Scorpio Tankers Inc.
Scorpio Tankers Aims to Reduce Leverage as Years of Aggressive Fleet Expansion Come to an End, Management Partially Executes $250M Buyback Scheme, Day Rates Below Company’s Expectations
Tue 07/26/2016 10:47 AM
Relevant Documents:
Scorpio Tankers 2015 Annual Report
Scorpio Tankers Q1 Results
Scorpio Tankers June 10 Presentation
Scorpio Tankers 2020 Bond Prospectus Supplement
Scorpio Tankers, or STNG, is planning to delever its capital structure by paying down bank facilities, and it may repurchase bonds and stock, after six years of aggressive expansion. Since its IPO in April 2010, the New York-listed product tanker has raised billions of dollars through debt and equity issues to increase its fleet from three ships to almost 100 product tanker vessels. Now, president Robert Bugbee explained, with capital markets constraining competitors, management, which has “no interest in ordering vessels,” wants to be opportunistic with its asset purchases while focusing on deleveraging.
Scorpio primarily transports crude oil and refined petroleum products such as jet fuels, kerosene, gasoline and diesel to and from refineries. As part of STNG’s shift from an acquisition-driven group to an operating company, the Lolli Ghetti family heirs Emanuele Lauro, as chairman, and vice president Filippo Lauro target a “more conservative capital structure.” On the company’s first-quarter conference call on April 27, STNG said the short-term deleveraging goal is to hit a lower net debt/equity ratio on June 30 compared with March 31.
Management added it had bought back smaller pieces of STNG’s 2019 convertible bond at 83 in the first quarter of the year. Further, the company reached an agreement to sell five 2014-built MR product tankers for $33.3 million each and subsequently paid down $36.2 million of secured debt in the first quarter and $18.4 million in April. Scorpio intends to repay $36.7 million in secured debt as part of the sales of the remaining two vessels before the end of the second quarter of 2016.
Growth
Scorpio Tankers’ revenue has increased dramatically since its IPO on the New York Stock Exchange. The strong revenue growth over the years is primarily driven by Scorpio's substantial expansion of its fleet.
In the past five years, Scorpio's average number of owned vessels has grown more than six-fold to 72.7 vessels in 2015 from 11.29 in 2011. At the end of the first quarter, the fleet consisted of 14 Handymax vessels (cargo capacity between 35,000 and 50,000 deadweight tonnes, or DWT), 44 medium range, or MR, product carriers (40,000 to 55,000 DWT) and 20 long range 2, or LR2, product carriers, which can carry between 80,000 and 120,000 tonnes of cargo. Five of the owned vessels are chartered out, and Scorpio chartered in 12 vessels as of March 31.
Annual performance is shown below:
In the first quarter of 2016, however, TCE rates declined 4.4% while vessel operating costs increased 44 bps year over year. Handymaxes were hit the hardest, with TCE rates declining 20%.
Eleven newbuilds (eight MR and three LR2) are under construction at the Hyundai, Sungdong and Daehan shipyards in Korea. Scorpio’s newbuilding installments are around $50 million per quarter in the next seven quarters.
The three LR2s will be delivered in 2016 and the eight MRs in 2017. Scorpio is looking to finance the 2017 newbuilds. Management said on the company’s first-quarter call that it has received nonbinding offers from “a number of [its] lenders.”
Newbuild commitments are shown below:
Debt
As of March 31, Scorpio Tankers had $2.08 billion of total debt, split between two unsecured bonds, a convertible bond and several credit facilities with international banks including ING, ABN Amro, BNP Paribas, Credit Suisse, DNB, Nordea, Scotiabank, KEXIM and the Korean Trade Insurance Corp. Cash and cash equivalents were $169.2 million at quarter-end. The company’s net drawdowns and repayments from March 31 to April 26 were $47.1 million.
According to Scorpio’s annual report, the secured credit facilities may be secured by a first priority mortgage over the relevant collateralized vessels, a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility, and pledges of earnings generated by the mortgaged vessels and the equity interests of each vessel owning subsidiary under the specific facility.
STNG’s unsecured debt comprises two “baby bonds” issued in minimum denominations of $25, and a convertible bond. The convertible bond trades in the high 70s, and the baby bonds trade in the mid-20s under the tickers “SBNB” and “SBNA” on the NYSE.
Below is the company’s capital structure:
In May 2015, Scorpio launched a $250 million "Securities Repurchase Program" to buy back bonds and common stock. In the first four months of 2016, the company repurchased $5 million face value of its convertible bond at 83 cents on the dollar and 2,299,606 common shares at an average price of $5.96 per share. As of April 27, $160.4 million remained under the buyback program.
Robert Bugbee, the company’s president, said on the company’s first-quarter call that whether the company targets converts, bank debt or unsecureds depends on opportunity but noted that “the great thing with the bank debt is you can pay down credit lines or you can pay down ships and you can do it every day.”
He explained further that there is not always a willing seller of converts at a price that creates value, and that the company cannot go into the convert market on a daily basis because it is a public security and Scorpio would have to honor certain blackout periods.
Financial covenants are shown below:
In addition, under the 2017 and 2020 notes, net borrowings cannot exceed 70% of total assets, and equity must always exceed $650 million.
Scorpio upsized its ING credit facility to $132.5 million from $87 million. The proceeds were used to partially finance the purchase of the STI Lombard and refinance existing indebtedness on STI Osceola.
Ownership and Management
Emanuele Lauro is the grandson of Glauco Lolli Ghetti, who founded Scorpio Ship Management s.a.m. in the 1950s. Lauro joined Scorpio in 2003 and entered new markets and took Scorpio public with the IPO in 2010. Today, Emanuele Lauro is Scorpio Tankers’ chairman and CEO and his brother Filippo Lauro is vice president. Robert Bugbee is STNG’s president. Bugbee is a former partner at New York hedge fund Ospraie Management LLC. Brian Lee has been the company’s CFO since 2010.
As of March 17, Emanuele Lauro held 2.17% of Scorpio Tankers’ shares. Robert Bugbee controls 1.96% and Brian Lee owns 1.08% of the equity. As of June 10, the company’s main shareholders were Wellington Management Group (9.7%), Dimensional Fund Advisors (6.3%), BlackRock (4%) and Putnam Investments (3.9%).
Scorpio Tankers will release second-quarter financials on July 28.
Scorpio Tankers 2015 Annual Report
Scorpio Tankers Q1 Results
Scorpio Tankers June 10 Presentation
Scorpio Tankers 2020 Bond Prospectus Supplement
Scorpio Tankers, or STNG, is planning to delever its capital structure by paying down bank facilities, and it may repurchase bonds and stock, after six years of aggressive expansion. Since its IPO in April 2010, the New York-listed product tanker has raised billions of dollars through debt and equity issues to increase its fleet from three ships to almost 100 product tanker vessels. Now, president Robert Bugbee explained, with capital markets constraining competitors, management, which has “no interest in ordering vessels,” wants to be opportunistic with its asset purchases while focusing on deleveraging.
Scorpio primarily transports crude oil and refined petroleum products such as jet fuels, kerosene, gasoline and diesel to and from refineries. As part of STNG’s shift from an acquisition-driven group to an operating company, the Lolli Ghetti family heirs Emanuele Lauro, as chairman, and vice president Filippo Lauro target a “more conservative capital structure.” On the company’s first-quarter conference call on April 27, STNG said the short-term deleveraging goal is to hit a lower net debt/equity ratio on June 30 compared with March 31.
Management added it had bought back smaller pieces of STNG’s 2019 convertible bond at 83 in the first quarter of the year. Further, the company reached an agreement to sell five 2014-built MR product tankers for $33.3 million each and subsequently paid down $36.2 million of secured debt in the first quarter and $18.4 million in April. Scorpio intends to repay $36.7 million in secured debt as part of the sales of the remaining two vessels before the end of the second quarter of 2016.
Growth
Scorpio Tankers’ revenue has increased dramatically since its IPO on the New York Stock Exchange. The strong revenue growth over the years is primarily driven by Scorpio's substantial expansion of its fleet.
In the past five years, Scorpio's average number of owned vessels has grown more than six-fold to 72.7 vessels in 2015 from 11.29 in 2011. At the end of the first quarter, the fleet consisted of 14 Handymax vessels (cargo capacity between 35,000 and 50,000 deadweight tonnes, or DWT), 44 medium range, or MR, product carriers (40,000 to 55,000 DWT) and 20 long range 2, or LR2, product carriers, which can carry between 80,000 and 120,000 tonnes of cargo. Five of the owned vessels are chartered out, and Scorpio chartered in 12 vessels as of March 31.
Annual performance is shown below:
In the first quarter of 2016, however, TCE rates declined 4.4% while vessel operating costs increased 44 bps year over year. Handymaxes were hit the hardest, with TCE rates declining 20%.
Eleven newbuilds (eight MR and three LR2) are under construction at the Hyundai, Sungdong and Daehan shipyards in Korea. Scorpio’s newbuilding installments are around $50 million per quarter in the next seven quarters.
The three LR2s will be delivered in 2016 and the eight MRs in 2017. Scorpio is looking to finance the 2017 newbuilds. Management said on the company’s first-quarter call that it has received nonbinding offers from “a number of [its] lenders.”
Newbuild commitments are shown below:
Debt
As of March 31, Scorpio Tankers had $2.08 billion of total debt, split between two unsecured bonds, a convertible bond and several credit facilities with international banks including ING, ABN Amro, BNP Paribas, Credit Suisse, DNB, Nordea, Scotiabank, KEXIM and the Korean Trade Insurance Corp. Cash and cash equivalents were $169.2 million at quarter-end. The company’s net drawdowns and repayments from March 31 to April 26 were $47.1 million.
According to Scorpio’s annual report, the secured credit facilities may be secured by a first priority mortgage over the relevant collateralized vessels, a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility, and pledges of earnings generated by the mortgaged vessels and the equity interests of each vessel owning subsidiary under the specific facility.
STNG’s unsecured debt comprises two “baby bonds” issued in minimum denominations of $25, and a convertible bond. The convertible bond trades in the high 70s, and the baby bonds trade in the mid-20s under the tickers “SBNB” and “SBNA” on the NYSE.
Below is the company’s capital structure:
In May 2015, Scorpio launched a $250 million "Securities Repurchase Program" to buy back bonds and common stock. In the first four months of 2016, the company repurchased $5 million face value of its convertible bond at 83 cents on the dollar and 2,299,606 common shares at an average price of $5.96 per share. As of April 27, $160.4 million remained under the buyback program.
Robert Bugbee, the company’s president, said on the company’s first-quarter call that whether the company targets converts, bank debt or unsecureds depends on opportunity but noted that “the great thing with the bank debt is you can pay down credit lines or you can pay down ships and you can do it every day.”
He explained further that there is not always a willing seller of converts at a price that creates value, and that the company cannot go into the convert market on a daily basis because it is a public security and Scorpio would have to honor certain blackout periods.
Financial covenants are shown below:
In addition, under the 2017 and 2020 notes, net borrowings cannot exceed 70% of total assets, and equity must always exceed $650 million.
Scorpio upsized its ING credit facility to $132.5 million from $87 million. The proceeds were used to partially finance the purchase of the STI Lombard and refinance existing indebtedness on STI Osceola.
Ownership and Management
Emanuele Lauro is the grandson of Glauco Lolli Ghetti, who founded Scorpio Ship Management s.a.m. in the 1950s. Lauro joined Scorpio in 2003 and entered new markets and took Scorpio public with the IPO in 2010. Today, Emanuele Lauro is Scorpio Tankers’ chairman and CEO and his brother Filippo Lauro is vice president. Robert Bugbee is STNG’s president. Bugbee is a former partner at New York hedge fund Ospraie Management LLC. Brian Lee has been the company’s CFO since 2010.
As of March 17, Emanuele Lauro held 2.17% of Scorpio Tankers’ shares. Robert Bugbee controls 1.96% and Brian Lee owns 1.08% of the equity. As of June 10, the company’s main shareholders were Wellington Management Group (9.7%), Dimensional Fund Advisors (6.3%), BlackRock (4%) and Putnam Investments (3.9%).
Scorpio Tankers will release second-quarter financials on July 28.
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