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On the funding runway with Tsakos Energy Navigation

On the funding runway with Tsakos Energy Navigation
Early last week, I ran into Nick Tsakos and Michael Jolliffe on Madison Avenue and we chatted for a minute; they were scurrying quickly to a meeting. Later in the week, the purpose of their New York visit was revealed: Tsakos Energy Navigation (TEN) announced that it had raised $50m in an offering of offering of 2m 8.00% Series B Cumulative Redeemable Perpetual Preferred Shares.

DNB Markets and Incapital were joint bookrunner, and the latter a bond and structured instruments specialist, acted as the sole structuring agent. Clarkson Capital Markets and Brock Capital acted as co-managers. Investors in these types of securities, sold by TEN under an existing shelf registration, earn hefty dividends- an inducement to share buyers, but the dividends on the preferred can be accrued for several quarters by the company and paid out when the company’s accounts are flusher, rather than paid out immediately to the tune of $1m each quarter, a way of widening the runway, in banker buzzword parlance.

For a long-term investor, happy to earn dividends, although not always collect them at the same time, while waiting for a tanker market upturn, such securities may be attractive. The word “redeemable” hints at an important feature: TEN has a call option, where it can buy back the shares from investors, at $25.00 share (plus dividends that may have been accrued but not paid), between 30 July 2018 and 30 July 2019. The shares are expected to be registered on the New York Stock Exchange (NYSE); trading activity will provide a window into the expectations of sophisticated investors regarding the tanker markets.

By some measures, the pendulum has begun to swing upwards; for TEN, 2011 saw a $37.7m operating loss; in 2012, it eeked out a tiny $1.3m operating gain. However, financing expenses (on approximately $1.4bn of debt) of $53.6m and $51.6m, took their toll on the bottomline.

TEN’s cashflow generation is way down from the glory days. In 2008, cashflow was a staggering $274.1m; for 2012 (with average TCE of $17,163/day), the cashflow was $60.9m. In 2008, when average TCEs were $34,600/day, before the financial meltdown and subsequent tanker crisis, TNP was paying dividends of $1.80 per year. Though TEN has ample cash on hands, some $160.5 million of cash and equivalents at end 2012 ($126.9m, after adjustments for actions in early 2013), it faces the perennial “shipping quandary”-  a continual conflict between shareholder friendly actions (buybacks and dividend payments) versus capital expenditures. The common stock, which will move to the back of the taxiway, behind the preferred, presently pays $0.05 per quarter- equating to $0.20 per year.

TEN must fund a newbuilding book consisting of an LNG carrier from Hyundai Heavy Industries, with a 2016 delivery, and a shuttle tanker from Sungdong, where the order may be converted to another vessel type. By end April, TEN had paid $35.9m out of the total purchase price of  roughly $298.4m (assuming no change to the vessels to be constructed) for these newbuildings. The $50m equity infusion is timely; capital requirements for 2013 are presently in the books at $59.4m; though the company hints that the amount might be negotiated downward.

TAGS: Europe Tankers