American Shipping Company ASA – first quarter results 2013

Overseas Shipholding Group, Inc. (OSG) remains in Chapter 11. OSG continues to make all of its monthly charter payments to AMSC on time. For more information, see the Risks section below.
First quarter results
AMSC’s operating revenues for Q1 2013 were USD 21.5 million, compared to USD 21.7 million for Q1 2012. EBITDA was USD 20.6 million in Q1 2013 compared to USD 20.8 million in Q1 2012. EBIT was USD 12.4 million in Q1 2013 and in Q4 2011.
Net interest expense (interest expense less interest income) for Q1 2013 was negative USD 14.3 million, compared to negative USD 16.5 million for Q1 2012. Net foreign exchange gain was USD 8.6 million in Q1 2013, compared to a net foreign exchange loss of USD 9.3 million in Q1 2012. The foreign exchange gains and losses, resulting from the translation of Norwegian kroner denominated debt and accrued interest into USD, are unrealized and had no cash impact on AMSC.
In addition, in Q1 2013, AMSC had an unrealized gain of USD 5.5 million related to the mark-to-market valuation of its interest rate swap contracts on its vessel financing. The corresponding Q1 2012 unrealized gain was USD 5.2 million. These unrealized gains had no cash impact on AMSC.
AMSC had a net profit for Q1 of 2013 of USD 12.2 million versus a net loss of USD 8.2 million in Q1 of 2012. This significant swing in net profit/loss was mainly due to the unrealized foreign exchange gains and losses during the comparable quarters.
The decrease in Vessels from 31 December 2012 reflects depreciation of the Company’s ten product tankers for Q1 2013. Interest bearing debt as of 31 March 2013 was USD 827.5 million, net of USD 10.1 million in capitalized fees versus USD 842.3 million as of 31 December 2012. This debt relates to the bank financing of the ten vessels, the NOK denominated bond (consisting of principal amount of NOK 700 million plus payment-in-kind interest through March 2013 of NOK 454 million) and a subordinated loan from Converto Capital Fund AS (USD 26.5 million as of 31 March 2013). AMSC was in compliance with all of its debt covenants as of 31 March 2013.
Outlook
Trade fundamentals that impact the U.S. Jones Act product fleet continue to improve. Positive developments include full fleet employment, with no firm newbuildings on order, and increasing time charter rates compared to a year ago. As reported by trade specialists,
factors responsible for trade growth include increased products output from refineries on the Gulf Coast, reduced imports, resurgent chemical-specialties shipments and the emergence of oceangoing shale oil shipments.
Industry expectations are that the positive trends will continue. While spot rates have
recently increased significantly especially as a result of shale crude shipments, it should be
noted that OSG has none of AMSC’s vessels employed in the spot market.
To date, no profits have been generated under our profit share agreement with OSG. However, with increasing time charter rates, prospects for profit share are improving. See note 12 for a profit sharing update as of year-end 2012. Risks The risks facing AMSC principally relate to the operational and financial performance of OSG as well as overall market risk.
In November 2012, OSG filed a petition with the U.S. Bankruptcy Court for the District of Delaware for relief under Chapter 11 of the Bankruptcy Code. As a debtor under Chapter 11 of the Bankruptcy Code, OSG continues to operate its business while it pursues its options for reorganization. So far, OSG has continued to make all of its charter payments to AMSC on time. During Q1 2013, the U.S. Bankruptcy Court approved OSG’s motion to continue to perform all of its obligations under the bareboat charters and attendant agreements with AMSC. Under U.S. bankruptcy laws, OSG may take one of the following actions: (i) assume the vessel charters, meaning it would agree to continue to perform under the terms of the charters, (ii) reject the vessel charters and return the vessels to the Company, or (iii) assume and assign the vessel charters to a third party, in which case the third party would replace OSG and assume all of the rights and obligations under the assigned charters and related transaction documents. AMSC believes that the least likely outcome is the rejection of the charters by OSG since the terms of the charters are favorable to OSG in the current market.
In the event that OSG chooses to reject the bareboat charters, AMSC anticipates that, considering that all vessels are working under time charters and markets are improving, it would be able to re-charter the vessels to another Jones Act operator on equal or better
terms on relatively short notice. For that reason, we do not currently anticipate that the OSG bankruptcy filing will have a material adverse effect on AMSC or its ability to continue its operations and pay the vessel debt as and when due. See also Note 11. AMSC’s activities also expose the Company to a variety of other financial risks, including currency, interest rate and liquidity risk. With the completion of the Company’s vessel debt extension in 2012, refinancing no longer represents a significant risk in the medium term.
For further details of AMSC’s risks, including our guarantees, refer to the 2012 Annual Report.
Definitions
Jones Act - The U.S. cabotage law, referred to as Jones Act, requires all commercial vessels operating between U.S. ports to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag. In 1996 certain amendments were enacted to the U.S. vessel documentations laws, allowing increased non-U.S. participation in the ownership of vessels operating in the Jones Act trade under certain conditions, known as the finance lease exception.
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Source: American Shipping Company ASA