$1.65 Billion Transaction
Involving 68 Tankers Is Expected to Create the Third Largest
Publicly Traded MR and Product Fleet in the World, and One of the
World’s Largest Public Mixed Product and Crude Fleet
Operators
Capital Product Partners L.P. (NASDAQ: CPLP) (“CPLP”) and DSS
Holdings L.P. (“DSS”), a privately held company and one of the
world’s largest owners and operators of medium-range product and
Suezmax crude tankers, have entered into a definitive transaction
agreement pursuant to which CPLP has agreed to spin off its crude
and product tanker business into a separate publicly listed
company, which will merge with DSS’ businesses and operations in a
share-for-share transaction.
The new company, to be called Diamond S Shipping Inc., will be a
market leader in the crude and product tanker markets, benefitting
from a balanced and large-scale portfolio of vessels, strong
management leadership and a cost-efficient commercial
platform. The transaction reflects DSS’ strategic initiatives
to access public markets with enhanced scale at a cyclically
opportune time to create one of the world’s largest shipping
companies well positioned for future industry consolidation.
The new company is expected to be listed on the New York Stock
Exchange and will be headquartered in Greenwich, Connecticut.
This transaction represents a strategic step for CPLP to unlock
unitholder value by combining its tanker business with a highly
regarded pure-play tanker company. CPLP intends to continue
as a master limited partnership (“MLP”), with a modern fleet under
medium- to long-term charters producing stable cash flows in the
container sector complemented by one drybulk vessel. CPLP
expects to be well positioned going forward to engage in asset
acquisitions across different shipping segments with the aim of
growing its per unit distributable cash flow.
The transaction is valued on an NAV-to-NAV basis with CPLP
receiving $23 million in consideration in the form of approximately
3% incremental ownership in Diamond S Shipping Inc. related to
certain transaction benefits including access to public markets and
enhanced scale. The transaction results in CPLP unitholders
initially owning approximately 33% and DSS equity owners initially
owning approximately 67% of the new company (all ownership
percentages are subject to closing adjustments). CPLP
unitholders also will continue to own their CPLP units. CPLP
intends to effect a reverse unit split promptly after the closing
of the transaction.
About Diamond S Shipping Inc. and the
Transaction
- Diamond S Shipping Inc.’s asset portfolio will consist of the
combined product and crude tanker fleet of CPLP and DSS, totaling
68 high-quality tankers, with an average age of 7.8 years,
including 52 product tankers and 16 crude tankers, positioning the
new public company to capitalize on the improving fundamentals in
the tanker market on a greater scale.
- Diamond S Shipping Inc. is expected to be the third largest
publicly traded product tanker operator and the fifth largest
public tanker company worldwide.
- The new company is expected to be well capitalized, with
post-close net debt to fleet value of approximately 60% and total
liquidity in excess of $90 million.
- The new company will be led by DSS’ management team, which has
an established track record of growth and successful commercial
operations.
Diamond S Shipping Inc.’s Board and
Management
- Craig Stevenson, Jr., CEO of DSS, will serve as the CEO of
Diamond S Shipping Inc. Mr. Stevenson has over 40 years
of experience in the shipping industry and previously served as the
Chairman and the Chief Executive Officer of OMI, a NYSE-listed
tanker company. The Diamond S management team will continue
to serve in senior management positions.
- The new company’s board of directors will consist of seven
members, a majority of whom are expected to be independent.
DSS will initially nominate three board members, Nadim Qureshi, who
will serve as the Chairman, Hal Malone, and Kate Blankenship, and
CPLP will initially nominate two board members, Jerry Kalogiratos
and Gerry Ventouris. The board of directors will further
include Mr. Stevenson and Bart Veldhuizen.
- Diamond S Shipping Inc. will combine the technical expertise of
Capital Ship Management Corp., the current manager of CPLP’s fleet,
and the cost effective operating structure of DSS. Capital
Ship Management Corp. will continue to provide commercial and
technical management for the crude and product tankers contributed
by CPLP to Diamond S Shipping Inc.
Mr. Stevenson commented:“Our organization is pleased to create
with CPLP one of the world’s largest public company tanker
operators. This transaction will occur at an opportunistic
time in the cycle and creates one of the largest, highest quality
fleets and best capitalized public shipping companies in the
market. We are confident that this unique combination will
create significant shareholder value through the cycle by using our
cash flow to invest in the business via acquisitions and returning
capital back to our shareholders. We look forward to
leveraging CPLP’s outstanding expertise and industry reputation as
we work to grow the business together.”
Diamond S Shipping Inc.’s Shareholders
It is expected that, among other significant shareholders, funds
affiliated with WL Ross & Co. LLC, the private equity division
of Invesco Ltd., and First Reserve, two major shareholders of DSS,
will hold approximately 24% and 20%, respectively, of the new
company. Capital Maritime & Trading Corp., CPLP’s sponsor
and the parent of CPLP’s general partner, and its affiliates are
expected to hold approximately 5% of the new company. All
ownership percentages are subject to closing adjustments.
CPLP Following the Spin-Off
This transaction will realign CPLP with a modern containership
asset base (with an average age of 6.6 years) operating under
medium- to long-term charters (5.3 years of remaining charter
duration) and thus enhancing cash flow visibility for CPLP
unitholders. CPLP will continue to maintain a strong balance sheet,
as part of the debt proceeds raised by DSS for the acquisition of
the CPLP tankers will be used to fully redeem the CPLP Class B Unit
series outstanding at 100% of its redemption value ($116.8 million)
and to reduce the Partnership’s indebtedness to $290.0 million or
less compared to $459.1 million as of September 30, 2018.
CPLP expects to adopt a new annual common unit quarterly
distribution guidance of $0.045 going forward in view of this
transaction. CPLP also intends to pursue growth opportunities
that are accretive to its distributable cash flow across different
shipping segments with the aim of growing its long-term
distributable cash flow over time.
Gerasimos (Jerry) Kalogiratos, Director and Chief Executive
Officer of Capital GP LLC (CPLP’s general partner), commented:
“We are excited about this transaction, which marks a strategic
step to drive value creation for our unitholders, as we expect the
sum of the parts following this transaction to exceed the current
equity valuation of CPLP. The Partnership’s common
unitholders will not only receive $23 million in consideration
which implies an approximate 10.8% premium to the NAV contributed
as part of this transaction, but will also retain exposure to the
product and crude tanker markets at greater scale, while continuing
to receive a meaningful common unit distribution from CPLP post
transaction.”
Mr. Kalogiratos added:
“This transaction also enables CPLP to combine its tanker assets
with DSS, a market leader that will be led by an accomplished
management team with an excellent industry track record.”
“Finally, this transaction allows CPLP to reshape its business
with a modern fleet that has a remaining average charter duration
of 5.3 years, providing CPLP unitholders with more stability and
cash flow visibility. This should well underpin the new
quarterly common unit distribution guidance of $0.045. After
the transaction, we believe that we will be uniquely positioned to
grow our asset base again with modern vessels employed under
medium- to long-term charters both from our sponsor as well as the
second-hand market with a view to growing our long-term
distributable cash flow.”
Transaction Details and Conditions to Close
CPLP will contribute its product and crude vessels, $10 million
in cash and associated inventories to Diamond S Shipping Inc. and
distribute Diamond S Shipping Inc.’s common shares on a pro rata
basis to all record holders of CPLP’s common and general partner
units.
The distribution is expected to be made on the basis of one
Diamond S Shipping Inc. common share for every 10.19149 CPLP common
units or CPLP general partner units.
Immediately following the spin-off, Diamond S Shipping Inc. will
merge with subsidiaries of DSS. In the mergers, the new
company will issue shares of common stock to shareholders of DSS in
such amount as to reflect the relative net asset values of the
respective businesses and the agreed premium.
After the spin-off, CPLP contemplates effecting a 1-for-5
reverse unit split of its outstanding units. The reverse
split is intended to bring CPLP’s common unit trading price more in
line with that of peer companies.
The initial Form 10 registration statement relating to the
spin-off is expected to be filed with the Securities and Exchange
Commission (the “SEC”) in December 2018, and the distribution and
combination are expected to be completed in the first quarter of
2019.
The transaction close is subject to certain conditions,
including the SEC declaring effective Diamond S Shipping Inc.’s
registration statement, filing and approval of Diamond S Shipping
Inc.’s listing application, the availability of net proceeds from
committed debt financing in the amount, combined with cash to be
procured by DSS, if any, required to consummate the transaction and
the consent of CPLP’s banks to the partial prepayment and amendment
of CPLP’s existing credit facilities. The transaction does
not require a vote of the holders of CPLP’s common units.
It is expected that for U.S. federal income tax purposes the
spin-off will be treated as a non-taxable return of capital to the
extent of each CPLP common unitholder’s tax basis, and thereafter
as capital gain.
The board of directors of CPLP delegated to a special committee
consisting solely of independent board members the full power,
authority and responsibility to, among other things,
evaluate, negotiate and determine whether to approve the
transaction. The special committee, after consultation with
its independent legal and financial advisors, has unanimously
approved the transaction. The transaction was also approved
by the conflicts committee of the CPLP board of directors.
Following the determinations of the special committee and the
conflicts committee, the CPLP board of directors unanimously
approved the transaction.
Financing of the Transaction
DSS has entered into several firm commitments for a syndicated
five-year term loan and revolving credit facility (the “credit
facility”) of up to $360 million with a syndicate of global
shipping banks. Net proceeds from the credit facility will be
used to partially prepay a portion of the loans outstanding under
CPLP’s existing credit facilities, redeem CPLP’s Class B Units and
fund transaction expenses. A portion of the net proceeds of
the credit facility will also be used to refinance certain existing
indebtedness of DSS.
Conference Call and Webcast
Tomorrow, November 28, 2018, CPLP and DSS will host an
interactive conference call to discuss this announcement at 8:30
a.m. Eastern Time.
A presentation about the transaction will be posted to the
Investor Relations section of CPLP’s website at
www.capitalpplp.com/investor-relations.
Individual investors are invited to listen to the interactive
conference call. Participants should dial into the call 10
minutes before the scheduled time using the following numbers: 1
(877) 553-9962 (US Toll Free Dial In), 0 (808) 238-0669 (UK Toll
Free Dial In) or +44 (0) 2071 928592 (Standard International Dial
In). Please quote “Capital Product Partners.”
There will also be a simultaneous live webcast over the
Internet, through the Capital Product Partners website,
www.capitalpplp.com. Participants to the live webcast should
register on the website approximately 10 minutes prior to the start
of the webcast. In addition, a replay will be available
beginning shortly after the call has ended.
The investor presentation and this press release have also been
furnished to the SEC in a current report on Form 6-K.
About CPLP
CPLP (NASDAQ: CPLP), a Marshall Islands master limited
partnership, is an international owner of tanker, container and
drybulk vessels. CPLP currently owns 36 vessels, including 21
modern medium-range product tankers, three Suezmax crude oil
tankers, one Aframax crude/product oil tanker, ten Neo Panamax
container vessels and one Capesize bulk carrier.
About DSS
DSS, a private shipping company incorporated in the Marshall
Islands and headquartered in Greenwich, Connecticut, is an
international owner of product and crude tankers. DSS currently
owns 43 vessels, including 31 modern medium-range product tankers
and 12 Suezmax crude oil tankers.
Advisors
Evercore and Stifel are serving as financial advisors and
Sullivan & Cromwell LLP is serving as legal advisor to
CPLP. DVB Capital Markets LLC is serving as financial advisor
and Fried, Frank, Harris, Shriver & Jacobson LLP is serving as
legal advisor to CPLP’s special committee. Moelis &
Company LLC is serving as the financial advisor and Jones Day is
serving as legal advisor to DSS. Clarksons Platou is serving
as industry advisor in connection with the transaction.
Forward-Looking Statements
The statements in this press release that are not historical
facts, including, among other things, the expected financial
performance of the combined company and any remaining business of
CPLP and the consummation of the transaction, are forward-looking
statements (as such term is defined in Section 21E of the
Securities Exchange Act of 1934, as amended). These
forward-looking statements involve risks and uncertainties that
could cause the stated or forecasted results to be materially
different from those anticipated. These risk and
uncertainties include, among others: (1) the risk that the
transaction may not be completed on terms or in the timeframe
expected by DSS or CPLP or at all; (2) the possibility that various
closing conditions to the transaction may not be satisfied or
waived; (3) the risk that committed financing may not be available
or may not be available in an amount sufficient, together with cash
to be procured by DSS, to complete the transaction; (4) risks and
uncertainties related to the expected tax treatment of the
spin-off; (5) the possibility that third-party consents will not be
received; (6) failure to realize the anticipated benefits of the
transaction; (7) the impact of the spin-off on the business of CPLP
and (8) the potential impact of major shareholdings on the trading
price of the new company shares. For further discussion of
factors that could materially affect the outcome of forward-looking
statements and other risks and uncertainties, see “Risk Factors” in
CPLP’s annual report filed with the SEC on Form 20-F. Unless
required by law, each of DSS and CPLP expressly disclaims any
obligation to update or revise any of these forward-looking
statements, whether because of future events, new information, a
change in its views or expectations, to conform them to actual
results or otherwise. Neither DSS nor CPLP assumes any
responsibility for the accuracy and completeness of the
forward-looking statements. You are cautioned not to place
undue reliance on forward-looking statements. All subsequent
written and oral forward-looking statements attributable to DSS or
CPLP or any person acting on their behalf are expressly qualified
in their entirety by the cautionary statements contained or
referred to in this section.
CPLP-F
Contact Details
Capital GP L.L.C. Jerry Kalogiratos CEO Tel.
+30 (210) 4584 950 E-mail: j.kalogiratos@capitalpplp.com
Capital GP L.L.C. Nikos Kalapotharakos CFO Tel.
+30 (210) 4584 950 E-mail:
n.kalapotharakos@capitalmaritime.com
Investor Relations / Media Nicolas Bornozis
Capital Link, Inc. (New York) Tel. +1-212-661-7566 E-mail:
cplp@capitallink.com
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