMERCIAL BANK AG
)
in the presence
of: )
BOOKRUNNER
SIGNED
by )
for and on behalf
of )
HAMBURG COMMERCIAL BANK AG
)
in the presence
of: )
126
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AGENT
SIGNED
by )
for and on behalf
of )
HAMBURG COMMERCIAL BANK AG
)
in the presence
of: )
SECURITY TRUSTEE
SIGNED
by )
for and on behalf
of )
HAMBURG COMMERCIAL BANK AG
)
in the presence
of: )
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EX-8.1 10 d332302dex81.htm EX-8.1
EXHIBIT 8.1
SUBSIDIARIES OF CAPITAL PRODUCT PARTNERS L.P.
The following companies are subsidiaries of Capital Product Partners L.P.:
Name of Subsidiary
Jurisdiction of Incorporation
Proportion of Ownership
Interest
Capital Product Operating L.L.C.
Marshall Islands
100%
Capital Product Operating L.L.C.
Marshall Islands
100%
CPLP Shipping Holdings PLC
Cyprus
100%
CPLP Gas Operating Corp.
Marshall Islands
100%
Patroklos Marine Corp.
Marshall Islands
100%
Archimidis Container Carrier Corp.
Liberia
100%
Agamemnon Container Carrier Corp.
Liberia
100%
Anax Container Carrier S.A.
Liberia
100%
Hercules Container Carrier S.A.
Liberia
100%
Iason Container Carrier S.A.
Liberia
100%
Thiseas Container Carrier S.A.
Liberia
100%
Cronus Container Carrier S.A.
Liberia
100%
Dias Container Carrier S.A.
Marshall Islands
100%
Poseidon Container Carrier S.A.
Marshall Islands
100%
Atrotos Container Carrier S.A.
Liberia
100%
Deka Container Carrier S.A.
Liberia
100%
Jupiter Container Carrier S.A.
Liberia
100%
Nikitis Container Carrier S.A.
Liberia
100%
Neos Container Carriers Corp.
Marshall Islands
100%
Maistros Container Carriers Corp.
Marshall Islands
100%
Filos Container Carriers Corp.
Marshall Islands
100%
Panormos Container Carrier S.A
Marshall Islands
100%
Ektoras Container Carrier S.A.
Marshall Islands
100%
Assos Gas Carrier Corp.
Marshall Islands
100%
Dias Gas Carrier Corp.
Marshall Islands
100%
Atrotos Gas Carrier Corp.
Marshall Islands
100%
Poseidon Gas Carrier Corp.
Marshall Islands
100%
Maximus Gas Carrier Corp.
Marshall Islands
100%
Kronos Gas Carrier Corp.
Marshall Islands
100%
Hermes Gas Carrier Corp.
Marshall Islands
100%
Exhibit 12.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Gerasimos (Jerry)
Kalogiratos, certify that:
1.
I have reviewed this annual report on Form 20-F of Capital Product Partners L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the company and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision,
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;
c.
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual
report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely
to adversely affect the company’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over
financial reporting.
Dated: April 26, 2023
By: /s/ Gerasimos
(Jerry) Kalogiratos
Name: Gerasimos (Jerry) Kalogiratos
Title: Chief Executive
Officer
Exhibit 12.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Nikolaos
Kalapotharakos, certify that:
1.
I have reviewed this annual report on Form 20-F of Capital Product Partners L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the company and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision,
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;
c.
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual
report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely
to adversely affect the company’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over
financial reporting.
Dated: April 26, 2023
By: /s/ Nikolaos Kalapotharakos
Name: Nikolaos Kalapotharakos
Title: Chief Executive
Officer
Exhibit 13.1
Certification Pursuant to
18
U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report on Form 20-F of Capital Product Partners L.P., a master limited partnership organized under the laws of the Republic of the
Marshall Islands
(the “Company”), for the period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to his
knowledge:
(a)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: April 26,
2023
By: /s/ Gerasimos (Jerry) Kalogiratos
Name: Gerasimos (Jerry) Kalogiratos
Title: Chief Executive
Officer
Exhibit 13.2
Certification Pursuant to
18
U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report on Form 20-F of Capital Product Partners L.P., a master limited partnership organized under the laws of the Republic of the
Marshall Islands
(the “Company”), for the period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to his
knowledge:
(a)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: April 26, 2023
By: /s/ Nikolaos Kalapotharakos
Name: Nikolaos Kalapotharakos
Title: Chief Executive
Officer