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Scorpio Tankers Inc. Announces Financial Results And A New Sale And Leaseback Agreement For Four Product Tankers

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Scorpio Tankers Inc. yesterday reported its results for the three and six months ended June 30, 2018.

The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.01 per share on the Company’s common stock and that it has agreed to sell and leaseback four additional product tankers.

Results for the three months ended June 30, 2018 and 2017

For the three months ended June 30, 2018, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $44.9 million, or $0.15 basic and diluted loss per share, which excludes from the net loss (i) a $17.0 million loss recorded on the Company’s exchange of its Convertible Notes due 2019 for newly issued Convertible Notes due 2022 (the “Convertible Notes Exchange”, which is described below), and (ii) a $7.0 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $24.0 million or $0.08 per basic and diluted share. For the three months ended June 30, 2018, the Company had a net loss of $68.9 million, or $0.22 basic and diluted loss per share.

For the three months ended June 30, 2017, the Company’s adjusted net loss (see Non-IFRS Measures section below) was $17.0 million or $0.09 basic and diluted loss per share, which excludes from the net loss (i) a $23.4 million loss on sales of vessels and write-down of vessel held for sale, (ii) $32.5 million of transaction costs related to the merger with Navig8 Product Tankers Inc (“NPTI”), (iii) a $5.4 million gain recorded upon the purchase of the four subsidiaries of NPTI that own four LR1 tankers, and (iv) a $0.8 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $51.3 million or $0.28 per basic and diluted share. For the three months ended June 30, 2017, the Company had a net loss of $68.3 million, or $0.38 basic and diluted loss per share.

Results for the six months ended June 30, 2018 and 2017

For the six months ended June 30, 2018, the Company’s adjusted net loss was $76.4 million (see Non-IFRS Measures section below), or $0.25 basic and diluted loss per share, which excludes from the net loss (i) a $17.0 million loss recorded on the Convertible Notes Exchange, (ii) a $7.0 million write off of deferred financing fees and (iii) $0.3 million of transaction costs related to the merger with NPTI. The adjustments resulted in an aggregate reduction of the Company’s net loss by $24.3 million or $0.08 per basic and diluted share. For the six months ended June 30, 2018, the Company had a net loss of $100.7 million, or $0.33 basic and diluted loss per share.

For the six months ended June 30, 2017, the Company’s adjusted net loss was $28.5 million (see Non-IFRS Measures section below), or $0.17 basic and diluted loss per share, which excludes from the net loss (i) a $23.4 million loss on sales of vessels and write-down of vessel held for sale, (ii) $32.5 million of transaction costs related to the merger with NPTI, (iii) a $5.4 million gain recorded upon the purchase of the four NPTI subsidiaries that own four LR1 tankers, and (iv) a $0.9 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $51.3 million or $0.30 per basic and diluted share. For the six months ended June 30, 2017, the Company had a net loss of $79.8 million, or $0.46 basic and diluted loss per share.

Declaration of Dividend

On July 30, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.01 per share, payable on or about September 27, 2018 to all shareholders of record as of September 20, 2018 (the record date). As of July 30, 2018, there were 331,629,992 shares outstanding.

Summary of Other Recent and Second Quarter Significant Events

-Below is a summary of the average daily Time Charter Equivalent (TCE) revenue (see Non-IFRS Measures section below) and duration for voyages fixed for the Company’s vessels thus far in the third quarter of 2018 as of the date hereof (See footnotes to ‘Other operating data’ table below for the definition of daily TCE revenue):
-For the LR2s in the pool: approximately $12,000 per day for 45% of the days.
-For the LR1s in the pool: approximately $8,000 per day for 35% of the days.
-For the MRs in the pool: approximately $11,000 per day for 40% of the days.
-For the ice-class 1A and 1B Handymaxes in the pool: approximately $8,000 per day for 40% of the days.

-Below is a summary of the average daily TCE revenue earned on the Company’s vessels during the second quarter of 2018:
-For the LR2s in the pool: $12,669 per revenue day.
-For the LR1s in the pool: $11,090 per revenue day.
-For the MRs in the pool: $12,305 per revenue day.
-For the ice-class 1A and 1B Handymaxes in the pool: $10,635 per revenue day.

-In May and July 2018, the Company closed offers to exchange $203.5 million ($188.5 million in May 2018 and $15.0 million in July 2018) aggregate principal amount of its existing convertible senior notes due 2019 (the “Convertible Notes due 2019”) for the same aggregate principal amount of new convertible senior notes due 2022 (the “Convertible Notes due 2022”). The terms and conditions of the Convertible Notes due 2022 are described below.

-In July 2018, the Company reached an agreement (which has not previously been announced) to sell and leaseback two Handymax product tankers (STI Battersea and STI Wembley) and two MR product tankers (STI Texas City and STI Meraux) to an international financial institution. The Company expects to raise an aggregate of $31.8 million in new liquidity, after the repayment of the existing debt, upon completion. These transactions are expected to close before September 30, 2018 and are subject to customary conditions precedent and the execution of definitive documentation.

-In June 2018, the Company executed a $120.6 million senior secured term loan facility with ABN AMRO Bank N.V. and Skandinaviska Enskilda Banken AB (the “ABN/SEB Credit Facility”). This loan was fully drawn in June 2018 and the proceeds were used to refinance the existing indebtedness on five vessels which were previously financed under the Company’s K-Sure Credit Facility. The Company raised $33.0 million in new liquidity, after the repayment of the existing debt, as a result of this transaction.

-Excluding the ABN/SEB Credit Facility (described above), the Company has entered into agreements to refinance a total of 36 vessels through a series of bank loans and lease financing arrangements during the second and third quarters of 2018. These transactions, which are described below, are expected to raise $286.6 million in aggregate of new liquidity after the repayment of the existing secured debt related to these vessels, and are expected to close by September 30, 2018.

-In May 2018, the Company entered into an agreement to time charter-in a 2015 built LR2 product tanker for six months at $14,800 per day.

-In June 2018, the Company paid a quarterly cash dividend with respect to the first quarter of 2018 on the Company’s common stock of $0.01 per share.

Convertible Notes Exchange

In May and July 2018, the Company closed separate exchange offers pursuant to which certain holders of the Company’s Convertible Notes due 2019 exchanged $203.5 million in aggregate principal amount of such notes for the same aggregate principal amount of newly issued Convertible Notes due 2022. These transactions closed on two separate dates whereby $188.5 million aggregate principal amount of notes were exchanged in May 2018 and $15.0 million aggregate principal amount of notes were exchanged in July 2018.

The Convertible Notes due 2022 bear a coupon rate of 3.0%, which is payable semi-annually on November 15 and May 15 of each year and carried an initial conversion rate of 250 shares of the Company’s common stock per $1,000 principal amount ($4.00 per share). The conversion rate is subject to adjustment from time to time upon the occurrence of certain events (such as the payment of dividends). The conversion rate was adjusted to 250.8117 shares of the Company’s common stock per $1,000 principal amount on June 6, 2018 due to the scheduled payment of a quarterly dividend. The Convertible Notes due 2022 mature on May 15, 2022 and are non-redeemable. The remaining terms and conditions are similar to those set forth in the Convertible Notes due 2019.

During the second quarter of 2018, the Company recorded a loss on extinguishment of the Convertible Notes due 2019 of $17.0 million, and wrote off $1.1 million of deferred financing fees, as a result of the May 2018 exchange.

Update on Refinancing Initiatives

The table and discussion set forth below summarizes the status of the Company’s previously announced refinancing initiatives.

Agreement Closing date (1) Expected new liquidity (2)

In millions of U.S. dollars

Number of vessels to be refinanced
1 $90.0 million sale and leaseback Q3 2018 $ 31.8 Four
2 ABN AMRO/SEB Credit Facility June 2018 33.0 Five
3 ING Credit Facility Upsize Q3 2018 11.8 Two
4 $36.7 million Term Loan Facility Q3 2018 9.2 Two
5 China Huarong Shipping sale and leaseback Q3 2018 51.3 Six
6 AVIC International sale and leaseback Q3 2018 43.9 Five
7 CMB sale and leaseback Q3 2018 54.1 Six
8 $116.0 million sale and leaseback Q3 2018 42.5 Four
9 $157.5 million sale and leaseback Q3 2018 42.0 Seven
$ 319.6 41 vessels

(1) Represents the actual (if in Q2 2018) or expected (if in Q3 2018) closing date of each facility.

(2) Represents the approximate amount of new liquidity the Company raised, or expects to raise (depending on the closing date), after the repayment of the existing indebtedness.

Sale and Leasebacks of Four Product Tankers (a new agreement which has not previously been announced)

In July 2018, the Company reached an agreement to sell and leaseback two Handymax product tankers (STI Battersea and STI Wembley) and two MR product tankers (STI Texas City and STI Meraux) to an international financial institution. The borrowing amounts under the arrangement are up to $22.0 million per Handymax and $23.0 million per MR ($90.0 million in aggregate), and the Company expects to raise an aggregate of $31.8 million in new liquidity, after the repayment of the existing debt, upon completion.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels beginning at the end of the second year of each agreement. The facility bears interest at LIBOR plus a margin of 3.6% per annum and will be repaid in quarterly installments of $0.5 million per vessel. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date. These transactions are expected to close before September 30, 2018 and are subject to customary conditions precedent and the execution of definitive documentation.

ABN AMRO/SEB Credit Facility

In June 2018, the Company executed the ABN/SEB Credit Facility, a $120.6 million senior secured term loan facility with ABN AMRO Bank N.V. and Skandinaviska Enskilda Banken AB. This loan was fully drawn in June 2018 and the proceeds were used to refinance the existing indebtedness on five vessels consisting of one Handymax product tanker (STI Hammersmith), one MR product tanker (STI Westminster), and three LR2 product tankers (STI Connaught, STI Winnie and STI Lauren). These five vessels were previously financed under the K-Sure Credit Facility. As a result of this transaction, the Company raised $33.0 million in new liquidity, after the repayment of the existing debt, and wrote off $3.3 million of deferred financing fees during the second quarter of 2018.

The ABN/SEB Credit Facility has a final maturity of June 2023 and bears interest at LIBOR plus a margin of 2.60% per annum. Principal payments will be an aggregate of $2.9 million per quarter for the first eight installments and $2.5 million per quarter thereafter, with a balloon payment due upon maturity. The remaining terms and conditions, including financial covenants, are similar to those set forth in the Company’s existing credit facilities.

ING Credit Facility Upsize

In June 2018, the Company executed an agreement to upsize its $132.5 million credit facility with ING Bank N.V. to $171.2 million. The upsized portion of the loan facility will be used to finance up to 65% of the fair market value of one Handymax product tanker (STI Rotherhithe) and one MR product tanker (STI Notting Hill), which are currently financed under the Company’s K-Sure Credit Facility. This transaction is expected to close before September 30, 2018, and the Company expects to raise $11.8 million in new liquidity, after the repayment of the existing debt, upon closing. The Company accelerated $0.5 million of deferred financing fee amortization during the second quarter of 2018 as a result of this agreement and expects to write off an additional $0.5 million of deferred financing fees upon closing.

The upsized portion of the loan facility has a final maturity of June 2022 and bears interest at LIBOR plus a margin of 2.40% per annum. Principal payments will be an aggregate of $1.0 million per quarter for the first eight installments and $0.8 million per quarter thereafter, with a balloon payment due upon maturity. The remaining terms and conditions, including financial covenants, are similar to those set forth in the Company’s existing credit facilities.

$36.7 million Term Loan Facility

In June 2018, the Company executed an agreement with a leading European financial institution for a loan facility of up to $36.7 million. The loan facility will be used to refinance the existing indebtedness related to two MR product tankers (STI Memphis and STI Soho), which are currently financed under the BNP Paribas Credit Facility. This transaction is expected to close before September 30, 2018 and the Company expects to raise $9.2 million in new liquidity, after the repayment of the existing debt, upon closing. The Company accelerated $0.1 million of deferred financing fee amortization during the second quarter of 2018 as a result of this agreement and expects to write off an additional $0.1 million of deferred financing fees upon closing.

The loan facility has a final maturity of June 2021, bears interest at LIBOR plus a margin of 2.50% per annum and will be repaid in equal quarterly installments of $0.8 million, in aggregate, with a balloon payment due upon maturity. The remaining terms and conditions, including financial covenants, are similar to those set forth in the Company’s existing credit facilities.

China Huarong Shipping Financial Leases

In May 2018, the Company reached an agreement to sell and leaseback six 2014 built MR product tankers, (STI Opera, STI Virtus, STI Venere, STI Aqua, STI Dama and STI Regina) to China Huarong Shipping Financial Leasing Co., Ltd. These vessels are currently financed under the Company’s 2016 Credit Facility. The borrowing amount under the arrangement is $144.0 million in aggregate, and the Company expects to raise an aggregate of $51.3 million in new liquidity, after the repayment of the existing debt, upon completion. These agreements are expected to close before September 30, 2018. The Company accelerated $0.4 million of deferred financing fee amortization during the second quarter of 2018 as a result of this agreement and expects to write off an additional $0.8 million of deferred financing fees upon closing.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels beginning at the end of the third year of each agreement. The lease bears interest at LIBOR plus a margin of 3.5% per annum and will be repaid in equal quarterly principal installments of $0.6 million per vessel. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date. These agreements are subject to customary conditions precedent and the execution of definitive documentation.

AVIC International Financial Leases

In July 2018, the Company executed an agreement to sell and leaseback three MR product tankers (STI Ville, STI Fontvieille and STI Brooklyn) and two LR2 product tankers (STI Rose and STI Rambla) to AVIC International Leasing Co., Ltd. The borrowing amounts under the arrangement are $24.0 million per MR and $36.5 million per LR2 ($145.0 million in aggregate), and the Company expects to raise an aggregate of $43.9 million in new liquidity, after the repayment of the existing debt, upon completion. These agreements are expected to close before September 30, 2018. The Company accelerated $0.8 million of deferred financing fee amortization during the second quarter of 2018 as a result of this agreement and expects to write off an additional $1.2 million of deferred financing fees upon closing.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels beginning at the end of the second year of each agreement. The lease bears interest at LIBOR plus a margin of 3.7% per annum and will be repaid in quarterly principal installments of $0.5 million per MR and $0.8 million per LR2. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date. These agreements are subject to customary conditions precedent and the execution of definitive documentation.

CMB Financial Leases

In July 2018, the Company executed an agreement to sell and leaseback six MR product tankers (STI Battery, STI Milwaukee, STI Tribeca, STI Bronx, STI Manhattan, and STI Seneca) to CMB Financial Leasing Co., Ltd. The borrowing amount under the arrangement is $141.6 million in aggregate, and the Company expects to raise an aggregate of $54.1 million in new liquidity, after the repayment of the existing debt, upon completion. These agreements are expected to close before September 30, 2018. The Company accelerated $0.6 million of deferred financing fee amortization during the second quarter of 2018 as a result of this agreement and expects to write off an additional $1.5 million of deferred financing fees upon closing.

Each agreement is for a fixed term of eight years, and the Company has options to purchase the vessels at the start of the fourth year of each agreement. The lease bears interest at LIBOR plus a margin of 3.2% per annum and will be repaid in quarterly principal installments of $0.4 million per vessel. Each agreement also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date.

Sale and Leasebacks of Four Product Tankers

In June 2018, the Company reached an agreement to sell and leaseback two MR product tankers (STI Gramercy and STI Queens) and two LR2 product tankers (STI Oxford and STI Selatar) in two separate transactions to an international financial institution. The borrowing amounts under the arrangement are $24.0 million per MR and $34.0 million per LR2 ($116.0 million in aggregate), and the Company expects to raise an aggregate of $42.5 million in new liquidity, after the repayment of the existing debt, upon completion. These agreements are expected to close before September 30, 2018. The Company accelerated $0.2 million of deferred financing fee amortization during the second quarter of 2018 as a result of this agreement and expects to write off an additional $2.2 million of deferred financing fees upon closing.

As part of the agreements, the Company will bareboat charter-in the vessels for a period of seven years at $7,935 per day for each MR and $11,040 per day for each LR2. In addition, the Company has purchase options beginning at the end of the third year of each agreement, and there is also a purchase obligation for each vessel upon the expiration of each agreement. These agreements are subject to customary conditions precedent and the execution of definitive documentation.

Sale and Leasebacks of Seven Product Tankers

In July 2018, the Company reached an agreement to sell and leaseback six MR product tankers (STI San Antonio, STI Benicia, STI St. Charles, STI Yorkville, STI Mayfair and STI Duchessa) and one LR2 product tanker (STI Alexis) to an international financial institution. The borrowing amounts under the arrangement are up to $21.3 million per MR and $29.7 million for the LR2 ($157.5 million in aggregate), and the Company expects to raise an aggregate of $42.0 million in new liquidity, after the repayment of the existing debt, upon completion.

Each agreement is for a fixed term of seven years, and the Company has options to purchase the vessels beginning at the end of the third year of each agreement. The lease bears interest at LIBOR plus a margin of 3.0% per annum and will be repaid in quarterly principal installments of $0.5 million per MR and $0.6 million for the LR2. Each agreement also has a purchase obligation at the end of the seventh year, which is equal to the outstanding principal balance at that date. These agreements are expected to close before September 30, 2018 and are subject to customary conditions precedent and the execution of definitive documentation.

Time Charter-in Update

In May 2018, the Company entered into a new time charter-in agreement on a 2015 built, LR2 product tanker for six months at $14,800 per day. The Company has an option to extend the charter for an additional six months at $15,350 per day.

$250 Million Securities Repurchase Program

In May 2015, the Company’s Board of Directors authorized a Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s securities which, in addition to its common shares, currently consist of its (i) Convertible Notes due 2019 (ii) Unsecured Senior Notes Due 2020 (NYSE:SBNA), which were issued in May 2014, (iii) Unsecured Senior Notes Due 2019 (NYSE:SBBC), which were issued in March 2017, and (iv) Convertible Notes due 2022.

No securities were repurchased under this program during the period commencing January 1, 2018 and ending on the date of this press release.

As of the date hereof, the Company has the authority to purchase up to an additional $147.1 million of its securities under its Securities Repurchase Program. The Company expects to repurchase its securities in the open market, at times and prices that are considered to be appropriate by the Company, but is not obligated under the terms of the Securities Repurchase Program to repurchase any of its securities.

Diluted Weighted Number of Shares

Diluted earnings per share is determined using the if-converted method. Under this method, the Company assumes that its Convertible Notes due 2019 and Convertible Notes due 2022 (which were issued in June 2014 and May 2018, respectively) were converted into common shares at the beginning of each period and the interest and non-cash amortization expense associated with these notes of $5.7 million and $11.5 million during the three and six months ended June 30, 2018, respectively, were not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three and six months ended June 30, 2018, the Company’s basic weighted average number of shares was 309,575,449 and 308,914,701, respectively. The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three and six months ended June 30, 2018, respectively, as the Company incurred net losses.

As of the date hereof, the Convertible Notes due 2019 and Convertible Notes due 2022 are not eligible for conversion.

Full Report

Source: Scorpio Tankers Inc.





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