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APT aims to cash in on US Jones Act trades revival

APT aims to cash in on US Jones Act trades revival
If nothing else, shipping is about good timing, which breaks down to various proportions of luck, external waves and winds supporting plans and strategies, and pluck, good execution, financially and operationally. So it goes with American Petroleum Tankers LP (APT), which filed a prospectus in connection with an offering of up to $172m of partnership units, last week. APT will serve as the General Partner in the new structure.

The partnership owns five US Flag tankers operating in the Jones Act trades- a tiny corner of the larger shipping markets, which has been generating outsize returns due to the sudden and unexpected revival of the US coastal trades in crude oil and refined products. It is five 49,000 dwt product tankers, built at NASSCO, were ordered originally by US Shipping Partners LP (USS), another limited partnership, in 2006. Blackstone Group, also in the news this week in a big LPG deal with Eletson, provided equity and also debt that was to pay for the five vessels.

After USS experienced cash flow difficulties, and then filed for bankruptcy protection in early 2009, APT was formed after the newbuild contract, and ownership of a vessel that already delivery was assigned to Blackstone. Cerberus Partners, which tries hard to stay out of the news, partnered with Blackstone in APT. The vessels entered into charters at rates in the low - mid $40,000 per day range, later renewed at better numbers. Since the shale oil boom in the States, the Jones Act market has seen an unprecedented turnaround- with similarly sized tankers said to be earning $70,000 - $80,000 per day in coastal work, with escalations, and one competing vessel reportedly making $100,000 per day on a period time charter to an oil major.

The industry section of the prospectus, written by Navigistics, led by ex-Booz Allen consultant David St. Armand, interestingly, contains a relatively flat forecast, constrained by unavailability of yards, of future product carrying capacity albeit based only on existing tonnage and orders, with older barges being scrapped. The analysis assumes that crude carriers presently in the Alaska trades will remain there; but it does caution that yards besides Aker and NASSCO may enter the business.

In the new deal, APT is captained by well known Jones Act shipping man Robert Kurz, from the Philadelphia-based Keystone Shipping family and then later the Aker-connected American Shipping Company. It has been employing Intrepid Ship Management- a Crowley affiliate, as technical manager, since 2009.

Existing charterers are a Who’s Who of oil majors, including BP, Chevron, Shell and Phillips 66, though income statements show hefty losses in 2012 into mid 2013- with average period charter rates revealed to be around $54,000 daily. As its four LNG-ready newbuilds, ordered from NASSCO in May 2013, deliver during 2015 and 2016 into already agreed oil company charters, presumably at rates of $70,000 per day plus, with escalations, losses may reduce. Only two of the existing ships open up, in 2016 and 2017. For partnerships, it’s all about cashflow- initially, some $35m per year of operating cash flow- way more than needed immediately, should be available to support distributions.

This deal converts a big chunk of interest paying “sponsor” debt into equity, which will pay distributions. A $280m revolving credit is outstanding through 2019.  But, lurking against the backdrop of four newbuilds is a $470m application for “Title XI” financial support, where the US Maritime Administration provides guarantees on long tenor company debt.

APT’s applications in 2012 were denied, partly based on the ownership being composed of private equity investors. Now, after it is rejigging as a partnership, which will likely attract a large number of individual unitholders, financing alternatives are no doubt, a top priority for management, since revenues are largely constrained.

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