CREDIT AGREEMENT
dated as of
March 31, 2022
by and among
SEAJACKS INTERNATIONAL LIMITED,
as Borrower,
ENETI INC.,
as Parent Guarantor,
The SUBSIDIARY GUARANTORS Party Hereto,
The LENDERS Party Hereto,
The ISSUING BANKS Party Hereto,
DNB BANK ASA, NEW YORK BRANCH,
as Administrative Agent and Security Trustee
and
DNB BANK ASA, NEW YORK BRANCH,
as Green Advisor
* * * * *
DNB MARKETS, INC., SOCIÉTÉ GÉNÉRALE, CITIBANK N.A., LONDON BRANCH and CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK,
as Mandated Lead Arrangers
DNB MARKETS, INC., SOCIÉTÉ GÉNÉRALE, CITIBANK N.A., LONDON BRANCH and CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK,
as Bookrunners
DNB MARKETS, INC.,
as Coordinator
US$175,000,000 SENIOR SECURED GREEN TERM LOAN FACILITY,
REVOLVING FACILITY AND L/C FACILITY
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01 Defined Terms 1
SECTION 1.02 Terms Generally 43
SECTION 1.03 Accounting Terms; Changes in GAAP 43
SECTION 1.04 Rates 44
SECTION 1.05 Reserved 44
SECTION 1.06 Letter of Credit Amounts 44
SECTION 1.07 Exchange Rates; Currency Equivalents 44
ARTICLE II
COMMITMENTS AND CREDIT EXTENSIONS
SECTION 2.01 Commitments 45
SECTION 2.02 Loans and Borrowings 45
SECTION 2.03 Borrowing Requests 46
SECTION 2.04 Reserved 47
SECTION 2.05 Letters of Credit 47
SECTION 2.06 Funding of Borrowings 54
SECTION 2.07 Interest Elections 54
SECTION 2.08 Prepayments 55
SECTION 2.09 Termination or Reduction of Commitments 58
SECTION 2.10 Repayment of Loans 59
SECTION 2.11 Interest 59
SECTION 2.12 Fees 60
SECTION 2.13 Evidence of Debt 61
SECTION 2.14 Payments Generally; Several Obligations of Lenders 61
SECTION 2.15 Sharing of Payments 62
SECTION 2.16 Compensation for Losses 63
SECTION 2.17 Increased Costs 64
SECTION 2.18 Taxes 65
SECTION 2.19 Inability to Determine Rates 69
SECTION 2.20 Illegality 70
SECTION 2.21 Mitigation Obligations; Replacement of Lenders 71
SECTION 2.22 Cash Collateral 72
SECTION 2.23 Defaulting Lenders 73
SECTION 2.24 Benchmark Replacement Setting 75
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Existence, Qualification and Power 77
SECTION 3.02 Authorization; No Contravention 77
SECTION 3.03 Governmental Authorization; Other Consents 77
SECTION 3.04 Execution and Delivery; Binding Effect 77
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SECTION 3.05 Financial Statements; No Material Adverse Effect 77
SECTION 3.06 Litigation 78
SECTION 3.07 No Material Adverse Effect; No Default 78
SECTION 3.08 Property 78
SECTION 3.09 Taxes 78
SECTION 3.10 Disclosure 78
SECTION 3.11 Compliance with Laws 79
SECTION 3.12 ERISA Compliance 79
SECTION 3.13 Environmental Matters 80
SECTION 3.14 Margin Regulations 81
SECTION 3.15 Investment Company Act 81
SECTION 3.16 Sanctions; Anti-Corruption 81
SECTION 3.17 Solvency 81
SECTION 3.18 Pari Passu Ranking 81
SECTION 3.19 Equity Interests 82
SECTION 3.20 Liens 82
SECTION 3.21 Indebtedness 82
SECTION 3.22 Chief Executive Offices 82
SECTION 3.23 No Proceedings to Dissolve 82
SECTION 3.24 Vessels 82
SECTION 3.25 DAC 6 82
SECTION 3.26 Repetition 83
ARTICLE IV
CONDITIONS
SECTION 4.01 Closing Date 83
SECTION 4.02 Conditions to All Credit Extensions 87
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01 Financial Statements 88
SECTION 5.02 Green Loan Reporting; Valuations; Other Information 89
SECTION 5.03 Notices 91
SECTION 5.04 Preservation of Existence, Etc. 91
SECTION 5.05 Maintenance of Properties 92
SECTION 5.06 Maintenance of Insurance 92
SECTION 5.07 Payment of Obligations 92
SECTION 5.08 Compliance with Laws 92
SECTION 5.09 Environmental Matters 92
SECTION 5.10 Books and Records 92
SECTION 5.11 Inspection Rights 93
SECTION 5.12 Use of Proceeds 93
SECTION 5.13 Sanctions; Anti-Corruption Laws 93
SECTION 5.14 Collateral Maintenance Test 94
SECTION 5.15 Vessel Covenants 94
SECTION 5.16 Most Favored Nation 98
SECTION 5.17 Ownership 99
SECTION 5.18 Additional Guarantors 99
SECTION 5.19 Pensions Act 99
SECTION 5.20 Post-Closing Condition 99
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ARTICLE VI NEGATIVE COVENANTS
SECTION 6.01 Indebtedness 99
SECTION 6.02 Liens 100
SECTION 6.03 Fundamental Changes 100
SECTION 6.04 Dispositions 100
SECTION 6.05 Investments 101
SECTION 6.06 Transactions with Affiliates 101
SECTION 6.07 Reserved 101
SECTION 6.08 Dividends and Distributions 101
SECTION 6.09 Equity Interests 101
SECTION 6.10 Change of Business 101
SECTION 6.11 Restriction on Use of Proceeds 101
SECTION 6.12 Financial Covenants 102
SECTION 6.13 Anti-Corruption; Use of Proceeds 102
SECTION 6.14 Accounts 102
SECTION 6.15 Permitted Hedging Agreements 102
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01 Events of Default 102
SECTION 7.02 Application of Payments 106
ARTICLE VIII
AGENT AND SECURITY TRUSTEE
SECTION 8.01 Appointment and Authority 107
SECTION 8.02 Rights as a Lender or Issuing Bank 108
SECTION 8.03 Exculpatory Provisions 108
SECTION 8.04 Reliance by Agents 109
SECTION 8.05 Delegation of Duties 109
SECTION 8.06 Resignation 110
SECTION 8.07 Non-Reliance on Agents, Issuing Banks and Other Lenders 111
SECTION 8.08 No Other Duties 111
SECTION 8.09 Administrative Agent May File Proofs of Claim 111
SECTION 8.10 Certain ERISA Matters 112
SECTION 8.11 Collateral Matters 112
SECTION 8.12 Erroneous Payments 114
SECTION 8.13 Parallel Debt owed by the Borrower to the Security Trustee. 115
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices 116
SECTION 9.02 Waivers; Amendments 118
SECTION 9.03 Expenses; Indemnity; Damage Waiver 121
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SECTION 9.04 Successors and Assigns 122
SECTION 9.05 Survival 126
SECTION 9.06 Counterparts; Integration; Effectiveness; Electronic Execution 126
SECTION 9.07 Severability 126
SECTION 9.08 Right of Setoff 127
SECTION 9.09 Governing Law; Jurisdiction; Etc 127
SECTION 9.10 WAIVER OF JURY TRIAL 128
SECTION 9.11 Headings 129
SECTION 9.12 Treatment of Certain Information; Confidentiality 129
SECTION 9.13 PATRIOT Act 129
SECTION 9.14 Interest Rate Limitation 130
SECTION 9.15 Payments Set Aside 130
SECTION 9.16 No Advisory or Fiduciary Responsibility 130
SECTION 9.17 Acknowledgement and Consent to Bail-In of Affected Financial Institutions 131
SECTION 9.18 Judgment Currency 131
SECTION 9.19 Acknowledgement Regarding Any Supported QFCs 132
ARTICLE X
GUARANTY AND INDEMNITY
SECTION 10.01 Guarantee and Indemnity 133
SECTION 10.02 Continuing Guarantee 133
SECTION 10.03 Reinstatement 133
SECTION 10.04 Waiver of Defenses 133
SECTION 10.05 Other Waivers 134
SECTION 10.06 Acknowledgment of Benefits 135
SECTION 10.07 Immediate Recourse 135
SECTION 10.08 Appropriations 135
SECTION 10.09 Deferral of Guarantors’ Rights 135
SECTION 10.10 Additional Security 136
SECTION 10.11 Independent Obligations 136
SECTION 10.12 Limitation of Liability 136
SECTION 10.13 Applicability of Provisions of Guarantee to Other Security 136
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SCHEDULES
SCHEDULE 1.01A – Subsidiary Guarantors
SCHEDULE 1.01B – Vessels
SCHEDULE 2.01 – Commitments and Lenders
SCHEDULE 2.01A – Existing Letters of Credit
SCHEDULE 5.06B – Required Insurances
EXHIBITS
EXHIBIT A – Form of Assignment and Assumption
EXHIBIT B – Form of Borrowing Request
EXHIBIT C – Form of Compliance Certificate
EXHIBIT D – Form of Contracted Cash Flows Certificate
EXHIBIT E – Form of Joinder Agreement
EXHIBIT F-1 – Form of Term Loan Facility Note
EXHIBIT F-2 – Form of Revolving Facility Note
EXHIBIT F-3 – Form of L/C Facility Note
EXHIBIT G-1 – Form of U.S. Tax Compliance Certificate
EXHIBIT G-2 – Form of U.S. Tax Compliance Certificate
EXHIBIT G-3 – Form of U.S. Tax Compliance Certificate
EXHIBIT G-4 – Form of U.S. Tax Compliance Certificate
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CREDIT AGREEMENT
CREDIT AGREEMENT dated as of March 31, 2022 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”), by and among SEAJACKS INTERNATIONAL LIMITED, a company incorporated in England and Wales, as borrower (the “Borrower”), ENETI INC., a Marshall Islands corporation, as parent guarantor (the “Parent Guarantor”), the Subsidiary Guarantors from time to time party hereto, the Lenders from time to time party hereto, the Issuing Banks from time to time party hereto, DNB BANK ASA, NEW YORK BRANCH, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”) and as security trustee for the Secured Parties (in such capacity, the “Security Trustee”), and DNB BANK ASA, NEW YORK BRANCH, as green advisor (the “Green Advisor”).
WHEREAS, the Lenders and the Issuing Banks have agreed to extend credit to the Borrower in an aggregate principal amount of up to $175,000,000, to consist of (i) the Term Loan Facility in the aggregate amount of up to $75,000,000, (ii) the Revolving Facility in the aggregate amount of up to $75,000,000, and (iii) an L/C Facility in the aggregate amount of up to $25,000,000, for the purposes described herein.
WHEREAS, as a condition to the obligation of the Issuing Banks and the Lenders to make the credit facilities available to the Borrower hereunder, the Guarantors (as defined below) have agreed to guarantee, on the terms and conditions set forth herein, the obligations of the Borrower under this Agreement and any Secured Hedging Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
“ABR” means, for any day, a rate per annum equal to the higher of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus 0.50%. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively.
“ABR Borrowing” means, as to any Borrowing, the ABR Loans comprising such Borrowing pursuant to Section 2.19 or 2.24.
“ABR Loan” means a Loan that bears interest based on the ABR. All ABR Loans shall be denominated in Dollars.
“Acceptable Accounting Firm” means PricewaterhouseCoopers Audit, or such other recognized accounting firm as the Administrative Agent may, with the consent of the Required Lenders, approve from time to time, such approval not to be unreasonably withheld or delayed.
“Account Bank” means ABN AMRO Bank N.V. or, with respect to any Earnings Accounts held by a Collateral Vessel Owner incorporated in Japan, Mizuho Bank Ltd., or any other depository bank agreed between the Administrative Agent (acting on the instructions of the Required Lenders) and the Borrower.
“Account Pledge” means an account pledge agreement between the Borrower or a Subsidiary Guarantor and the Security Trustee and pursuant to which the relevant Earnings Account relating to a Collateral Vessel shall have been pledged, in a form acceptable to the Administrative Agent and the Lenders.
“Acquisition” means, as to any Person, the purchase or other acquisition (in one transaction or a series of transactions, including through a merger) of all of the equity interests of another Person or all or substantially all of the property, assets or business of another Person or of the assets constituting a business unit, line of business or division of another Person.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment.
“Administrative Agent” has the meaning assigned to such term in the introductory paragraph of this Agreement.
“Administrative Agent’s Office” means, with respect to any Currency, the Administrative Agent’s address and, as appropriate, account as set forth in Section 9.01 with respect to such Currency, or such other address or account with respect to such Currency as the Administrative Agent may from time to time notify to the Borrower, the Issuing Banks and the Lenders.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by or otherwise acceptable to the Administrative Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any other financial institution.
“Affiliate” means, with respect to a specified Person, another Person that directly or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent Parties” has the meaning specified in Section 9.01(d)(ii).
“Agents” means, collectively, the Administrative Agent and Security Trustee.
“Agreement” has the meaning specified in the introductory paragraph of this Agreement.
“Alternative Currency” means Euros.
“Alternative Currency Equivalent” means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the Alternative Currency as determined by the Administrative Agent or the applicable Issuing Bank, as the case may be, in its sole discretion by reference to the applicable Bloomberg page (or such other publicly available service for displaying exchange rates as determined by the Administrative Agent or the applicable Issuing Bank from time to time), to be the exchange rate for the purchase of the Alternative Currency with Dollars on the date two (2) Business Days prior to the date as of which the foreign exchange computation is made; provided, however, that if no such rate is available, the “Alternative Currency Equivalent” shall be determined by the Administrative Agent or the applicable Issuing Bank, as the case may be, using any reasonable method of determination it deems appropriate in its sole discretion (and such determination shall be conclusive absent manifest error).
“Alternative Currency Sublimit” means an amount equal to the Dollar Equivalent of (a) in respect of Revolving Loans, 100% of the Revolving Commitments, and (b) in respect of Letters of Credit, 50% of the L/C Commitments. The Alternative Currency Sublimit is part of, and not in addition to, any Facility.
“Annex VI” means Annex VI of the Protocol of 1997 (as subsequently amended from time to time) to amend the International Convention for the Prevention of Pollution from Ships 1973 (Marpol), as modified by the Protocol of 1978 relating thereto.
“Applicable Law” means, as to any Person, all applicable Laws binding upon such Person or to which such a Person is subject.
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“Applicable Percentage” means, (a) with respect to any Lender in respect of the Revolving Facility, the percentage of the total Revolving Commitments of all Revolving Lenders represented by such Lender’s Revolving Commitment at such time; provided, however, that if the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments, and (b) with respect to any Lender in respect of the Term Loan Facility, with respect to any Lender holding an Term Loan Commitment, (i) on or prior to the Closing Date, the percentage of the total Term Loan Commitments of all Term Loan Lenders represented by such Lender’s Term Loan Commitment at such time and (ii) thereafter, the percentage of the total Outstanding Amount of Term Loans under the Term Loan Facility of all Term Loan Lenders represented by the aggregate Outstanding Amount of Term Loans under the Term Loan Facility of such Lender at such time.
“Applicable Rate” means, for any day, the percentage per annum equal to: (a) in respect of any outstanding Loan, 3.15%, provided that for any day that a Term Loan qualifies as a Green Loan, the Green Loan Margin Discount shall be deducted from the Applicable Rate for such Loan, (b) in respect of any Commitment Fees, 40% of the Applicable Rate for Revolving Loans, and (c) in respect of any L/C Fees, 3.15%. Any change in the Applicable Rate due to the Term Loan qualifying or ceasing to qualify as a Green Loan shall be promptly, and in any event within five (5) Business Days of such change, notified by the Green Advisor and the Administrative Agent to the Lenders.
“Applicable Time” means, with respect to any Borrowings and payments in the Alternative Currency, the local time in the place of settlement for the Alternative Currency as may be determined by the Administrative Agent or the applicable Issuing Bank, as the case may be, to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.
“Approved Broker” means any of Clarkson Valuations Limited, Pareto Shipbrokers Ltd and Lorentzen & Stemoco AS or such other company proposed by the Borrower which the Administrative Agent may, with the consent of the Required Lenders (such consent not to be unreasonably withheld or delayed), approve from time to time for the purpose of valuing a Vessel, who shall act as an expert and not as arbitrator and whose valuation shall be conclusive and binding on all parties to this Agreement.
“Approved Commercial Management Agreement” means, in respect of a Collateral Vessel, the agreement entered into with an Approved Commercial Manager regarding the commercial management of that Collateral Vessel.
“Approved Commercial Manager” means, in respect of a Collateral Vessel, Seajacks UK Limited, a company incorporated in England and Wales, any other Subsidiary Guarantor, or any other Person approved in writing by the Administrative Agent, acting with the authorization of the Lenders, as the commercial manager of that Collateral Vessel.
“Approved Flag Jurisdiction” means Panama, Japan, United Kingdom, Marshall Islands, Liberia or such flag jurisdictions as are otherwise approved by the Lenders (such consent not to be unreasonably withheld or delayed).
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Approved Management Agreements” means the Approved Commercial Management Agreements and the Approved Technical Management Agreements.
“Approved Managers” means the Approved Commercial Manager and the Approved Technical Manager.
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“Approved Technical Management Agreement” means, in respect of a Collateral Vessel, the agreement entered into with an Approved Technical Manager regarding the technical management of that Collateral Vessel.
“Approved Technical Manager” means, in respect of a Collateral Vessel, Seajacks UK Limited, a company incorporated in England and Wales, any other Subsidiary Guarantor, or any other Person approved in writing by the Administrative Agent, acting with the authorization of the Lenders, as the technical manager of that Collateral Vessel.
“Approved Transferee” means any bank, financial institution, trust, fund, insurance company or reinsurance company, or other Person which is regularly engaged in or established for the purpose of, making, purchasing or investing in, loans, securities or other financial assets.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in substantially the form of Exhibit A or any other form approved by the Administrative Agent.
“Assignment of Charter” shall mean, with respect to a Collateral Vessel, an assignment of charter made by each Collateral Vessel Owner or Bareboat Charterer in favor of the Security Trustee in respect of any Charter, in a form acceptable to the Administrative Agent and the Lenders.
“Assignment of Earnings” means, in respect of a Collateral Vessel, an assignment made by any Collateral Vessel Owner or Bareboat Charterer of the Earnings of that Collateral Vessel, in a form acceptable to the Administrative Agent and the Lenders.
“Assignment of Insurances” means, in respect of a Collateral Vessel, an assignment of the insurances of that Collateral Vessel, in a form acceptable to the Administrative Agent and the Lenders.
“Attributable Indebtedness” means, as of any date of determination, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.
“Audited Financial Statements” means the audited consolidated balance sheet of the Parent Guarantor and its Subsidiaries for the fiscal year ended December 31, 2021 and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Parent Guarantor and its Subsidiaries.
“Authorized Officer” means the chairman of the board, the president, any vice president, the treasurer, the secretary, any assistant secretary, any other financial officer, an authorized manager and any other officer (or a Person or Persons so designated by any officer) of any Obligor.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark for any Currency, as applicable, (x) if such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement or (y) otherwise, any payment period for interest calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark pursuant to this Agreement, in each case, as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 2.24(d).
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
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“Bail-In Legislation” means (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time that is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bareboat Charterer” means, in respect of a Collateral Vessel, any Subsidiary of the Borrower that acts as bareboat charterer of such Collateral Vessel.
“Benchmark” means, initially, with respect to any (a) Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, Dollars, the Term SOFR Reference Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Reference Rate or then-current Benchmark for Dollars, then “Benchmark” means, with respect to such Obligations, interest, fees, commissions or other amounts, the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 2.24(a) and (b) Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, Euros, EURIBOR; provided that if a Benchmark Transition Event has occurred with respect to EURIBOR, or the then-current Benchmark for such Currency, then “Benchmark” means, with respect to such Obligations, interest, fees, commissions or other amounts, the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section2.24(a).
“Benchmark Replacement” means, with respect to any Benchmark Transition Event for any then-current Benchmark, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date; provided, that with respect to a Benchmark with respect to any Obligations, interest, fees, commissions or other amounts denominated in any currency other than Dollars or calculated with respect thereto, the alternative set forth in clause (b) below:
(a) the sum of (i) Daily Simple SOFR and (ii) 0.26161% (26.161 basis points); or
(b) the sum of: (i) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for such Benchmark giving due consideration to (A) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for such Benchmark for syndicated credit facilities denominated in the applicable Currency at such time and (ii) the related Benchmark Replacement Adjustment.
If the Benchmark Replacement as determined pursuant to clause (a) or (b) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of any then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for syndicated credit facilities denominated in the applicable Currency at such time.
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“Benchmark Replacement Date” means a date and time determined by the Administrative Agent, which date shall be no later than the earliest to occur of the following events with respect to the then-current Benchmark for any Currency:
(a)in the case of clause (a) or (b) of the definition of “Benchmark Transition Event”, the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
(b)in the case of clause (c) of the definition of “Benchmark Transition Event”, the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (c) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means, with respect to the then-current Benchmark for any Currency, the occurrence of one or more of the following events with respect to such Benchmark:
(a)a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(b)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the Federal Reserve Bank of New York, the central bank for the Currency applicable to such Benchmark, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(c)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means, with respect to any then-current Benchmark for any Currency, the period (if any) (a) beginning at the time that a Benchmark Replacement Date with respect to such Benchmark has occurred if, at such time, no Benchmark Replacement has replaced such
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Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.24 and (b) ending at the time that a Benchmark Replacement has replaced such Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.24.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Bookrunners” means each of DNB Markets, Inc., Société Générale, Citibank N.A., London Branch and Crédit Agricole Corporate and Investment Bank, as Bookrunners.
“Borrower” has the meaning set forth in the introductory paragraph of this Agreement.
“Borrower Materials” has the meaning specified in Section 9.01(e).
“Borrowing” means a Term Loan Borrowing, an L/C Borrowing or a Revolving Borrowing, as the context may require, consisting of simultaneous Loans of the same Type and, in the case of a Eurocurrency Rate Borrowing or a Term SOFR Borrowing, having the same Interest Period made by the Lenders.
“Borrowing Request” means (a) a request for a Term Loan Borrowing or (b) a request for a Revolving Borrowing, in substantially the form attached hereto as Exhibit B or in such other form as the Administrative Agent may approve.
“Business Day” means any day that is not a Saturday, Sunday or other day that is a legal holiday under the laws of the State of New York, Amsterdam, Monaco, Oslo, Paris, London and Tokyo or is a day on which banking institutions in such state are authorized or required by Law to close.
“Capitalized Lease” means each lease that has been or is required to be, in accordance with GAAP, recorded as a capital or financing lease.
“Cash Collateral” shall have a meaning analogous to the definition of “Cash Collateralize” and shall include the proceeds of such cash collateral and other credit support.
“Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of one or more of the Issuing Banks or L/C Lenders, as collateral for L/C Obligations or obligations of L/C Lenders to fund participations in respect of L/C Obligations, cash or deposit account balances in the applicable Currency or, if the Administrative Agent and each applicable Issuing Bank shall agree in its sole discretion, other credit support, In each case pursuant to documentation in form and substance acceptable to the Administrative Agent and each applicable Issuing Bank.
“Cash Equivalents” means:
(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;
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(b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from a credit rating agency;
(c) investments in certificates of deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and
(e) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA and Aaa (or equivalent rating) by at least two credit rating agencies and (iii) have portfolio assets of at least $5,000,000,000.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Change of Control” means the occurrence of any act, event or circumstances which results in:
(a)one hundred percent (100%) of the Equity Interests of any Subsidiary Guarantor ceasing to be ultimately owned and/or controlled by the Borrower;
(b)one hundred percent (100%) of the Equity Interests of the Borrower ceasing to be ultimately owned and/or controlled by the Parent Guarantor;
(c)a “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) as in effect on the Effective Date, other than stockholders holding fifteen percent (15%) or more of the Voting Stock of the Parent Guarantor as of the Effective Date, becoming the ultimate beneficial owner or gaining control of the Parent Guarantor including, without limitation, any change from the Effective Date in the ultimate “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of more than thirty five percent (35%) of the total voting power of the Voting Stock of the Parent Guarantor (calculated on a fully diluted basis);
(d)individuals who constitute the board of directors of the Parent Guarantor at the beginning of any period of two (2) consecutive calendar years cease for any reason to constitute at least fifty percent (50%) of the total members of the Parent Guarantor’s board of directors at any time during such two (2) year period;
(e)any change in the direct shareholding of the Borrower or any Subsidiary Guarantor after the Effective Date, which has not been consented to by the Lenders (such consent not to be unreasonably withheld or delayed, it being agreed that a Lender would not be acting unreasonably if such consent is not provided on account of failure to meet KYC requirements of such Lender); and/or
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(f)the ordinary shares of the Parent Guarantor cease to be traded on the New York Stock Exchange (or any successor of the New York Stock Exchange) or other stock exchange consented to by the Required Lenders.
For the purposes of this definition:
(i) “control” of the Borrower or any Guarantor means:
(A) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:
(1) cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the Borrower or any Guarantor; or
(2) appoint or remove all, or the majority, of the directors or other equivalent officers of the Borrower or any Guarantor; or
(3) give directions with respect to the operating and financial policies of the Borrower or any Guarantor with which the directors or other equivalent officers of the Borrower or any Guarantor are obliged to comply; or
(B) (other than pursuant to the Security Documents or, until the Closing Date, the Existing Indebtedness) the holding beneficially of more than 49% of the issued share capital of the Borrower or any Guarantor (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); and
(ii) “Voting Stock” means in relation to any Person as of any date the Equity Interests of such Person that are at the time entitled to vote in the election of the board of directors or similar governing body of such Person.
“Charged Company” has the meaning set forth in Section 4.01(a).
“Charter” means, in respect of a Collateral Vessel, any charter, or other contract for its employment, whether or not already in existence, having a term (including any optional extensions) in excess of twelve (12) months.
“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Term Loans or Revolving Loans and, when used in reference to any Lender, refers to whether such Lender has any (a) Revolving Credit Exposure or Revolving Commitment, (b) Term Loan Commitment or Term Loans, or (c) L/C Exposure, L/C Commitment or L/C Loans.
“Classification Society” means, in respect of a Vessel, Nippon Kaiji Kyokai (Class NK), DNV GL, the American Bureau of Shipping (ABS) or such other first-class vessel classification society that is a member of IACS that the Administrative Agent may, with the consent of the Required Lenders (such consent not to be unreasonably withheld or delayed), approve from time to time.
“Closing Date” means the date during the Term Loan Availability Period on which all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 9.02.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Collateral” means all property or other assets, real or personal, tangible or intangible, whether now owned or hereinafter acquired in which the Security Trustee or any Secured Party has been granted a Lien pursuant to the Security Documents.
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“Collateral Account” has the meaning specified in Section 2.05(k).
“Collateral Vessel Owner” means each Subsidiary Guarantor owning a Collateral Vessel.
“Collateral Vessels” means each of the vessels identified on Schedule 1.01B as a Collateral Vessel owned by the Subsidiary Guarantor opposite such vessel, together with any Non-Collateral Vessel or other vessel that becomes subject to a Mortgage (and related Security Documents) pursuant to Section 5.14.
“Commitment” means a Revolving Commitment, an L/C Commitment or a Term Loan Commitment, as the context may require.
“Commitment Fee” has the meaning specified in Section 2.12(a).
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Communications” has the meaning specified in Section 9.01(d)(ii).
“Compliance Certificate” means a certificate executed by a Financial Officer of the Parent Guarantor in the form attached hereto as Exhibit C or such other form as the Administrative Agent and the Borrower may agree.
“Conforming Changes” means, with respect to either the use or administration of an initial Benchmark or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “ABR” (if applicable), the definition of “Business Day,” the definition of “Eurocurrency Banking Day,” the definition of “RFR Business Day,” the definition of “Interest Period” or any similar or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, the applicability and length of lookback periods, the applicability of Section 2.16 and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of any such rate exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Adjusted EBITDA” means, in relation to a relevant period, Consolidated EBITDA on a trailing four fiscal quarter basis.
“Consolidated EBITDA” means, for any period, Consolidated Net Income for such period plus, without duplication and to the extent deducted in determining Consolidated Net Income for such period, the sum of (a) interest expense, (b) provision for taxes based on income, (c) depreciation expense, (d) amortization expense, (e) unusual or non-recurring charges, expenses or losses and (f) other non-cash charges, expenses or losses (excluding any such non-cash charge to the extent it represents an accrual or reserve for potential cash charge in any future period or amortization of a prepaid cash charge that was paid in a prior period), minus, to the extent included in determining Consolidated Net Income for such period, the sum of (i) unusual or non-recurring gains and non-cash income, (ii) any other non-cash income or gains increasing Consolidated Net Income for such period (excluding any such non-cash gain to the extent it represents the reversal of an accrual or reserve for potential cash charge in any prior period) and (iii) any gains realized from the disposition of property outside of the ordinary course of business, all as determined on a consolidated basis. For the purpose of calculating Consolidated EBITDA for any period, if during such period the Parent Guarantor or any Subsidiary shall have consummated an
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Acquisition, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Acquisition occurred on the first day of such period.
“Consolidated Interest Expense” means the aggregate of all cash interest, premium payments, debt discounts and other related costs, charges or expenses in connection with borrowed money that are due from the Parent Guarantor and its Subsidiaries during the relevant accounting period, less interest income received. For the avoidance of doubt, “Consolidated Interest Expense” does not include (x) up-front or financing fees (including any amortization thereof), transaction costs, commissions, expenses, premiums or charges or (y) costs associated with obtaining, or breakage costs in respect of, Hedging Agreements.
“Consolidated Liquidity” means, on a consolidated basis at any time, the sum of (a) cash and (b) Cash Equivalents, in each case held by the Parent Guarantor and its Subsidiaries on a freely available and unencumbered basis, plus (c) any amounts available from undrawn and available and committed revolving credit facilities of the Parent Guarantor and its Subsidiaries, including in respect of the Revolving Commitments hereunder, less (d) any cash collateral (as long as included in (a) above) provided in respect of any letters of credit or similar obligations (regardless of its classification on the financial statements of the Parent Guarantor).
“Consolidated Net Debt” means, as of any date of determination, (a) the aggregate stated balance sheet amount of all Indebtedness of the Parent Guarantor and its Subsidiaries (or, if higher, the par value or stated face amount of all such Indebtedness (other than zero coupon Indebtedness)) on a consolidated basis on such date, less (b) cash and Cash Equivalents (excluding any cash collateral).
“Consolidated Net Income” means, for any period, the consolidated net income (or loss) of the Parent Guarantor and its Subsidiaries on a consolidated basis.
“Consolidated Total Assets” means at any time, the amount of total assets of the Parent Guarantor and its Subsidiaries on a consolidated basis which would be included as total assets in a consolidated balance sheet of the Parent Guarantor in accordance with GAAP consistently applied.
“Consolidated Total Equity” means, as of any date of determination, the aggregate stated book value of equity of the Parent Guarantor on a consolidated basis which would be included as equity in a consolidated balance sheet of the Borrowers in accordance with GAAP consistently applied, and (a) including any premium reserve fund and retained earnings; (b) including the amount of Indebtedness owed to the Parent Guarantor which is fully subordinated in repayment terms and priority to the Facilities; and (c) excluding goodwill and intangibles, in each case of the Parent Guarantor at that time.
“Contracted Cash Flows Certificate” means, with respect to each period referred to in the definition of “Contracted Cash Flows Forecast”, a certificate setting forth the Contracted Cash Flows Forecast, in the form attached hereto as Exhibit D or such other form reasonably acceptable to the Administrative Agent and the Borrower:
(i) delivered by a Financial Officer of the Borrower or Parent Guarantor (or a member of the Board of Directors of the Parent Guarantor) no later than ten (10) Business Days prior to the start of such period;
(ii) setting forth in reasonable detail the calculations to determine the Contracted Cash Flows for such period, which shall include a breakdown, on a Collateral Vessel and Non-Collateral Vessel basis, of each Vessel’s share of the Contracted Cash Flows;
(iii) attaching all relevant charters and employment contracts for such period which are used in calculating the Contracted Cash Flows;
(iv) setting forth the assumptions made by the Borrower when formulating the Contract Cash Flows Forecast should be provided with reasonable detail and justification. Such assumptions to be found acceptable to the Lenders; and
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(iv) containing a representation from each Obligor that the Contracted Cash Flows Forecast has been prepared with reasonable due diligence and care.
“Contracted Cash Flows Forecast” means, with respect to each three-month period commencing on the last day of each fiscal quarter following the Effective Date (unless otherwise indicated), the total Expected EBITDA of each Valid Employment, on a thirty (30) month rolling basis, as set forth in a Contracted Cash Flows Certificate.
As used in this definition and the definition of “Contracted Cash Flows Certificate” below, as applicable, the following terms have the following meanings:
“Cash Earnings” means, the cash receipts from all Valid Employment that are yet to be received subsequent to the Estimate Date.
“Direct Costs” means, the sum of cash vessel costs and non-capitalized project costs during, or resulting from, the respective Valid Employment that are yet to be incurred subsequent to the Estimate Date.
“Estimate Date” means, the Closing Date and the last day of each fiscal quarter thereafter.
“Expected EBITDA” means, the expected Cash Earnings less Direct Costs.
“Valid Employment” means, signed charters or employment contracts which are applicable to (i) the Collateral Vessels and (ii) Non-Collateral Vessels (provided the Equity Interests in the Non-Collateral Vessel Owners remain Collateral, and the Non-Collateral Vessels remain subject to the Lien restrictions set forth in Section 6.02 herein).
“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings analogous thereto.
“Coordinator” means DNB Markets, Inc., as coordinator.
“Credit Extension” means (a) a Borrowing or (b) an L/C Credit Extension.
“Currencies” means Dollars and the Alternative Currency, and “Currency” means any of such Currencies.
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for syndicated business loans; provided, that if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its reasonable discretion.
“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
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“Default Rate” means an interest rate (before as well as after judgment) equal to the applicable interest rate plus 2.00% per annum (provided that the determination of the applicable interest rate is subject to Section 2.07(e) to the extent that Loans may not be converted to, or continued as, Term SOFR Loans or Eurocurrency Rate Loans, as applicable, pursuant thereto) and (b) with respect to any other overdue amount (including overdue interest), the interest rate applicable to ABR Loans in the case of overdue interest or fee plus 2.00% per annum.
“Defaulting Lender” means, subject to Section (b) hereto, any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any Issuing Bank or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit) within two (2) Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent or any Issuing Bank in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent, the Borrower, or, to the extent an Issuing Bank has outstanding L/C Obligations at such time, such Issuing Bank, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent, such Issuing Bank or the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section (b)) upon delivery of written notice of such determination to the Borrower, each Issuing Bank and each Lender.
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition of any property by any Person (including any sale and leaseback transaction and any issuance of Equity Interests by a Subsidiary of such Person), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
“Disqualified Equity Interest” means any Equity Interest that, by its terms (or the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Equity Interests that are not Disqualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (b) is redeemable at the option of the holder thereof, in whole or in part, (c) provides for scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is ninety-one days after the Maturity Date; provided that if
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such Equity Interests are issued pursuant to a plan for the benefit of employees of the Borrower or any Subsidiary or by any such plan to such employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because they may be required to be repurchased by the Borrower or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.
“Document of Compliance” means a document of compliance issued to an Approved Manager in accordance with rule 13 of the ISM Code.
“Dollar” and “$” mean the lawful money of the United States.
“Dollar Equivalent” means, for any amount, at the time of determination thereof, (a) if such amount is expressed in Dollars, such amount and (b) if such amount is expressed in the Alternative Currency, the equivalent of such amount in Dollars determined by using the rate of exchange for the purchase of Dollars with the Alternative Currency last provided (either by publication or otherwise provided to the Administrative Agent or the applicable Issuing Bank, as applicable) by the applicable Bloomberg or Reuters source (or such other publicly available source for displaying exchange rates as determined by the Administrative Agent or the applicable Issuing Bank, as applicable, from time to time) on the date that is two (2) Business Days immediately preceding the date of determination (or if such service ceases to be available or ceases to provide such rate of exchange, the equivalent of such amount in Dollars as determined by the Administrative Agent or the applicable Issuing Bank, as applicable, using any method of determination it deems appropriate in its sole discretion). Any determination by the Administrative Agent or the applicable Issuing Bank pursuant to clause (b) above shall be conclusive absent manifest error.
“Earnings” means, in relation to a Collateral Vessel, all moneys whatsoever which are now, or later become, payable (actually or contingently) to a Collateral Vessel Owner, a Bareboat Charterer or the Security Trustee and which arise out of the use or operation of that Collateral Vessel, including (but not limited to): (i) all moneys and claims for moneys due and to become due thereto, whether as charter hire, freights, passage moneys, proceeds of off-hire and loss of hire insurances, loans, indemnities, payments or otherwise, under, and all claims for damages arising out of any breach of, any bareboat, time or voyage charter, contract of affreightment or other contract for the use or employment of that Collateral Vessel, (ii) all remuneration for salvage and towage services, demurrage and detention moneys and any other moneys whatsoever due or to become due to the Assignor arising from the use or employment of that Collateral Vessel, (iii) all moneys and claims for moneys due and to become due to the Assignor, and all claims for damages and any other compensation payable, in respect of the actual or constructive total loss of or the requisition for title or for hire or other compulsory acquisition of that Collateral Vessel.
“Earnings Accounts” means, with respect to a Collateral Vessel, an account held with the Account Bank, in the name of the relevant Collateral Vessel Owner or Bareboat Charterer, as applicable, and designated as such Vessel’s “earnings account”.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country that is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country that is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country that is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Effective Date” means the date of this Agreement.
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“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 9.04(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 9.04(b)(iii)).
“Environmental Approvals” has the meaning specified in Section 3.13.
“Environmental Laws” has the meaning specified in Section 3.13.
“Environmental Liability” means any liability or obligation, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), directly or indirectly, resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment, disposal or permitting or arranging for the disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means, as to any Person, (a) any and all shares and other equity interests (including common stock, preferred stock, limited liability company interests and partnership interests) in such person, and (b) all rights to purchase, warrants or options or convertible debt (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) such shares or other interests in such person.
“Equity Percentage” means Consolidated Total Equity over Consolidated Total Assets, expressed as a percentage.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with an Obligor within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o)(n) of the Code for purposes of provisions relating to Section 412 of the Code or Section 302 of ERISA).
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) the failure by an Obligor or any ERISA Affiliate to meet all applicable requirements under the Pension Funding Rules or the filing of an application for the waiver of the minimum funding standards under the Pension Funding Rules; (c) the incurrence by an Obligor or any ERISA Affiliate of any liability pursuant to Section 4063 or 4064 of ERISA or a cessation of operations with respect to a Pension Plan within the meaning of Section 4062(e) of ERISA; (d) a complete or partial withdrawal by an Obligor or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is insolvent (within the meaning of Title IV of ERISA); (e) the filing of a notice of intent to terminate a Pension Plan under, or the treatment of a Pension Plan amendment as a termination under, Section 4041 of ERISA; (f) the institution by the PBGC of proceedings to terminate a Pension Plan; (g) any event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (h) the determination that any Pension Plan is in at-risk status (within the meaning of Section 430 of the Code or Section 303 of ERISA) or that a Multiemployer Plan is in endangered or critical status (within the meaning of Section 432 of the Code or Section 305 of ERISA); (i) the imposition or incurrence of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon an Obligor or any ERISA Affiliate; (j) the engagement by an Obligor or any ERISA Affiliate in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; (k) the imposition of a lien upon an Obligor or any ERISA Affiliate pursuant to Section 430(k) of the Code or Section 303(k) of ERISA; or (l) the making of an amendment to a Pension Plan that could result in the posting of bond or security under Section 436(f)(1) of the Code.
“Estate” has the meaning specified in Section 8.01(b).
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
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“EURIBOR” has the meaning specified in the definition of “Eurocurrency Rate”.
“EURIBOR Rate” has the meaning specified in the definition of “Eurocurrency Rate”.
“Euro” and “€” mean the single currency of the Participating Member States.
“Eurocurrency Banking Day” means, (a) for Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, Euros, a TARGET Day; provided, that for purposes of notice requirements in Sections 2.03(a) and 2.08(c), in each case, such day is also a Business Day.
“Eurocurrency Rate” means, with respect to any Borrowing for any Interest Period denominated in Euros, the rate per annum equal to the Euro Interbank Offered Rate (“EURIBOR”) as administered by the European Money Markets Institute (or any other Person that takes over the administration of such rate) for a period comparable in length to such Interest Period (the “EURIBOR Rate”), at approximately 11:00 a.m. (Brussels time) two (2) Eurocurrency Banking Days prior to the commencement of such Interest Period, provided, that if the Eurocurrency Rate determined as provided above shall ever be less than the Floor, then the Eurocurrency Rate shall be deemed to be the Floor.
“Eurocurrency Rate Borrowing” means, as to any Borrowing, the Eurocurrency Rate Loans comprising such Borrowing.
“Eurocurrency Rate Loan” means a Loan that bears interest at a rate based on the Eurocurrency Rate.
“Event of Default” has the meaning specified in Article VII.
“Evergreen Letter of Credit” has the meaning specified in Section 2.05(b).
“Excluded Hedging Obligation” shall mean, with respect to any Guarantor, any Hedging Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Hedging Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of (a) such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder or (b) in the case of a Hedging Obligation subject to a clearing requirement pursuant to Section 2(h) of the Commodity Exchange Act (or any successor provision thereto), because such Guarantor is a “financial entity,” as defined in Section 2(h)(7)(C)(i) of the Commodity Exchange Act (or any successor provision thereto), in each case at the time the Guarantee of such Guarantor or the grant of such security interest becomes effective with respect to such Hedging Obligation, unless otherwise agreed between the Administrative Agent and the Borrower. If a Hedging Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Hedging Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.
“Excluded Subsidiary” means each of Newbuilding Purchaser 1 and Newbuilding Purchaser 2.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.21(b)) or (ii) such Lender changes its lending office, except in
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each case to the extent that, pursuant to Section 2.18, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.18(g) and (d) any withholding Taxes imposed under FATCA.
“Existing Credit Documents” means (a) that certain Facility Agreement dated February 20, 2015, as amended, restated, modified or supplemented from time to time (including by that certain Amendment and Restatement Agreement No. 7 thereto dated August 12, 2021), made between, amongst others, the Borrower as borrower and ING Bank N.V. as agent and security agent, and (b) that certain redeemable note dated August 12, 2021, as amended, restated, modified or supplemented from time to time made by the Parent Guarantor in favor of Marubeni Offshore Power Limited, INCJ SJ Investment Limited and MOL Offshore Energy Limited.
“Existing Indebtedness” means the Indebtedness and other obligations owed by the Borrower and its Subsidiaries under the Existing Credit Documents.
“Existing Letter of Credit” means each letter of credit issued prior to the Closing Date by a Person that shall be an Issuing Bank that is listed on Schedule 2.01A, as such Schedule 2.01A may be updated prior to the Closing Date in writing by the Borrower and the Administrative Agent and delivered to the Lenders.
“Facility” means the Revolving Facility, the L/C Facility or the Term Loan Facility, individually or collectively as the context requires.
“Fair Market Value” means, in relation to a Vessel, the market value of such Vessel at any date that is shown by the arithmetic mean of two (2) or three (3) valuations each prepared for and addressed to the Administrative Agent, and pursuant to the requirements set forth in Section 5.14, if applicable:
(a) as at a date not more than ten (10) days prior to the date such valuation is delivered to the Administrative Agent (or such other time frame the Administrative Agent may, with the consent of the Required Lenders, approve from time to time);
(b) by two (2) or more Approved Brokers selected by the Borrower;
(c) on a “desk top” basis without physical inspection of that Collateral Vessel;
(d) on the basis of a sale for prompt delivery for cash on normal arm’s length commercial terms as between a willing seller and a willing buyer, free of any existing charter or other contract of employment (and with no value to be given to any pooling arrangements); and
(e) after deducting the estimated amount of the usual and reasonable expenses which would be incurred in connection with the sale;
provided that (i) if a range of market values is provided in a particular appraisal, then the market value in such appraisal shall be deemed to be the mid-point within such range and (ii) if a third appraisal is obtained as provided in Clause 5.02(b), the market value of such Collateral Vessel shall be the average of the three appraisals obtained.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“FCPA” has the meaning specified in Section 3.16(b).
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“Federal Funds Rate” means, for any day, the greater of (a) the rate calculated by the Federal Reserve Bank of New York based on such day’s Federal funds transactions by depositary institutions (as determined in such manner as the Federal Reserve Bank of New York shall set forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York as the Federal funds effective rate and (b) 0%.
“Federal Reserve Board” means the Board of Governors of the Federal Reserve System of the United States.
“Fee Letters” means any letter or letters dated on or about the date of this Agreement between an Obligor and a Secured Party and designated as a “Fee Letter” by the Borrower and the Administrative Agent.
“Financial Officer” means, as to any Person, the chief financial officer, principal accounting officer, treasurer or controller of such Person.
“Flag Jurisdiction Transfer” means the transfer of the registration and flag of a Collateral Vessel from one Approved Flag Jurisdiction to another Approved Flag Jurisdiction permitted by the consent of the Required Lenders pursuant to Section 5.16(a) (such consent not to be unreasonably withheld or delayed), provided that the following conditions are satisfied with respect to such exchange or transfer on or prior to the date of such exchange or transfer (the “Flag Jurisdiction Transfer Date”) as indicated below:
(a)On each Flag Jurisdiction Transfer Date, the Obligor which is consummating a Flag Jurisdiction Transfer on such date shall have duly authorized, executed and delivered, and caused to be recorded in the appropriate vessel registry a Mortgage (which Mortgage shall, to the extent possible, be registered as a “continuation mortgage” to the original Mortgage recorded in the initial Approved Flag Jurisdiction) with respect to the Collateral Vessel being transferred (the “Transferred Collateral Vessel”) and such Mortgage shall be effective to create in favor of the Security Trustee and/or the Secured Parties a legal, valid and enforceable first priority security interest, in and lien upon such Transferred Collateral Vessel, subject only to Permitted Liens. All filings, deliveries of instruments and other actions necessary or desirable in the reasonable opinion of the Security Trustee to perfect and preserve such security interests shall have been duly effected and the Security Trustee shall have received evidence thereof in form and substance reasonably acceptable to the Security Trustee.
(b)On each Flag Jurisdiction Transfer Date, the Administrative Agent shall have received from counsel to the Obligors consummating the relevant Flag Jurisdiction Transfer reasonably acceptable to the Administrative Agent practicing in those jurisdictions in which the Transferred Collateral Vessel is registered and/or the Obligor owning such Transferred Collateral Vessel is organized, opinions which shall be addressed to the Administrative Agent and each of the Lenders and dated such Flag Jurisdiction Transfer Date, which shall (x) be in form and substance reasonably acceptable to the Administrative Agent and (y) cover the perfection of the security interests granted pursuant to the Mortgage(s) and such other matters incident thereto as the Administrative Agent may reasonably request.
(c)On each Flag Jurisdiction Transfer Date:
(i)the Administrative Agent shall have received (x) a certificate of ownership issued by the registry of the applicable Approved Flag Jurisdiction showing the registered ownership of the Transferred Collateral Vessel transferred on such date in the name of the relevant Vessel Owner and (y) a certificate of ownership and encumbrance or, as applicable, a transcript of registry with respect to the Transferred Collateral Vessel transferred on such date, indicating no record liens other than Liens in favor of the Security Trustee and/or the Lenders and Permitted Liens; and
(ii)the Administrative Agent shall have received a report, in form and scope reasonably acceptable to the Administrative Agent, from a firm of independent marine insurance
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brokers reasonably acceptable to the Administrative Agent with respect to the insurance maintained by the Obligor in respect of the Transferred Collateral Vessel transferred on such date, together with a certificate from such broker certifying that such insurances (x) are placed with such insurance companies and/or underwriters and/or clubs, in such amounts, against such risks, and in such form, as are customarily insured against by similarly situated insureds for the protection of the Security Trustee as mortgagee and (y) conform with the insurance requirements of the respective Mortgages.
(d)On or prior to each Flag Jurisdiction Transfer Date, the Administrative Agent shall have received a certificate, dated the Flag Jurisdiction Transfer Date, signed by an Authorized Officer, member, general partner of the Obligor consummating such Flag Jurisdiction Transfer, certifying that (i) all necessary governmental (domestic and foreign) and third party approvals and/or consents in connection with the Flag Jurisdiction Transfer being consummated on such date and otherwise referred to herein shall have been obtained and remain in effect or that no such approvals and/or consents are required, (ii) there exists no judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions upon such Flag Jurisdiction Transfer or the other transactions contemplated by this Agreement and (iii) copies of resolutions approving the Flag Jurisdiction Transfer of such Obligor and any other matters the Administrative Agent may reasonably request.
(e)On each Flag Jurisdiction Transfer Date, the conditions precedent set forth in Section 4.01, as applicable, for the Transferred Collateral Vessel shall have been satisfied.
(f)On each Flag Jurisdiction Transfer Date, (i) no Event of Default has occurred and is continuing and (ii) all representations and warranties contained herein or in any other Loan Document shall be true and correct in all material respects (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); provided, that any representation and warranty that is qualified as to “materiality,” “Material Adverse Effect” or similar language shall be true and correct (after giving effect to any qualification therein) in all respects on such respective dates.
“Floor” means a rate of interest equal to 0.00%.
“Foreign Lender” means any Lender that is not a U.S. Person.
“Foreign Plan” means any employee pension benefit plan, program, policy, arrangement or agreement maintained or contributed to by the Borrower or any Subsidiary with respect to employees employed outside the United States (other than any governmental arrangement).
“Fronting Exposure” means, at any time there is a Defaulting Lender, with respect to any Issuing Bank, such Defaulting Lender’s Applicable Percentage of the outstanding L/C Obligations with respect to Letters of Credit issued by such Issuing Bank other than L/C Obligations as to which such Defaulting Lender’s participation obligation has been reallocated to other L/C Lenders or Cash Collateralized in accordance with the terms hereof.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans, bonds and similar extensions of credit in the ordinary course of its activities.
“GAAP” means, subject to Section 1.03, United States generally accepted accounting principles as in effect as of the date of determination thereof.
“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
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“Green Advisor” has the meaning specified in the introductory paragraph of this Agreement.
“Green Asset Criteria” means the following requirements:
(a)the total proceeds of the Term Loans are applied in settlement of Existing Indebtedness and related obligations in respect of the Vessels;
(b)the Collateral Vessels qualify as Green Assets (as such term is defined in the Second Party Opinion);
(c)no less than 90% of the consolidated annual total revenues of each Collateral Vessel is derived from offshore wind; and
(d)the Fair Market Value of the Collateral Vessels is greater than the outstanding amount of the Green Loans.
“Green Loan Compliance Certificate” means a Green Loan Compliance Certificate delivered by the Borrower to the Green Advisor, confirming the Borrower’s compliance or non-compliance with the Green Asset Criteria in detailed computations reasonably acceptable to the Green Advisor and in form reasonably acceptable to the Green Advisor.
“Green Loan Conversion” means a Green Loan Voluntary Conversion or a Green Loan Mandatory Conversion.
“Green Loan Mandatory Conversion” means the Borrower ceases to be in compliance with the Green Asset Criteria or has failed to deliver a Green Loan Compliance Certificate and related documents when due under Section 5.02(a)(ii).
“Green Loan Margin Discount” means the percentage per annum equal 0.10%.
“Green Loan Report” means a green loan report delivered by the Borrower to the Lenders and the Green Advisor, reflecting the environmental impact of each Collateral Vessel for the relevant financial year, whereby impact metrics will, to some extent, be aggregated and depending on data availability, calculations will be made on a best intention basis, and the impact assessment may, where applicable, be based on metrics such as i) installed capacity in MW or annual renewable generation (MWh) and if feasible CO2 emissions saved ii) number of installed wind turbines iii) fuel consumption and/or CO2 emissions (scope 1) and iv) other relevant emissions such as Sox and Nox, PM.
“Green Loan Start Date” means the date that is five (5) Business Days following the Borrower’s delivery to the Green Advisor and the Lenders of the Green Loan Compliance Certificate required to be delivered pursuant to Section 5.02(a)(i), with the consent of all Lenders, such consent not to be unreasonably withheld or delayed and provided further that if a Lender does not object within five (5) Business Days that their consent to the Green Loan Start Date is deemed to be given.
“Green Loan Voluntary Conversion” means the Borrower notifies the Green Advisor and the Administrative Agent that it is converting the Green Loans into Loans that are not Green Loans.
“Green Loans” shall mean the Term Loans commencing on the Green Loan Start Date, and thereafter so long as, in the reasonable opinion of the Green Advisor, no Green Loan Conversion has occurred; provided that at any time following a Green Loan Conversion, such Loans shall irrevocably cease to be Green Loans and shall not be permitted to convert back to a Green Loan without the prior written consent of all Lenders. A Green Loan shall cease being a Green Loan, as applicable, on the earliest to occur of (a) the date of delivery of a Green Loan Compliance Certificate which confirms non-compliance with the Green Asset Criteria, (b) if the Borrower’s fails to deliver the Green Loan Compliance Certificate and other documents required under Section 5.02(a)(ii), the relevant due date to
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delivery such documents, and (c) in the case of a Green Loan Voluntary Conversion, the date of delivery of any such notice by the Borrower.
“Green Passport” means, a green passport statement of compliance issued by a classification society being a member of the International Association of Classification Societies (IACS) which includes a list of any and all materials known to be potentially hazardous utilized in the construction of a Collateral Vessel.
“Group” means the Borrower and its Subsidiaries.
“Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part) or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien); provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.
“Guarantors” means each of the Subsidiary Guarantors and the Parent Guarantor.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes, and other substances or wastes of any nature regulated under or with respect to which liability or standards of conduct are imposed pursuant to any Environmental Law.
“Hedging Agreement” shall mean (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, currency swap transactions, cross-currency rate swap transactions, currency options, cap transactions, floor transactions, collar transactions, spot contracts, futures contracts or other liabilities for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract or any other similar transactions or any combination of any of the foregoing (including any options or warrants to enter into any of the foregoing), whether or not any such transaction is governed by, or otherwise subject to, any master agreement or any netting agreement, and (b) any and all transactions or arrangements of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement (or similar documentation) published from time to time by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such agreement or documentation, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
“Hedging Obligations” shall mean obligations under or with respect to Hedging Agreements.
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“IAPPC” means a valid international air pollution prevention certificate for a Collateral Vessel issued under Annex VI.
“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) all obligations (which in accordance with GAAP would be shown on the liability side of a balance sheet and classified as debt, provided that if such obligations are cash collateralized then they shall not constitute Indebtedness under this paragraph (b)) of such Person arising under or in respect of (i) letters of credit (including standby and commercial), bankers’ acceptances, demand guarantees, and similar independent undertakings and (ii) surety bonds, performance bonds and similar instruments issued or created by or for the account of such Person;
(c) net obligations of such Person under any Hedging Agreement;
(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) all Attributable Indebtedness;
(g) all obligations of such Person in respect of Disqualified Equity Interests; and
(h) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Hedging Agreement on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any Indebtedness of any Person for purposes of clause (e) that is expressly made non-recourse or limited-recourse (limited solely to the assets securing such Indebtedness) to such Person shall be deemed to be equal to the lesser of (i) the aggregate principal amount of such Indebtedness and (ii) the fair market value of the property encumbered thereby as determined by such Person in good faith.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” has the meaning specified in Section 9.03(b).
“Information” has the meaning specified in Section 9.12.
“Insurances” means, with respect to a Vessel, all policies and contracts of insurance, including an Obligor’s rights under all entries in any Protection and Indemnity Association or Club, which are from time to time taken out by or for an Obligor in respect of the Vessel, the Vessel’s hull and machinery, and all the benefits thereof including, without limitation, all claims of whatsoever nature, as well as return premiums.
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“Interest Coverage Ratio” means the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Interest Expense, for the period of the four fiscal quarters most recently ended.
“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.06, which shall be in such form as the Administrative Agent may approve.
“Interest Payment Date” means, with respect to any Loan, the last day of each Interest Period thereof and, in the case of any Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at three-month intervals after the first day of such Interest Period, and the applicable Maturity Date.
“Interest Period” means, as to any Borrowing, the period commencing on the date of such Loan or Borrowing and ending on the numerically corresponding day in the calendar month that is three or six months thereafter (in each case, subject to the availability for the interest rate applicable to the relevant Currency), as specified in the applicable Borrowing Request or Interest Election Request; provided that (i) the first Interest Period related to a Borrowing shall end on the last Business Day of the then-current fiscal quarter, (ii) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (iii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period, (iv) no Interest Period shall extend beyond the Maturity Date and (v) no tenor that has been removed from this definition pursuant to Section 2.24(d) shall be available for specification in such Borrowing Request or Interest Election Request. For purposes hereof, the date of a Loan or Borrowing initially shall be the date on which such Loan or Borrowing is made.
“Inventory of Hazardous Materials” has the meaning specified in Resolution MEPC.269(68) of the International Maritime Organization.
“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests or debt or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor incurs Indebtedness of the type referred to in clause (h) of the definition of “Indebtedness” in respect of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of all or substantially all of the property and assets or business of another Person or assets constituting a business unit, line of business or division of such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment but giving effect to any returns or distributions of capital or repayment of principal actually received in case by such Person with respect thereto.
“IRS” means the United States Internal Revenue Service.
“ISM Code” means the International Safety Management Code for the Safe Operating of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organization and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto.
“ISP” means the International Standby Practices, International Chamber of Commerce Publication No. 590 (or such later version thereof as may be in effect at the applicable time).
“ISPS Code” means the International Ship and Port Facility Code adopted by the International Maritime Organization at a conference in December 2002, and amending the Safety of Life
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at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto.
“ISSC” means a valid and current International Ship Security Certificate issued under the ISPS Code.
“Issuing Bank” means DNB Bank ASA, New York Branch (through itself or through one of its designated Affiliates or branch offices), in its capacity as issuer of Letters of Credit hereunder. Any Issuing Bank may, with the consent of the Borrower (not to be unreasonably withheld, conditioned or delayed), arrange for one or more Letters of Credit to be issued by branches or Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such branch or Affiliate with respect to Letters of Credit issued by such branch or Affiliate. Each reference herein to the “Issuing Bank” in connection with a Letter of Credit or other matter shall be deemed to be a reference to the relevant Issuing Bank with respect thereto.
“Joinder Agreement” means a joinder agreement, substantially in the form of Exhibit E, duly executed by a Subsidiary of the Borrower that becomes a party hereto pursuant to Section 5.18.
“L/C Availability Period” means the period from and including the Closing Date to but excluding the L/C Commitment Termination Date.
“L/C Borrowing” means, a borrowing consisting of simultaneous L/C Loans of the same Type and Currency and, with respect to Eurocurrency Rate Loans and Term SOFR Loans, having the same Interest Period, made by the L/C Lenders.
“L/C Commitment” means with respect to each Issuing Bank and L/C Lender on any date, the commitment of such Issuing Bank and L/C Lender on such date to (a) issue Letters of Credit in accordance with the terms of the Agreement, (b) acquire participations in L/C Obligations, in each case expressed as an amount representing the maximum principal or face amount of such Letter of Credit or participation therein, as such commitment may be reduced or increased from time to time pursuant to Section 9.04 or reduced from time to time pursuant to Section 2.09 or 2.23(a)(iv), and (c) make L/C Loans in accordance with the terms of the Agreement expressed as an amount representing the maximum principal amount of such L/C Loan, as such commitment may be reduced or increased from time to time pursuant to Section 9.04 or reduced from time to time pursuant to Section 2.09 or 2.23(a)(iv). The initial amount of such Lender’s L/C Commitment is set forth on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender shall have assumed its L/C Commitment, as applicable.
“L/C Commitment Termination Date” means the date that is three months prior to the Maturity Date (except that, if such date is not a Business Day, the L/C Commitment Termination Date shall be the next preceding Business Day).
“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance or renewal thereof, the extension of the expiry date thereof, or the reinstatement or increase of the amount thereof.
“L/C Disbursement” means a payment made by an Issuing Bank pursuant to a Letter of Credit.
“L/C Documents” means, as to any Letter of Credit, each application therefor and any other document, agreement and instrument entered into by the Borrower or a Subsidiary with or in favor of the applicable Issuing Bank and relating to such Letter of Credit.
“L/C Facility” means the L/C Commitments and all L/C Obligations thereunder.
“L/C Fee” has the meaning specified in Section 2.12(b).
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“L/C Exposure” means at any time the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (ii) the aggregate principal amount of all L/C Loans outstanding at such time.
“L/C Lenders” means the Persons listed on Schedule 2.01 holding a L/C Commitment and any other Person that shall have become party hereto holding an L/C Commitment or L/C Obligations pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto holding an L/C Commitment or L/C Obligations pursuant to an Assignment and Assumption. Unless the context requires otherwise, the term “L/C Lenders” does not include the Administrative Agent or the Issuing Banks in their respective capacities as the Administrative Agent or as an Issuing Bank.
“L/C Loan” means, as of any date, each L/C Reimbursement Obligation that remains unpaid by the Borrower, in whole or in part, as of such date.
“L/C Obligations” means, at any time, the sum of (a) the Dollar Equivalent of the aggregate undrawn amount of all outstanding Letters of Credit at such time determined without regard to whether any conditions to drawing could be met at that time, plus (b) the aggregate amount of the Dollar Equivalent of all L/C Loans. The L/C Obligations of any L/C Lender at any time shall be its Applicable Percentage of the total L/C Obligations at such time. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Article 29(a) of the UCP or Rule 3.13 or Rule 3.14 of the ISP or similar terms in the governing rules or laws or of the Letter of Credit itself, or if compliant documents have been presented but not yet honored, such Letter of Credit shall be deemed to be “outstanding” and “undrawn” in the amount so remaining available to be paid, and the obligations of the Borrower and each L/C Lender shall remain in full force and effect until the applicable Issuing Bank and the L/C Lenders shall have no further obligations to make any payments or disbursements under any circumstances with respect to any Letter of Credit.
“L/C Reimbursement Obligations” means the Borrower’s obligations under Section 2.05(f) to reimburse L/C Disbursements.
“Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“Lender” means a Revolving Lender, an L/C Lender or a Term Loan Lender, as the context may require.
“Letter of Credit” means any standby letter of credit, guarantee or performance bond issued hereunder and shall include each Existing Letter of Credit. Letters of Credit shall be available by sight payment and not by deferred payment, acceptance or negotiation. For the avoidance of doubt, the term Letter of Credit shall not include any letter of credit, demand guarantee or other undertaking issued by any Person (including any branch or Affiliate of an Issuing Bank) that is supported by a Letter of Credit issued by any Issuing Bank hereunder pursuant to a back-stop or counter-standby structure. A Letter of Credit may be issued in Dollars or in the Alternative Currency.
“Lien” means any mortgage, pledge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
“Loan” means a Revolving Loan, a Term Loan or an L/C Loan, as the context may require.
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“Loan Documents” means, collectively, (a) this Agreement, (b) any Notes, (c) the L/C Documents, (d) any Security Documents, (e) any Joinder Agreement, (f) the Fee Letters, (g) any Subordination Agreement, (h) any Secured Hedging Agreement, (i) each Manager’s Undertaking; (j) any agreement creating or perfecting rights in the Cash Collateral pursuant to the provisions of Section 2.22 and (k) any other documents entered into in connection herewith, except that the term “Loan Documents” shall not include any Letters of Credit issued pursuant to this Agreement.
“Loan Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, the Obligors arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against the Obligors or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Without limiting the foregoing, the Obligations include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, indemnities and other amounts payable by the Obligors under any Loan Document and (b) the obligation of the Obligors to reimburse any amount in respect of any of the foregoing that the Administrative Agent, any Lender or any Issuing Bank, in each case in its sole discretion, may elect to pay or advance on behalf of the Obligors.
“Major Casualty” means, in relation to a Collateral Vessel, any casualty to that Collateral Vessel in respect of which the claim or the aggregate of the claims against all insurers, before adjustment for any relevant franchise or deductible, exceeds $10,000,000 or the equivalent in any other currency.
“Manager’s Undertaking” means, in respect of a Collateral Vessel, the letter of undertaking from the Approved Manager subordinating the rights of the Approved Manager against that Vessel and each Vessel Owner to the rights of the Secured Parties and assigning the rights and interests of the Approved Manager any insurances for such Vessel to the Secured Parties in agreed form.
“Mandated Lead Arrangers” means each of DNB Markets, Inc., Société Générale, Citibank N.A., London Branch and Crédit Agricole Corporate and Investment Bank, as mandated lead arrangers.
“Margin Stock” means margin stock within the meaning of Regulations T, U and X.
“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect on, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; or (b) a material adverse effect on (i) the ability of the Borrower or the Obligors taken as a whole to perform its Obligations, (ii) the legality, validity, binding effect or enforceability against any Obligor of any Loan Document to which it is a party or (iii) the rights, remedies and benefits available to, or conferred upon, the Administrative Agent or any Issuing Bank or Lender under any Loan Document.
“Materials of Environmental Concern” has the meaning set forth in Section 3.13.
“Maturity Date” means March 31, 2027 (except that, if such date is not a Business Day, the Maturity Date shall be the preceding Business Day).
“Maximum Rate” has the meaning specified in Section 9.14.
“Minimum Collateral Amount” means, at any time, (i) with respect to Cash Collateral consisting of cash or deposit account balances, an amount equal to 100% of the Fronting Exposure of all Issuing Banks with respect to all Letters of Credit issued and outstanding at such time and (ii) otherwise, an amount determined by the Administrative Agent and the Issuing Banks in their sole discretion.
“Mortgage” means, with respect to a Collateral Vessel, the first preferred or first priority ship mortgage on such Vessel together with any deed of covenants collateral thereto, executed by the
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relevant Vessel Owner in favor of the Security Trustee, in a form acceptable to the Administrative Agent and the Lenders.
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, during the preceding six plan years has made or been obligated to make contributions, or has any liability.
“Multiple Employer Plan” means a Plan with respect to which the Borrower or any ERISA Affiliate is a contributing sponsor, and that has two (2) or more contributing sponsors at least two (2) of whom are not under common control, as such a plan is described in Section 4064 of ERISA.
“Net Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Net Debt as of such date to (b) Consolidated Adjusted EBITDA provided, however, that Indebtedness and Consolidated Adjusted EBITDA attributable to Newbuilding Vessels shall be excluded from each of Consolidated Net Debt and Consolidated Adjusted EBITDA for purposes of calculating the Net Leverage Ratio until the Newbuilding Vessels have been operational for twelve (12) months..
“Net Proceeds” means, with respect to the sale of a Non-Collateral Vessel, the total purchase price received by the Non-Collateral Vessel Owner, less all documented legal fees, brokerage fees and commissions.
“Newbuilding Milestone Requirements” has the meaning set forth in Section 2.08(v).
“Newbuilding Purchaser 1” means Windpower Alpha Limited, a Marshall Islands corporation.
“Newbuilding Purchaser 2” means Windpower Bravo Limited, a Marshall Islands corporation.
“Newbuilding Vessel” means each of Newbuilding Vessel 1 and Newbuilding Vessel 2.
“Newbuilding Vessel 1” means the wind turbine installation vessel with builder’s hull no. 3306 to be built at Daewoo Shipbuilding & Marine Engineering Co., Ltd in Korea with an expected delivery date as of the date hereof in the third calendar quarter of 2024 pursuant to the Newbuilding Vessel 1 Shipbuilding Contract.
“Newbuilding Vessel 1 Shipbuilding Contract” means the shipbuilding contract dated May 21, 2021, between Newbuilding Purchaser 1 and Daewoo Shipbuilding & Marine Engineering Co., Ltd., as the same may be amended, modified or supplemented from time to time.
“Newbuilding Vessel 2” means the wind turbine installation vessel with builder’s hull no. 3307 to be built at Daewoo Shipbuilding & Marine Engineering Co., Ltd in Korea with an expected delivery date as of the date hereof in the second calendar quarter of 2025 pursuant to the Newbuilding Vessel 2 Shipbuilding Contract.
“Newbuilding Vessel 2 Shipbuilding Contract” means the shipbuilding contract dated December 2, 2021, between Newbuilding Purchaser 2 and Daewoo Shipbuilding & Marine Engineering Co., Ltd., as the same may be amended, modified or supplemented from time to time.
“Non-Collateral Vessel” means each of the vessels identified on Schedule 1.01B as a Non-Collateral Vessel owned by the Vessel Owner opposite such vessel.
“Non-Collateral Vessel Owner” means each of the Subsidiary Guarantors owning a Non-Collateral Vessel.
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“Non-Consenting Lender” means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all or all affected Lenders in accordance with the terms of Section 9.02 and (b) has been approved by the Required Lenders or, in the case of amendments that require the approval of all or all affected Lenders of a particular Class, the Required Revolving Lenders, the Required L/C Lenders or the Required Term Loan Lenders, as applicable.
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.
“Note” means any note evidencing the Loans issued pursuant to Section 2.13(b), substantially in the forms of Exhibit F-1, F-2, or F-3, as applicable.
“Obligations” means (a) the Loan Obligations and (b) the due and punctual payment and performance of all Secured Hedging Obligations of the Obligors.
“Obligors” means the Borrower and the Guarantors.
“Organizational Documents” means (a) as to any corporation, the charter or certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction), (b) as to any limited liability company, the certificate or articles of association, formation or organization and operating or limited liability agreement and (c) as to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of association, formation or organization of such entity.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.21(b)).
“Outstanding Amount” means, with respect to Term Loans under any Term Loan Facility on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Term Loans under such Term Loan Facility occurring on such date.
“Overnight Rate” means, for any day, (a) with respect to any amount denominated in Dollars, the greater of (i) the Federal Funds Rate and (ii) an overnight rate determined by the Administrative Agent or the applicable Issuing Bank, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions, and (b) with respect to any amount denominated in the Alternative Currency, an overnight rate determined by the Administrative Agent or the applicable Issuing Bank, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions.
“Parallel Debt” has the meaning specified in Section 8.13.
“Parent Guarantor” has the meaning set forth in the introductory paragraph of this Agreement.
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“Participant” has the meaning specified in Section 9.04(d).
“Participant Register” has the meaning specified in Section 9.04(d).
“Participating Member State” means any member state of the European Union that has the euro as its lawful currency in accordance with legislation of the European Union relating to Economic and Monetary Union.
“PATRIOT Act” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)).
“PBGC” means the Pension Benefit Guaranty Corporation.
“Pension Funding Rules” means the rules of the Code and ERISA regarding minimum funding standards and minimum required contributions (including any installment payment thereof) to Pension Plans and Multiemployer Plans and set forth in Sections 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
“Pension Plan” means any employee pension benefit plan (including a Multiple Employer Plan, but excluding a Multiemployer Plan) that is maintained or is contributed to by an Obligor or any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
“Periodic Term SOFR Determination Day” has the meaning specified in the definition of “Term SOFR”.
“Permitted Bareboat Charters” means, with respect to a Collateral Vessel, (a) each of the bareboat charters in existence on the date hereof between a Vessel Owner and Seajacks UK Limited, a company incorporated in England and Wales and (b) any bareboat charter on arms-length terms between Obligors.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity (whether or not having a separate legal personality).
“Plan” means any employee benefit plan within the meaning of Section 3(3) of ERISA, maintained for employees of the Borrower or any Subsidiary, or any such plan to which the Borrower or any Subsidiary is required to contribute on behalf of any of its employees or with respect to which the Borrower has any liability.
“Platform” means Debt Domain, Intralinks, Syndtrak, DebtX or a substantially similar electronic transmission system.
“Poseidon Principles” means the financial industry framework for assessing and disclosing the climate alignment of ship finance portfolios published in June 2019 as the same may be amended or replaced to reflect changes in applicable law or regulation or the introduction of or changes to mandatory requirements of the International Maritime Organization from time to time.
“Prepayment Notice” means a notice by the Borrower to prepay Loans, which shall be in such form as the Administrative Agent may approve.
“Prime Rate” means the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent). Any change in the Prime Rate shall
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take effect at the opening of business on the day such change is publicly announced or quoted as being effective.
“PTE” means a prohibited transaction class, statutory or individual exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public Lender” has the meaning specified in Section 9.01(e).
“Recipient” means (a) the Administrative Agent, or (b) any Lender or (c) any Issuing Bank, as applicable.
“Register” has the meaning specified in Section 9.04(c).
“Regulation D” means Regulation D of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
“Regulation T” means Regulation T of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
“Regulation U” means Regulation U of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
“Regulation X” means Regulation X of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Relevant Governmental Body” means (a) with respect to a Benchmark Replacement in respect of Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, Dollars, the Federal Reserve Board or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board or the Federal Reserve Bank of New York, or any successor thereto and (b) with respect to a Benchmark Replacement in respect of Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, the Alternative Currency, (1) the central bank for the Currency in which such Obligations, interest, fees, commissions or other amounts are denominated, or calculated with respect to, or any central bank or other supervisor which is responsible for supervising either (A) such Benchmark Replacement or (B) the administrator of such Benchmark Replacement or (2) any working group or committee officially endorsed or convened by (A) the central bank for the Currency in which such Obligations, interest, fees, commissions or other amounts are denominated, or calculated with respect to, (B) any central bank or other supervisor that is responsible for supervising either (i) such Benchmark Replacement or (ii) the administrator of such Benchmark Replacement, (C) a group of those central banks or other supervisors or (D) the Financial Stability Board or any part thereof.
“Relevant Person” means:
(a) the Obligors and each of their Subsidiaries; and
(b) each of the directors, officers and employees of each of the persons listed in (a) above.
“Removal Effective Date” has the meaning specified in Section 8.06(b).
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty (30)-day notice period has been waived.
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“Required L/C Lenders” means, at any time, L/C Lenders having L/C Obligations representing more than 66.67% of the Total L/C Obligations of all L/C Lenders. The Total Revolving Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Revolving Lenders at any time.
“Required Lenders” means, at any time, Lenders having Total Credit Exposures representing more than 66.67% of the Total Credit Exposures of all Lenders. The Total Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Lenders at any time.
“Required Revolving Lenders” means, at any time, Revolving Lenders having Total Revolving Credit Exposures representing more than 66.67% of the Total Revolving Credit Exposures of all Revolving Lenders. The Total Revolving Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Revolving Lenders at any time.
“Required Term Loan Lenders” means, with respect to any Term Loan Facility, at any time, Term Loan Lenders having Term Loans under such Term Loan Facility representing more than 66.67% of the aggregate unused Term Loan Commitment and aggregate Outstanding Amount of Term Loans of all Term Loan Lenders under such Term Loan Facility at such time. The Term Loan Commitment and the Outstanding Amount of Term Loans of any Defaulting Lender shall be disregarded in determining Required Term Loan Lenders at any time.
“Resignation Effective Date” has the meaning specified in Section 8.06(a).
“Resolution Authority” means an EEA Resolution Authority or a UK Resolution Authority.
“Responsible Officer” means (a) the secretary, chief executive officer, president, vice president or a Financial Officer of the Borrower or Parent Guarantor, (b) solely for purposes of the delivery of incumbency certificates and certified Organizational Documents and resolutions pursuant to Section 4.01, any vice president, secretary or assistant secretary of the relevant Obligor and (c) solely for purposes of Borrowing Requests, requests for L/C Credit Extensions, prepayment notices and notices for Revolving Commitment terminations or reductions given pursuant to Article II, any other officer or employee of the Borrower so designated from time to time by one of the officers described in clause (a) in a notice to the Administrative Agent (together with evidence of the authority and capacity of each such Person to so act in form and substance acceptable to the Administrative Agent). Any document delivered hereunder that is signed by a Responsible Officer of the Borrower shall be conclusively presumed to have been authorized by all necessary corporate, partnership or other action on the part of the Borrower and such Responsible Officer shall be conclusively presumed to have acted on behalf of the Borrower.
“Restricted Jurisdiction” means any country or territory that is the target of comprehensive, country- or territory-wide Sanctions.
“Restricted Party” means a Person that is:
(a) listed on any Sanctions List or targeted by Sanctions (whether designated by name or by reason of being included in a class of person);
(b) located in or incorporated under the laws of a Restricted Jurisdiction;
(c) directly or indirectly owned or controlled by, or acting on behalf, at the direction, or for the benefit, of a person referred to in (a) and/or (to the extent relevant under Sanctions) (b) above; or
(d) which otherwise is subject to Sanctions according to the conditions set out by any Sanctions Authority.
“Revaluation Date” means (a) with respect to any Loan denominated in the Alternative Currency, each of the following: (i) the date of the Borrowing of such Loan (including any borrowing or
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deemed borrowing that results from the payment by the applicable Issuing Bank under any Letter of Credit denominated in the Alternative Currency), but only as to the amounts so borrowed on such date and (ii) such additional dates as the Administrative Agent shall determine or the Required Lenders shall require; and (b) with respect to any Letter of Credit denominated in the Alternative Currency, each of the following: (i) the date of issuance of such Letter of Credit, but only as to the Letter of Credit so issued on such date, (ii) each date such Letter of Credit is amended to increase the face amount of such Letter of Credit, but only as to the amount of such increase, (iii) in the case of all Existing Letters of Credit denominated in Alternative Currencies, the Closing Date, and (iv) such additional dates as the Administrative Agent or the applicable Issuing Bank shall determine or the Required Lenders shall require.
“Revolving” means, when used in reference to any Loan or Borrowing, that such Loan, or the Loans comprising such Borrowing, are made pursuant to Section 2.01(b).
“Revolving Availability Period” means the period from and including the Closing Date to but excluding the Revolving Commitment Termination Date.
“Revolving Borrowing” means a borrowing consisting of simultaneous Revolving Loans of the same Type and Currency and, with respect to Eurocurrency Rate Loans and Term SOFR Loans, having the same Interest Period, made available by the Revolving Lenders.
“Revolving Commitment” means with respect to each Revolving Lender on any date, the commitment of such Lender on such date to make Revolving Loans in accordance with the terms of the Agreement expressed as an amount representing the maximum principal amount of such Revolving Loan, as such commitment may be reduced or increased from time to time pursuant to Section 9.04 or reduced from time to time pursuant to Section 2.09 or 2.23(a)(iv). The initial amount of such Lender’s Revolving Commitment is set forth on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable.
“Revolving Commitment Termination Date” means the date that is three months prior to the Maturity Date (except that, if such date is not a Business Day, the Revolving Commitment Termination Date shall be the next preceding Business Day).
“Revolving Credit Exposure” means, as to any Revolving Lender at any time, the Dollar Equivalent of the aggregate principal amount at such time of its outstanding Revolving Loans at such time.
“Revolving Facility” means the Revolving Commitments and all Credit Extensions thereunder.
“Revolving Lender” means the Persons listed on Schedule 2.01 holding a Revolving Commitment or Revolving Loans and any other Person that shall have become party hereto holding a Revolving Commitment or Revolving Loans pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto holding a Revolving Commitment or Revolving Loans pursuant to an Assignment and Assumption. Unless the context requires otherwise, the term “Revolving Lenders” does not include the Administrative Agent or the Issuing Banks in their respective capacities as the Administrative Agent or as an Issuing Bank.
“Revolving Loan” means a loan made by a Revolving Lender to the Borrower pursuant to Section 2.01(b).
“RFR” means, for any Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to Dollars, Adjusted Term SOFR.
“RFR Business Day” means, for any Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, Dollars, any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends
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that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“Same Day Funds” means (a) with respect to disbursements and payments in Dollars, immediately available funds and (b) with respect to disbursements and payments in the Alternative Currency, same day or other funds as may be determined by the Administrative Agent or the applicable Issuing Bank, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions in the Alternative Currency.
“Sanctions” means any trade, economic or financial sanctions laws, regulations, orders, embargoes or other restrictive measures adopted, administered, enacted or enforced by any Sanctions Authority.
“Sanctions Authority” means the Norwegian State, the United Nations, the European Union, the Member States of the European Union or any present or future member state thereof, the United Kingdom, the United States of America, and any of their governmental institutions and agencies acting in connection with Sanctions.
“Sanctions List” means:
(a) the lists of Sanctions designations and/or targets issued and/or maintained and/or made public by any Sanctions Authority; and/or
(b) any other Sanctions designation or target listed and/or adopted and/or made public by a Sanctions Authority,
in all cases, as amended, supplemented or replaced from time to time.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
“Second Party Opinion” means the opinion issued by The Governance Group AS or such other party that is acceptable to the Green Advisor and Borrower, addressed to the Green Advisor and the Administrative Agent, in form and substance acceptable to the Green Advisor (acting on the instructions of all of the Lenders).
“Secured Hedging Agreement” means any Hedging Agreement entered into on or after the Effective Date by an Obligor with a Secured Hedging Bank, that has been designated in writing by the Borrower and such Secured Hedging Bank to the Administrative Agent as a Secured Hedging Agreement for purposes of the Loan Documents. Notwithstanding the foregoing, for all purposes of the Loan Documents, any Guarantee of, or grant of any Lien to secure, any obligations in respect of a Secured Hedging Agreement by a Guarantor shall not include any Excluded Hedging Obligations with respect to such Guarantors.
“Secured Hedging Agreement Assignment” means an assignment in respect of a Secured Hedging Agreement made by an Obligor in favor of the Security Trustee, in a form acceptable to the Administrative Agent and the Lenders.
“Secured Hedging Banks” shall mean any Lender or any of their respective Affiliates (or any person who at the time the respective Secured Hedging Bank was entered into by such person was an Agent, a Lender or an Affiliate thereof).
“Secured Hedging Obligations” means all Hedging Obligations pursuant to a Secured Hedging Bank.
“Secured Parties” means the Lenders, the Issuing Banks, the Secured Hedging Banks, the Administrative Agent and the Security Trustee.
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“Security Documents” means the Mortgages, the Account Pledges, the Share Pledges, the Assignments of Insurances, the Assignments of Earnings, the Assignments of Charters, the Secured Hedging Agreement Assignments, the Subordinated Debt Assignments, and any other document designated as a Security Document pursuant to which Collateral is granted in favor of the Security Trustee.
“Share Pledge” means each pledge of the Equity Interests of the Borrower and the Subsidiary Guarantors, as the case may be, in favor of the Security Trustee, in a form acceptable to the Administrative Agent and the Lenders.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“Solvent” means, as to any Person as of any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they fall due become absolute and have matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“SMC” means the safety management certificate issued in respect of a Collateral Vessel in accordance with rule 13 of the ISM Code.
“Statement of Compliance” means a Statement of Compliance related to fuel oil consumption pursuant to regulations 6.6 and 6.7 of Annex VI.
“Subordinated Debt Assignment” means an assignment over Subordinated Liabilities made by a Subordinated Secured Party that is an Obligor in favor of the Security Trustee in a form acceptable to the Administrative Agent and the Required Lenders.
“Subordinated Finance Document” means any document relating to or evidencing Subordinated Liabilities.
“Subordinated Liabilities” means all indebtedness owed or expressed to be owed by an Obligor to a Subordinated Secured Party whether under the Subordinated Finance Documents or otherwise.
“Subordinated Secured Party” means any member of the Group and any Obligor.
“Subordination Agreement” means a subordination agreement made by each Subordinated Secured Party and the Security Trustee in a form acceptable to the Administrative Agent.
“Subsidiary” of a Person means a corporation, partnership, limited liability company, association or joint venture or other business entity of which a majority of the Equity Interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time owned or the management of which is controlled, directly, or indirectly through one or more intermediaries, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.
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“Subsidiary Guarantors” means, collectively, the Subsidiaries of the Borrower listed on Schedule 1.01A hereto under the heading “Subsidiary Guarantors” and any other Subsidiary of the Borrower that becomes a party hereto pursuant to Section 5.18.
“Sustainability Report” means a sustainability report prepared by the Parent Guarantor, detailing the Parent Guarantor’s Environmental, Social and Governance (ESG) performance, utilizing the Sustainability Accounting Standards Board (SASB) Marine Transportation disclosure standard.
“Swap Termination Value” means, as to any one or more Hedging Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedging Agreements, (a) for any date on or after the date such Hedging Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedging Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedging Agreements (which may include a Lender or any Affiliate of a Lender).
“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
“TARGET Day” means any day on which TARGET2 is open for the settlement of payments in Euros.
“TARGET2” means the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilizes a single shared platform and which was launched on November 19, 2007.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Loan” means a loan made by a Term Loan Lender to the Borrower pursuant to Section 2.01(a).
“Term Loan Availability Period” means the period commencing on the Effective Date and ending April 29, 2022.
“Term Loan Borrowing” means a borrowing consisting of simultaneous Term Loans of the same Type and having the same Interest Period, made by the applicable Term Loan Lenders.
“Term Loan Commitment” means with respect to each Term Loan Lender, the commitment of such Lender to make a Term Loan on the Closing Date in the amount of such Lender’s Term Loan Commitment set forth on Schedule 2.01, as such commitment shall be terminated pursuant to Section 2.09(a).
“Term Loan Facility” means the Term Loan Commitments and all Borrowings thereunder.
“Term Loan Lenders” means the Persons listed on Schedule 2.01 holding a Term Loan Commitment or Term Loans under the Term Loan Facility and any other Person that shall have become party hereto holding Term Loans under the Term Loan Facility pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto holding Term Loans under the Term Loan Facility pursuant to an Assignment and Assumption.
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“Term SOFR” means, for any calculation with respect to a Term SOFR Loan, the Term SOFR Reference Rate for a tenor comparable to the applicable Interest Period on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) RFR Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding RFR Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding RFR Business Day is not more than three (3) RFR Business Days prior to such Periodic Term SOFR Determination Day, provided, further, that if Term SOFR determined as provided above (including pursuant to the proviso under clause (a) or clause (b) above) shall ever be less than the Floor, then Term SOFR shall be deemed to be the Floor.
“Term SOFR Adjustment” means, for any calculation with respect to a Term SOFR Loan, a percentage per annum equal to 0.15% per annum with respect to Interest Periods of three (3) months, and 0.25% per annum with respect to Interest Periods of six (6) months.
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
“Term SOFR Borrowing” means, as to any Borrowing, the Loans bearing interest at a rate based on Adjusted Term SOFR comprising such Borrowing.
“Term SOFR Loan” means a Loan that bears interest at a rate based on Adjusted Term SOFR.
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Total Credit Exposure” means, as to any Lender at any time, the unused Commitments, Revolving Credit Exposure, the L/C Obligations and Outstanding Amount of Term Loans of such Lender at such time.
“Total Loss” means, with respect to a Vessel:
(a) actual, constructive or compromised or arranged total loss of the Vessel;
(b) requisition for title or other compulsory acquisition of the Vessel (otherwise than by requisition for hire) unless the Vessel is redelivered to the full control of the relevant Vessel Owner within one hundred eighty (180) days; or
(c) capture, seizure, arrest, detention or confiscation of the Vessel by any government or by persons acting or purporting to act on behalf of any government unless the Vessel be released and restored to the relevant Vessel Owner from such capture, seizure, arrest, detention or confiscation within one hundred eighty (180) days after the occurrence thereof.
“Total Loss Date” shall mean, in relation to the Total Loss of a Vessel:
(a)in the case of an actual loss of that Vessel, the date on which it occurred or, if that is unknown, the date when that Vessel was last heard of;
(b)in the case of a constructive or compromised total loss of that Vessel, the earlier of:
(i)the date on which a notice of abandonment is given to the insurers; and
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(ii)the date of any compromise, arrangement or agreement made by or on behalf of the relevant Vessel Owner with that Vessel’s insurers in which the insurers agree to treat that Vessel as a total loss;
(c)in the case of requisition for title or other compulsory acquisition of the Vessel the date on which such requisition for title or other compulsory acquisition occurred;
(d)in the case of capture, seizure, arrest, detention or confiscation of the Vessel by any government or by persons acting or purporting to act on behalf of any government, the date on which such capture, seizure, arrest, detention or confiscation occurred; and
(e)in the case of any other type of total loss, the date (or the most likely date) on which it appears to the insurers that the event constituting the total loss occurred.
“Total Revolving Credit Exposure” means, as to any Revolving Lender at any time, the unused Revolving Commitments and Revolving Credit Exposure of such Lender at such time.
“Trade Date” has the meaning specified in Section 9.04(b)(i)(B).
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to (i) the Eurocurrency Rate, (ii) the Adjusted Term SOFR, or (iii) the ABR.
“U.S. Borrower” means any Borrower that is a U.S. Person.
“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning specified in Section 2.18(g).
“UCP” means the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600 (or such later version thereof as may be in effect at the applicable time).
“UK Bail-In Legislation” means Part I of the United Kingdom Banking Act 2009 and any other law or regulation applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (otherwise than through liquidation, administration or other insolvency proceedings).
“UK Resolution Authority” means any body which has authority to exercise any Write-down and Conversion Powers.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“United States” and “U.S.” mean the United States of America.
“Updated Cash Flows Certificate” has the meaning given thereto in Section 5.01(e).
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“VAT” means:
(a)any value added tax imposed by the Value Added Tax Act 1994;
(b)any tax imposed in compliance with the Council Directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112); and
(c)any other tax of a similar nature, whether imposed in the United Kingdom or in a member state of the European Union in substitution for, or levied in addition to, such tax referred to in paragraphs (a) or (b) above, or imposed elsewhere.
“Vessel Owners” means the Collateral Vessel Owners and the Non-Collateral Vessel Owners.
“Vessels” means each of the Collateral Vessels and the Non-Collateral Vessels.
“Wholly-Owned” means, as to a Subsidiary of a Person, a Subsidiary of such Person all of the outstanding Equity Interests of which (other than (a) director’s qualifying shares and (b) shares issued to foreign nationals to the extent required by Applicable Law) are owned by such Person or by one or more Wholly-Owned Subsidiaries of such Person.
“Withholding Agent” means the Borrower and the Administrative Agent.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers under that UK Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that UK Bail-In Legislation that are related to or ancillary to any of those powers.
SECTION 1.02Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” The word “or” is not exclusive. The word “year” shall refer (i) in the case of a leap year, to a year of three hundred sixty-six (366) days, and (ii) otherwise, to a year of three hundred sixty-five (365) days. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, and (g) the words “renew”, “renewal” and variations thereof as used herein with respect to a Letter of Credit means to extend the term of such Letter of Credit or to reinstate an amount drawn under such Letter of Credit or both.
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SECTION 1.03Accounting Terms; Changes in GAAP.
(a)Accounting Terms. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall be construed in conformity with GAAP. Financial statements and other information required to be delivered by the Borrower to the Lenders pursuant to Sections 5.01(a) and 5.01(b) shall be prepared in accordance with GAAP as in effect at the time of such preparation. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Parent Guarantor and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.
(b)Changes in GAAP. If the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.
SECTION 1.04Rates. The Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, (a) the administration of, submission of, calculation of or any other matter related to the ABR, the Term SOFR Reference Rate, Adjusted Term SOFR, the Eurocurrency Rate or any other Benchmark, or any component definition thereof or rates referred to in the definition thereof, or any alternative, successor or replacement rate thereto (including any Benchmark Replacement), including whether the composition or characteristics of any such alternative, successor or replacement rate (including any Benchmark Replacement), will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, the Term SOFR Reference Rate, Term SOFR, the Eurocurrency Rate, the ABR, such Benchmark or any other Benchmark prior to its discontinuance or unavailability, or (b) the effect, implementation or composition of any Conforming Changes. The Administrative Agent and its affiliates or other related entities may engage in transactions that affect the calculation of the ABR or a Benchmark, any alternative, successor or replacement rate (including any Benchmark Replacement) or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain the ABR or any Benchmark, any component definition thereof or rates referred to in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
SECTION 1.05Reserved.
SECTION 1.06Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount, or the Dollar Equivalent of the stated amount, as applicable, of such Letter of Credit available to be drawn at such time; provided that with respect to any Letter of Credit that, by its terms, provides for one or more automatic increases in the available amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum amount, or the Dollar Equivalent of the maximum amount, as applicable, of such Letter of Credit after giving effect to all such increases, whether or not such maximum amount is available to be drawn at such time.
SECTION 1.07Exchange Rates; Currency Equivalents.
(a)The Administrative Agent or the applicable Issuing Bank, as applicable, shall determine the Dollar Equivalent amounts of Credit Extensions denominated in the Alternative Currency. Such Dollar Equivalent shall become effective as of such Revaluation Date and shall be the
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Dollar Equivalent of such amounts until the next Revaluation Date to occur. Except for purposes of financial statements delivered by the Borrower hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any Currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the applicable Issuing Bank, as applicable.
(b)Wherever in this Agreement in connection with a Borrowing or prepayment of a Term SOFR Loan or Eurocurrency Rate Loan or the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Borrowing, Loan or Letter of Credit is denominated in the Alternative Currency, such amount shall be the Alternative Currency Equivalent of such Dollar amount, as determined by the Administrative Agent or the applicable Issuing Bank, as the case may be.
ARTICLE II
COMMITMENTS AND CREDIT EXTENSIONS
SECTION 1.01Commitments.
(a)Term Loans. Subject to the terms and conditions set forth herein, each Term Loan Lender severally agrees to make a Term Loan in Dollars to the Borrower on the Closing Date in the principal amount equal to such Lender’s Term Loan Commitment. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. Term Loans shall be Term SOFR Loans, as further provided herein.
(b)Revolving Loans. Subject to the terms and conditions set forth herein, each Revolving Lender severally agrees to make Revolving Loans in Dollars or in the Alternative Currency to the Borrower from time to time on any Business Day during the Revolving Availability Period in an aggregate principal amount that will not result in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment, (b) the total Revolving Credit Exposures exceeding the total Revolving Commitments, (c) the total Revolving Credit Exposure denominated in the Alternative Currency exceeding the Alternative Currency Sublimit, or (d) the total Revolving Credit Exposures for Revolving Loans exceeding fifty percent (50%) of Contracted Cash Flows Forecast for the relevant period. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Revolving Loans may be (i) with respect to Revolving Loans denominated in Dollars, Term SOFR Loans, or (ii) with respect to Revolving Loans denominated in Euros, Eurocurrency Rate Loans, each as further provided herein.
(c)L/C Loans. Subject to the terms and conditions set forth herein, each L/C Lender severally agrees to make L/C Loans in Dollars or in the Alternative Currency to the Borrower, subject to Section 2.05(e)(ii), from time to time on any Business Day during the L/C Availability Period in an aggregate principal amount that will not result in (a) such Lender’s L/C Credit Exposure exceeding such Lender’s L/C Commitment, (b) the total L/C Credit Exposures exceeding the total L/C Commitments, or (c) the total L/C Credit Exposure denominated in the Alternative Currency exceeding the Alternative Currency Sublimit. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow L/C Loans. L/C Loans may be (i) with respect to L/C Loans denominated in Dollars, Term SOFR Loans, or (ii) with respect to L/C Loans denominated in Euros, Eurocurrency Rate Loans, each as further provided herein.
SECTION 1.02Loans and Borrowings.
(a)Borrowings. Each Term Loan under the Term Loan Facility shall be made as a part of a Borrowing consisting of Term Loans of the same Type made by the applicable Term Loan Lenders ratably in accordance with their respective applicable Term Loan Commitments. Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans of the same Type made by the Revolving Lenders ratably in accordance with their respective Revolving Commitments. Each L/C Loan shall be made as part of a Borrowing consisting of L/C Loans of the same Type made by the L/C Lenders ratably in accordance with their respective L/C Commitments subject to Section 2.05(e)(ii).
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(b)Type of Loans. Subject to Section 2.19, each Borrowing shall be comprised (A) in the case of Borrowings denominated in Dollars, entirely of Term SOFR Loans, and (B) in the case of Borrowings denominated in Euros, entirely of Eurocurrency Rate Loans, in each case of the same Currency as the Borrower may request in accordance herewith. Each Lender at its option may, with the Administrative Agent’s prior consent, make any Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.
(c)Minimum Amounts; Limitation on Number of Borrowings. Each Borrowing for Term Loans and Revolving Loans shall be in an aggregate amount of $1,000,000 in the case of Term SOFR Borrowings and €1,000,000 in the case of Eurocurrency Rate Borrowings, or a larger multiple thereof; provided that a Term SOFR Borrowing or a Eurocurrency Rate Borrowing may be in an aggregate amount that is equal to the maximum available unused balance of the Commitments for the relevant Currency. Borrowings of more than one Type may be outstanding at the same time; provided that, there shall not be more than a total of three (3) Revolving Borrowings outstanding at any time.
SECTION 1.03Borrowing Requests.
(a)Notice by Borrower. Each Borrowing shall be made upon the Borrower’s irrevocable notice to the Administrative Agent. Each such notice shall be in the form of a written Borrowing Request, appropriately completed and signed by a Responsible Officer or director of the Borrower, and must be received by the Administrative Agent not later than 11:00 a.m. (New York City time) (i) in the case of a Term SOFR Borrowing, three (3) Business Days prior to the date of the requested Borrowing, or (ii) in the case of a Eurocurrency Rate Borrowing, three (3) Business Days prior to the date of the requested Borrowing. The Borrower may submit no more than one (1) Borrowing Request for Revolving Loans each fiscal quarter.
(b)Content of Borrowing Requests. Each Borrowing Request for a Borrowing pursuant to this Section shall specify the following information in compliance with Section 2.02: (i) the Currency and aggregate amount of the requested Borrowing; (ii) the date of such Borrowing (which shall be a Business Day); (iii) whether such Borrowing is to be a Revolving Borrowing or a Term Loan Borrowing, (iv) in the case of a Eurocurrency Rate Borrowing or Term SOFR Borrowing, the Interest Period therefor, (v) the location and number of the Borrower’s account to which funds are to be disbursed, and (vi) for Revolving Borrowings, calculations demonstrating that that following such Borrowing, (x) the total Revolving Credit Exposures for Revolving Loans shall not exceed fifty percent (50%) of Contracted Cash Flows Forecast for the relevant period, and (y) the Borrower will be in compliance with Section 4.02(c).
(c)Notice by Administrative Agent to Lenders. On the date of delivery of a Borrowing Request (provided it is received by the Administrative Agent prior to the time indicated above) (or if such date is not a Business Day, the next succeeding Business Day), the Administrative Agent shall advise each applicable Lender of the details thereof (and deliver a copy of such Borrowing Request) and such Lender’s portion of each resulting Borrowing. For Borrowings requested in the Alternative Currency, the Administrative Agent shall notify the Lenders and the Borrower of the Dollar Equivalent of such Borrowing as of the date of the Borrowing Request.
(d)Failure to Elect. If no election as to the currency is specified in the applicable Borrowing Request, then the requested Borrowing shall be made in Dollars (and shall therefore be a Term SOFR Borrowing). If no Interest Period is specified with respect to any requested Term SOFR Borrowing or Eurocurrency Rate Borrowing, the Borrower shall be deemed to have selected an Interest Period of three month’s duration.
(e)Closing Date Borrowing. On the Closing Date, the Borrower may request no more than one (1) Borrowing of Term Loans in Dollars. The Term Loans shall not be available in the Alternative Currency.
SECTION 1.04Reserved.
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SECTION 1.05Letters of Credit.
(a)General. Subject to the terms and conditions set forth herein, in addition to the Loans provided for in Section 2.01, the Borrower may request any Issuing Bank, in reliance on (among other things) the agreements of the L/C Lenders set forth in this Section, to issue, at any time and from time to time during the L/C Availability Period, Letters of Credit denominated in any Currency for its own account or, subject to Section 2.05(l), the account of any of its Subsidiaries in such form as is acceptable to the Administrative Agent and such Issuing Bank in its reasonable determination. Letters of Credit issued hereunder shall constitute utilization of the L/C Commitments in respect of Letters of Credit.
(b)Notice of Issuance, Extension, Reinstatement or Other Amendment. To request the issuance of a Letter of Credit (or the extension of its term, reinstatement of amounts paid, or other amendment of its terms and conditions), the Borrower shall deliver (or transmit by electronic communication, if arrangements for doing so have been approved by the respective Issuing Bank) to an Issuing Bank selected by it and to the Administrative Agent (reasonably in advance of the requested date of issuance, extension, reinstatement or other amendment) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be extended, reinstated or otherwise amended, and specifying the date of issuance, extension, reinstatement or other amendment (which shall be a Business Day), the purpose and nature of the requested Letter of Credit and such other information as shall be necessary to prepare, extend, reinstate or otherwise amend such Letter of Credit. If requested by the respective Issuing Bank, the Borrower also shall submit a letter of credit application and reimbursement agreement on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. In the event of any conflict between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application and reimbursement agreement or other agreement submitted by the Borrower to, or entered into by the Borrower with, an Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall apply.
If the Borrower so requests in any notice requesting the issuance of a Letter of Credit (or the amendment of an outstanding Letter of Credit), the applicable Issuing Bank may, in its sole discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Evergreen Letter of Credit”); provided that any such Evergreen Letter of Credit shall permit such Issuing Bank to prevent any such extension at least once in each two-year period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such two-year period to be agreed upon by the Borrower and the applicable Issuing Bank at the time such Letter of Credit is issued. Unless otherwise directed by the applicable Issuing Bank, the Borrower shall not be required to make a specific request to such Issuing Bank for any such extension. Once an Evergreen Letter of Credit has been issued, the L/C Lenders shall be deemed to have authorized (but may not require) the applicable Issuing Bank to permit the extension of such Letter of Credit at any time to an expiration date not later than the date permitted pursuant to Section 2.05(d); provided, that such Issuing Bank shall not (i) permit any such extension if it has received notice on or before the day that is seven Business Days before the Non-Extension Notice Date from the Administrative Agent that the Required L/C Lenders have elected not to permit such extension or (ii) be obligated to permit such extension if (A) such Issuing Bank has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its extended form under the terms hereof (except that the expiration date may be extended to a date that is no more than two years from the then-current expiration date), or (B) it has received notice on or before the day that is seven Business Days before the Non-Extension Notice Date from the Administrative Agent, any L/C Lender or the Borrower that one or more of the applicable conditions set forth in Section 4.02 is not then satisfied, and in each such case directing such Issuing Bank not to permit such extension.
If (i) any letter of credit has been previously issued by an Issuing Bank, (ii) the reimbursement obligations of the account party (the “Original Letter of Credit Account Party”) relating to such letter of credit have been or are assumed in writing by the Borrower, (iii) after giving effect to the inclusion of such letter of credit as a Letter of Credit hereunder, the provisions of Section 2.05(c) shall not be contravened, (iv) such letter of credit satisfies all of the requirements of a Letter of Credit hereunder, and (v) the conditions of Sections 4.01 and 4.02 are satisfied, then upon the written request (which request shall include a statement that the foregoing requirements (i) through (v), inclusive, have been satisfied) of the Borrower to such Issuing Bank (consented to in writing by such Issuing Bank) and the submission by
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the Borrower to the Administrative Agent of a copy of such request bearing such consent, such letter of credit shall be (from the date of such consent of such Issuing Bank) deemed a Letter of Credit for all purposes of this Agreement and the other Loan Documents and considered issued hereunder pursuant to the terms hereof (the terms hereof and of the other Loan Documents shall govern and prevail in the case of any conflict with the provisions of the agreement(s) pursuant to which such letter of credit had been issued (such agreement(s), the “Original Letter of Credit Agreements”), and such Issuing Bank shall be deemed to have released the Original Letter of Credit Account Party and the Borrower, as applicable, from the Original Letter of Credit Agreements to the extent of such conflict). Notwithstanding that any such assumed letter of credit is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower agrees that it shall be obligated to reimburse the applicable Issuing Bank hereunder for any and all drawings under such letter of credit.
(c)Limitations on Amounts, Issuance and Amendment. A Letter of Credit shall be issued, extended, reinstated or otherwise amended only if (and upon issuance, extension, reinstatement or other amendment of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, extension, reinstatement or other amendment (i) the aggregate L/C Obligations shall not exceed the total L/C Commitments, (ii) the L/C Obligations of any L/C Lender shall not exceed its L/C Commitment, (iii) the total L/C Obligations shall not exceed the total L/C Commitments and (iv) the L/C Obligations for Letters of Credit of all Lenders in the Alternative Currency shall not exceed the Alternative Currency Sublimit.
An Issuing Bank shall not be under any obligation to issue any Letter of Credit if:
(i)any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing such Letter of Credit, or request that such Issuing Bank refrain from issuing such Letter of Credit, or any Law applicable to such Issuing Bank shall prohibit the issuance of letters of credit generally or such Letter of Credit in particular, or any such order, judgment or decree, or Law shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction, reserve, capital or liquidity requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such Issuing Bank any unreimbursed loss, cost or expense that was not applicable on the Closing Date and that such Issuing Bank in good faith deems material to it;
(ii)the issuance of such Letter of Credit would violate one or more policies of such Issuing Bank applicable to letters of credit generally; or
(iii)except as otherwise agreed by the Administrative Agent and such Issuing Bank, such Letter of Credit is in an initial amount less than $300,000.
An Issuing Bank shall be under no obligation to issue any amendment to any Letter of Credit if such Issuing Bank would have no obligation at such time to issue the Letter of Credit in its amended form under the terms hereof.
(d)Expiration Date. Each Letter of Credit shall have a stated expiration date no later than the earlier of (i) the date two years after the date of the issuance of such Letter of Credit (or, in the case of any extension of the expiration date thereof, whether automatic or by amendment, two years after the then-current expiration date of such Letter of Credit) and (ii) the Maturity Date (unless (x) such later expiration date is consented to by the Issuing Bank and (y) no later than the Maturity Date, such Letter of Credit is Cash Collateralized in an amount in cash equal to 100% of the L/C Obligations for such Letter of Credit in the applicable Currencies, as of the Maturity Date plus any accrued and unpaid interest thereon).
(e)Participations and L/C Loans.
(i)By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount or extending the term thereof), and without any further action on the part of the applicable Issuing Bank or the L/C Lenders, such Issuing Bank hereby grants to each L/C Lender, and each L/C Lender hereby acquires from such Issuing Bank, a participation in such
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Letter of Credit equal to such L/C Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. Each L/C Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute, unconditional and irrevocable and shall not be affected by any circumstance whatsoever, including any extension, reinstatement or other amendment of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the L/C Commitments.
(ii)In consideration and in furtherance of the foregoing, each L/C Lender hereby absolutely, unconditionally and irrevocably agrees to pay to the Administrative Agent, for the account of the respective Issuing Bank, L/C Loans, in an amount equal to such L/C Lender’s Applicable Percentage of each L/C Disbursement made by such Issuing Bank promptly, and in any event within one (1) Business Day upon the request of such Issuing Bank, at any time from the time of such L/C Disbursement until such L/C Disbursement is reimbursed by the Borrower or at any time after any reimbursement payment is required to be refunded to the Borrower for any reason. Such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each such payment shall be made in the same manner as provided in Section 2.06 with respect to Loans made by a Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the L/C Lenders), and the Administrative Agent shall promptly pay to the respective Issuing Bank the amounts so received by it from the L/C Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to Section 2.05(f), the Administrative Agent shall distribute such payment to the respective Issuing Bank or, to the extent that the L/C Lenders have made L/C Loans pursuant to this paragraph to reimburse such Issuing Bank, then to such L/C Lenders and such Issuing Bank as their interests may appear. Any payment made by an L/C Lender pursuant to this paragraph to reimburse an Issuing Bank for any L/C Disbursement shall constitute an L/C Loan and once made shall relieve the Borrower of its obligation to reimburse the Applicable Percentage of the L/C Disbursement. All such L/C Loans made with respect to drawings under the related Letter of Credit under this Section 2.05 shall, for the avoidance of doubt, be secured by the Security Documents as if made directly to the Borrower. L/C Loans shall be in the Currency of the relevant L/C Disbursement, and have an initial Interest Period of three (3) months’ duration. To the extent the Borrower prepays an L/C Borrowing, such L/C Commitments shall not, for the avoidance of doubt, be automatically cancelled.
(iii)Each L/C Lender further acknowledges and agrees that its participation in each Letter of Credit will be automatically adjusted to reflect such L/C Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit at each time such Lender’s L/C Commitment is amended as a result of an assignment in accordance with Section 9.04 or otherwise pursuant to this Agreement.
(f)Reimbursement.
(i)If an Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, subject to paragraph (ii) below, the Borrower shall reimburse such Issuing Bank in respect of such L/C Disbursement by paying to the Administrative Agent an amount in the Currency of such L/C Disbursement equal to such L/C Disbursement not later than 1:00 p.m. (New York City time) on (i) the Business Day that the Borrower receives notice of such L/C Disbursement, if such notice is received prior to 10:00 a.m. (New York City time), or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time.
(ii)If the Borrower fails to make such payment under paragraph (i) on the date on which such L/C Disbursement is made, the unpaid principal amount of such L/C Disbursement shall convert automatically into an L/C Loan and shall bear interest, for each day from and including the date such L/C Disbursement is made to but excluding the date that the Borrower repays such L/C Loan in full, in accordance with Section 2.10. The Administrative Agent shall notify each L/C Lender of the applicable L/C Disbursement, the payment then due from the Borrower in respect thereof and such L/C Lender’s Applicable Percentage thereof in accordance with paragraph (e) of this Section.
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(g)Obligations Absolute. The Borrower’s obligations in respect of L/C Disbursements and L/C Loans as provided in paragraph (f) of this Section and paragraph (b) of Section 2.10, respectively, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of this Agreement or any Letter of Credit, or any term or provision herein or therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement in such draft or other document being untrue or inaccurate in any respect, (iii) payment by the respective Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder or (v) any adverse change in the relevant exchange rates or in the availability of the Alternative Currency to the Borrower or any Subsidiary or in the relevant currency markets generally.
None of the Administrative Agent, the Lenders, any Issuing Bank, or any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit by the respective Issuing Bank or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, document, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms, any error in translation or any consequence arising from causes beyond the control of the respective Issuing Bank; provided that the foregoing shall not be construed to excuse an Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by Applicable Law) suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of an Issuing Bank (as finally determined by a court of competent jurisdiction), an Issuing Bank shall be deemed to have exercised care in each such determination, and that:
(i)an Issuing Bank may replace a purportedly lost, stolen, or destroyed original Letter of Credit or amendment thereto with a replacement marked as such or waive a requirement for its presentation;
(ii)an Issuing Bank may accept documents that appear on their face to be in substantial compliance with the terms and conditions of a Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms and conditions of such Letter of Credit (even if not in strict compliance with the terms and conditions of such Letter of Credit) and without regard to any non-documentary condition in such Letter of Credit;
(iii)an Issuing Bank shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms and conditions of such Letter of Credit; and
(iv)this Section 2.05(g) shall establish the standard of care to be exercised by an Issuing Bank when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by Applicable Law, any standard of care stricter than the foregoing).
Without limiting the foregoing, none of the Administrative Agent, the Lenders, any Issuing Bank, or any of their respective Related Parties shall have any liability or responsibility by reason of (i) any presentation that includes forged or fraudulent documents or that is otherwise affected by the fraudulent, bad faith, or illegal conduct of the beneficiary or other Person, (ii) an Issuing Bank declining to take-up documents and make payment (A) against documents that are fraudulent, forged, or for other reasons by which that it is entitled not to honor or (B) following a Borrower’s waiver of discrepancies
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with respect to such documents or request for honor of such documents or (iii) an Issuing Bank retaining proceeds of a Letter of Credit based on an apparently applicable attachment order, blocking regulation, or third-party claim notified to such Issuing Bank.
Unless otherwise expressly agreed by an Issuing Bank and the Borrower when a Letter of Credit is issued by such Issuing Bank, the rules of the ISP shall be stated therein to apply to each Letter of Credit. Notwithstanding the foregoing, no Issuing Bank shall be responsible to the Borrower for, and such Issuing Bank’s rights and remedies against the Borrower shall not be impaired by, any action or inaction of such Issuing Bank required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including the Laws or any order of a jurisdiction where such Issuing Bank or the beneficiary is located, the practice stated in the ISP, or in the decisions, opinions, practice statements, or official commentary of the International Chamber of Commerce Banking Commission, the Bankers Association for Finance and Trade (BAFT), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such Laws or practice rules.
An Issuing Bank shall have all of the benefits and immunities (but not the obligations) (A) provided to the Administrative Agent in Article VIII with respect to any acts taken or omissions suffered by such Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and L/C Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article VIII included such Issuing Bank with respect to such acts or omissions, and (B) as additionally provided herein with respect to the such Issuing Bank.
(h)Disbursement Procedures. The Issuing Bank for any Letter of Credit shall, within the time allowed by applicable Laws or the specific terms of the Letter of Credit following its receipt thereof, examine all documents purporting to represent a demand for payment under such Letter of Credit. Such Issuing Bank shall promptly after such examination notify the Administrative Agent and the Borrower in writing of such demand for payment if such Issuing Bank has made or will make an L/C Disbursement thereunder; provided that such notice need not be given prior to payment by the Issuing Bank and any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the L/C Lenders with respect to any such L/C Disbursement.
(i)Interim Interest. If the Issuing Bank for any Letter of Credit shall make any L/C Disbursement, then, unless the Borrower shall reimburse such L/C Disbursement in full in the applicable Currency on the date such L/C Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such L/C Disbursement is made to but excluding the date that the Borrower reimburses such L/C Disbursement, at the rate per annum then applicable to Loans for such Currency under the Revolving Facility; provided that if the Borrower fails to reimburse such L/C Disbursement when due pursuant to paragraph (f) of this Section, then Section 2.11(b) shall apply. Interest accrued pursuant to this paragraph shall be for the account of such Issuing Bank, except that interest accrued on and after the date of payment by any L/C Lender pursuant to paragraph (f) of this Section to reimburse such Issuing Bank for such L/C Disbursement shall be for the account of such L/C Lender to the extent of such payment.
(j)Replacement of an Issuing Bank. Any Issuing Bank may be replaced at any time by written agreement between the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the L/C Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(c). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit to be issued by it thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to include such successor or any previous Issuing Bank, or such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior
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to such replacement, but shall not be required to issue additional Letters of Credit or to extend, reinstate, or otherwise amend any then existing Letter of Credit.
Any Issuing Bank may resign at any time by giving 30 days’ prior notice to the Administrative Agent, the L/C Lenders and the Borrower. After the resignation of an Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation, but shall not be required to issue additional Letters of Credit or to extend, reinstate, or otherwise amend any then existing Letter of Credit.
(k)Cash Collateralization. If (i) any Event of Default shall occur and be continuing or (ii) the L/C Commitments exceed the L/C Obligations following a reduction and cancellation of Commitments hereunder (including pursuant to Section 2.09), on the Business Day that the Borrower receives notice from the Administrative Agent or the Required L/C Lenders demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall immediately deposit into an account or accounts established and maintained on the books and records of the Administrative Agent (the “Collateral Account”) an amount in cash equal to 100% of the total L/C Obligations in the applicable Currencies as of such date plus any accrued and unpaid interest thereon, provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (g) or (h) of Section 7.01. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower in respect of the L/C Facility under this Agreement. In addition, and without limiting the foregoing or paragraph (d) of this Section, if any L/C Obligations remain outstanding after the expiration date specified in said paragraph (d), the Borrower shall immediately deposit into the Collateral Account an amount in cash equal to 100% of such L/C Obligations as of such date plus any accrued and unpaid interest thereon.
The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over the Collateral Account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in the Collateral Account. Moneys in the Collateral Account shall be applied by the Administrative Agent to reimburse each Issuing Bank for L/C Disbursements for which it has not been reimbursed, together with related fees, costs, and customary processing charges, and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Obligations at such time or, if the maturity of the Loans has been accelerated (subject to the consent of the Required L/C Lenders), be applied to satisfy other obligations of the Borrower in respect of the Revolving Facility under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.
(l)Letters of Credit Issued for account of Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated as a primary obligor to reimburse the applicable Issuing Bank hereunder for any and all drawings under such Letter of Credit and irrevocably waives any defenses that might otherwise be available to it as a guarantor or surety of obligations of such Subsidiary. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Subsidiaries. To the extent that any Letter of Credit is issued for the account of any Subsidiary which is not a Guarantor, the Borrower agrees that (i) such Subsidiary shall have no rights against the Issuing Bank, the Administrative Agent or any Lender, (ii) the Borrower shall be responsible for the obligations in respect of such Letter of Credit under this Agreement and any application or reimbursement agreement, (iii) the Borrower shall have sole right to give instructions and make agreements with respect to this Agreement and the Letter of Credit, and the disposition of documents related thereto, and (iv) the Borrower shall have all powers and rights in respect of any security arising in connection with the Letter of Credit and the transaction related thereto. The Borrower shall, at the request of the Issuing Bank, cause such Subsidiary to execute and deliver an
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agreement confirming the terms specified in the immediately preceding sentence and acknowledging that it is bound thereby.
SECTION 1.06Funding of Borrowings.
(a)Funding by Lenders. Each Lender shall make the amount of each Borrowing to be made by it hereunder available to the Administrative Agent in Same Day Funds in the applicable Currency at the Administrative Agent’s Office not later than 11:00 a.m. (New York City time) on the proposed date thereof. The Administrative Agent will make all such funds so received available to the Borrower in like funds, by wire transfer of such funds in accordance with the instructions provided in the applicable Borrowing Request.
(b)Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender, prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may, but is not required to, assume that such Lender has made such share available on such date in accordance with Section 2.06(a) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at in the case of a payment to be made by such Lender, the applicable Overnight Rate, in the case of the Alternative Currency, in accordance with such market practice, in each case, as applicable. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
SECTION 1.07Interest Elections.
(a)Elections by Borrower for Borrowings. Subject to Section 2.02, the Revolving Loans and Term Loans comprising each Borrowing shall be of the Type and Currency specified in the applicable Borrowing Request and shall have the Interest Period specified in such Borrowing Request. Thereafter, the Borrower may elect the Interest Period therefor, as provided in this Section.
(b)Notice of Elections. Each such election pursuant to this Section shall be made upon the Borrower’s irrevocable notice to the Administrative Agent. Each such notice shall be in the form of a written Interest Election Request, appropriately completed and signed by a Responsible Officer of the Borrower and must be received by the Administrative Agent not later than the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election.
(c)Content of Interest Election Requests. Each Interest Election Request pursuant to this Section shall specify the following information in compliance with Section 2.02:
(i)the Currency and principal amount of the Borrowing to which such Interest Election Request applies;
(ii)the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; and
(iii)the Interest Period therefor after giving effect to such election.
(d)Notice by Administrative Agent to Lenders. The Administrative Agent shall advise each applicable Lender of the details of each Interest Election Request and such Lender’s portion
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of such resulting Borrowing no less than one Business Day before the effective date of the election made pursuant to such Interest Election Request.
(e)Failure to Make an Interest Election Request; Events of Default. If the Borrower fails to deliver a timely and complete Interest Election Request with respect to a Eurocurrency Rate Borrowing or a Term SOFR Borrowing prior to the end of the Interest Period therefor, then, unless such Borrowing is repaid, such Borrowing shall continue to have the Interest Period then in effect. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as such Event of Default is continuing no Interest Election Request may be delivered.
SECTION 1.08Prepayments.
(a)Optional Prepayments.
(i)Generally. The Borrower may, upon notice to the Administrative Agent, at any time and from time to time prepay any Borrowing in whole or in part (but if in part, in a minimum amount equal to $3,000,000 for Term SOFR Borrowings and €3,000,000 for Eurocurrency Rate Borrowings) without premium or penalty, subject to the requirements of this Section.
(ii)Release of Non-Collateral Vessel Owner. The Borrower may, upon notice to the Administrative Agent, at any time and from time to time prepay the Loans and reduce and cancel the Revolving Credit Commitments and L/C Commitments (and Letters of Credit shall be Cash Collateralized, if applicable), on a pro rata basis in proportion to the aggregate amount of the Term Loans outstanding, the Revolving Credit Commitments and the L/C Commitments, by a total amount equal to fifty percent (50%) of the Fair Market Value of a Non-Collateral Vessel, less all documented legal fees, if any, in connection with any relevant financing of the Non-Collateral Vessel occurring at such time, following which payment the Share Pledge (and any other security, if applicable) in respect of the relevant Non-Collateral Vessel Owner shall be released, and the relevant Non-Collateral Vessel Owner shall be released from its obligations as a Guarantor hereunder.
(b)Mandatory Prepayments; Mandatory Reductions in Commitments.
(i)Sale or Total Loss of a Collateral Vessel. In the event of a sale or a Total Loss of a Collateral Vessel, (A) immediately in the case of a sale of such Collateral Vessel, and (B) upon the earlier of (x) one hundred eighty (180) days after the Total Loss Date of such Collateral Vessel or (y) the date on which the insurance proceeds in respect of such Total Loss are received by the relevant Vessel Owner or the Security Trustee as assignee thereof, the outstanding Loans shall be prepaid and the Revolving Commitments and L/C Commitments shall be reduced and cancelled (and Letters of Credit shall be Cash Collateralized, if applicable), on a pro rata basis in proportion to the aggregate amount of the Loans outstanding, the Revolving Commitments and the L/C Commitments, in a total amount equal to the Fair Market Value of the relevant Collateral Vessel, divided by the total Fair Market Value of all Collateral Vessels, multiplied by the outstanding Loans, the total Revolving Commitments and the total L/C Commitments. Notwithstanding the foregoing, in the event of a sale of a Collateral Vessel to an Affiliate, the sale price shall be an amount not less than the Fair Market Value of such Collateral Vessel.
(ii)Sale or Total Loss of a Non-Collateral Vessel . In the event of a sale or a Total Loss of a Non-Collateral Vessel, (A) immediately in the case of a sale of such Non-Collateral Vessel, and (B) upon the date on which the insurance proceeds in respect of such loss are received by the relevant Vessel Owner or the Security Trustee as assignee thereof, the outstanding Loans shall be prepaid and the Revolving Credit Commitments and L/C Commitments shall be reduced and cancelled (and Letters of Credit shall be Cash Collateralized, if applicable), on a pro rata basis in proportion to the aggregate amount of the Loans outstanding, the Revolving Credit Commitments and the L/C Commitments, by a total amount equal to fifty
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percent (50%) of the Net Proceeds from such sale, in the case of a sale, and fifty percent (50%) of the insurance proceeds received, in the case of a Total Loss. Notwithstanding the foregoing, in the event of a sale of a Non-Collateral Vessel to an Affiliate, the sale price shall be an amount not less than the Fair Market Value of such Non-Collateral Vessel.
(iii)Change of Control. Immediately upon a Change of Control, the Borrower shall prepay all outstanding amounts under the Facilities, and the Facilities shall be cancelled in whole.
(iv)Breach of Collateral Maintenance Test. In the event that the Borrower breaches the Collateral Maintenance Test and does not restore compliance in the manner or at the time provided in Section 5.14, then the Administrative Agent, acting on the instructions from the Required Lenders, may cancel the Commitments and require prepayment of all amounts outstanding under the Facility.
(v)Newbuilding Milestone Acceleration. In the event the Borrower does not satisfy the Newbuilding Milestone Requirements in the manner or at the times provided herein, then: (A) the Term Loans shall become due and payable no later than thirty (30) days from the applicable testing date whose requirement was not met, (B) the undrawn Revolving Commitments and unused L/C Commitments shall immediately be reduced to zero and cancelled, and (C) the Borrower shall, immediately apply all cash earnings received from the Collateral Vessels and Non-Collateral Vessels as mandatory prepayments of Revolving Loans and as Cash Collateral of Letters of Credit until the Revolving Loans are paid in full and all Letters of Credit are Cash Collateralized.
For purposes of this Section 2.08(v), “Newbuilding Milestone Requirements” means:
(A)At the earlier of March 31, 2024 or six (6) months prior to expected delivery of Newbuilding Vessel 1, the Parent Guarantor is to provide evidence of discussions with potential lenders and/or export credit agencies that indicate progress towards a successful loan finance of Newbuilding Vessel 1 and provide financial projections that show (i) Newbuilding Purchaser 1’s ability to take delivery of Newbuilding Vessel 1 and (ii) following such delivery, the Parent Guarantor’s pro forma compliance with the financial covenants set forth in Section 6.12.
(B)At the earlier of June 30, 2024 or three (3) months prior to expected delivery of Newbuilding Vessel 1, the Parent Guarantor is to provide evidence of a committed loan finance of Newbuilding Vessel 1 and provide financial projections that show (i) Newbuilding Purchaser 1’s ability to take delivery of Newbuilding Vessel #1 and (ii) following such delivery, the Parent Guarantor’s pro forma compliance with the financial covenants set forth in Section 6.12.
(C)At the earlier of August 30, 2024 or 1 month prior to expected delivery of Newbuilding Vessel 1, the Parent Guarantor is to provide evidence of signed financing facility documentation which will, finance Newbuilding Vessel 1 and provide definitive financial projections that show (i) Newbuilding Purchaser 1’s ability to take delivery of Newbuilding Vessel 1 and (ii) following such delivery, the Parent Guarantor’s pro forma compliance with the financial covenants set forth in Section 6.12.
(D)At the earlier of December 31, 2024 or six (6) months prior to expected delivery of Newbuilding Vessel 2, the Parent Guarantor is to provide evidence of discussions with potential lenders and/or export credit agencies that indicate progress towards a successful loan finance of Newbuilding Vessel 2 and provide financial projections that show (i) Newbuilding Purchaser 2’s ability to take delivery of Newbuilding Vessel 2 and (ii) following such delivery, the Parent Guarantor’s pro forma compliance with the financial covenants set forth in Section 6.12.
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(E)At the earlier of March 31, 2025 or three (3) months prior to expected delivery of Newbuilding Vessel 2, the Parent Guarantor is to provide evidence of a committed loan finance of Newbuilding Vessel 2 and provide financial projections that show (i) Newbuilding Purchaser 2’s ability to take delivery of Newbuilding Vessel 2 and (ii) following such delivery, the Parent Guarantor’s pro forma compliance with the financial covenants set forth in Section 6.12.
(F)At the earlier of May 30, 2025 or one (1) month prior to expected delivery of Newbuilding Vessel 2, the Parent Guarantor is to provide evidence of signed financing facility documentation which will, finance Newbuilding Vessel 2 and provide definitive financial projections that show (i) Newbuilding Purchaser 2’s ability to take delivery of Newbuilding Vessel 2 and (ii) following such delivery, the Parent Guarantor’s pro forma compliance with the financial covenants set forth in Section 6.12.
(vi)Contracted Cash Flows Forecast. In the event the amount of Revolving Loans outstanding exceeds fifty percent (50%) of the Contracted Cash Flows Forecast for a relevant period, the Borrower shall, on the Estimate Date (or if such Estimate Date is not a Business Day, the preceding Business Day), prepay the amount of the Revolving Loans required to ensure that the amount of Revolving Loans does not exceed fifty percent (50%) of the Contracted Cash Flows Forecast, provided that a prepayment resulting from delivery of an Updated Contracted Cash Flows Certificate shall be made no later than five (5) Business Days of delivery of such Updated Contracted Cash Flows Certificate. Such amounts prepaid pursuant to this paragraph (vi) shall not, for the avoidance of doubt, be automatically cancelled.
(c)Notices. Each such notice pursuant to this Section shall be in the form of a written Prepayment Notice, appropriately completed and signed by a Responsible Officer of the Borrower, and must be received by the Administrative Agent not later than 11:00 a.m. (New York City time) ten (10) Business Days before the date of prepayment. Each Prepayment Notice shall specify (x) the prepayment date and (y) the Currency and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the applicable Lenders of the contents thereof.
(d)Amounts; Application. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in such Borrowing. All prepayments of the Term Loans shall be applied to principal installments on the Term Loans in the inverse order of maturity (including any amounts due on the Maturity Date). All prepayments (including, for the avoidance of doubt, those made under Section 5.14) shall be accompanied by accrued interest under Section 2.11, together with any additional amounts required pursuant to Section 2.16. All mandatory prepayments in part shall be made pro rata in Dollars and the Alternative Currency in proportion to the Dollar Equivalent outstanding. Upon a mandatory reduction of Commitments pursuant to Section 2.08(b), to the extent following such reduction, the relevant Class of Loans exceed the relevant Commitments for such Class, the Borrower shall make a prepayment to ensure the Loans do not exceed the Commitments for such Class in accordance with this paragraph (d).
(e)Alternative Currency. If the Administrative Agent notifies the Borrower at any time that the Dollar Equivalent of the aggregate amount of the respective Loans and L/C Obligations denominated in the Alternative Currency at such time exceeds an amount equal to 100% of the Alternative Currency Sublimit then in effect, then, within two (2) Business Days after receipt of such notice, the Borrower shall prepay Loans or Cash Collateralize Letters of Credit in an aggregate amount sufficient to reduce such amount as of such date of payment to an amount not to exceed 100% of the Alternative Currency Sublimit then in effect. For the avoidance of doubt, the Administrative Agent shall confirm (or promptly notify the Borrowing accordingly) that the Dollar Equivalent of the aggregate amount of the respective Loans and L/C Obligations denominated in the Alternative Currency at such time exceeds an amount equal to 100% of the Alternative Currency Sublimit on the last Business Day of each calendar month.
SECTION 1.09Termination or Reduction of Commitments.
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(a)Termination of Term Loan Commitments. The Term Loan Commitments shall automatically and permanently terminate on the Closing Date upon the funding of the Term Loans under the Term Loan Facility.
(b)Optional Termination or Reduction of Revolving Commitments and L/C Commitments. The Borrower may, upon notice to the Administrative Agent, terminate the Revolving Commitments or the L/C Commitments, or from time to time reduce the unused Revolving Commitments or L/C Commitments; provided that (i) each such notice shall be in writing and must be received by the Administrative Agent at least ten (10) Business Days prior to the effective date of such termination or reduction, and shall be irrevocable, (ii) any such partial reduction shall be in an aggregate amount of $1,000,000 or a larger multiple thereof and (iii) the Borrower shall not terminate or reduce the Revolving Commitments or L/C Commitments, respectively, if, after giving effect thereto and to any concurrent prepayments hereunder, the total Revolving Credit Exposures would exceed the total Revolving Commitments or the total L/C Obligations would exceed the total L/C Commitments. Unless previously terminated, the Revolving Commitments shall automatically terminate on the Revolving Commitment Termination Date.
(c)Application of Revolving Commitment Reductions. The Administrative Agent will promptly notify the Revolving Lenders or the L/C Lenders of any termination or reduction of the Revolving Commitments or the L/C Commitments, respectively, pursuant to clause (b) of this Section. Upon any reduction of unused Revolving Commitments, the Revolving Commitment of each Revolving Lender shall be reduced by such Lender’s ratable share of the amount of such reduction. Upon any reduction of unused L/C Commitments, the L/C Commitment of each L/C Lender and Issuing Bank shall be reduced by such Lender’s ratable share of the amount of such reduction.
(d)Hedging Exposure Following Prepayment and Commitment Reduction. Immediately following any prepayment, reduction, cancellation or repayment under this Article II, the Borrower shall ensure that the notional value of any Hedging Obligations under the Facility does not exceed the aggregate amount of all Term Loans outstanding, all Revolving Loans outstanding and all L/C Disbursements which have not been reimbursed by the Borrower.
SECTION 1.10Repayment of Loans.
(a)Term Loans under Term Loan Facility. The Borrower shall repay to the Administrative Agent for the ratable account of the Term Loan Lenders the aggregate principal amount of all Term Loans outstanding under the Term Loan Facility in equal quarterly installments of Three Million One Hundred Twenty Five Thousand Dollars ($3,125,000) (which amount may be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.08), on the last Business Day of each March, June, September and December, commencing on June 30, 2022; provided, however, that the final principal repayment installment of such Loans shall be repaid on the Maturity Date and in any event shall be in an amount equal to the aggregate principal amount of all Term Loans outstanding under the Term Loan Facility on such date.
(b)Revolving Loans and L/C Loans. The Borrower shall repay to the Administrative Agent for the ratable account of the Revolving Lenders and the L/C Lenders on the Maturity Date the aggregate principal amount of all such Loans outstanding on such date.
SECTION 1.11Interest.
(a)Interest Rates. Subject to paragraph (b) of this Section, and provided the circumstances set forth in Section 2.19 do not exist, (i) each Term SOFR Loan shall bear interest at a rate per annum equal to the Adjusted Term SOFR for the Interest Period therefor plus the Applicable Rate, and (ii) each Eurocurrency Rate Loan shall bear interest at a rate per annum equal to the applicable Eurocurrency Rate for the Interest Period therefor plus the Applicable Rate.
(b)Default Interest. If any amount payable by the Borrower under this Agreement or any other Loan Document (including principal of any Loan, interest, fees and other amount) is not paid when due, whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a rate per annum equal to the applicable Default Rate. If any Event of Default has
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occurred and is continuing, the Borrower shall pay interest on the principal amount of all Loans outstanding hereunder at a rate per annum equal to the applicable Default Rate.
(c)Payment Dates. Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein; provided that (i) interest accrued pursuant to paragraph (b) of this Section shall be payable on demand, and (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment.
(d)Interest Computation. All interest hereunder shall be computed on the basis of a year of 360 days (or in the case of interest computed by reference to the ABR at times when the ABR is based on the Prime Rate, such interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year)), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). All interest hereunder on any Loan shall be computed on a daily basis based upon the outstanding principal amount of such Loan as of the applicable date of determination. The applicable ABR, Eurocurrency Rate or Adjusted Term SOFR shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
(e)Initial Benchmark Conforming Changes. In connection with the use or administration of any Benchmark, the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document. The Administrative Agent will promptly notify the Borrower and the Lenders of the effectiveness of any Conforming Changes in connection with the use or administration of any Benchmark.
SECTION 1.12Fees.
(a)Commitment Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender and each L/C Lender a commitment fee (the “Commitment Fee”) in Dollars on the average daily unused amount of the Revolving Commitment of such Revolving Lender and the average daily unused amount of the L/C Commitment of such L/C Lender, which shall accrue at a rate per annum equal to the Applicable Rate during the period from and including the Closing Date to but excluding the Revolving Commitment Termination Date. Accrued Commitment Fees shall be payable in arrears on the last Business Day of each March, June, September and December commencing on June 30, 2022, and on the Revolving Commitment Termination Date. For purposes of computing Commitment Fees, the Revolving Commitment of any Revolving Lender shall be deemed to be used to the extent of the aggregate principal amount at such time of its outstanding Revolving Loans and the L/C Commitment of any L/C Lender shall be deemed to be used to the extent of the Revolving Lender’s participation in L/C Obligations.
(b)L/C Fees. The Borrower agrees to pay to the Administrative Agent for the account of each L/C Lender a Letter of Credit fee with respect to its participations in each outstanding Letter of Credit (the “L/C Fee”) on the Dollar Equivalent of the daily maximum stated amount then available to be drawn under such Letter of Credit, which shall accrue at a rate per annum equal to the Applicable Rate during the period from and including the Closing Date to and including the later of the Maturity Date and the date on which such Lender ceases to have any L/C Obligations. Accrued L/C Fees shall be payable in arrears on the last Business Day of each March, June, September and December, commencing on June 30, 2022, and on the L/C Commitment Termination Date; provided that any such fees accruing after the L/C Commitment Termination Date shall be payable on demand.
(c)L/C Fronting Fees. The Borrower agrees to pay to each Issuing Bank for its own account a one-time fronting fee with respect to each Letter of Credit issued by such Issuing Bank at a rate equal to the percentage separately agreed upon between the Borrower and such Issuing Bank on the Dollar Equivalent of the daily maximum stated amount then available to be drawn under such Letter of Credit.
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(d)Fee Letter Fees. The Borrower agrees to pay, in Dollars, the fees payable in the amounts and at the times agreed pursuant to the Fee Letters.
(e)Fee Computation. All fees payable under this Section (other than pursuant to paragraph (c) above) shall be computed on the basis of a year of 360 days and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day in the case of the fees under Section 2.12(a) and (d) and including the last day in the case of the fees under Section 2.12(b) and (c)). Each determination by the Administrative Agent of a fee hereunder shall be conclusive absent manifest error.
SECTION 1.13Evidence of Debt.
(a)Maintenance of Records. Each Lender shall maintain in accordance with its usual practice records evidencing the indebtedness of the Borrower to such Lender resulting from each Borrowing made by such Lender. The Administrative Agent shall maintain the Register in accordance with Section 9.04(c). The entries made in the records maintained pursuant to this paragraph (a) shall be prima facie evidence absent manifest error of the existence and amounts of the obligations recorded therein. Any failure of any Lender or the Administrative Agent to maintain such records or make any entry therein or any error therein shall not in any manner affect the obligations of the Borrower under this Agreement and the other Loan Documents. In the event of any conflict between the records maintained by any Lender and the records maintained by the Administrative Agent in such matters, the records of the Administrative Agent shall control in the absence of manifest error.
(b)Promissory Notes. Upon the request of any Lender made through the Administrative Agent, or the Administrative Agent, the Borrower shall prepare, execute and deliver to such Lender a promissory note of the Borrower payable to such Lender or the Administrative Agent (or, if requested by such Lender, to such Lender and its registered assigns) and a form approved by the Administrative Agent, which shall evidence the Facility, or if applicable, such Lender’s Loans of a particular Class in addition to such records.
SECTION 1.14Payments Generally; Several Obligations of Lenders.
(a)Payments by Borrower. All payments to be made by the Borrower hereunder and the other Loan Documents shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein and except with respect to principal of and interest on Loans denominated in the Alternative Currency, all such payments shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in Same Day Funds not later than 12:00 noon (New York City time) on the date specified herein. Except as otherwise expressly provided herein, all payments with respect to principal and interest on Loans denominated in the Alternative Currency shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the applicable Administrative Agent’s Office in the Alternative Currency in Same Day Funds not later than the Applicable Time specified by the Administrative Agent on the dates specified herein. All amounts received by the Administrative Agent after such time on any date shall be deemed to have been received on the next succeeding Business Day and any applicable interest or fees shall continue to accrue. The Administrative Agent will promptly distribute to each Issuing Bank or applicable Lender its ratable share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Issuing Bank or Lender’s applicable lending office (or otherwise distribute such payment in like funds as received to the Person or Persons entitled thereto as provided herein). If any payment to be made by the Borrower shall fall due on a day that is not a Business Day, payment shall be made on the next succeeding Business Day and such extension of time shall be reflected in computing interest or fees, as the case may be; provided that, if such next succeeding Business Day would fall after the Maturity Date, payment shall be made on the immediately preceding Business Day. Without limiting the generality of the foregoing, the Administrative Agent may require that any payments due under this Agreement be made in the United States. If, for any reason, the Borrower is prohibited by any Law from making any required payment hereunder in the Alternative Currency, such Borrower shall make such payment in Dollars in the Dollar Equivalent of the Alternative Currency payment amount.
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(b)Application of Insufficient Payments. Subject to Section 7.02, if at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed L/C Disbursements, interest, fees and other amounts then due hereunder, such funds shall be applied (i) first, to pay interest, fees and other amounts then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest, fees and other amounts then due to such parties, and (ii) second, to pay principal and unreimbursed L/C Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal or unreimbursed L/C Disbursements, as applicable, then due to such parties.
(c)Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the applicable Lenders or the Issuing Banks, as the case may be, hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the applicable Lenders or the Issuing Banks, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the applicable Lenders or the Issuing Banks, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank, with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the applicable Overnight Rate.
(d)Deductions by Administrative Agent. If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(e), 2.06(b), 2.15 or 9.03(c), then the Administrative Agent may, in its discretion and notwithstanding any contrary provision hereof, (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender for the benefit of the Administrative Agent, the applicable Issuing Bank to satisfy such Lender’s obligations to the Administrative Agent, and such Issuing Bank, as applicable, until all such unsatisfied obligations are fully paid or (ii) hold any such amounts in a segregated account as cash collateral for, and for application to, any future funding obligations of such Lender under any such Section, in the case of each of clauses (i) and (ii) above, in any order as determined by the Administrative Agent in its discretion.
(e)Several Obligations of Lenders. The obligations of the Lenders hereunder to make Loans, to fund participations in Letters of Credit and to make payments pursuant to Section 9.03(c) are several and not joint. The failure of any Lender to make any Loan or, as applicable, to fund any such participation or to make any such payment on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its applicable Loan, to purchase its participations, as applicable, or to make its payment under Section 9.03(c).
SECTION 1.15Sharing of Payments. If any Lender or Issuing Bank shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or Term Loans or participations in L/C Disbursements or other obligations hereunder, as applicable, resulting in such Lender or Issuing Bank receiving payment of a proportion of the aggregate amount of its Revolving Loans or Term Loans or participations in L/C Disbursements and accrued interest thereon or other such obligations, as applicable, greater than its pro rata share thereof as provided herein, then the Lender or Issuing Bank receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Revolving Loans and Term Loans and participations in L/C Disbursements and such other obligations of the other Lenders or Issuing Banks under the applicable Facility, as applicable, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the applicable Lenders and Issuing Banks, as applicable, ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and Term Loans and participations in L/C Disbursements and other amounts owing them, as applicable; provided that:
(i)if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
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(ii)the provisions of this paragraph shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender, (y) the application of Cash Collateral provided for in Section 2.22, or (z) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in L/C Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under Applicable Law, that any Lender or Issuing Bank acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender or Issuing Bank were a direct creditor of the Borrower in the amount of such participation.
SECTION 1.16Compensation for Losses. In the event of (a) the payment of any principal of any Eurocurrency Rate Loan or Term SOFR Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the failure to borrow or prepay any Term SOFR Loan or Eurocurrency Rate Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(b) and is revoked in accordance therewith), or (c) the assignment of any Eurocurrency Rate Loan or Term SOFR Loan other than on the last day of the Interest Period applicable thereto, in either case, as a result of a request by the Borrower pursuant to Section 2.21(b), then, in any such event, the Borrower shall compensate each Lender for any loss, cost and expense attributable to such event, including any loss, cost or expense arising from the liquidation or redeployment of funds or from any fees payable. In the case of a Eurocurrency Rate Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the Eurocurrency Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for deposits in the applicable Currency of a comparable amount and period from other banks in the applicable offshore interbank market for such Currency, whether or not such Eurocurrency Rate Loan was in fact so funded. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.
SECTION 1.17Increased Costs.
(a)Increased Costs Generally. If any Change in Law shall:
(i)impose, modify or deem applicable any reserve (including pursuant to regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, special, supplemental or other marginal reserve requirement) with respect to eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D)), special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender or any Issuing Bank;
(ii)subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii)impose on any Lender or any Issuing Bank or, with respect to Eurocurrency Rate Loans, the applicable offshore interbank market any other condition, cost or
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expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation in any such Loan or Letter of Credit;
and the result of any of the foregoing shall be to increase the cost to such Lender, such Issuing Bank or such other Recipient of making, converting to, continuing or maintaining any Loan or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, such Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender, Issuing Bank or other Recipient hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, Issuing Bank or other Recipient, the Borrower will pay to such Lender, Issuing Bank or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, Issuing Bank or other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b)Capital Requirements. If any Lender or Issuing Bank determines that any Change in Law affecting such Lender or Issuing Bank or any lending office of such Lender or such Lender’s or Issuing Bank’s holding company, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on such Lender’s or Issuing Bank’s capital or on the capital of such Lender’s or Issuing Bank’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by any Issuing Bank, to a level below that which such Lender or Issuing Bank or such Lender’s or Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or Issuing Bank’s policies and the policies of such Lender’s or Issuing Bank’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or Issuing Bank or such Lender’s or Issuing Bank’s holding company for any such reduction suffered.
(c)Certificates for Reimbursement. A certificate of a Lender or Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section and delivered to the Borrower, shall be conclusive absent manifest error. The Borrower shall pay such Lender or Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d)Delay in Requests. Failure or delay on the part of any Lender or Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or Issuing Bank pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s or Issuing Bank’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).
SECTION 1.18Taxes.
(a)Defined Terms. For purposes of this Section, the term “Lender” includes any Issuing Bank and the term “Applicable Law” includes FATCA.
(b)Payments Free of Taxes. Any and all payments by or on account of any obligation of the Obligors under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with Applicable Law and, if such Tax is an Indemnified Tax, then the sum payable by the Obligors shall be increased as necessary so that after
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such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(c)Payment of Other Taxes by Obligors. The Obligors shall timely pay to the relevant Governmental Authority in accordance with Applicable Law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(d)Indemnification by Obligors. Each Obligor shall indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Obligor by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(e)Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the relevant Obligor has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Obligors to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f)Evidence of Payments. As soon as practicable after any payment of Taxes by an Obligor to a Governmental Authority pursuant to this Section, the Obligor shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(g)Status of Lenders. (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in paragraphs (A), (B) and (D) of Section 2.18(g)(ii)) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(i)Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Borrower,
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(A)any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or about the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B)any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or about the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1)in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2)executed copies of IRS Form W-8ECI;
(3)in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit G-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, or a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E; or
(4)to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or Exhibit G-3, IRS Form W-9, or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on behalf of each such direct and indirect partner;
(C)any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or about the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by Applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
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(D)if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(h)Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section (including by the payment of additional amounts pursuant to this Section), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(i)VAT.
(i) All amounts set out, or expressed to be payable under a Loan Document to a Secured Party which (in whole or in part) constitute the consideration for any supply for VAT purposes are deemed to be exclusive of any VAT which is or becomes chargeable on that supply, and accordingly, subject to paragraph (b) below, if VAT is or becomes chargeable on any supply made by any Secured Party to any Obligor under a Loan Document and such Secured Party is required to account to the relevant tax authority for the VAT, that Person must pay to such Secured Party (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of the VAT (and such Secured Party must promptly provide an appropriate VAT invoice to that Obligor).
(ii)If VAT is or becomes chargeable on any supply made by any Secured Party (the "Supplier") to any other Secured Party (the "Recipient") under a Loan Document, and any Obligor other than the Recipient (the "Relevant Party") is required by the terms of any Secured Document to pay an amount equal to the consideration for that supply to the Supplier (rather than being required to reimburse or indemnify the Recipient in respect of that consideration):
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(A) (where the Supplier is the person required to account to the relevant tax authority for the VAT) the Relevant Party must also pay to the Supplier (at the same time as paying that amount) an additional amount equal to the amount of the VAT. The Recipient must (where this paragraph (i) applies) promptly pay to the Relevant Party an amount equal to any credit or repayment the Recipient receives from the relevant tax authority which the Recipient reasonably determines relates to the VAT chargeable on that supply; and
(B) (where the Recipient is the person required to account to the relevant tax authority for the VAT) the Relevant Party must promptly, following demand from the Recipient, pay to the Recipient an amount equal to the VAT chargeable on that supply but only to the extent that the Recipient reasonably determines that it is not entitled to credit or repayment from the relevant tax authority in respect of that VAT.
(iii)Where a Loan Document requires any Obligor to reimburse or indemnify a Secured Party for any cost or expenses, that Party shall at the same time reimburse or indemnify (as the case may be) such Secured Party against all VAT incurred by the Secured Party in respect of such costs or expenses but only to the extent that such Secured Party reasonably determines that it is entitled to credit or repayment in respect of such VAT from the relevant tax authority.
(iv)In relation to any supply made by a Secured Party to any Obligor under a Loan Document, if reasonably requested by such Secured Party, that Obligor must promptly provide such Secured Party with details of that Obligor’s VAT registration number and any such other information as is reasonably requested in connection with such Secured Party's reporting requirements in relation to such supply.
(j)Survival. Each party’s obligations under this Section shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments, the expiration or cancellation of all Letters of Credit and the repayment, satisfaction or discharge of all obligations under any Loan Document.
SECTION 1.19Inability to Determine Rates. With respect to any Term SOFR Loan or Eurocurrency Rate Loan, subject to Section 2.24, if:
(a)the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that:
(i)if Adjusted Term SOFR or the Eurocurrency Rate is utilized in any calculations hereunder or under any other Loan Document with respect to any Obligations, interest, fees, commissions or other amounts, “Adjusted Term SOFR” or “Eurocurrency Rate”, as applicable, cannot be determined pursuant to the definition thereof on or prior to the first day of any Interest Period; or
(ii)with respect to any such Loan denominated in the Alternative Currency, a fundamental change has occurred in the foreign exchange or interbank markets with respect to the Alternative Currency (including changes in national or international financial, political or economic conditions or currency exchange rates or exchange controls);
(b)with respect to any Eurocurrency Rate Loan or any request therefor, the Required Lenders determine (which determination shall be conclusive and binding absent manifest error) that deposits in the applicable Currency are not being offered to banks in the applicable offshore interbank market for the applicable Currency, amount or Interest Period of such Eurocurrency Rate Loan, and the Required Lenders have provided notice of such determination to the Administrative Agent; or
(c)the Required Lenders determine that for any reason in connection with any request for such Loan that if Adjusted Term SOFR or the Eurocurrency Rate is utilized in any calculations hereunder or under any other Loan Document with respect to any Obligations, interest,
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fees, commissions or other amounts, Adjusted Term SOFR or the Eurocurrency Rate, as applicable, does not adequately and fairly reflect the cost to such Lenders of making or maintaining such Loan during the applicable Interest Period, and, in the case of (i) or (ii), the Required Lenders have provided notice of such determination to the Administrative Agent,
then, in each case, the Administrative Agent will promptly so notify the Borrower and each applicable Lender. Upon notice thereof by the Administrative Agent to the Borrower, any obligation of the Lenders to make Term SOFR Loans or Eurocurrency Rate Loans, as applicable, in each such Currency, and any right of the Borrower to convert any Loan in each such Currency (if applicable) to or continue any Loan as an Term SOFR Loan or a Eurocurrency Rate Loan, as applicable, in each such Currency, shall be suspended (to the extent of the affected Term SOFR Loans or Eurocurrency Rate Loans or, in the case of Term SOFR Loans or Eurocurrency Rate Loans, the affected Interest Periods) until the Administrative Agent (with respect to clause (b) or (c), at the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, (A) the Borrower may revoke any pending request for a borrowing of Term SOFR Loans or Eurocurrency Rate Loans in each such affected Currency (to the extent of the affected Term SOFR Loans or Eurocurrency Rate Loans or the affected Interest Periods) or, failing that, (I) in the case of any request for an affected Term SOFR Borrowing in Dollars, the Borrower will be deemed to have converted any such request into a request for a Borrowing of ABR Loans in the amount specified therein and (II) in the case of any request for an affected Eurocurrency Rate Borrowing in an Alternative Currency, then such request shall be ineffective and (B)(I) any outstanding affected Term SOFR Loans will be deemed to have been converted into ABR Loans at the end of the applicable Interest Period and (II) any outstanding affected Loans denominated in an Alternative Currency, at the Borrower’s election, shall either (1) be converted into ABR Loans denominated in Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) immediately or at the end of the applicable Interest Period or (2) be prepaid in full immediately or, in the case of Eurocurrency Rate Loans, at the end of the applicable Interest Period; provided that if no election is made by the Borrower by the date that is the earlier of (x) three Business Days after receipt by the Borrower of such notice or (y) with respect to a Eurocurrency Rate Loan, the last day of the current Interest Period, the Borrower shall be deemed to have elected clause (1) above. Upon any such prepayment, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 2.16.
SECTION 1.20Illegality. If it is or becomes unlawful in any applicable jurisdiction for a Lender to perform any of its obligations as contemplated by this Agreement or to fund, issue or maintain its participation in any Loan or it becomes unlawful for any Affiliate of a Lender to do so then: (a) that Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify the Borrower upon becoming aware of that event; (b) upon the Administrative Agent notifying the Borrower, the unused Commitment(s) of that Lender will be immediately cancelled; and (c) the Borrower shall repay that Lender's participation in any outstanding Loans made to it on the last day of the relevant Interest Period, for each Loan already made, occurring after the Lender has notified the Borrower or, if earlier, the date specified by the Lender in the notice delivered to the Administrative Agent being no earlier than the last day of any applicable grace period permitted by law and that Lender's corresponding Commitment(s) shall be cancelled in the amount of the participations repaid.
SECTION 1.21Mitigation Obligations; Replacement of Lenders.
(a)Designation of a Different Lending or Issuing Office. If any Lender or Issuing Bank requests compensation under Section 2.17, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender, any Issuing Bank or any Governmental Authority for the account of any Lender or any Issuing Bank pursuant to Section 2.18, then such Lender or Issuing Bank shall (at the request of the Borrower) use reasonable efforts to, as applicable, designate a different lending or issuing office for funding or booking its Loans hereunder or issuing Letters of Credit or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender or Issuing Bank, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.17 or 2.18, as the case may be, in the future, and (ii) would not subject such Lender or Issuing Bank to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or Issuing Bank. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
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(b)Replacement of Lenders or Issuing Banks. If any Lender or Issuing Bank requests compensation under Section 2.17, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender, any Issuing Bank or any Governmental Authority for the account of any Lender or Issuing Bank pursuant to Section 2.18 and, in each case, such Lender or Issuing Bank has declined or is unable to designate a different lending or issuing office in accordance with paragraph (a) of this Section, or if any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender or Issuing Bank and the Administrative Agent, require such Lender or Issuing Bank to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.04), all of its interests, rights (other than its existing rights to payments pursuant to Section 2.16, Section 2.17 or Section 2.18) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:
(i)the Borrower shall have paid to the Administrative Agent the assignment fee (if any) specified in Section 9.04;
(ii)such Lender or Issuing Bank shall have received, as applicable, payment of an amount equal to the outstanding principal of its Loans and participations in L/C Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 2.16) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(iii)in the case of any such assignment resulting from a claim for compensation under Section 2.17 or payments required to be made pursuant to Section 2.18, such assignment will result in a reduction in such compensation or payments thereafter;
(iv)such assignment does not conflict with Applicable Law; and
(v)in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Notwithstanding anything in this Section to the contrary, (i) any Lender that acts as an Issuing Bank may not be replaced as an Issuing Bank hereunder at any time it has any Letter of Credit outstanding hereunder unless arrangements satisfactory to such Lender (including the furnishing of a back-stop standby letter of credit in form and substance, and issued by an issuer, reasonably satisfactory to such Issuing Bank or the depositing of cash collateral into a cash collateral account in amounts and pursuant to arrangements reasonably satisfactory to such Issuing Bank) have been made with respect to such outstanding Letter of Credit and (ii) the Lender that acts as the Administrative Agent may not be replaced hereunder except in accordance with the terms of Section 8.06.
SECTION 1.22Cash Collateral.
(a)Obligation to Cash Collateralize. At any time that there shall exist a Defaulting Lender under the L/C Facility, within one (1) Business Day following the written request of the Administrative Agent or any Issuing Bank (with a copy to the Administrative Agent), the Borrower shall Cash Collateralize the Issuing Banks’ Fronting Exposure with respect to such Defaulting Lender (determined after giving effect to Section 2.23(a)(iv) and any Cash Collateral provided by such Defaulting Lender) in an amount not less than the Minimum Collateral Amount.
(b)Grant of Security Interest. The Borrower, and to the extent provided by any Defaulting Lender, such Defaulting Lender, shall, pursuant to an account pledge granting Collateral in
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the Cash Collateral Account, grant to the Administrative Agent, for the benefit of the Issuing Banks, and agrees to maintain, a first priority security interest in all such Cash Collateral as security for the Defaulting Lender’s obligation to fund participations in respect of L/C Obligations, to be applied pursuant to clause (c) below. If at any time the Administrative Agent determines that Cash Collateral is subject to any right or claim of any Person other than the Administrative Agent and the Issuing Banks as herein provided, or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount, the Borrower will, promptly upon demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after giving effect to any Cash Collateral provided by the Defaulting Lender).
(c)Application. Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section or Section 2.23 in respect of Letters of Credit shall be applied to the satisfaction of the Defaulting Lender’s obligation to fund participations in respect of L/C Obligations (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.
(d)Termination of Requirement. Cash Collateral (or the appropriate portion thereof) provided to reduce any Issuing Bank’s Fronting Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section following (i) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Lender status of the applicable L/C Lender), or (ii) the determination by the Administrative Agent and each Issuing Bank that there exists excess Cash Collateral; provided that, subject to Section 2.23 the Person providing Cash Collateral and each Issuing Bank may agree that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations and provided further that to the extent that such Cash Collateral was provided by the Borrower, such Cash Collateral shall remain subject to the security interest granted pursuant to the Loan Documents.
SECTION 1.23Defaulting Lenders.
(a)Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by Applicable Law:
(i)Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definitions of Required Lenders, Required Revolving Lenders, Required L/C Lenders, Required Term Loan Lenders and Section 9.02(b).
(ii)Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 9.08 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any Issuing Bank hereunder; third, to Cash Collateralize the Issuing Banks’ Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.22; fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the Issuing Banks’ future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.22; sixth, to the payment of any amounts owing to the Lenders or the Issuing Banks as a result of any judgment of a court of competent jurisdiction obtained by any Lender or the Issuing Banks against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so
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long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or L/C Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Disbursements owed to, all applicable Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Disbursements owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in L/C Obligations are held by the applicable Lenders pro rata in accordance with the applicable Commitments without giving effect to clause (iv) below. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section shall be deemed paid to and redirected by such Defaulting Lender, and each Lender and each Issuing Bank irrevocably consents hereto.
(iii)Commitment and L/C Fees. (A) No Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(A)Each L/C Lender shall be entitled to receive L/C Fees for any period during which that L/C Lender is a Defaulting Lender only to the extent allocable to its Applicable Percentage of the stated amount of Letters of Credit for which it has provided Cash Collateral pursuant to Section 2.22.
(B)With respect to any L/C Fee not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, the Borrower shall (x) pay to each L/C Lender that is a Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in L/C Obligations that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to each Issuing Bank the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such Issuing Bank’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv)Reallocation of Participations to Reduce Fronting Exposure. All or any part of such Defaulting Lender’s participation in L/C Obligations shall be reallocated among the L/C Lenders that are Non-Defaulting Lenders in accordance with their respective Applicable Percentages (calculated without regard to such Defaulting Lender’s L/C Commitment) but only to the extent that such reallocation does not cause the aggregate L/C Credit Exposure of any such Non-Defaulting Lender to exceed such Non-Defaulting Lender’s L/C Commitment. Subject to Section 9.17, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that L/C Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(v)Cash Collateral. If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, Cash Collateralize the Issuing Banks’ Fronting Exposure in accordance with the procedures set forth in Section 2.22.
(b)Defaulting Lender Cure. If the Borrower, the Administrative Agent and each Issuing Bank agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans
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of the other Lenders under the applicable Facilities or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit to be held pro rata by the Lenders under the applicable Facilities in accordance with the applicable Commitments (without giving effect to paragraph (a)(iv) above), whereupon, such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(c)New Letters of Credit. So long as any L/C Lender is a Defaulting Lender, no Issuing Bank shall be required to issue, extend, increase, reinstate or renew any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.
(d)Termination of Defaulting Lender. The Borrower may terminate the unused amount of the Commitment of any Lender that is a Defaulting Lender upon not less than five (5) Business Days’ prior notice to the Administrative Agent (which shall promptly notify the Lenders thereof), and in such event the provisions of Section 2.23(a)(ii) will apply to all amounts thereafter paid by the Borrower for the account of such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts); provided that (i) no Event of Default shall have occurred and be continuing, and (ii) such termination shall not be deemed to be a waiver or release of any claim the Borrower, the Administrative Agent, any Issuing Bank or any Lender may have against such Defaulting Lender.
SECTION 1.24Benchmark Replacement Setting.
(a)Benchmark Replacement.
(i)Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to any setting of any Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (a) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (b) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders. If the Benchmark Replacement is Daily Simple SOFR, all interest payments will be payable on a quarterly basis.
(ii)No Secured Hedging Agreement shall constitute a “Loan Document” for purposes of this Section 2.24.
(b)Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(c)Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the Borrower and the Lenders of (i) the implementation of any Benchmark
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Replacement and (ii) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. The Administrative Agent will notify the Borrower of (x) the removal or reinstatement of any tenor of a Benchmark pursuant to Section 2.24(d) and (y) the commencement of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 2.24, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 2.24.
(d)Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if any then-current Benchmark is a term rate (including the Term SOFR Reference Rate or EURIBOR) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative, then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is not or will not be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(e)Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period with respect to a given Benchmark, (i) the Borrower may revoke any pending request for a Term SOFR Borrowing of Term SOFR Loans, or a Eurocurrency Rate Borrowing of Eurocurrency Rate Loans, in each case, to be made, converted or continued during any Benchmark Unavailability Period denominated in the applicable Currency and, failing that, (A) in the case of any request for any affected Term SOFR Borrowing, if applicable, the Borrower will be deemed to have converted any such request into a request for an ABR Borrowing or conversion to ABR Loans in the amount specified therein and (B) in the case of any request for any affected Eurocurrency Rate Borrowing, if applicable, then such request shall be ineffective and (ii)(A) any outstanding affected Term SOFR Loans, if applicable, will be deemed to have been converted into ABR Loans at the end of the applicable Interest Period and (B) any outstanding affected Eurocurrency Rate Loans, at the Borrower’s election, shall either (I) be converted into ABR Loans denominated in Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) immediately or, in the case of Eurocurrency Rate Loans, at the end of the applicable Interest Period or (II) be prepaid in full immediately or, in the case of Eurocurrency Rate Loans, at the end of the applicable Interest Period; provided that, with respect to any Eurocurrency Rate Loan, if no election is made by the Borrower by the earlier of (x) the date that is three Business Days after receipt by the Borrower of such notice and (y) the last day of the current Interest Period for the applicable Eurocurrency Rate Loan, the Borrower shall be deemed to have elected clause (I) above. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 2.16.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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Each of the Obligors, jointly and severally, represents and warrants to the Administrative Agent, the Issuing Banks and the Lenders that:
SECTION 1.01Existence, Qualification and Power. Each of the Obligors (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license.
SECTION 1.02Authorization; No Contravention. The execution, delivery and performance by each of the Obligors of each Loan Document to which it is party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of its Organizational Documents, (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any material Contractual Obligation to which the Borrower is a party or affecting the Borrower or the properties of the Borrower or any Subsidiary or (ii) any material order, injunction, writ or decree of any Governmental Authority or any arbitral award to which the Borrower or any Subsidiary or its property is subject or (c) violate any Law in any material respect.
SECTION 1.03Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Obligors of this Agreement or any other Loan Document, except for such approvals, consents, exemptions, authorizations, actions or notices that have been duly obtained, taken or made and in full force and effect, provided that filings with the Companies House in England and Wales shall be made no later than twenty (21) days from the date of the relevant Loan Document.
SECTION 1.04Execution and Delivery; Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each of the Obligors. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of each Obligor, enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other Laws affecting creditors’ rights generally and by general principles of equity.
SECTION 1.05Financial Statements; No Material Adverse Effect.
(a)Financial Statements. The Audited Financial Statements were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and fairly present in all material respects the financial condition of the Parent Guarantor and its Subsidiaries, as of the date thereof and their results of operations and cash flows for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein. The unaudited consolidated balance sheet of the Parent Guarantor and its Subsidiaries and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on September 30, 2021 were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and fairly present in all material respects the financial condition of the Parent Guarantor and its Subsidiaries, as of the date thereof and their results of operations and cash flows for the period covered thereby, subject to the absence of notes and to normal year-end audit adjustments.
(b)No Material Adverse Change. Since the date of the Audited Financial Statements, there has been no event or circumstance that, either individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.
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SECTION 1.06Litigation. There are no actions, suits, proceedings, claims, disputes or investigations pending or, to the knowledge of each Obligor, threatened, at Law, in equity, in arbitration or before any Governmental Authority, by or against the Obligors or against any of their properties or revenues that (a) could reasonably be expected to be adversely determined, and, if so determined, either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect or (b) purport to affect or pertain to this Agreement or any other Loan Document or any of the transactions contemplated hereby.
SECTION 1.07No Material Adverse Effect; No Default. No Obligor is in default under or with respect to any Contractual Obligation that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
SECTION 1.08Property; Insurance.
(a)Ownership of Properties. Each of the Obligors has good, valid and indefeasible title to their respective material properties or assets, whether real, personal or mixed, or tangible or intangible, in each case free and clear of all Liens except Permitted Liens.
(b)Intellectual Property. Each of the Obligors owns, licenses or possesses the right to use all of the trademarks, tradenames, service marks, trade names, copyrights, patents, franchises, licenses and other intellectual property rights that are necessary for the operation of their respective businesses, as currently conducted, business, and the use thereof by such Obligor does not conflict with the rights of any other Person, except to the extent that such failure to own, license or possess or such conflicts, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. The conduct of the business of each Obligor as currently conducted or as contemplated to be conducted does not infringe upon or violate any rights held by any other Person, except to the extent that such infringements and violations, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of each Obligor, threatened that could reasonably be expected to be adversely determined, and, if so determined, could reasonably be expected to have a Material Adverse Effect.
SECTION 1.09Taxes. The Parent Guarantor and its Subsidiaries have filed all federal, state and other tax returns and reports required to be filed, and have paid all federal, state and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except (a) Taxes that are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves are being maintained in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect.
SECTION 1.10Disclosure. (a) Each Obligor has disclosed to the Administrative Agent, the Issuing Banks and the Lenders all agreements, instruments and corporate or other restrictions to which any Obligor is subject, and all other matters known to it, that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. The reports, financial statements, certificates and other written information (other than projected or pro forma financial information) furnished by or on behalf of the Obligors to any Agent, any Issuing Bank or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished), taken as a whole, do not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein (when taken as a whole), in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected or pro forma financial information, the Obligors represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time of preparation and delivery (it being understood that such projected information may vary from actual results and that such variances may be material).
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(b)As of the Closing Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.
SECTION 1.11Compliance with Laws. Each of the Parent Guarantor and its Subsidiaries is in compliance with the requirements of all Laws (including Environmental Laws) and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to so comply, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
SECTION 1.12ERISA Compliance.
(a)Except as could not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect, (i) each Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state Laws and (ii) each Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter from the IRS to the effect that the form of such Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the IRS to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the IRS, and, to the knowledge of the Obligors, nothing has occurred that would prevent or cause the loss of such tax-qualified status.
(b)There are no pending or, to the knowledge of the Obligors, threatened or contemplated claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that, either individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.
(c)Neither the Borrower nor the Parent Guarantor is a “benefit plan investor” within the meaning of Section 3(42) of ERISA.
(d)No ERISA Event has occurred, and neither the Obligors nor any ERISA Affiliate is aware of any fact, event or circumstance that, either individually or in the aggregate, could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan that, either individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.
(e)The present value of all accrued benefits under each Pension Plan (based on those assumptions used to fund such Pension Plan) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Pension Plan allocable to such accrued benefits by a material amount. As of the most recent valuation date for each Multiemployer Plan, the potential liability of any Obligor or any ERISA Affiliate for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 or Section 4205 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, is zero.
(f)To the extent applicable, each Foreign Plan has been maintained in compliance with its terms and with the requirements of any and all applicable requirements of Law and has been maintained, where required, in good standing with applicable regulatory authorities, except to the extent that the failure so to comply could not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect. Neither the Obligors nor any Subsidiary thereof has incurred any material obligation in connection with the termination of or withdrawal from any Foreign Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Plan that is funded, determined as of the end of the most recently ended fiscal year of the Obligors or any Subsidiary thereof, as applicable, on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the property of such Foreign Plan by a material amount, and for each Foreign Plan that is not funded, the obligations of such Foreign Plan are properly accrued.
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(g)Neither the Borrower nor any of its Subsidiaries is or has at any time been an employer (for the purposes of sections 38 to 53 of the Pensions Act 2004) of an occupational pension scheme which is not a money purchase scheme (both terms as defined in the Pensions Schemes Act 1993).
(h)Neither the Borrower nor any of its Subsidiaries is or has at any time been "connected" with or an "associate" of (as those terms are used in sections 38 and 43 of the Pensions Act 2004) such an employer.
SECTION 1.13Environmental Matters and Claims. (a) Except as heretofore disclosed in writing to the Administrative Agent or where the failure to comply would not alone or in the aggregate result in a Material Adverse Effect, (i) each of the Obligors and the Approved Managers will, when required under applicable law to operate its business as then being conducted, be in compliance with all applicable United States federal and state, local, foreign and international laws, regulations and conventions relating to pollution prevention, protection of human health (to the extent related to exposure to Materials of Environmental Concern) or protection of the environment (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations and conventions to which either is a party relating to (1) emissions, discharges, releases or threatened releases of pollutants, contaminants, wastes, toxic substances, hazardous materials, oil, hazardous substances, petroleum and petroleum products and by-products (“Materials of Environmental Concern”), or (2) the processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (collectively, the “Environmental Laws”); (ii) each of the Obligors and the Approved Managers will, when required under applicable Environmental Law, have all permits, licenses, approvals, rulings, variances, exemptions, clearances, consents or other authorizations required under applicable Environmental Laws (“Environmental Approvals”) and will, when required under applicable Environmental Law be in compliance with all such Environmental Approvals required to operate their business as then being conducted; and (iii) each of the Obligors and the Approved Managers has not received any notice of any claim, action or cause of action by any person, entity or Governmental Authority, alleging potential liability for, or a requirement to incur, Governmental Authority investigation costs, cleanup costs, response and/or remedial costs (whether incurred by a Governmental Authority or otherwise), natural resource damages, property damages, personal injuries, attorneys’ fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (1) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (2) any violation, or alleged violation, of any Environmental Law or Environmental Approval (“Environmental Claim”) (other than Environmental Claims that have been fully and finally adjudicated or otherwise determined and all fines and penalties, if any, payable by it in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); and (b) except as heretofore disclosed in writing to the Administrative Agent there is no Environmental Claim pending or threatened in writing against any of the Obligors or the Approved Managers and there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Materials of Environmental Concern, that could form the basis of any Environmental Claim against the Obligors the adverse disposition of which is reasonably like to result in a Material Adverse Effect.
SECTION 1.14Margin Regulations. The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying Margin Stock, or extending credit for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of any Credit Extension hereunder will be used to buy or carry any Margin Stock. Following the application of the proceeds of each Borrowing or drawing under each Letter of Credit, not more than 25% of the value of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a consolidated basis) will be Margin Stock.
SECTION 1.15Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.
SECTION 1.16Sanctions; Anti-Corruption.
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(a)No Relevant Person is:
(i) a Restricted Party; or
(ii) in breach of any applicable Sanctions; or
(iii) has received notice of, or to the best of its knowledge and belief, is aware of any claim, proceeding or investigation against it concerning any Sanctions by any Sanctions Authority.
(b)The Parent Guarantor, its Subsidiaries and their respective directors, officers and employees and, to the knowledge of the Parent Guarantor, the agents of the Parent Guarantor and its Subsidiaries, are in compliance with the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), and any other applicable anti-corruption law, in all material respects.
(c)The Parent Guarantor and its Subsidiaries have instituted and maintain policies and procedures designed to ensure continued compliance with the FCPA and any other applicable anti-corruption laws.
SECTION 1.17Solvency. Each of the Obligors is Solvent.
SECTION 1.18Pari Passu Ranking. Each Obligor’s payment obligations under the Loan Documents to which it is a party rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
SECTION 1.19Equity Interests. (a) The Parent Guarantor directly or indirectly and beneficially owns one hundred percent (100%) of the Equity Interests of the Borrower, and (b) prior to the Closing Date, subject to the Existing Indebtedness and Liens granted thereunder, the Borrower directly or indirectly and beneficially owns one hundred percent (100%) of the Equity Interest of each Subsidiary Guarantor. The Borrower does not own, directly or indirectly, any Equity Interests other than those of the Subsidiary Guarantors.
SECTION 1.20Liens. As of the Closing Date, no Obligor (other than the Parent Guarantor) has any Liens that are not Permitted Liens.
SECTION 1.21Indebtedness. As of the Closing Date, no Obligor (other than the Parent Guarantor) has Indebtedness that is not Permitted Indebtedness.
SECTION 1.22Chief Executive Offices . The chief executive office and chief place of business and the office in which the records relating to such party’s earnings and other receivables are kept is located at, with respect to the Parent Guarantor, “Le Millenium”, 9 Boulevard Charles III, Monaco, 98000, and with respect to all other Obligors, South Denes Business Park, South Beach Parade, Great Yarmouth, NR30 3QR, United Kingdom.
SECTION 1.23No Proceedings to Dissolve . There are no proceedings or actions pending or contemplated by it, or to its best knowledge contemplated by any third party, to dissolve or terminate any Obligor.
SECTION 1.24Vessels. As of the Closing Date:
(a)each Vessel is in the sole and absolute ownership of the Vessel Owner that is identified herein as owning such Vessel and duly registered in such Vessel Owner’s name under the law of an Approved Flag Jurisdiction, and is not subject to any Liens other than Permitted Liens;
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(b)each Vessel is seaworthy for hull and machinery insurance warranty purposes and in every way fit for its intended service;
(c)each Collateral Vessel is insured in accordance with the provisions of this Agreement and the Security Documents and the requirements hereof and thereof in respect of such insurances will have been complied with;
(d)each Vessel is in class with a Classification Society in accordance with the provisions of this Agreement and the requirements hereof in respect of such classification will have been complied with; and
(e)each Collateral Vessel is managed by an Approved Manager pursuant to an Approved Management Agreement.
SECTION 1.25DAC 6. The Obligors shall supply to the Administrative Agent (in sufficient copies for all the Lenders, if the Administrative Agent so requests) promptly upon the making of such reporting and to the extent permitted by applicable law and regulation, any reporting made to any governmental or taxation authority by or on behalf of any member of the Group or by any adviser to such member of the Group in relation to DAC 6 or any law or regulation which implements DAC 6 and any unique identification number issued by any governmental or taxation authority to which any such report has been made (if available). For purposes of this Section 3.25, “DAC 6” means the Council Directive of 25 May 2018 (2018/822/EU) amending Directive 2011/16/EU.
SECTION 1.26Repetition. The representations and warranties made herein and in any certificate or other document delivered pursuant hereto or in connection herewith shall survive the making of the Facility. Each of such representations and warranties shall be deemed to be made by each Obligor by reference to the facts and circumstances then existing on the date of each Borrowing Request, each Borrowing and the first day of each Interest Period.
ARTICLE IV
CONDITIONS
SECTION 1.01Closing Date. The obligation of each Lender (including each Issuing Bank) to make Credit Extensions hereunder on or after the Closing Date is subject to the satisfaction (or waiver in accordance with Section 9.02) of the following conditions (and, in the case of each document specified in this Section to be received by the Administrative Agent, such document shall be in form and substance acceptable to the Administrative Agent, each Issuing Bank and each Lender), provided that the Administrative Agent will provide confirmation of the satisfaction of conditions precedent to the Lenders one (1) Business Day prior to making such Credit Extensions on the Closing Date:
(a)Corporate Authority. The Administrative Agent shall have received the following documents in form and substance acceptable to the Administrative Agent:
(i)copies, certified as true and complete by an officer, director or manager (as applicable) of each Obligor of: (A) the resolutions of the directors or members thereof, and if required, resolutions of the shareholders thereof, evidencing approval of the Loan Documents to which each is a party and authorizing an appropriate person or persons or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations, (B) all documents evidencing any other necessary action (including actions by such parties thereto other than the Obligors as may be reasonably required by the Lenders), approvals or consents with respect to the Loan Documents, (C) its Organizational Documents, (D) the list of names and true signatures of the officers, directors or equivalent and attorneys-in-fact (as applicable) of such Obligor signing each Loan Document to which it is or to be a party and the other documents to be delivered hereunder and thereunder, (E) a certificate issued by the
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jurisdiction of organization as to the good standing (or equivalent concept in such jurisdiction) thereof and (F) a structure chart showing the organizational structure of the Group and Parent Guarantor;
(ii)a certificate signed by a Responsible Officer of (A) the Borrower to the effect that no Default or Event of Default shall have occurred and be continuing and (B) each of the Obligors to the effect that the representations and warranties of such Obligor contained in this Agreement and the other Loan Documents are true and correct as of the date of such certificate (unless an earlier date is set forth therein); and
(iii)In respect of each company incorporated in England and Wales whose shares are the subject of the Security Documents (a “Charged Company”), either:
(A)a certificate of an authorized signatory of the Parent Guarantor certifying that:
(1)each company has complied within the relevant timeframe with any notice it has received pursuant to Part 21A of the Companies Act 2006 from that Charged Company; and
(2)no "warning notice" or "restrictions notice" (in each case as defined in Schedule 1B of the Companies Act 2006) has been issued in respect of those shares,
(3)together with a copy of the "PSC register" (within the meaning of section 790C(10) of the Companies Act 2006) of that Charged Company, which, in the case of a Charged Company, is certified by an authorized signatory of the Parent to be correct, complete and not amended or superseded as at a date no earlier than the date of this Agreement; or
(B)a certificate of an authorized signatory of the Parent Guarantor certifying that such Charged Company is not required to comply with Part 21A of the Companies Act 2006.
(b)This Agreement. The Administrative Agent shall have received from each party hereto a counterpart of this Agreement signed on behalf of such party.
(c)The Notes. The Borrower shall have duly executed and delivered any Notes to the Administrative Agent or the Lenders, as applicable.
(d)Other Loan Documents. The Administrative Agent shall have received from each party thereto, the following Loan Documents, together with all other documents and notices required to be delivered thereunder:
(i)the Account Pledges;
(ii)the Share Pledges;
(iii)the Mortgages;
(iv)the Earnings Assignments;
(v)the Insurances Assignments;
(vi)the Charter Assignments, if any;
(vii)the Secured Hedging Agreement Assignments, if any;
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(viii)the Subordinated Debt Assignments, if any;
(ix)the Manager’s Undertakings;
(x)the Fee Letters;
(xi)the Subordination Agreement; and
(xii)the Secured Hedging Agreements, if any.
(e)Joint Venture Agreements; Shareholders Agreements; Silent Partnership Agreements; Intercompany Loan Agreements. Each of the Borrower and the Subsidiary Guarantors shall have delivered any joint venture agreements, shareholders agreements, silent partnership agreements and intercompany loan agreements to which it is a party to the Administrative Agent, or provided written confirmation to the Administrative Agent that no such agreements exist.
(f)Repayment of Existing Indebtedness. Evidence that the Obligors shall have been fully released from any obligations or liability for the principal of and interest on, and all other amounts owing in respect of, the Existing Indebtedness, that all other Indebtedness of the Obligors (other than Permitted Indebtedness) shall have been (or shall be simultaneously) paid in full, that any commitments to extend credit under the Existing Credit Documents or any such other Indebtedness shall have been canceled or terminated and that all Guarantees (other than for trailing liabilities) in respect of, and all Liens securing the Existing Credit Documents or any such other Lien (except for Permitted Liens), shall have been released (or arrangements for such release satisfactory to Security Trustee shall have been made).
(g)Fees and Expenses. The Secured Parties shall have received payment in full of all fees and expenses due to each thereof pursuant to the terms hereof on the date when due including, without limitation, all fees and expenses due under Sections 2.12 and 9.03.
(h)Vessel Documentation. The Security Trustee shall have received (in form and substance acceptable to the Security Trustee):
(i)Documentary evidence that:
(A)each Vessel is definitively and permanently registered in the name of the relevant Vessel Owner under an Approved Flag Jurisdiction, unencumbered save by the relevant Mortgage thereon, if any;
(B)each Mortgage has been duly recorded against the relevant Collateral Vessel as a valid first preferred or priority ship mortgage in accordance with the laws of the Approved Flag Jurisdiction on which such Collateral Vessel is registered;
(C)each Vessel is insured in accordance with the provisions of Section 5.06 of this Agreement and all requirements therein in respect of insurances have been complied with, together with an insurance report addressed to the Administrative Agent, in form and substance acceptable to the Lenders, from a reputable insurance advisor appointed by the Administrative Agent in respect of the insurances of the Collateral Vessels; and
(D)each Collateral Vessel maintains the highest class for vessels of its type with the Classification Society free of any material overdue recommendations, which status shall be established by a confirmation of class certificate issued by the Classification Society and dated a date reasonably near the Closing Date.
(ii)Valuations of the Fair Market Value of each Collateral Vessel, paid for by the Borrower but addressed to the Administrative Agent, stated to be for the purposes of this
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Agreement within ten (10) days of the Effective Date, which evidence an aggregate average Fair Market Value for the Collateral Vessels of not less than 175% of all Borrowings requested on the Closing Date.
(iii)A copy of any Charter to which any Collateral Vessel may be subject.
(iv)A copy of the Inventory of Hazardous Materials, if applicable, for each Collateral Vessel; provided, however, that the Inventory of Hazardous Materials with respect to the SEAJACKS ZARATAN shall be delivered no later than twelve (12) months following the Closing Date.
(v)The following documents establishing that each Collateral Vessel will, as from the Closing Date, be managed by an Approved Manager:
(A)a copy of each Approved Management Agreement, certified as of the Closing Date by an Authorized Officer of the relevant Collateral Vessel Owner as being a true and correct copy thereof; and
(B)copies of each Approved Manager’s Document of Compliance and of each Collateral Vessel’s IAPPC, ISSC and SMC (together with any other details of the applicable safety management system which the Security Trustee requires), certified as of the Closing Date by an Authorized Officer of the relevant Collateral Vessel Owner as being a true and correct copy thereof.
(i)Searches; Perfection Filings.
(i)The Administrative Agent shall have received copies, dated as of a recent date, of tax, lien, judgment, intellectual property, bankruptcy and pending suit searches, in all jurisdictions as the Administrative Agent shall reasonably request relating to the Obligors, in each case accompanied by evidence (including any UCC termination statements) that the Liens indicated in any such search results constitute Permitted Liens; and
(ii)The Administrative Agent shall have received evidence that Uniform Commercial Code financing statements and all other filings necessary to establish, protect and perfect the Liens in the Collateral granted on the Closing Date, have been filed, or will be filed upon the making of the Loans, in such jurisdictions as the Administrative Agent may reasonably require.
(j)Financial Statements. The Borrowers shall deliver to the Administrative Agent the Audited Financial Statements.
(k)Contracted Cash Flows Certificate. The Administrative Agent shall have received a Contracted Cash Flows Certificate for the period commencing on the Closing Date.
(l)Reserved.
(m)Licenses, Consents and Approvals. The Administrative Agent shall have received satisfactory evidence that all necessary licenses, consents and approvals in connection with the transactions contemplated by the Loan Documents have been obtained.
(n)Know Your Customer Requirements. The Administrative Agent shall have received documentation to the satisfaction of each Lender in connection with its know your customer requirements, documentation and other evidence as is reasonably requested by the Administrative Agent or a Lender in order for each to carry out and be satisfied with the results of all necessary “know your customer” or other checks which it is required to carry out in relation to the transactions contemplated by this Agreement and the other Loan Documents, including specimen signatures, and including without limitation obtaining, verifying and recording certain information and documentation
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that will allow the Administrative Agent and each of the Lenders to identify each Obligor in accordance with the requirements of the Patriot Act.
(o)Legal Opinions. The Administrative Agent shall have received customary legal opinions addressed to the Administrative Agent and the Security Trustee from (i) Seward & Kissel LLP, counsel to the Secured Parties; (ii) Norton Rose Fulbright LLP, special counsel to the Secured Parties as to matters of laws of England and Wales; (ii) Patton, Moreno & Asvat, special counsel to the Secured Parties as to matters of laws of the Republic of Panama; (iii) L&J Law Office, PLC, special counsel to the Secured Parties as to matters of laws of Japan; and (iv) Conyers Dill & Pearman Limited, special counsel to the Secured Parties as to matters of laws of Bermuda, in each case in a form acceptable to the Administrative Agent and the Lenders regarding the transactions contemplated by this Agreement and the other Loan Documents and as to such other matters as the Administrative Agent may reasonably request.
(p)Process Agent Appointment. Evidence satisfactory to the Lenders that an agent for service of process has been appointed in each relevant jurisdiction under the Loan Documents as applicable.
(q)Termination of Existing Credit Documents. The Borrower shall have provided to the Administrative Agent evidence that the Existing Credit Documents has been or concurrently with the Closing Date is being terminated, all amounts due and payable thereunder have been paid in full and (if applicable) all guarantees and Liens thereunder have been or concurrently with the Closing Date are being released.
(r)Miscellaneous. Any other document, authorization, opinion or assurance as the Administrative Agent or the Required Lenders (through the Administrative Agent) may request.
Without limiting the generality of Section 8.03(c), for purposes of determining satisfaction of the conditions specified in this Section, each Lender or Issuing Bank that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender or Issuing Bank unless the Administrative Agent shall have received notice from such Lender or Issuing Bank prior to the proposed Closing Date specifying its objection thereto.
The Administrative Agent shall notify the Borrower, the Issuing Banks and the Lenders of the Closing Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders and Issuing Banks to make Credit Extensions hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m. (New York City time) on the last day of the Term Loan Availability Period (and, in the event that such conditions are not so satisfied or waived, the Revolving Commitments, the L/C Commitments and the Term Loan Commitments shall terminate at such time).
SECTION 1.02Conditions to All Credit Extensions. The obligation of each Lender and each Issuing Bank to make a Credit Extension (including its initial Credit Extension) is additionally subject to the satisfaction of the following conditions:
(a)the Administrative Agent and, if applicable, the applicable Issuing Bank shall have received a written Borrowing Request or request for L/C Credit Extension, as applicable, in accordance with the requirements hereof;
(b)the representations and warranties of the Obligors set forth in this Agreement and in any other Loan Document shall be true and correct in all material respects (or, in the case of any such representation or warranty already qualified by materiality, in all respects) on and as of the date of such Credit Extension (or, in the case of any such representation or warranty expressly stated to have been made as of a specific date, as of such specific date);
(c)with respect to any Borrowing of a Revolving Loan, (i) evidence that following such Borrowing, the Obligors shall be in pro-forma compliance with the Collateral Maintenance
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Test set forth in Section 5.14 and (ii) the Contracted Cash Flows Certificate for the most recent period shall have been delivered and determined to be acceptable to the Required Lenders, provided however, that in the event the Required Lenders do not notify the Administrative Agent that such Contracted Cash Flows Certificate is not acceptable, the Administrative Agent shall be permitted to assume that such Contracted Cash Flows Certificate, once delivered in compliance with the other provisions of this Agreement, is acceptable to the Required Lenders; and
(d)no Default shall have occurred and be continuing or would result from such Credit Extension or from the application of proceeds thereof.
Each Borrowing Request or request for L/C Credit Extension, as applicable, by the Borrower hereunder and each Credit Extension shall be deemed to constitute a representation and warranty by the Borrower on and as of the date of the applicable Credit Extension as to the matters specified in clauses (b) and (d) above in this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated, all Obligations shall have been paid in full and all Letters of Credit shall have expired or been canceled (without any pending drawings), each of the Obligors covenants and agrees with the Administrative Agent, the Issuing Banks and the Lenders that:
SECTION 1.01Financial Statements. The Borrower will furnish to the Administrative Agent, each Issuing Bank and each Lender:
(a)as soon as available, and in any event within one hundred twenty (120) days after the end of each fiscal year of the Parent Guarantor (or, if earlier, five (5) days after the date required to be filed with the SEC) (commencing with the fiscal year ended December 31, 2022), the audited consolidated balance sheet of the Parent Guarantor and its Subsidiaries and the related consolidated statements of income or operations, shareholders’ equity and cash flows, all in reasonable detail and prepared in accordance with GAAP, certified as having been audited by an Acceptable Accounting Firm;
(b)as soon as available, but in any event within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of the Parent Guarantor (or, if earlier, five (5) days after the date required to be filed with the SEC) (commencing with the fiscal year ended December 31, 2022), the unaudited consolidated balance sheet of the Parent Guarantor and its Subsidiaries and the related consolidated statements of income or operations, shareholders’ equity and cash flows, all in reasonable detail and prepared in accordance with GAAP, certified by a Financial Officer of the Parent Guarantor as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows;
(c)as soon as available, but in any event prior to the first day of each fiscal year, an annual consolidated budget and cash flow projections for the Parent Guarantor; and
(d)together with each set of financial statements that the Borrower delivers under paragraphs (a) and (b) above, a Compliance Certificate (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto and (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.12; and
(e)a Contracted Cash Flows Certificate, to be delivered no later than (x) ten (10) days prior to (1) the Closing Date and (2) thereafter, the first day of each fiscal quarter, and (y) five (5) Business Days following a change to any Valid Employment term which would have the effect of any of the following:
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(i)reducing Expected EBITDA,
(ii)reducing the term of any Valid Employment,
(iii)force majeure,
(iv)non-payment of earnings under a Valid Employment,
(v)any other assumption made in Contracted Cash Flows Forecast proves not to be realistic in the opinion of the Lenders,
(vi)cancellation of any Valid Employment for any reason by any party,
provided that any such updated Contract Cash Flows Certificate delivered under this clause (y) shall take into account such change(s) (each, an “Updated Cash Flows Certificate”).
SECTION 1.02Green Loan Reporting; Valuations; Other Information. The Borrower will deliver to the Administrative Agent, each Issuing Bank and each Lender (and with respect to (a) below, the Green Advisor):
(a)(i) within thirty (30) days of the Closing Date, a Green Loan Compliance Certificate, and (ii) thereafter, so long as any Green Loan is outstanding, within one hundred twenty (120) days after the end of each fiscal year of the Borrower, in form and substance reasonably acceptable to the Lenders and the Green Advisor, a Green Loan Compliance Certificate, together with (x) a Green Loan Report, and (y) a Sustainability Report; provided that, for the avoidance of doubt, any failure to comply with this paragraph (a) shall not result in an Event of Default, but rather a Green Loan Mandatory Conversion;
(b)valuation certificates issued by two (2) Approved Brokers selected and appointed by the Borrower, setting forth the Fair Market Value of each Collateral Vessel, together with a Compliance Certificate setting forth calculations for the Collateral Maintenance Test, as follows:
(i)at the Borrower’s expense, not later than ten (10) days after the end of each fiscal quarter ending June 30th and December 31st;
(ii)at the Lenders’ expense, at all other times upon the request of the Administrative Agent or the Required Lenders, unless an Event of Default has occurred and is continuing, in which case the Borrower shall procure it at its expense as often as requested,
provided that if there is a difference of or in excess of fifteen percent (15%) between the two (2) valuations obtained, the Borrower shall, at its sole expense, obtain a third valuation from an Approved Broker appointed by the Agent in consultation with the Borrower.
(c)no later than ten (10) days after the end of each fiscal quarter, evidence of the Equity Interest in Scorpio Tankers Inc. (including the number of shares of common stock) held by the Parent Guarantor at the end of such fiscal quarter;
(d)promptly after dispatch, but in any event within 5 days, all documents dispatched by an Obligor to its shareholders or creditors generally;
(e)if applicable, upon the request of any Lender and at the cost of the Borrower, on or before July 31st in each calendar year, supply or procure the supply to the Administrative Agent of all information necessary in order for that Lender to comply with its obligations under the Poseidon Principles in respect of the preceding year, including, without limitation, all ship fuel oil consumption data required to be collected and reported in accordance with Regulation 22A of Annex VI and any Statement of Compliance, in each case relating to the Collateral Vessels for the preceding calendar year provided always that no Lender shall publicly disclose
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such information with the identity of the Collateral Vessels without the prior written consent of the Borrower. For the avoidance of doubt, such information shall constitute “Information” under this Agreement, but the Borrower acknowledges that, in accordance with the Poseidon Principles, such information will form part of the information published regarding the relevant Lender’s portfolio climate alignment;
(f)promptly following any request therefor, (i) such other information regarding the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Issuing Bank or Lender (through the Administrative Agent) may from time to time reasonably request; or (ii) information and documentation reasonably requested by the Administrative Agent, any Issuing Bank or any Lender for purposes of compliance with applicable “know your customer” requirements under the PATRIOT Act or other applicable anti-money laundering laws. The Obligors shall promptly upon the request of any Lender supply or procure the supply of such documentation as is reasonably requested by such Lender, in order for the Lender, to carry out and be satisfied it has complied with all necessary identification and verification checks or other similar checks under all applicable laws and regulations, including checks (but not limited to) to be carried out by the Lender pursuant to anti-money laundering laws, terrorist financing laws and Sanctions and embargoes laws and other regulations with regard to the transactions contemplated in this Agreement and the other Loan Documents;
(g)promptly after receipt thereof by the Parent Guarantor or any Subsidiary, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of the Parent Guarantor or any Subsidiary thereof; and
(h)promptly following request therefor, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of the Borrower or the Parent Guarantor by independent accountants in connection with the accounts or books of the Borrower, the Parent Guarantor or any Subsidiary, or any audit of any of them as the Administrative Agent or any Issuing Bank or Lender (through the Administrative Agent) may from time to time reasonably request.
SECTION 1.03Notices. The Borrower will promptly notify the Administrative Agent, each Issuing Bank and each Lender of:
(a)the occurrence of any Default;
(b)the filing, commencement or judgment in respect of any material action, suit, investigation or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof, including pursuant to any applicable Environmental Laws;
(c)the occurrence of any ERISA Event;
(d)notice of any action arising under any Environmental Law or of any noncompliance by the Borrower or any Subsidiary with any Environmental Law or any permit, approval, license or other authorization required thereunder that, if adversely determined, could reasonably be expected to have a Material Adverse Effect;
(e)any material change in accounting or financial reporting practices by the Parent Guarantor or any Subsidiary thereof, provided that the Borrower shall provide notice of any change to its fiscal year prior to the date of such change;
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(f)to the extent permitted by Law, promptly upon becoming aware thereof, any claim, proceeding, formal notice or investigation against any Obligor by any Sanctions Authority with respect to Sanctions; and
(g)any matter or development that has had or could reasonably be expected to have a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth the details of the occurrence requiring such notice and stating what action the Borrower has taken and proposes to take with respect thereto.
SECTION 1.04Preservation of Existence, Etc. The Borrower will, and will cause each of its Subsidiaries to, (a) preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 6.03 or 6.04; (b) take all reasonable action to maintain all rights, licenses, permits, privileges and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect; and (d) within the relevant timeframe, comply with any notice it receives pursuant to Part 21A of the Companies Act 2006 from any company incorporated in England and Wales whose shares are the subject of a Share Pledge; and promptly provide the Security Trustee with a copy of that notice.
SECTION 1.05Maintenance of Properties. Except as expressly provided herein, the Borrower will, and will cause each of its Subsidiaries to, (a) maintain, preserve and protect all of its properties and equipment necessary in the operation of its business in good working order and condition (ordinary wear and tear excepted) and (b) make all necessary repairs thereto and renewals and replacements thereof, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect.
SECTION 1.06Maintenance of Insurance. (a) Each Obligor shall maintain with financially sound and reputable insurance or reinsurance companies rated at least A- AMBest or BBB+ S&P (or any equivalent notation from equivalent agency), insurance on all its properties and against all such risks and in at least such amounts as are usually insured against by companies of established reputation engaged in the same or similar business from time to time.
(b)Each of the Vessel Owners shall comply with each of the insurance requirements set forth in Schedule 5.06B.
SECTION 1.07Payment of Obligations. Each Obligor will, and will cause each of its Subsidiaries to, pay, discharge or otherwise satisfy as the same shall become due and payable, all of its obligations and liabilities, including Tax liabilities, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by such Obligor or such Subsidiary, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect.
SECTION 1.08Compliance with Laws. Each Obligor will, and will cause each of its Subsidiaries to, comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect.
SECTION 1.09Environmental Matters. Each Obligor will comply in all material respects with all Environmental Laws applicable to the ownership or use of any Collateral Vessel or property now or hereafter owned or operated by such Obligor, pay or cause to be paid within a reasonable time period all costs and expenses incurred in connection with such compliance (except to the extent being contested in good faith), and keep or cause to be kept all such Collateral Vessel or property free and clear of any Liens imposed pursuant to such Environmental Laws. No Obligor will generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of,
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Hazardous Materials on or from any Collateral Vessel or property now or hereafter owned or operated or occupied by such Obligor, or transport or permit the transportation of Hazardous Materials to or from any ports or property, except in each case in material compliance with all applicable Environmental Laws and as reasonably required by the trade in connection with the operation, use and maintenance of any such property or otherwise in connection with their businesses.
SECTION 1.10Books and Records; Inspections. The Parent Guarantor will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries, in conformity in all material respects with generally accepted accounting principles and all requirements of law, shall be made of all dealings and transactions in relation to its business. The Parent Guarantor will, and will cause each of its Subsidiaries (other than the Excluded Subsidiaries) to, permit officers and designated representatives of the Administrative Agent and the Lenders as a group to visit and inspect, during regular business hours and under guidance of officers of the Parent Guarantor or any Subsidiary (other than the Excluded Subsidiaries) thereof, any of the properties of the Parent Guarantor or any Subsidiary thereof, and to examine the books of account of the Parent Guarantor or any Subsidiary (other than the Excluded Subsidiaries) thereof and discuss the affairs, finances and accounts of the Parent Guarantor or any Subsidiary (other than the Excluded Subsidiaries) thereof with, and be advised as to the same by, its and their officers and independent accountants, all upon reasonable advance notice and at such reasonable times and intervals and to such reasonable extent as the Administrative Agent or the Required Lenders may request; provided that, unless an Event of Default exists and is continuing at such time, the Administrative Agent and the Lenders shall not be entitled to request more than two (2) such visitations and/or examinations in any fiscal year of the Parent Guarantor.
SECTION 1.11Inspection Rights. The Borrower and each Subsidiary Guarantor will permit representatives and independent contractors of the Administrative Agent and each Issuing Bank and Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the reasonable expense of the Obligors and at such reasonable times during normal business hours and as often as may be reasonably requested; provided that, other than with respect to such visits and inspections during the continuation of an Event of Default, (a) only the Administrative Agent on behalf of the Issuing Banks and Lenders may exercise rights under this Section and (b) the Administrative Agent shall not exercise such rights more often than two times during any calendar year; provided, further, that when an Event of Default exists the Administrative Agent or any Issuing Bank or Lender (or any of their respective representatives or independent contractors) may do any of the foregoing under this Section at the expense of the Borrower and at any time during normal business hours and without advance notice.
SECTION 1.12Use of Proceeds. The Borrower will, and will cause each of its Subsidiaries to, use the proceeds of the Loans and use of the Letters of Credit issued hereunder not in contravention of any Law or of any Loan Document, and (i) in respect of the Term Loan Facility, to partially refinance the Existing Indebtedness, (ii) in respect of the Revolving Loans, to partially refinance the Existing Indebtedness and for general corporate purposes and working capital needs of the Borrower and its Subsidiaries, and (iii) in respect of the Letters of Credit, to be issued for the benefit of customers of the Borrower and its Subsidiaries in the ordinary course of business.
SECTION 1.13Sanctions; Anti-Corruption Laws.
(a)No Obligor shall (and each of them shall ensure that no other Relevant Person will) take any action, make any omission or use (directly or indirectly) any proceeds of a Loan, or use (directly or indirectly) any Letter of Credit, in a manner that:
(i)is a breach of any applicable Sanctions; and/or
(ii)causes (or will cause) a breach of any applicable Sanctions by any Secured Party.
(b)No Obligor shall (and each of them shall ensure that no other Relevant Person will) take any action or make any omission that results, or is reasonably likely to result, in it or any Secured Party becoming a Restricted Party.
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(c)Each Obligor shall ensure that it shall not use any revenue or benefit derived from any activity or dealing with a Restricted Person for the purpose of discharging amounts owing to any Secured Party in respect of the Facility.
(d)No Obligor shall (and each of them shall ensure that no other Relevant Person will):
(i)Use or allow to be used (directly or indirectly) any proceeds of the Loan (or lend, contribute or otherwise make available such proceeds to any person), or use (directly or indirectly) any Letter of Credit, to fund, finance, facilitate, participate or contribute to any activity or business or transaction of, with or related to (or otherwise to make funds available to or for the benefit of) any Restricted Party or in any Restricted Jurisdiction, or which would otherwise cause any Obligor or any Secured Party to be in breach of any applicable Sanctions; or
(ii)fund all or part of any payment under any Facility out of proceeds derived directly or indirectly from any activity or transaction with a Restricted Party or in any Restricted Jurisdiction, or which would otherwise cause any Obligor or any Secured Party to be in breach of any Sanctions.
(e)The Borrower shall implement and maintain appropriate safeguards designed to prevent any action that would be contrary to paragraphs (a), (b), (c) and (d) above.
(f)The Borrower undertakes not to employ the Vessels nor allow their employment, operation or management in any manner contrary to any law or regulation including but not limited to any applicable Sanctions.
(g)Each Obligor will maintain in effect policies and procedures designed to promote compliance by each Obligor, its Subsidiaries, and their respective directors, officers, employees, and agents with applicable Sanctions and with the FCPA and any other applicable anti-corruption laws.
SECTION 1.14Collateral Maintenance Test. If the aggregate Fair Market Value of the Collateral Vessels mortgaged to the Security Trustee (evidenced by the valuations provided to the Administrative Agent pursuant to Section 5.02(b)) is less than one hundred seventy five percent (175%) (the “Required Percentage”) of the aggregate of the Dollar Equivalent of (a) the Outstanding Amount of the Term Loans, (b) the outstanding amount of Revolving Loans, (c) the outstanding amount of L/C Loans (excluding the amount of any L/C Loans which are cash collateralized) and (d) the negative value of any hedging exposure under Secured Hedging Agreements (if any) (the “Collateral Maintenance Test”), the Borrower shall, as applicable, within fourteen (14) days of (x) the date of delivery of any semi-annual valuations evidencing such breach of the Collateral Maintenance Test, or (y) receiving written notice from the Administrative Agent of such shortfall, which notice shall specify the amount thereof (which amount shall, in the absence of manifest error, be deemed to be conclusive and binding on the Borrower), either:
(A) grant additional Collateral in the form of (i) cash, (ii) a Mortgage (and related Security Documents) over a Non-Collateral Vessel, or (iii) other Collateral in a form acceptable to the Lenders, in each case of sufficient value (including in the case of a Mortgage over a Non-Collateral Vessel, Fair Market Value), such that the Collateral Maintenance Test shall be met when adding such additional Collateral to the Fair Market Value of the Collateral Vessels; or
(B) prepay the Loans outstanding, on a pro rata basis, in a total amount as shall result in the Borrower regaining compliance with the Collateral Maintenance Test.
Any additional Collateral provided pursuant to paragraph (A) above shall be released upon the Borrower’s request provided the Borrower has demonstrated to the Administrative Agent that the Collateral Maintenance Test has been met without such additional Collateral for not less than two (2) consecutive semi-annual periods.
SECTION 1.15Vessel Covenants. Each Collateral Vessel Owner or Non-Collateral Vessel Owner, as applicable, shall:
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(a)Registration and Name. keep the Vessel owned by it registered in its name under the law of an Approved Flag Jurisdiction; not change the flag of a Collateral Vessel to another Approved Flag Jurisdiction without the Required Lenders’ prior written consent (such consent not to be unreasonably withheld or delayed); not do, omit to do or allow to be done anything as a result of which such registration might be cancelled; and not change the name or port of registry on which such Collateral Vessel was registered from its name and port of registry on the Effective Date. In the event that a Collateral Vessel Owner desires to implement a Flag Jurisdiction Transfer consented to by the Required Lenders with respect to a Collateral Vessel, upon receipt of reasonable advance notice thereof from the Borrower, the Security Trustee shall use commercially reasonably efforts to provide, or (as necessary) procure the provision of, all such reasonable assistance as any Obligor may request from time to time in relation to (i) the Flag Jurisdiction Transfer, (ii) the related deregistration of the relevant Collateral Vessel from its previous flag jurisdiction, and (iii) the release and discharge of the related Security Documents; provided that the relevant Obligor shall pay all documented out of pocket costs and expenses reasonably incurred by the Security Trustee in connection with provision of such assistance. Each Secured Party hereby consents in connection with any such Flag Jurisdiction Transfer and subject to the satisfaction of the requirements thereof to be satisfied by the relevant Obligor, to (x) deregister such Collateral Vessel from its previous flag jurisdiction and (y) release and hereby direct the Security Trustee to release the relevant Mortgage. Each Secured Party hereby directs the Security Trustee, and the Security Trustee agrees to execute and deliver or, at the Borrower’s expense, file such documents and perform other actions reasonably necessary to release the relevant Mortgages when and as directed pursuant to this Section 5.16(a);
(b)Repair and Classification. keep the Vessel owned by it in a good and safe condition and state of repair, consistent with first class ship ownership and management practice, so as to maintain the highest class for that Vessel with a Classification Society, free of overdue recommendations; and as to comply with all laws and regulations applicable to vessels registered under the law of such Vessel’s Approved Flag Jurisdiction or to vessels trading to any jurisdiction to which that Vessel may trade from time to time, including but not limited to the ISM Code and the ISPS Code;
(c)Modification. not make any permanent modification or repairs to, or replacement of, the Collateral Vessel owned by it or equipment installed on that Collateral Vessel which would materially alter the structure, type or performance characteristics of that Collateral Vessel (excluding such alterations that are made in good faith in connection with the employment of the Collateral Vessel) or materially reduce its value;
(d)Removal of Parts. not remove any material part of the Collateral Vessel owned by it, or any item of equipment installed on, that Collateral Vessel unless the part or item so removed is forthwith replaced by a suitable part or item which is in the same condition as or better condition than the part or item removed, is free from any Lien or any right in favor of any person other than the Security Trustee and becomes on installation on that Collateral Vessel, the property of that Collateral Vessel Owner and subject to the security constituted by the Mortgage, provided that a Collateral Vessel Owner may install and remove equipment owned by a third party if the equipment can be removed without any risk of damage to the Collateral Vessel owned by it;
(e)Surveys. at its sole expense, shall submit the Collateral Vessel owned by it regularly to all periodical or other surveys which may be required for classification purposes and, if so required by the Required Lenders, provide the Security Trustee, at that Collateral Vessel Owner’s sole expense, with copies of all survey reports;
(f)Inspection. permit the Security Trustee (by surveyors or other persons appointed by it for that purpose at the cost of the Borrower and that Collateral Vessel Owner) to board the Collateral Vessel owned by it at all reasonable times but not more than one time per year with reasonable prior notice to the relevant Collateral Vessel Owner to inspect its condition or to satisfy themselves about proposed or executed repairs and shall afford all proper facilities for
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such inspections. The Security Trustee shall ensure that the operation of that Collateral Vessel is not adversely affected as a result of such inspections;
(g)Prevention and release from arrest. promptly discharge:
(i)all liabilities which give or may give rise to maritime or possessory liens on or claims enforceable against the Vessel owned by it, or any Collateral Vessel’s Earnings or Insurances;
(ii)all taxes, dues and other amounts charged in respect of the Collateral Vessel owned by it, the Earnings or the Insurances;
(iii)all other accounts payable whatsoever in respect of the Collateral Vessel owned by it, the Earnings or the Insurances; and
(iv)forthwith and in any event within forty five (45) days upon receiving notice of the arrest of the Collateral Vessel owned by it, or of its detention in exercise or purported exercise of any lien or claim, that Collateral Vessel Owner shall procure its release by providing bail or otherwise as the circumstances may require;
(h)Compliance with laws. (i) comply, or procure compliance with, all laws or regulations relating to its business generally or relating to the ownership, employment, operation and management of the Vessel owned by it, including but not limited to the ISM Code, the ISPS Code, all Environmental Laws and all Sanctions; (ii) in the event of hostilities in any part of the world (whether war is declared or not), not cause or permit any Vessel owned by it to enter or trade to any zone which is declared a “Listed Area” by Lloyd's Market Association Joint War Committee (or equivalent) unless the prior written consent of the Required Lenders (such consent not to be unreasonably withheld or delayed) has been given, and that Vessel Owner has (at its expense) effected any special, additional or modified insurance cover which the Required Lenders or the relevant insurers, brokers and / or war risks and protection and indemnity associations for that Vessel may require; and (iii) procure that:
(i)each Vessel owned by it is not (directly or indirectly) used by or for the benefit of a Restricted Party (including, but not limited to selling, chartering or leasing to a Restricted Party) in breach of applicable Sanctions, or in trading to or from, or otherwise calling at any port of, a Restricted Jurisdiction in breach of applicable Sanctions;
(ii)each Vessel owned by it is not (directly or indirectly) used in any manner contrary to Sanctions, or in a manner that creates a risk that an Obligor or a Secured Party would become a Restricted Party or the Vessel would become the subject of Sanctions; and
(iii)without prejudice to any of the above provisions of this Section 5.15(h), procure that each charterparty in respect of each Vessel owned by it contains, for the benefit of the Vessel Owner, language which gives effect to the provisions of Section 5.15(h).
(i)Provision of information. promptly provide the Security Trustee with any information which the Required Lenders reasonably request regarding (i) the Collateral Vessel owned by it, its employment, position and engagements; (ii) the Earnings and payments and amounts due to that Collateral Vessel’s master and crew; (iii) any expenses incurred, or likely to be incurred, in connection with the operation, maintenance or repair of that Collateral Vessel and any payments made in respect of that Collateral Vessel; (iv) any towages and salvages; and (v) that Collateral Vessel Owner’s, the Approved Manager’s and that Collateral Vessel’s compliance with the ISM Code and the ISPS Code; and further, upon the Security Trustee’s request, provide copies of any current Charter relating to that Collateral Vessel and copies of the Approved Manager’s Document of Compliance;
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(j)Notifications. immediately notify the Security Trustee of (i) any casualty which is or is likely to be or to become a Major Casualty; any occurrence as a result of which the Collateral Vessel owned by it has become or is, by the passing of time or otherwise, likely to become a Total Loss; any requirement or condition made by any insurer or classification society or by any competent authority which is not complied with within the specified time; any arrest or detention of the Collateral Vessel owned by it, any exercise or purported exercise of any Security Interest on that Collateral Vessel or the Earnings or any requisition of that Collateral Vessel for hire; any intended dry docking of the Collateral Vessel owned by it; any Environmental Claim made against that Collateral Vessel Owner or in connection with the Collateral Vessel owned by it; any claim for breach of the ISM Code or the ISPS Code being made against that Collateral Vessel Owner, the Approved Manager following an Collateral Vessel Owner becoming aware of the same or otherwise in connection with the Collateral Vessel owned by it; or any other matter, event or incident, actual or threatened, the effect of which will or could lead to the ISM Code or the ISPS Code not being complied with; and that Collateral Vessel Owner shall keep the Security Trustee advised in writing on a regular basis and in such detail if the Security Trustee reasonably requires of that Collateral Vessel Owner’s, an Approved Manager’s or any other person’s response to any of those events or matters.
(k)Restrictions on chartering; appointment of managers. not:
(i)let the Collateral Vessel owned by it on demise or bareboat charter for any period, without the prior written consent of the Required Lenders, other than the Permitted Bareboat Charters;
(ii)charter the Collateral Vessel owned by it otherwise than on bona fide arm’s length terms at the time when that Collateral Vessel is fixed;
(iii)appoint a manager of the Collateral Vessel owned by it other than an Approved Manager or agree to any alteration to the terms or termination of any Approved Management Agreement;
(iv)de-activate or lay up the Collateral Vessel owned by it;
(v)change the classification Society of the Collateral Vessel owned by it to another Approved Classification Society without the prior written consent of the Required Lenders (such consent not to be unreasonably withheld or delayed); or
(vi)in the case of a Collateral Vessel Owner, charter in any vessel from a third party;
(l)Vessel Earnings. Ensure that, subject only to the provisions of the Assignments of Earnings, that all the Earnings are paid to the respective Earnings Account.
(m)Copies of Charters; Charter Assignment. promptly (i) furnish to the Agent a true and complete copy of any Charter for the Collateral Vessel owned by it, all other documents related thereto and a true and complete copy of each material amendment or other modification thereof; and (ii) in respect of any such Charter, execute and deliver to the Agent an Assignment of Charter.
(n)Notice of Mortgage. keep the Mortgage registered against the Collateral Vessel owned by it as a valid first preferred or first priority mortgage, as the case may be, carry on board that Collateral Vessel a certified copy of the Mortgage and place and maintain in a conspicuous place in the navigation room and the Master’s cabin of that Collateral Vessel a framed printed notice stating that such Collateral Vessel is mortgaged by that Collateral Vessel Owner to the Security Trustee.
(o)Green Passport. procure that upon any Collateral Vessel obtaining a Green Passport, deliver a copy to the Administrative Agent.
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(p)Inventory of Hazardous Materials. procure that each Collateral Vessel Owner maintains an Inventory of Hazardous Materials in respect of its Collateral Vessel; provided however that the Inventory of Hazardous Materials with respect to the SEAJACKS ZARATAN shall be required to be delivered no later than twelve (12) months following the Closing Date.
(q)Green Scrapping. in the event that a Vessel Owner undertakes to dismantle a Vessel (or to sell such Vessel with the intention of it being dismantled) with the prior written consent of the Administrative Agent (or any other vessel owned by it) (such consent not to be unreasonably withheld or delayed) and upon making the relevant prepayment required under Section 2.08(b), it shall comply with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 and to the extent applicable, United States laws, as well as any other applicable vessel dismantling conventions on safe, sustainable, and socially and environmentally responsible dismantling of such Vessel that is taken out of service.
SECTION 1.16Most Favored Nation. If the Borrower or a Subsidiary Guarantor shall incur any Indebtedness (excluding Guarantees of a Subsidiary Guarantor which is not a Vessel Owner) or grant any Liens in respect of Indebtedness, which by its terms has additional or stricter Financial Covenants than those set forth in Section 6.12, the Borrower shall immediately notify the Administrative Agent of such financial covenants prior to the Borrower or Subsidiary Guarantor incurring such Indebtedness or granting such Liens, and those Financial Covenants shall be deemed to apply to this Agreement as if set out in full herein. If required by the Administrative Agent and the Required Lenders, the Borrower shall promptly enter into an amendment to this Agreement or such other documentation to provide for such financial covenants incorporated hereunder. For purposes of this Section 5.16, “Financial Covenant” means a financial covenant applicable to the Parent Guarantor or any of its Subsidiaries which requires the maintenance of any particular financial ratio or metric, which applicable covenant has no equivalent provision in this Agreement or would be more restrictive as to the Parent Guarantor or any of the Subsidiaries than the corresponding provision set forth herein.
SECTION 1.17Ownership. The Borrower will directly or indirectly own 100% of the Equity Interests in each Subsidiary Guarantor, and the Parent Guarantor will directly or indirectly own 100% of the Equity Interests in the Borrower; provided that an Obligor whose Equity Interests are not subject to a Share Pledge hereunder may be permitted to have a change in direct ownership which does not conflict with this Section 5.17 with the prior written consent of the Lenders (such consent not to be unreasonably withheld or delayed, and it being agreed that a Lender would not be acting unreasonably if such consent is not provided on account of a failure to meet the Lender’s KYC requirements).
SECTION 1.18Additional Guarantors. The Obligors shall cause each Subsidiary of the Borrower not in existence on the Effective Date to execute and deliver to the Security Trustee on its date of formation or acquisition (or, in each case, such longer period as the Required Lenders may agree), (A) a Joinder Agreement, pursuant to which such Subsidiary shall be made a party to this Agreement as a Guarantor, (B) such opinion of counsel as the Security Trustee may reasonably request, and (C) such other agreements, instruments, approvals, constitutional documents, corporate authorizations or other documents reasonably requested by the Agents in order to effect the intent that such Subsidiary shall become bound by all of the terms, covenants and agreements contained in the Loan Documents that are applicable to the Guarantors.
SECTION 1.19Pensions Act. The Borrower shall ensure that neither it or any of its Subsidiaries is or has been at any time an employer (for the purposes of sections 38 to 51 of the Pensions Act 2004) of an occupational pension scheme which is not a money purchase scheme (both terms as defined in the Pension Schemes Act 1993) or "connected" with or an "associate" of (as those terms are used in sections 38 or 43 of the Pensions Act 2004) such an employer.
SECTION 1.20Post-Closing Condition. No later than ninety (90) days following the Closing Date, the Borrower shall have provided to the Administrative Agent evidence that its Subsidiary, Seajacks Installation Services Limited, shall have been dissolved, and prior to such date, the Borrower shall ensure that Seajacks Installation Services Limited does not conduct any business or operations other than distributing its assets, settling its affairs and winding up its business.
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ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or been terminated, all Obligations shall have been paid in full and all Letters of Credit shall have expired or been canceled (without any pending drawings), the Borrower covenants and agrees with the Administrative Agent, the Issuing Banks and the Lenders that:
SECTION 1.01Indebtedness. Neither the Borrower nor a Subsidiary Guarantor owning a Collateral Vessel will create, incur, assume or suffer to exist any Indebtedness, except (collectively, “Permitted Indebtedness”):
(a)Indebtedness incurred under the Loan Documents;
(b)Subordinated Liabilities;
(c)Hedging Obligations which (1) are Secured Hedging Obligations or (2) satisfy the requirements of Section 6.15;
(d)Existing Indebtedness which is repaid in full on the Closing Date; and
(e)in the case of the Borrower or a Subsidiary Guarantor which is not a Vessel Owner, Indebtedness incurred to finance a Newbuilding Vessel.
SECTION 1.02Liens. The Obligors will not create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following (collectively, “Permitted Liens”):
(a)Liens incurred under the Existing Credit Documents which are released in full on the Closing Date;
(b)the Liens granted under the Security Documents;
(c)with respect to the Parent Guarantor, Liens over any assets, property or revenues which do not constitute Collateral;
(d)Liens granted in the Equity Interests in the Excluded Subsidiaries;
(e)any netting or set-off arrangement entered into by any Obligor in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances;
(f)Liens for unpaid master’s and crew’s wages in accordance with usual maritime practice;
(g)Liens for salvage;
(h)Liens for master’s disbursements incurred in the ordinary course of trading;
(i)Liens arising by operation of law for not more than two (2) months’ prepaid hire under any charter or other contract of employment in relation to a Vessel not otherwise prohibited by this Agreement;
(j)Liens arising by operation of law in respect of Taxes which are not overdue for payment or which are being contested in good faith by appropriate steps and in respect of which appropriate reserves have been made;
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(k)cash collateral in respect of letters of credit (and similar instruments) which are notified in writing to the Administrative Agent; and
(l)any other Liens arising by operation of law in the ordinary course of the operation, repair or maintenance of any Vessel and not as a result of any default or omission by any Obligor, and subject, in the case of liens for repair or maintenance, to the terms of this Agreement.
SECTION 1.03Fundamental Changes. No Obligor shall merge, dissolve, liquidate, consolidate with or into another Person, enter into any merger, de-merger, amalgamation or corporate reconstruction, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (save for any Disposition of a Vessel in compliance with Section 2.08(b)) (whether now owned or hereafter acquired) to or in favor of any Person.
SECTION 1.04Dispositions. The Borrower and the Subsidiary Guarantors shall not make any Disposition or enter into any agreement to make any Disposition, except a Disposition in the ordinary course of business of assets, a Disposition of a Vessel in compliance with Section 2.08(b) or a Disposition of the Equity Interests of an Excluded Subsidiary.
SECTION 1.05Investments. (a) The Borrower and the Subsidiary Guarantors shall not make any loans, guarantees or other form of financial support, except (i) to the Borrower or a Subsidiary Guarantor, (ii) in the ordinary course of business and on an unsecured basis in the aggregate amount of up to $1,000,000 at any time outstanding, (iii) to the Parent Guarantor or any Subsidiary of the Parent Guarantor in the ordinary course of business, on an unsecured and subordinated basis and provided no Event of Default has occurred and is continuing, and (b) the Collateral Vessel Owners shall not make any Investments other than as permitted under this Section 6.05.
SECTION 1.06Transactions with Affiliates. The Obligors shall not enter into any transaction with an Affiliate except for transactions on an arms’ length basis.
SECTION 1.07Reserved.
SECTION 1.08Dividends and Distributions. No Obligor shall directly or indirectly declare or pay any dividend or make any distribution on account of its Equity Interests unless: (a) no Default or Event of Default has occurred and is continuing or would occur as a result of such dividend or distribution, (b) after giving effect to such dividend or distribution, the Parent Guarantor is in proforma compliance with the financial covenants provided for under Section 6.12 or incorporated hereunder under Section 5.16 and (c) with respect to dividends or distributions made to a Person that is not an Obligor, such payment does not exceed the lesser of (i) fifty percent (50%) of such Obligor’s net income for the most recent fiscal quarter and (ii) twenty five percent (25%) of Contracted Cash Flows Forecast for such Obligor; provided however that (x) any Subsidiary Guarantor may make a dividend or distribution to another Subsidiary Guarantor or the Borrower at any time; (y) the Obligors shall be permitted to make dividends or distributions with respect to preferred shares issued by the Parent Guarantor on or after the Effective Date without meeting the requirements in clause (c) of this Section 6.08, and (z) the Parent Guarantor shall be permitted to make a dividend or distribution of up to $0.01 per share per fiscal quarter (adjusted accordingly for any stock splits or reverse stock splits after the Closing Date) without meeting the requirements in clause (c) of this Section 6.08.
SECTION 1.09Equity Interests. No Obligor (excluding the Parent Guarantor) shall (i) purchase, cancel, redeem or retire any of its Equity Interests, (ii) increase or reduce its authorized Equity Interests; or (iii) issue any additional Equity Interests except to the extent such new Equity Interests are made subject to the terms of a Share Pledge immediately upon the issue thereof in a manner satisfactory to the Administrative Agent.
SECTION 1.10Change of Business. The Obligors shall not make any substantial change to the general nature of the business of the Parent Guarantor or the other Obligors from that carried on as at the Effective Date, other than those businesses conducted by the such Obligor on the date hereof or any business reasonably related or incidental thereto or representing a reasonable expansion thereof, without the prior consent of the Required Lenders (not to be unreasonably withheld or delayed); provided that no
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Vessel Owners for so long as it owns a Vessel shall change the nature of its business or commence any business other than in connection with, or for the purpose of, owning, managing, chartering and operating the Vessel owned by it and such other business ancillary or incidental thereto.
SECTION 1.11Restriction on Use of Proceeds. The Borrower will not use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry Margin Stock, or to extend credit to others for the purpose of purchasing or carrying Margin Stock or to refund indebtedness originally incurred for such purpose.
SECTION 1.12Financial Covenants.
(a)Net Leverage Ratio. The Parent Guarantor will not permit the Net Leverage Ratio of the Parent Guarantor to be greater than 2.75:1.00, to be tested as of the last day of each fiscal quarter.
(b)Equity Percentage. The Parent Guarantor shall not permit the Equity Percentage to be equal to or less than fifty percent (50%), to be tested as of the last day of each fiscal quarter.
(c)Interest Coverage Ratio. The Parent Guarantor shall not permit the Interest Coverage Ratio of the Parent Guarantor to be less than 5.0:1.0, to be tested as of the last day of each fiscal quarter.
(d)Minimum Free Liquidity. The Parent Guarantor shall not permit its Consolidated Liquidity to be less than $30,000,000 (the “Minimum Free Liquidity Amount”), at least $15,000,000 of which shall be in cash; provided that, upon the delivery of each Newbuilding Vessel to the relevant Excluded Subsidiary, the Minimum Free Liquidity Amount shall be increased by $7,500,000 at each such delivery, which amount may consist of restricted cash which has been pledged in favor of lenders under a financing for such Newbuilding Vessel.
SECTION 1.13Anti-Corruption; Use of Proceeds. The Borrower will not, directly or indirectly, use the proceeds of the Loans or use the Letters of Credit, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person, in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of the FCPA or any other applicable anti-corruption law.
SECTION 1.14Accounts. Neither the Borrower nor any Collateral Vessel Owner shall open any account other than the Earnings Accounts or another account held with an Account Bank.
SECTION 1.15Permitted Hedging Agreements. Neither the Borrower nor a Subsidiary Guarantor shall enter into any Hedging Agreements or incur Hedging Obligations other than:
(a)pursuant to Secured Hedging Agreements;
(b)pursuant to Hedging Agreements (i) for which the Hedging Obligations relate to the Facility or the Vessels, and (ii) which prior to entering into such Hedging Agreement, the relevant Obligor has given each Secured Hedging Bank a right of first refusal to match any bona fide offer from a bank or financial institution which is not a Secured Hedging Bank on equivalent or competitive terms, and (iii) whose Hedging Obligations are unsecured; and
(c)with respect to the Borrower or a Subsidiary Guarantor that is not a Vessel Owner, pursuant to Hedging Agreements whose Hedging Obligations are not related to the Facility or the Vessels.
ARTICLE VII
EVENTS OF DEFAULT
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SECTION 1.01Events of Default. The occurrence of any of the following events shall constitute an “Event of Default”:
(a)Non-Payment.
(i)Any payment of principal, interest or fees payable pursuant to this Agreement or any Fee Letter is not made on the due date thereof, unless such failure is caused by an administrative or technical error and payment is made within three (3) Business Days of its due date; or
(ii)any payment of any other amount payable pursuant to this Agreement or any other Loan Document is not made on the due date, and such failure continues for ten (10) days; or
(b)Representations. Any representation, warranty or other statement made by any Obligor in (i) this Agreement, (ii) any of the other Loan Documents or (iii) any other instrument, document or other agreement delivered in connection herewith or therewith, proves to have been untrue or misleading in any material respect when made or deemed made; or
(c)Impossibility; Illegality. It becomes impossible or unlawful for any Obligor to fulfill any of its covenants or obligations under any Loan Document or for any Secured Party to exercise any of the rights vested in it under any Loan Document, and such impossibility or illegality in the opinion of the Required Lenders will give rise to a Material Adverse Effect; or
(d)Reserved.
(e)Certain Covenants. (i) Any Obligor defaults in the performance or observance of any covenant contained in Sections 5.01 (Financial Statements), 5.06 (Maintenance of Insurance), 5.08 (Compliance with Laws), 5.09 (Environmental Matters), 5.13 (Sanctions), 5.14 (Collateral Maintenance Test), 5.15(h) (Compliance with Laws), Section 5.20 (Post-Closing Covenants) or Article VI (Negative Covenants) of this Agreement; or
(f)Other Provisions. Any Obligor defaults in the performance of any term, covenant or agreement contained in any Loan Document to which it is a party or in any other instrument, document or other agreement delivered by it in connection herewith or therewith, in each case other than an Event of Default referred to elsewhere in this Section 7.01, or there occurs any other event which constitutes a default by any Obligor under any Loan Document to which it is a party and in each case such default which is capable of remedy continues unremedied for a period of ten (10) Business Days after the earlier of (i) knowledge thereof by a Responsible Officer or the board of directors (or equivalent) of any Obligor or (ii) the Borrower having been notified thereof in writing by the Administrative Agent, in each case other than an Event of Default referred to elsewhere in this Section 7.01; or
(g)Indebtedness. (i) Any default occurs in the payment when due (after giving effect to applicable notice and cure periods) of any Indebtedness of the Parent Guarantor or any of its Subsidiaries, or (ii) any other default occurs in respect of any Indebtedness of the Parent Guarantor or any of its Subsidiaries, the effect of which default is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries thereof (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness or indebtedness to become due prior to its stated maturity, and, in either case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been such payment default or other default, exceeds $5,000,000; or
(h)Other Agreements. There is Indebtedness or payment obligations by a member of the Group, under any agreement to which the Parent Guarantor or any of its Subsidiaries is a party with a third party or parties, and (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Five Million Dollars ($5,000,000); or (b) any default by the Parent Guarantor or any of its Subsidiaries, the result of which could reasonably be expected to result in a Material Adverse Effect. For the avoidance of doubt, a “default” for purposes of this Section 7.01(h), shall include (but is not limited to) any payment default or an acceleration of maturity; or
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(i)Bankruptcy.
(i)Any Obligor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, administration or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition, moratorium or other relief with respect to it or its debts, or (B) seeking appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager, receiver manager, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Obligor shall make a general assignment for the benefit of its creditors; or
(ii)there shall be commenced against any Obligor any case, proceeding or other action of a nature referred to in clause (i) above, which is not in the opinion of the Required Lenders frivolous or vexatious, and which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of twenty five (25) Business Days and the relevant Obligor does not take the appropriate means to dismiss, discharge, or bond such action within fifteen (15) Business Days; or
(iii)there shall be commenced against any Obligor thereof any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which is not in the opinion of the Required Lenders frivolous or vexatious, and which action the relevant Obligor shall not have taken the appropriate means to discharge, stay or dismiss within fifteen (15) Business Days from entry thereof, and which further has not been vacated, discharged, or stayed or bonded pending appeal within twenty five (25) Business Days from the entry thereof; or
(iv)any Obligor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above;
(v)any Obligor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or a moratorium shall be declared in respect of any material indebtedness of such Obligor; or
(vi)any Obligor shall make a general assignment for the benefit of creditors; or
(j)Certain ERISA Transactions. (i) An ERISA Event has occurred or exists that, in the reasonable option of the Required Lenders, when taken together with all other ERISA Events that have occurred or exist, could reasonably be expected to result in liabilities of, or a lien on any assets of, the Obligors and Subsidiaries thereof of $5,000,000 or more; (ii) an instance of non-compliance with ERISA, the Code or any other applicable requirement of Law shall have occurred with respect to any Plan, Benefit Plan, Foreign Plan, Multiemployer Plan, Multiple Employer Plan, Pension Plan or an ERISA Event, shall exist or occur that, in the reasonable opinion of the Required Lenders, when taken together with all other such instances of non-compliance with ERISA, the Code or any other applicable requirement of Law shall have occurred with respect to any Plan, Benefit Plan, Foreign Plan, Multiemployer Plan, Multiple Employer Plan, Pension Plan or an ERISA Event that exist or have occurred, or could reasonably be expected to exist or occur, could reasonably be expected to result in a Material Adverse Effect; or (iii) any of the Obligors or Subsidiaries becomes a “benefit plan investor” within the meaning of Section 3(42) of ERISA; or
(k)Judgments and Decrees. Any judgment, order or decree is made the effect whereof would be to render invalid this Agreement or any other Loan Document or any material provision thereof or any Obligor asserts in writing that any such agreement or provision thereof is invalid; a judgment or decree (other than disclosed litigation under Section 3.06 hereof) shall be entered against any member of the Group for an aggregate liability (net of amounts paid or covered by insurance) of $5,000,000 or more and such judgment or decree shall not have been vacated, discharged, stayed or bonded pending appeal for a period of sixty (60) consecutive days from the entry thereof; or
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(l)Invalidity of Loan Documents or Liens; Unlawfulness. (i) Any Loan Document or any material provision thereof shall cease, for any reason, to be in full force and effect (other than by reason of a release of any Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the obligations in accordance with the terms hereof or thereof), or any action or suit at law or in equity or other legal proceeding to cancel, revoke or rescind any Loan Document or any material provision thereof shall be commenced by or on behalf of any Obligor or any Governmental Authority, (ii) the Lien created in any Collateral in any of the Security Documents shall cease to be enforceable and of the same effect and priority (subject to Permitted Liens) purported to be created thereby, or (iii) it becomes unlawful or impossible for any Obligor to discharge any liability under a Loan Document or to comply with any other obligation which the Required Lenders reasonably consider material under a Loan Document; or
(m)Business Suspended; Termination of Operations. Any Obligor shall be enjoined, restrained or in any way prevented by the order of any court or any Governmental Authority from conducting a material part of its business and such order shall continue in effect for more than forty-five (45) consecutive days, or any Obligor otherwise ceases its operations or sells or otherwise disposes of all or substantially all of its assets or all or substantially all of the assets thereof are seized or otherwise appropriated; or
(n)Failure of Effectiveness of Collateral. Except as otherwise permitted hereunder, the Secured Parties shall cease to have a first-priority perfected Lien in any Collateral; or
(o)Reserved.
(p)Reserved.
(q)Creditors’ Process. A creditor attaches or takes possession of, or a distress, execution, sequestration or process is levied or enforced upon or sued out against, a material part of undertakings, assets, rights or revenues of any Obligor in relation to a claim by such creditor and such Obligor does not procure that such action is lifted, released or expunged within 15 days of such action being instituted; or
(r)Newbuilding Financing Default. A Material Concern arises in relation to the Newbuilding Vessel 1 or Newbuilding Vessel 2, if such vessel(s) are financed via a recourse financing with the Parent Guarantor (each, a “Newbuilding Financing”). For purposes of this paragraph (r), “Material Concern” means, in the reasonable opinion of the Required Lenders, that the Parent Guarantor or the Newbuilding Purchaser through its action or inaction has the effect of causing the Parent Guarantor or the Newbuilding Purchaser not being able to drawdown under the respective Newbuilding Financing and to accept delivery of either Newbuilding Vessel by its relevant expected delivery date,
then, and in every such event (other than an event with respect to the Borrower described in clause (i) of this Section), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take any or all of the following actions, at the same or different times:
(i)terminate the Commitments, and thereupon the Commitments shall terminate immediately;
(ii)declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower;
(iii)require that the Borrower Cash Collateralize the L/C Obligations as provided in Section 2.22(a); and
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(iv)exercise on behalf of itself, the Lenders and the Issuing Banks all rights and remedies available to it, the Lenders and the Issuing Banks under the Loan Documents and Applicable Law;
provided that, in case of any event with respect to the Borrower described in clause (i) of this Section, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations accrued hereunder, shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as provided in clause (iii) above shall automatically become effective, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
SECTION 1.02Application of Payments. Notwithstanding anything herein to the contrary, following the occurrence and during the continuance of an Event of Default, and notice thereof to the Administrative Agent by the Borrower or the Required Lenders, subject to Sections 2.22 and 2.23, all and payments and proceeds received by the Security Trustee in respect of any sale of, collection from or other realization upon all or any part of the Collateral, pursuant to the exercise by the Security Trustee of its remedies, or from any mortgagee’s interest insurance required pursuant to Section 5.06, shall be applied, in full or in part, together with any other sums then held by or distributed or paid to the Security Trustee or the Administrative Agent pursuant to this Agreement or any other Loan Document (including as a result of any exercise of any right or remedy hereunder or thereunder), promptly by the Administrative Agent as follows:
(i)first, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees and disbursements and other charges of counsel payable under Section 9.03 and amounts payable under a Fee Letter) payable to the Administrative Agent in its capacity as such;
(ii)second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, reimbursement obligations in respect of L/C Disbursements, interest and Letter of Credit fees) payable to the Lenders and the Issuing Banks (including fees and disbursements and other charges of counsel payable under Section 9.03) arising under the Loan Documents, ratably among them in proportion to the respective amounts described in this clause (ii) payable to them;
(iii)third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit fees and charges and interest on the Loans and unreimbursed L/C Disbursements, ratably among the Lenders and the Issuing Banks in proportion to the respective amounts described in this clause (iii) payable to them;
(iv)fourth, (A) to payment of that portion of the Obligations constituting unpaid principal of the Loans, unreimbursed L/C Disbursements, and Hedging Obligations, and (B) to Cash Collateralize that portion of L/C Obligations comprising the undrawn amount of Letters of Credit to the extent not otherwise Cash Collateralized by the Borrower pursuant to Section 2.05 or 2.23, ratably among the Lenders and the Issuing Banks in proportion to the respective amounts described in this clause (iv) payable to them; provided that (x) any such amounts applied pursuant to subclause(iv) (B) above shall be paid to the Administrative Agent for the ratable account of the applicable Issuing Banks to Cash Collateralize such L/C Obligations, (y) subject to Section 2.05(c) or 2.23, amounts used to Cash Collateralize the aggregate amount of Letters of Credit pursuant to this clause (iv) shall be used to satisfy drawings under such Letters of Credit as they occur and (z) upon the expiration of any Letter of Credit (without any pending drawings), the pro rata share of Cash Collateral shall be distributed in accordance with this clause (iv);
(v)fifth, to the payment in full of all other Obligations, in each case ratably among the Administrative Agent, the Issuing Banks and the Lenders based upon the respective aggregate amounts of all such Obligations owing to them in accordance with the respective amounts thereof then due and payable; and
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(vi)finally, the balance, if any, after all Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired or cancelled (without any pending drawings), such remaining amount shall be applied to the other Obligations, if any, in the order set forth above (including (vi) above).
ARTICLE VIII
AGENT AND SECURITY TRUSTEE
SECTION 1.01Appointment and Authority.
(a) Each of the Lenders and the Issuing Banks hereby irrevocably appoints DNB Bank ASA, New York Branch to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. Except as otherwise provided in Section 8.06(b), the provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Banks, and the Borrower shall not have rights as a third-party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
(b) Each of the Lenders and other Secured Parties (by their acceptance of the benefits hereof and of the other Loan Documents) hereby appoints and authorizes (with a right of revocation) the Security Trustee to act as security trustee hereunder and under the other Loan Documents (other than any Notes) with such powers as are specifically delegated to the Security Trustee by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. To secure the payment of all sums of money from time to time owing to the Secured Parties under the Loan Documents and the Secured Hedging Agreements, and the performance of the covenants of the Borrower and any other Obligor herein and therein contained, and in consideration of the premises and of the covenants herein contained and of the extensions of credit by the Lenders, the Security Trustee does hereby declare that it will hold as security trustee in trust for the benefit of the Secured Parties, from and after the execution and delivery thereof, all of its right, title and interest as mortgagee in, to and under the Mortgages and its right, title and interest as assignee and secured party under the other Loan Documents (the right, title and interest of the Security Trustee in and to the property, rights and privileges described above, from and after the execution and delivery thereof, and all property hereafter specifically subjected to the security interest created hereby and by the Loan Documents by any amendment hereto or thereto are herein collectively called the “Estate”); TO HAVE AND TO HOLD the Estate unto the Security Trustee and its successors and assigns forever, BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Secured Parties and their respective successors and assigns without any priority of any one over any other, UPON THE CONDITION that, unless and until an Event of Default under this Agreement shall have occurred and be continuing, the relevant Obligor shall be permitted, to the exclusion of the Security Trustee, to possess and use the Collateral Vessels and the other property comprising the Estate. IT IS HEREBY COVENANTED, DECLARED AND AGREED that all property subject or to become subject hereto is to be held, subject to the further covenants, conditions, uses and trusts hereinafter set forth, and each Obligor, for itself and its respective successors and assigns, hereby covenants and agrees to and with the Security Trustee and its successors in said trust, for the equal and proportionate benefit and security of the Secured Parties as hereinafter set forth. The Security Trustee hereby accepts the trusts imposed upon it as Security Trustee by this Agreement, and the Security Trustee covenants and agrees to perform the same as herein expressed and agrees to receive and disburse all monies constituting part of the Estate in accordance with the terms hereof.
SECTION 1.02Rights as a Lender or Issuing Bank. If applicable, the Person serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender or Issuing Bank as
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any other Lender or Issuing Bank and may exercise the same as though it were not an Agent, and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as an Agent hereunder in its individual capacity. Such Person and its branches and Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business with, the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not an Agent hereunder and without any duty to account therefor to the Lenders.
SECTION 1.03Exculpatory Provisions.
(a)Each Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, each Agent:
(i)shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(ii)shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that such Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that each Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to any Loan Document or Applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(iii)shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as an Agent or any of its branches or Affiliates in any capacity.
(b)Neither Agent shall be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 7.01 and 9.02), or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and non-appealable judgment. Each Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to such Agent in writing by the Borrower, a Lender or an Issuing Bank.
(c)Neither Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to such Agent.
SECTION 1.04Reliance by Agents. Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, amendment, increase, reinstatement or renewal of a Letter of Credit, that by its terms
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must be fulfilled to the satisfaction of a Lender or an Issuing Bank, the Administrative Agent may presume that such condition is satisfactory to such Lender or Issuing Bank unless the Administrative Agent shall have received notice to the contrary from such Lender or Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. Each Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
SECTION 1.05Delegation of Duties. Each Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by such Agent. Each Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of any Facility as well as activities as each Agent. Neither Agent shall be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that such Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
SECTION 1.06Resignation.
(a)Each Agent may at any time give notice of its resignation to the Lenders, the Issuing Banks and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank or another institution regularly engaged in agency activities. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”), then the retiring Agent may (but shall not be obligated to), on behalf of the Lenders and the Issuing Banks, appoint a successor Agent meeting the qualifications set forth above; provided that in no event shall any such successor Agent be a Defaulting Lender. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date. Any successor Agent shall be entitled to receive payments free from US federal withholding Tax imposed by FATCA and comply with all FATCA rules in force.
(b)If the Person serving as an Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by Applicable Law, by notice in writing to the Borrower and such Person remove such Person as an Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c)With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (ii) except for any indemnity payments owed to the retiring or removed Agent, all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Lender and Issuing Bank directly, until such time, if any, as the Required Lenders appoint a successor Agent as provided for above. Upon the acceptance of a successor’s appointment as Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Agent (other than any rights to indemnity payments owed to the retiring or removed Agent), and the retiring or removed Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents. The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring or removed Agent, its sub-agents and their respective Related Parties in respect of any actions taken or
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omitted to be taken by any of them while the retiring or removed Agent was acting as Agent. To the extent the retiring or removed Agent is holding cash, deposit account balances or other credit support as collateral for Cash Collateralized Letters of Credit, the retiring or removed Agent shall at or reasonably promptly following the Resignation Effective Date cause such collateral to be transferred to the successor Agent or, if no successor Agent has been appointed and accepted such appointment, to the respective Issuing Banks ratably according to the outstanding amount of Cash Collateralized Letters of Credit issued by them, in each case to be held as collateral for such Cash Collateralized Letters of Credit in accordance with this Agreement.
SECTION 1.07Non-Reliance on Agents, Issuing Banks and Other Lenders. Each Lender and each Issuing Bank acknowledges that it has, independently and without reliance upon any Agent, any Mandated Lead Arranger, any Bookrunner, the Green Advisor, the Coordinator, any other Issuing Bank or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and each Issuing Bank also acknowledges that it will, independently and without reliance upon any Agent, any Mandated Lead Arranger, any Bookrunner, the Coordinator, the Green Advisor, any other Issuing Bank or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. Each Lender and each Issuing Bank represents and warrants that (i) the Loan Documents set forth the terms of a commercial lending facility and certain other facilities set forth herein and (ii) it is engaged in making, acquiring or holding commercial loans, issuing or participating in letters of credit or providing other similar facilities in the ordinary course and is entering into this Agreement as a Lender or Issuing Bank for the purpose of making, acquiring or holding commercial loans, issuing or participating in letters of credit and providing other facilities set forth herein as may be applicable to such Lender or Issuing Bank, and not for the purpose of purchasing, acquiring or holding any other type of financial instrument, and each Lender and each Issuing Bank agrees not to assert a claim in contravention of the foregoing. Each Lender and each Issuing Bank represents and warrants that it is sophisticated with respect to decisions to make, acquire or hold commercial loans, issue or participate in letters of credit and to provide other facilities set forth herein, as may be applicable to such Lender or such Issuing Bank, and either it, or the Person exercising discretion in making its decision to make, acquire or hold such commercial loans, issue or participate in letters of credit or to provide such other facilities, is experienced in making, acquiring or holding such commercial loans, issue or participate in letters of credit or providing such other facilities.
SECTION 1.08No Other Duties. Anything herein to the contrary notwithstanding, none of the Mandated Lead Arrangers, the Bookrunners or the Coordinator listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or an Issuing Bank hereunder.
SECTION 1.09Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:
(a)to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Banks and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Banks and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuing Banks and the Administrative Agent under Section 9.03) allowed in such judicial proceeding; and
(b)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and Issuing Bank to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuing Banks, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 9.03.
SECTION 1.10Certain ERISA Matters.
(a)Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of the Borrower, that at least one of the following is and will be true:
(i)such Lender is not using “plan assets” (within the meaning of Section 3(42) of ERISA or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) of one or more Benefit Plans with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments or this Agreement,
(ii)the prohibited transaction exemption set forth in one or more PTEs, such as PTE 84-11 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-29 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable so as to exempt from the prohibitions of Section 406 of ERISA and Section 4975 of the Code such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or
(iii)such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b)In addition, if a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iii) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of the Borrower, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
SECTION 1.11Collateral Matters. (a) Each Lender authorizes and directs the Security Trustee to enter into the Security Documents for the benefit of the Lenders and the other Secured Parties. Each Lender hereby agrees, and each holder of any Note by the acceptance thereof will be deemed to agree, that, except as otherwise set forth herein, any action taken by the Required Lenders in accordance with the provisions of this Agreement or the Security Documents, and the exercise by the Required Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. The Security Trustee is hereby authorized on behalf of all of the Lenders, without the necessity of any notice to or further consent from any Lender, from time to time prior to, or during, an Event of Default, to take any action with respect to any Collateral or Security Documents which may be necessary to perfect and maintain perfected the security interest in and Liens upon the Collateral granted pursuant to the Security Documents.
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(b)The Lenders hereby authorize the Security Trustee, at its option and in its discretion, to release any Lien on any property granted to or held by the Security Trustee under any Loan Document (i) upon termination of all Commitments and payment and satisfaction in full of the Obligations (other than contingent indemnification obligations) at any time arising under or in respect of this Agreement or the Loan Documents or the transactions contemplated hereby or thereby, (ii) that is sold or otherwise disposed of (to Persons other than the Borrower and its Subsidiaries) upon the sale or other disposition thereof in compliance with Section 2.08, (iii) in connection with any Flag Jurisdiction Transfer, provided that the requirements thereof are satisfied by the relevant Obligor, and (iv) if approved, authorized or ratified in writing by the Required Lenders (or all of the Lenders to the extent required hereunder) or (v) as otherwise may be expressly provided in the relevant Security Documents. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Security Trustee’s authority to release its interest in particular types or items of Collateral pursuant to this Section 8.11.
(c)The Security Trustee shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by any Obligor or is cared for, protected or insured or that the Liens granted to the Security Trustee herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to the Security Trustee in this Section 8.11 or in any of the Security Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Security Trustee shall have no duty or liability whatsoever to the Lenders, except for its gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).
(d)(i) The other Secured Parties shall not have any right whatsoever to do any of the following: (A) exercise any rights or remedies with respect to the Collateral or to direct any Agent to do the same, including, without limitation, the right to (1) enforce any Liens or sell or otherwise foreclose on any portion of the Collateral, (2) request any action, institute any proceedings, exercise any voting rights, give any instructions, make any election or make collections with respect to all or any portion of the Collateral or (3) release any Obligor under any Loan Document or release any Collateral from the Liens of any Security Document or consent to or otherwise approve any such release; (B) demand, accept or obtain any Lien on any Collateral (except for Liens arising under, and subject to the terms of, the Loan Documents); (C) vote in any case concerning any Obligor under the Bankruptcy Code or any other proceeding under any reorganization, arrangement, adjudication of debt, relief of debtors, dissolution, insolvency, liquidation or similar proceeding in respect of the Obligors or any of their respective Subsidiaries (any such proceeding, for purposes of this clause (d)(i), a “Bankruptcy Proceeding”) with respect to, or take any other actions concerning the Collateral; (D) receive any proceeds from any sale, transfer or other disposition of any of the Collateral (except in accordance with this Agreement); (E) oppose any sale, transfer or other disposition of the Collateral; (F) object to any debtor-in-possession financing in any Bankruptcy Proceeding which is provided by one or more Lenders among others (including on a priming basis under Section 364(d) of the Bankruptcy Code); (G) object to the use of cash collateral in respect of the Collateral in any Bankruptcy Proceeding; or (H) seek, or object to the Lenders or any Agent seeking on an equal and ratable basis, any adequate protection or relief from the automatic stay with respect to the Collateral in any Bankruptcy Proceeding.
(i)Each other Secured Party, by its acceptance of the benefits of this Agreement and the other Loan Documents, agrees that in exercising rights and remedies with respect to the Collateral, the Administrative Agent, the Security Trustee and the Lenders, with the consent of the Administrative Agent and the Security Trustee, may enforce the provisions of the Loan Documents and exercise remedies thereunder (or refrain from enforcing rights and exercising remedies), all in such order and in such manner as they may determine in the exercise of their sole business judgment. Such exercise and enforcement shall include, without limitation, the rights to collect, sell, dispose of or otherwise realize upon all or any part of the Collateral, to incur expenses in connection with such collection, sale, disposition or other realization and to exercise all the rights and remedies of a secured lender under the UCC. The other Secured Parties by their acceptance of the benefits of this Agreement and the other Loan Documents hereby agree not to contest or otherwise challenge any such collection, sale, disposition or other realization of
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or upon all or any of the Collateral. Whether or not a Bankruptcy Proceeding has been commenced, the other Secured Parties shall be deemed to have consented to any sale or other disposition of any property, business or assets of the Obligors and the release of any or all of the Collateral from the Liens of any Security Document in connection therewith.
(ii)To the maximum extent permitted by law, each Secured Party waives any claim it might have against the Administrative Agent and the Security Trustee or the Lenders with respect to, or arising out of, any action or failure to act or any error of judgment, negligence, or mistake or oversight whatsoever on the part of any Agent or the Lenders or their respective directors, officers, employees or agents with respect to any exercise of rights or remedies under the Loan Documents or any transaction relating to the Collateral (including, without limitation, any such exercise described in Sections 8.02, 8.03 and 8.05) except for any such action or failure to act that constitutes willful misconduct or gross negligence of such Person. To the maximum extent permitted by applicable law, none of the Administrative Agent, the Security Trustee nor any Lender or any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrower, any Secured Party or any other Person or to take any other action or forbear from doing so whatsoever with regard to the Collateral or any part thereof, except for any such action or failure to act that constitutes willful misconduct or gross negligence of such Person.
(i)Erroneous Payments.
(a)With respect to any payment that the Administrative Agent makes to any Lender or other Secured Party as to which the Administrative Agent determines that any of the following applies (such payment referred to as the “Rescindable Amount”): (1) the Borrower has not in fact made the corresponding payment to the Administrative Agent; (2) the Administrative Agent has made a payment in excess of the amount(s) received by it from the Borrower either individually or in the aggregate (whether or not then owed); or (3) the Administrative Agent has for any reason otherwise erroneously made such payment; then each of the Secured Parties severally agrees to repay to the Administrative Agent forthwith on demand the Rescindable Amount so distributed to such Secured Party, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Rate. A notice of the Administrative Agent to any Person under this clause (a) shall be conclusive, absent manifest error.
(b)Notwithstanding anything to the contrary in this Agreement, if at any time the Administrative Agent determines (in its sole and absolute discretion) that it has made a payment hereunder in error to any Lender or other Secured Party, whether or not in respect of an Obligation due and owing by a Secured Party at such time, where such payment is a Rescindable Amount, then in any such event, each such Person receiving a Rescindable Amount severally agrees to repay to the Administrative Agent forthwith on demand the Rescindable Amount received by such Person in immediately available funds in the currency so received, with interest thereon, for each day from and including the date such Rescindable Amount was received by it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Rate. A notice of the Administrative Agent to any Person under this clause (b) shall be conclusive, absent manifest error. To the extent permitted by law, each Lender and each other Secured Party irrevocably waives any and all defenses, including any “discharge for value” (under which a creditor might otherwise claim a right to retain funds mistakenly paid by a third party in respect of a debt owed by another), “good consideration”, “change of position” or similar defenses (whether at law or in equity) to its obligation to return any Rescindable Amount. The Administrative Agent shall inform each Lender or other Secured Party that received a Rescindable Amount promptly upon determining that any payment made to such Person comprised, in whole or in part, a Rescindable Amount. Each Person’s obligations, agreements and waivers under this Section 8.12 shall survive the resignation or replacement of the Administrative Agent, any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Commitments and/or the repayment, satisfaction or discharge of all Obligations (or any portion thereof) under any Loan Document.
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(c)Each Lender or Secured Party hereby authorizes the Administrative Agent to set off, net and apply any and all amounts at any time owing to such Lender or Secured Party under any Loan Document against any amount due to the Administrative Agent under immediately preceding clauses (a) or (b) under the indemnification provisions of this Agreement.
(d)The parties hereto agree that payment of a Rescindable Amount shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or any other Obligor, except, in each case, to the extent such Rescindable Amount is, and solely with respect to the amount of such Rescindable Amount that is, comprised of funds received by the Administrative Agent from the Borrower or any other Obligor for the purpose of making such Rescindable Amount. For the avoidance of doubt, no provision in this Section 8.12 shall be interpreted to increase (or accelerate the due date for) or have the effect of increasing (or accelerating the due date for), the Obligations of the Borrower or any other Obligor relative to the amount (and/or timing for payment) of the Obligations that would have been payable had the erroneous Rescindable Amount not been paid by the Administrative Agent.
SECTION 1.12Parallel Debt owed by the Borrower to the Security Trustee.
For the purpose of taking and ensuring the continuing validity of Liens created or to be created under the Security Documents, notwithstanding any contrary provisions in this Agreement:
(a)The Borrower irrevocably and unconditionally undertakes to pay to the Security Trustee (the “Parallel Debt”) amounts equal to, and in the currency of, all present and future amounts payable by it to a Secured Party under this Agreement and/or any other Loan Document (the "Original Obligations") as and when each amount falls due for payment under the relevant Loan Document;
(b)the Security Trustee shall have an own independent right to demand and receive payment of the Parallel Debt;
(c)the Parallel Debt shall not limit or affect the existence of the Original Obligations for which the relevant Secured Parties shall have each an independent right to demand payment;
(d)notwithstanding paragraphs (a) to (c) above, payments by the Borrower of any amounts in respect of the Parallel Debt shall to the same extent decrease and be a good discharge of the corresponding Original Obligations owing to the relevant Secured Parties and payment by the Borrower of its Original Obligations to relevant Secured Parties shall to the same extent decrease and discharge the Parallel Debt owing by the Borrower to the Security Trustee;
(e)the Parallel Debt is owed to the Security Trustee in its own name on behalf of itself and not as agent or representative of any other person nor as trustee and the Security Documents shall secure the Parallel Debt so owing;
(f)without limiting or affecting the Security Trustee’s right to protect, preserve or enforce its rights under any Security Document, the Security Trustee undertakes to each Secured Party not to exercise its rights in respect of the Parallel Debt without the consent of the relevant Secured Parties; and
(g)the Security Trustee undertakes to pay to the Secured Parties any amount collected or received by it in payment or partial payment of the Parallel Debt and shall distribute any amount so received to the Secured Parties in accordance with the terms of this Agreement as if such amounts had been received in respect of the Original Obligations.
ARTICLE IX
MISCELLANEOUS
SECTION 1.01Notices; Public Information.
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(a)Notices Generally. Except as provided in paragraph (b) below, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by email as follows:
(i)if to the Borrower or any Guarantor, to it at:
“Le Millenium”
9 Boulevard Charles III
Monaco 98000
Attn: Legal Department
Email: legal@scorpiogroup.net
(ii)if to the Administrative Agent, to:
30 Hudson Yards, 81st Floor
500 West 33rd Street
New York, New York 10001
Attn: Samantha Stone
Email: Samanatha.Stone@dnb.no
(iii)if to a Lender or Issuing Bank, to it at its address (or email address) set forth in Schedule 2.01 hereto or, if applicable, an Assignment and Assumption Agreement.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received. Notices delivered through electronic communications, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b)Electronic Communications. Notices and other communications to the Lenders and the Issuing Banks hereunder may be delivered or furnished by electronic communication (including e-mail, FpML, and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or Issuing Bank if such Lender or Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c)Change of Address, etc. Any party hereto may change its address for notices and other communications hereunder by notice to the other parties hereto.
(d)Platform.
(i)The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make the Communications (as defined below) available to the Issuing Banks and the other Lenders by posting the Communications on the Platform.
(ii)The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-
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infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower, any Lender, any Issuing Bank or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of communications through the Platform. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein that is distributed to the Administrative Agent, any Lender or any Issuing Bank by means of electronic communications pursuant to this Section, including through the Platform.
(e)Public Information. The Borrower hereby acknowledges that certain of the Lenders and Issuing Banks (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities. The Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the materials and information provided by or on behalf of the Borrower hereunder and under the other Loan Documents (collectively, “Borrower Materials”) that may be distributed to the Public Lenders and that (i) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC,” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (ii) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Agents, the Issuing Banks and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of U.S. federal and state securities Laws (provided, however, that to the extent that such Borrower Materials constitute Information, they shall be subject to Section 9.12); (iii) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Side Information;” and (iv) the Agents shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Side Information”. Each Public Lender will designate one or more representatives that shall be permitted to receive information that is not designated as being available for Public Lenders.
SECTION 1.02Waivers; Amendments.
(a)No Waiver; Remedies Cumulative; Enforcement. No failure or delay by the Administrative Agent, any Issuing Bank or any Lender in exercising any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege, or any abandonment or discontinuance of steps to enforce such a right remedy, power or privilege, preclude any other or further exercise thereof or the exercise of any other right remedy, power or privilege. The rights, remedies, powers and privileges of the Administrative Agent, the Issuing Banks and the Lenders hereunder and under the Loan Documents are cumulative and are not exclusive of any rights, remedies, powers or privileges that any such Person would otherwise have.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against any Obligor shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 7.01 for the benefit of all the Lenders and the Issuing Banks; provided that the foregoing shall not prohibit (i) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (ii) each Issuing Bank from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as an Issuing Bank) hereunder and under the other Loan Documents, (iii) any Lender or Issuing Bank from exercising setoff rights in accordance with Section 9.08 (subject to the terms of Section 2.15) or (iv) any Lender or Issuing Bank from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Obligor under any Debtor Relief Law; provided, further, that if at any time there is no Person
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acting as Administrative Agent hereunder and under the other Loan Documents, then (x) the Required Lenders shall have the rights otherwise provided to the Administrative Agent pursuant to Section 7.01 and (y) in addition to the matters set forth in clauses (ii), (iii) and (iv) of the preceding proviso and subject to Section 2.15, any Lender or Issuing Bank may, with the consent of the Required Lenders, enforce any rights or remedies available to it and as authorized by the Required Lenders.
(b)Amendments, Etc. Except as otherwise expressly set forth in this Agreement (including Section 2.24), no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Obligor therefrom, shall be effective unless in writing executed by the Borrower, the relevant Obligor and the Required Lenders, and acknowledged by the Administrative Agent, or by the Borrower, the relevant Obligor and the Administrative Agent with the consent of the Required Lenders, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that no such amendment, waiver or consent shall:
(i)extend or increase any Commitment of any Lender without the written consent of such Lender (it being understood that a waiver of any condition precedent set forth in Article IV or the waiver of any Default shall not constitute an extension or increase of any Commitment of any Lender);
(ii)reduce the principal of, or rate of interest specified herein on, any Loan or any L/C Disbursement (including an increase in the Green Loan Margin Discount), or any fees or other amounts payable hereunder or under any other Loan Document, without the written consent of each Lender directly and adversely affected thereby (provided that only the consent of the Required Lenders shall be necessary (x) to waive the obligation of the Borrower to pay interest at the Default Rate or (y) to amend any financial covenant (or any defined term directly or indirectly used therein);
(iii)postpone any date scheduled for any payment of principal of, or interest on, any Loan or any L/C Disbursement, or any fees or other amounts payable hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such payment, without the written consent of each Lender directly and adversely affected thereby;
(iv)change Section 2.14(b) or Section 2.15 in a manner that would alter the pro rata sharing of payments required thereby or change Section 7.02, in each case, without the written consent of each Lender directly and adversely affected thereby;
(v)waive any condition set forth in Section 4.01 without the written consent of each Lender;
(vi)change Section 2.05(d) in a manner that would permit the expiration date of any Letter of Credit to occur after the L/C Commitment Termination Date without the written consent of each L/C Lender;
(vii)change any provision of this Section or the percentage in the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender (but any change to the definition of “Required Revolving Lenders” shall only require the written consent of each Lender with a Revolving Credit Exposure or Revolving Commitment at such time, any change to the definition of “Required Term Loan Lenders” shall only require the written consent of each Lender with a Term Loan Commitment or an outstanding Term Loan at such time), and any change to the definition of “Required L/C Lenders” shall only require the written consent of each Lender with an L/C Commitment or outstanding L/C Obligations at such time);
(viii)amend the definition of “Alternative Currency” or “Currency” without the written consent of each Lender;
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(ix)amend, waive or otherwise modify any term or provision that directly affects the rights or duties of the Lenders under the Revolving Facility and does not directly affect the rights or duties of the Lenders under the Term Loan Facility or L/C Lenders, in each case, without the written consent of the Required Revolving Lenders;
(x)amend, waive or otherwise modify any term or provision that directly affects the rights or duties of the Lenders under any Term Loan Facility and does not directly affect the rights or duties of the Lenders under the Revolving Facility or the L/C Lenders, in each case, without the written consent of the Required Term Loan Lenders;
(xi)amend, waive or otherwise modify any term or provision that directly affects the rights or duties of the L/C Lenders and does not directly affect the rights or duties of the Lenders under the Revolving Facility or the Term Loan Facility, in each case, without the written consent of the Required L/C Lenders;
(xii)extend the L/C Availability Period, the Revolving Availability Period or the Term Loan Availability Period;
(xiii)amend the provisions that govern the release of an Obligor from its obligations hereunder or any Collateral; or
(xiv)amend Section 7.01 (Events of Default);
provided, further, that no such amendment, waiver or consent shall amend, modify or otherwise affect the rights or duties hereunder or under any other Loan Document of (A) the Administrative Agent, unless in writing executed by the Administrative Agent, and (B) any Issuing Bank, unless in writing executed by such Issuing Bank.
Notwithstanding anything herein to the contrary, (i) any amendment, waiver or other modification of this Agreement or any other Loan Document that by its terms directly affects the rights or duties of the Lenders of a particular Class (but not the Lenders of any other Class) may be effected by an agreement or agreements in writing entered into by the Borrower and the requisite number of percentage in interest of the affected Class of Lenders that would be required to consent thereto under this Section 9.02(b) if such Class of Lenders were the only Class of Lenders hereunder at such time and (ii) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent that by its terms requires the consent of all the Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or extended, or the maturity of any of its Loans may not be extended, the rate of interest on any of its Loans may not be reduced and the principal amount of any of its Loans may not be forgiven, in each case without the consent of such Defaulting Lender and (y) any amendment, waiver or consent requiring the consent of all the Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than the other affected Lenders shall require the consent of such Defaulting Lender.
In addition, notwithstanding anything in this Section to the contrary, if the Administrative Agent and the Borrower shall have jointly identified an obvious error or any error or omission of a technical nature, in each case, in any provision of the Loan Documents, then the Administrative Agent and the Borrower shall be permitted to amend such provision, and, in each case, such amendment shall become effective without any further action or consent of any other party to any Loan Document if the same is not objected to in writing by any Issuing Bank (solely to the extent such provision affects or may affect it in its capacity as an Issuing Bank) or the Required Lenders to the Administrative Agent within ten Business Days following receipt of notice thereof.
SECTION 1.03Expenses; Indemnity; Damage Waiver.
(a)Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent) in connection with the syndication of any Facility, the preparation, negotiation, execution, delivery and administration of this Agreement and the
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other Loan Documents, or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by any Issuing Bank in connection with the issuance, amendment, extension, reinstatement or renewal of any Letter of Credit or any demand for payment thereunder, and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or any Issuing Bank (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or any Issuing Bank), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b)Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and each Issuing Bank, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower) arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee, (y) result from a claim brought by the Borrower against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction or (z) result from a claim not involving an act or omission of the Borrower and that is brought by an Indemnitee against another Indemnitee (other than against the arranger or the Administrative Agent in their capacities as such and other than claims with respect to a Letter of Credit brought by one Indemnitee against another Indemnitee acting in a different capacity or role with respect to such Letter of Credit such as an issuing bank as opposed to an advising bank, confirming bank, negotiating bank or transferring bank). Paragraph (b) of this Section shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c)Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under paragraph (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), any Issuing Bank or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), such Issuing Bank or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lender’s Applicable Percentage at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender); provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), such Issuing Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent), such Issuing Bank in connection with such capacity. The obligations of the Lenders under this paragraph (c) are subject to the provisions of Section 2.14(e).
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(d)Waiver of Consequential Damages, Etc. To the fullest extent permitted by Applicable Law, no Obligor shall assert, and each Obligor hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit, or the use of the proceeds thereof. No Indemnitee referred to in paragraph (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e)Payments. All amounts due under this Section shall be payable promptly, but in any event not later than twenty (20) days after demand therefor.
(f)Survival. Each party’s obligations under this Section shall survive the termination of the Loan Documents and payment of the obligations hereunder.
SECTION 1.04Successors and Assigns.
(a)Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Obligor may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent, each Issuing Bank and each Lender (and any other attempted assignment or transfer by any party hereto shall be null and void), and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (e) of this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its applicable Commitment and the applicable Loans at the time owing to it); provided that (in each case with respect to any Facility) any such assignment shall be subject to the following conditions:
(i)Minimum Amounts.
(A)in the case of an assignment of the entire remaining amount of the assigning Lender’s applicable Commitment or the applicable Loans at the time owing to it (in each case with respect to any Facility) or contemporaneous assignments to or by related Approved Funds (determined after giving effect to such assignments) that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B)in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the applicable Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the applicable Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $5,000,000, unless the Administrative Agent consents (such consent not to be unreasonably withheld or delayed).
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(ii)Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the applicable Loan or the applicable Commitment assigned, except that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non-pro rata basis.
(iii)Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:
(A)the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment, or (y) such assignment is to a Lender, an Affiliate of a Lender, an Approved Fund or an Approved Transferee; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five Business Days after having received notice thereof and provided, further, that the Borrower’s consent shall not be required during the primary syndication of any Facility;
(B)the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments to a Person that is not a Lender, an Affiliate of a Lender or an Approved Fund; and
(C)the consent of each Issuing Bank shall be required for assignments in respect of the L/C Facility.
(iv)Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v)No Assignment to Certain Persons. No such assignment shall be made to (A) the Borrower or any of the Borrower’s Affiliates or Subsidiaries or (B) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute a Defaulting Lender or a Subsidiary thereof.
(vi)No Assignment to Natural Persons. No such assignment shall be made to a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person).
(vii)Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or sub-participations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, each Issuing Bank and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit, in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under Applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
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Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.16, 2.17, 2.18 and 9.03 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section.
(c)Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in 30 Hudson Yards, 81st Floor, 500 West 33rd Street, New York, New York 10001, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the applicable Lenders, and the applicable Commitments of, and principal amounts (and stated interest) of the applicable Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent, the Issuing Banks and the applicable Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Issuing Bank or Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d)Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower, any Issuing Bank or the Administrative Agent, sell participations to any Person (other than a natural person, or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person, or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights or obligations under this Agreement (including all or a portion of its applicable Commitment or the applicable Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) the Borrower, the Administrative Agent, the Issuing Banks and Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 9.03(b) with respect to any payments made by such Lender to its Participant(s).
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in Section 9.02(b) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.16, 2.17, and 2.18 (subject to the requirements and limitations therein, including the requirements under Section 2.18(g) (it being understood that the documentation required under Section 2.18(g) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 2.21 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 2.17 or 2.18, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.21(b) with respect to any Participant. To the extent permitted by law, each Participant also shall
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be entitled to the benefits of Section 9.08 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.15 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e)Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, including, without limitation, any transfer of rights to a special purpose vehicle where a Lien over securities issued by such special purpose vehicle is to be created in favor of a federal reserve or central bank (including, for the avoidance of doubt, the European Central Bank) or to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by that Lender as security for those obligations or securities; and; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 1.05Survival. All covenants, agreements, representations and warranties made by any Obligor herein and in any Loan Document or other documents delivered in connection herewith or therewith or pursuant hereto or thereto shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery hereof and thereof and the making of the Credit Extensions hereunder, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding and so long as the Commitments have not expired or been terminated. The provisions of Sections 2.16, 2.17, 9.03, 9.15 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the payment in full of the Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
SECTION 1.06Counterparts; Integration; Effectiveness; Electronic Execution.
(a)Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement in electronic (e.g., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.
(b)Electronic Execution of Loan Documents. The words “execution,” “signed,” “signature,” and words of like import in this Agreement and the other Loan Documents including any Assignment and Assumption shall be deemed to include electronic signatures or electronic records,
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each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
SECTION 1.07Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section, if and to the extent that the enforceability of any provision of this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent or any Issuing Bank, as applicable, then such provision shall be deemed to be in effect only to the extent not so limited.
SECTION 1.08Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, each Issuing Bank and each of their respective branches and Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by Applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held, and other obligations (in whatever currency) at any time owing, by such Lender, such Issuing Bank or any such branch or Affiliate, to or for the credit or the account of an Obligor against any and all of the obligations of the Obligors now or hereafter existing under this Agreement or any other Loan Document to such Lender or such Issuing Bank or their respective branches or Affiliates, irrespective of whether or not such Lender, Issuing Bank, branch or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Obligors may be contingent or unmatured or are owed to a branch office or Affiliate of such Lender or such Issuing Bank different from the branch office or Affiliate holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.23 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Banks, and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, each Issuing Bank and their respective branches and Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, such Issuing Bank or their respective branches and Affiliates may have. Each Lender and Issuing Bank agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
SECTION 1.09Governing Law; Jurisdiction; Etc.
(a)Governing Law. This Agreement and the other Loan Documents and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of New York.
(b)Jurisdiction. Each of the Obligors irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Administrative Agent, any Lender, any Issuing Bank or any Related Party of the foregoing in any way relating to this Agreement or any other Loan Document or the transactions relating hereto or thereto, in any forum other than the courts of the State of New York sitting in New York County, and of the United States District Court for the Southern District of New York sitting in New York County, and any appellate court from any thereof, and each
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of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by Applicable Law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Loan Document shall (i) affect any right that the Administrative Agent, any Lender or any Issuing Bank may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction, (ii) waive any statutory, regulatory, common law, or other rule, doctrine, legal restriction, provision or the like providing for the treatment of bank branches, bank agencies, or other bank offices as if they were separate juridical entities for certain purposes, including Uniform Commercial Code Sections 4-106, 4-A-105(1)(b), and 5-116(b), UCP 600 Article 3 and ISP98 Rule 2.02, and URDG 758 Article 3(a), or (iii) affect which courts have or do not have personal jurisdiction over the issuing bank or beneficiary of any Letter of Credit or any advising bank, nominated bank or assignee of proceeds thereunder or proper venue with respect to any litigation arising out of or relating to such Letter of Credit with, or affecting the rights of, any Person not a party to this Agreement, whether or not such Letter of Credit contains its own jurisdiction submission clause.
(c)Waiver of Venue. Each Obligor irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d)Service of Process. Each Obligor irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on such Obligor by mailing or delivering the same by hand to such Obligor at its address located at 150 East 58th Street, New York, New York 10155. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Obligors as such, and shall be legal and binding upon the Obligors for all the purposes of any such action or proceeding. Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Obligors to the Secured Parties) against the Obligors in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. The Obligors will advise the Administrative Agent promptly of any change of address for the purpose of service of process. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by Applicable Law.
SECTION 1.10WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 1.11Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 1.12Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders and the Issuing Banks agree to maintain the confidentiality of the
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Information (as defined below), except that Information may be disclosed (a) to its branches and Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners); (c) to the extent required by Applicable Laws or by any subpoena or similar legal process; (d) to any other party hereto; (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder; (f) subject to an agreement containing provisions substantially the same as (or no less restrictive than) those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement, or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to an Obligor and its obligations, this Agreement or payments hereunder; (g) on a confidential basis to (i) any rating agency in connection with rating an Obligor or its Subsidiaries or any Facility or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to any Facility; (h) to a Lender or Issuing Bank’s credit risk insurance providers, insurance companies or reinsurance companies; (i) with the consent of the Borrower; (j) to a Lender’s prospective lenders or investors; or (k) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section, or (y) becomes available to the Administrative Agent, any Lender, any Issuing Bank or any of their respective branches or Affiliates on a nonconfidential basis from a source other than the Borrower who did not acquire such information as a result of a breach of this Section. In addition, the Administrative Agent, the Issuing Banks and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers (including third parties providing administration and settlement services and any auditors) to the Agents or any Issuing Bank or Lender in connection with the administration of this Agreement, the other Loan Documents, and the Commitments.
For purposes of this Section, “Information” means all information received from an Obligor or any of its Subsidiaries relating to an Obligor or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or any Issuing Bank on a nonconfidential basis prior to disclosure by an Obligor or any of its Subsidiaries; provided that, in the case of information received from an Obligor or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
SECTION 1.13PATRIOT Act. Each Issuing Bank or Lender subject to the PATRIOT Act hereby notifies the Obligors that, pursuant to the requirements of the PATRIOT Act, it may be required to obtain, verify and record information that identifies the Obligors, which information includes the name and address of the Obligors and other information that will allow such Issuing Bank or Lender to identify the Obligors in accordance with the PATRIOT Act.
SECTION 1.14Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or other Obligation owing under this Agreement, together with all fees, charges and other amounts that are treated as interest on such Loan or other Obligation under Applicable Law (collectively, “charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) that may be contracted for, charged, taken, received or reserved by the Lender or other Person holding such Loan or other Obligation in accordance with Applicable Law, the rate of interest payable in respect of such Loan or other Obligation hereunder, together with all charges payable in respect thereof, shall be limited to the Maximum Rate. To the extent lawful, the interest and charges that would have been paid in respect of such Loan or other Obligation but were not paid as a result of the operation of this Section shall be cumulated and the interest and charges payable to such Lender or other Person in respect of other Loans or Obligations or periods shall be increased (but not above the amount collectible at the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate for each day to the date of repayment, shall have been received by such Lender or
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other Person. Any amount collected by such Lender or other Person that exceeds the maximum amount collectible at the Maximum Rate shall be applied to the reduction of the principal balance of such Loan or other Obligation or refunded to the Borrower so that at no time shall the interest and charges paid or payable in respect of such Loan or other Obligation exceed the maximum amount collectible at the Maximum Rate.
SECTION 1.15Payments Set Aside. To the extent that any payment by or on behalf of an Obligor is made to the Administrative Agent, any Issuing Bank or any Lender, or the Administrative Agent, any Issuing Bank or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, such Issuing Bank or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and each Issuing Bank severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the applicable Overnight Rate from time to time in effect, in the applicable Currency of such recovery or payment.
SECTION 1.16No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each Obligor acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (a) (i) no fiduciary, advisory or agency relationship between an Obligor and its Subsidiaries and the Secured Parties is intended to be or has been created in respect of the transactions contemplated hereby or by the other Loan Documents, irrespective of whether the Mandated Lead Arrangers, the Administrative Agent, the Security Trustee, the Coordinator, the Bookrunners, the Green Advisor, any Issuing Bank or any Lender has advised or is advising an Obligor or any Subsidiary on other matters, (ii) the arranging and other services regarding this Agreement provided by the Secured Parties are arm’s-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Secured Parties, on the other hand, (iii) the Obligors have consulted its own legal, accounting, regulatory and tax advisors to the extent that it has deemed appropriate and (iv) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; and (b) (i) each of the Secured Parties is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for an Obligor or any of its Affiliates, or any other Person; (ii) none of the Secured Parties has any obligation to an Obligor or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Secured Parties and their respective branches and Affiliates may be engaged, for their own accounts or the accounts of customers, in a broad range of transactions that involve interests that differ from those of the Obligors and their Affiliates, and none of the Secured Parties has any obligation to disclose any of such interests to the Obligors or their Affiliates. To the fullest extent permitted by Law, each Obligor hereby waives and releases any claims that it may have against any of the Secured Parties with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
SECTION 1.17Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder that may be payable to it by any party hereto that is an Affected Financial Institution; and
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(b)the effects of any Bail-In Action on any such liability, including, if applicable:
(i)a reduction in full or in part or cancellation of any such liability;
(ii)a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii)the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority.
SECTION 1.18Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of each Obligor in respect of any such sum due from it to the Administrative Agent or any Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the “Judgment Currency”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “Agreement Currency”), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender, as the case may be, of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender, as the case may be, may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent or any Lender from an Obligor in the Agreement Currency, such Obligor agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or such Lender, as the case may be, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent or any Lender in such Currency, the Administrative Agent or such Lender, as the case may be, agrees to return the amount of any excess to such Obligor (or to any other Person who may be entitled thereto under Applicable Law).
SECTION 1.19Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for Hedging Agreements or any other agreement or instrument that is a QFC (such support, “QFC Credit Support” and each such QFC a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York or of the United States or any other state of the United States):
(a)In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States.
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(b)As used in this Section 9.19, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following:
(i)a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b)
(ii)a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii)a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
ARTICLE X
GUARANTY AND INDEMNITY
SECTION 1.01Guarantee and Indemnity. In order to induce the Lenders to make the Loans to the Borrower, each Guarantor irrevocably and unconditionally jointly and severally.
(a)guarantees to each Secured Party, as a primary obligor and not merely as a surety, punctual payment and performance by the Borrower and each other Obligor of all their respective obligations under the Loan Documents;
(b)undertakes with each Secured Party that whenever the Borrowers or any other Obligor does not pay any amount (whether for principal, interest, fees, expenses or otherwise) when due (whether at stated maturity, by acceleration or otherwise) under or in connection with any Loan Document, such Guarantor shall immediately on demand pay that amount as if it were the primary obligor; and
(c)agrees with each Secured Party that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation, indemnify that Secured Party immediately on demand against any cost, loss or liability it incurs as a result of the Borrowers or any other Obligor not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Loan Document on the date when it would have been due. The amount payable by such Guarantor under this indemnity will not exceed the amount it would have had to pay under this Section 10 if the amount claimed had been recoverable on the basis of a guarantee;
SECTION 1.02Continuing Guarantee. This guarantee is a continuing guarantee that shall remain in full force and effect until the irrevocable payment and performance in full by any Obligor under the Loan Documents, regardless of any intermediate payment or discharge in whole or in part. This guarantee shall automatically terminate when the principal of and interest and premium (if any) on the Loan, all fees and all other expenses or amounts payable under this Agreement shall have been paid in full (other than contingent indemnification obligations for which no claim or demand has been made), in accordance with the terms of this Agreement and the other Loan Documents. This guarantee constitutes a guarantee of punctual performance and payment and not merely of collection. Notwithstanding the foregoing, any Hedging Obligations guaranteed by the Guarantors under this Section 10 shall not include any Excluded Hedging Obligations.
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SECTION 1.03Reinstatement. If any discharge, release or arrangement (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is made by a Secured Party in whole or in part on the basis of any payment, security or other disposition which is rescinded, discharged, avoided or reduced, or must be restored or returned, upon insolvency, bankruptcy, reorganization, liquidation, administration or otherwise, without limitation, then the liability of each Guarantor under this Section 10 will continue or be reinstated as if the discharge, release or arrangement had not occurred.
SECTION 1.04Waiver of Defenses. The obligations of each Guarantor under this Section 10 and in respect of any security provided by or pursuant to the Security Documents are irrevocable, absolute and unconditional and shall not be affected or discharged by an act, omission, matter or thing which, but for this Section 10.04, would reduce, release or prejudice any of its obligations under this Section 10 or in respect of any security provided by or pursuant to the Security Documents (without limitation and whether or not known to it or any Secured Party) including (and each Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to):
(a)any time, waiver or consent granted to, or composition with, any Obligor or other person;
(b)the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any Obligor;
(c)the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect or delay in perfecting, or refusal or neglect to take up or enforce, or delay in taking or enforcing any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realize the full value of any collateral;
(d)any incapacity or lack of power, authority or legal personality of or dissolution or change in the corporate or company structure, shareholders, members or status of an Obligor or any other person (including without limitation any change in the holding of such Obligor’s or other person’s Equity Interests);
(e)any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of any Loan Document or any other document or security including, without limitation, any change in the purpose of, any extension of or any increase in any facility or the addition of any new facility under any Loan Document or other document or security;
(f)any unenforceability, illegality or invalidity of any obligation of any person under any Loan Document or any other document or security;
(g)any bankruptcy, insolvency or similar proceedings;
(h)any election of remedies by a Secured Party that in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of such Guarantor or other rights of such Guarantor to proceed against any Obligor, any other guarantor or any other person or entity or any collateral;
(i)any right of set-off or counterclaim against or in respect of the obligations of such Guarantor hereunder; or
(j)any other circumstance whatsoever that might otherwise constitute a defense available to, or a legal or equitable discharge of, any Obligor.
SECTION 1.05Other Waivers. Each Guarantor hereby unconditionally and irrevocably waives:
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(a)promptness, diligence, notice of acceptance, presentment, demand for performance, notice of non-performance, default, acceleration, protest or dishonor and any other notice and this guarantee and any requirement that a Secured Party protect, secure, perfect or insure any security, Lien or any property subject thereto or exhaust any right or take any action against an Obligor, any other guarantor or any other person or entity or any collateral;
(b)any right to revoke this guarantee; and
(c)any duty on the part of an Obligor to disclose to such Guarantor any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of that Obligor or any of their respective Subsidiaries now or hereafter known by any Secured Party.
SECTION 1.06Acknowledgment of Benefits. Each Guarantor acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Loan Documents and that the waivers set forth in this Section 10 are knowingly made in contemplation of such benefits.
SECTION 1.07Immediate Recourse. Each Guarantor waives any right it may have of first requiring any Secured Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person (including without limitation to commence any proceedings under any Loan Document or to enforce any security provided by or pursuant to the Security Documents) before claiming or commencing proceedings under this Section 10. This waiver applies irrespective of any law or any provision of a Loan Document to the contrary.
SECTION 1.08Appropriations. Until all amounts which may be or become payable by the Obligor under or in connection with the Loan Documents have been irrevocably paid in full, each Secured Party (or any trustee or agent on its behalf) may:
(a)refrain from applying or enforcing any other moneys, security or rights held or received by that Secured Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and
(b)hold in an interest-bearing suspense account any moneys received from a Guarantor or on account of a Guarantor’s liability under this Section 10.
SECTION 1.09Deferral of Guarantors’ Rights. All rights which a Guarantor at any time has (whether in respect of this guarantee, a mortgage or any other transaction) against the Borrower, any other Obligor or their respective assets shall be fully subordinated to the rights of the Secured Parties under the Loan Documents and until all obligations under the Loan Documents are paid in full and unless the Administrative Agent otherwise directs, no Guarantor will exercise its rights which it may have (whether in respect of any Loan Document to which it is a Party or any other transaction) by reason of performance by it of its obligations under the Loan Documents or by reason of any amount being payable, or liability arising, under this Section 10:
(a)to be indemnified by any Obligor;
(b)to claim any contribution from any third party providing security for, or any other guarantor of, any Obligor’s obligations under the Loan Documents;
(c)to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Secured Parties under the Loan Documents or of any other guarantee or security taken pursuant to, or in connection with, the Loan Documents by any Secured Party;
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(d)to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which a Guarantor has given a guarantee, undertaking or indemnity under Section 10.01;
(e)to exercise any right of set-off against any Obligor; and/or
(f)to claim or prove as a creditor of any Obligor in competition with any Secured Party.
If a Guarantor receives any benefit, payment or distribution in relation to such rights it shall hold that benefit, payment or distribution to the extent necessary to enable all amounts which may be or become payable to the Secured Parties by the Obligor under or in connection with the Loan Documents to be repaid in full on trust for the Secured Parties and shall promptly pay or transfer the same to the Administrative Agent or as the Administrative Agent may direct for application in accordance with the terms of this Agreement.
SECTION 1.10Additional Security. This guarantee and any other security or Lien given by each Guarantor is in addition to and is not in any way prejudiced by, and shall not prejudice, any other guarantee or security or any other right of recourse now or subsequently held by any Secured Party or any right of set-off or netting or right to combine accounts in connection with the Loan Documents.
SECTION 1.11Independent Obligations. The obligations of each Guarantor under or in respect of this guarantee are independent of any other obligations of any other Obligor under or in respect of the Loan Documents, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce this guarantee irrespective of whether any action is brought against any other Obligor or whether any other Obligor is joined in any such action or actions.
SECTION 1.12Limitation of Liability. Each of the Guarantors and each of the Secured Parties hereby confirms that it is its intention that the obligations under this guarantee not constitute a fraudulent transfer or conveyance for purposes of the U.S. Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar law. To effectuate the foregoing intention, each of the Guarantors and each of the Secured Parties hereby irrevocably agrees that the obligations guaranteed by each Guarantor under this guarantee shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance.
SECTION 1.13Applicability of Provisions of Guarantee to Other Security. Sections 10.02, 10.03, 10.04, 10.05, 10.06, 10.07, 10.08, 10.09, 10.10, 10.11 and 10.12 shall apply, with any necessary modifications, to any security or Lien which a Guarantor creates (whether at the time at which it signs this Agreement or at any later time) to secure the obligations under the Loan Documents or any part of them.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
SEAJACKS INTERNATIONAL LIMITED,
as the Borrower
By_________________________
Name:
Title:
ENETI INC.,
as the Parent Guarantor
By_________________________
Name:
Title:
SEAJACKS 1 LIMITED,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS 2 LIMITED,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS 3 LIMITED,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS 4 LIMITED,
as Subsidiary Guarantor
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By_________________________
Name:
Title:
SEAJACKS 5 LIMITED,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS UK LIMITED,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS US INC.,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS MERMAN MARINE LTD,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS CREWING SERVICES LIMITED,
as Subsidiary Guarantor
By_________________________
Name:
Title:
SEAJACKS JAPAN LLC,
as Subsidiary Guarantor
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By_________________________
Name:
Title:
SEAJACKS 3 JAPAN LLC,
as Subsidiary Guarantor
By_________________________
Name:
Title:
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DNB BANK ASA, NEW YORK BRANCH,
as Administrative Agent and Security Trustee
By_________________________
Name:
Title:
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DNB BANK ASA, NEW YORK BRANCH,
as Issuing Bank
By_________________________
Name:
Title:
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DNB CAPITAL LLC,
as a Lender
By_________________________
Name:
Title:
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SOCIÉTÉ GÉNÉRALE,
as a Lender
By_________________________
Name:
Title:
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CITIBANK N.A.,
as a Lender
By_________________________
Name:
Title:
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CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK,
as a Lender
By_________________________
Name:
Title:
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CRÉDIT INDUSTRIEL ET COMMERCIAL, NEW YORK BRANCH
as a Lender
By_________________________
Name:
Title:
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Schedule 1.01
A. Subsidiary Guarantors
| | | | | |
| Subsidiary Guarantor | Jurisdiction of Incorporation |
| Seajacks 1 Limited | England and Wales |
| Seajacks 2 Limited | England and Wales |
| Seajacks 3 Limited | England and Wales |
| Seajacks 4 Limited | England and Wales |
| Seajacks 5 Limited | England and Wales |
| Seajacks UK Limited | England and Wales |
| Seajacks US Inc. | Virginia, United States |
| Seajacks Merman Marine Ltd | Bermuda |
| Seajacks Crewing Services Limited | England and Wales |
Seajacks Japan LLC ( シージャックス・ジャパン合同会社) | Japan |
Seajacks 3 Japan LLC ( シージャックス3ジャパン合同会社) | Japan |
B. Vessels
| | | | | | | | | | | |
| Vessel (if any) | Flag | Vessel Owner | IMO Number |
| Collateral Vessels |
| SEAJACKS SCYLLA | Panama | Seajacks 5 Limited | 9698939 |
| SEAJACKS ZARATAN | Japan | Seajacks 3 Japan LLC | 9596571 |
| Non-Collateral Vessels |
| SEAJACKS HYDRA | Panama | Seajacks 4 Limited | 9669093 |
| SEAJACKS KRAKEN | Panama | Seajacks 1 Limited | 9522207 |
| SEAJACKS LEVIATHAN | Panama | Seajacks 2 Limited | 9522219 |
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Schedule 2.01
Commitments and Lenders
| | | | | | | | | | | |
| Name of Lender | Term Loan Commitment | Revolving Commitment | L/C Commitment |
DNB Capital LLC 30 Hudson Yards, 81st Floor 500 West 33rd Street New York, NY Attn: Jessika Larsson Email: jessika.larsson@dnb.no | $22,440,000 | $22,440,000 | $10,120,000 |
Société Générale 29 Boulevard Haussmann 75009 Paris, France Attn: Lauriane Pina Email: lauriane.pina@sgcib.com | $19,500,000 | $19,500,000 | $0 |
Citibank N.A. 388 Greenwich Street
New York, NY 10013 Attn: Jonathan Beasley Email: jonathan.beasley@citi.com | $13,470,000 | $13,470,000 | $6,060,000 |
Crédit Agricole Corporate and Investment Bank 12 place des Etats-Unis - CS 70052 92547 Montrouge Cedex Attn: Justin Lande Email: justin.lande@ca-cib.com | $13,470,000 | $13,470,000 | $6,060,000 |
Crédit Industriel et Commercial, New York Branch 520 Madison Avenue, 37th Floor New York, NY 10022 Attn: Andrew McKuin Email: andrew.mckuin@cicny.com | $6,120,000 | $6,120,000 | $2,760,000 |
| TOTAL | $75,000,000 | $75,000,000 | $25,000,000 |
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Schedule 2.01-A
Existing Letters of Credit
None.
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Schedule 5.06B
Required Insurances
[Attached]
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EXHIBIT A
FORM OF ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [the][each]1 Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each] 2 Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]3 hereunder are several and not joint.]4 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by [the][each] Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below (including any letters of credit included in such facilities), and (ii) to the extent permitted to be assigned under Applicable Law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “Assigned Interest”). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.
1. Assignor[s]: _________________________________________
_________________________________________
2. Assignee[s]: _________________________________________
_________________________________________
[Assignee is an [Affiliate][Approved Fund] of [identify Lender]]
3. Borrower(s): _________________________________________
4. Administrative Agent: ______________________, as the administrative agent under the Credit Agreement
5. Credit Agreement: [The [amount] Credit Agreement dated as of _______ among [name of Borrower(s)], the Lenders parties thereto, the Issuing Banks parties thereto, [name of Administrative Agent], as Administrative Agent, and the other agents parties thereto]
1 For bracketed language here and elsewhere in this document relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2 For bracketed language here and elsewhere in this document relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3 Select as appropriate.
4 Include bracketed language if there are either multiple Assignors or multiple Assignees.
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6. Assigned Interest[s]:
| | | | | | | | | | | | | | | | | | | | |
| Assignor[s]5 | Assignee[s]6 | Facility Assigned7 | Aggregate Amount of Commitment/ Loans for all Lenders8 | Amount of Commitment/ Loans Assigned8 | Percentage Assigned of Commitment/
Loans9 | CUSIP Number |
| | | $ | $ | % | |
| | | $ | $ | % | |
| | | $ | $ | % | |
[7. Trade Date: ______________]10
[Page break]
5 List each Assignor, as appropriate.
6 List each Assignee, as appropriate.
7 Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment and Assumption.
8 Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
9 Set forth, to at least 9 decimals, as a percentage of the Commitment/ Loans of all Lenders thereunder.
10 To be completed if the Assignor(s) and the Assignee(s) intend that the minimum assignment amount is to be determined as of the Trade Date.
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Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR[S]11
[NAME OF ASSIGNOR]
By:_________________________________
Title:
[NAME OF ASSIGNOR]
By:_________________________________
Title:
ASSIGNEE[S]12
[NAME OF ASSIGNEE]
By:_________________________________
Title:
[NAME OF ASSIGNEE]
By:_________________________________
Title:
[Consented to and]13 Accepted:
[NAME OF ADMINISTRATIVE AGENT], as
Administrative Agent
By: _________________________________
Title:
[Consented to:]
[NAME OF RELEVANT PARTY]
By: ________________________________
11 Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable).
12 Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable).
13 To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
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Title:
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ANNEX 1
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1.Representations and Warranties.
1.1Assignor[s]. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) is not a Defaulting Lender; and (b) it assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents [or any collateral thereunder], (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document, or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2Assignee[s]. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 9.04 of the Credit Agreement (subject to such consents, if any, as may be required thereunder), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 5.01 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2.Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts that have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts that have accrued from and after the Effective Date. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignee whether such amounts have accrued prior to, on or after the Effective Date. The Assignor[s] and the Assignee[s] shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. Notwithstanding the foregoing, the Administrative Agent shall make all payments of interest, fees or other amounts paid or payable in kind from and after the Effective Date to [the][the relevant] Assignee.
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3.General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York [confirm that choice of law provision parallels the Credit Agreement].
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EXHIBIT B
FORM OF BORROWING REQUEST
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EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
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EXHIBIT D
FORM OF CONTRACTED CASH FLOWS CERTIFICATE
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EXHIBIT E
FORM OF JOINDER AGREEMENT
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EXHIBIT F-1
FORM OF TERM LOAN FACILITY NOTE
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EXHIBIT F-2
FORM OF REVOLVING FACILITY NOTE
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EXHIBIT F-3
FORM OF L/C FACILITY NOTE
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EXHIBIT G-1
[FORM OF
U.S. TAX COMPLIANCE CERTIFICATE]
(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [ ], and each lender and issuing bank from time to time party thereto.
Pursuant to the provisions of Section 2.18 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN or IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER]
By:_________________________________
Name:
Title:
Date: ________ __, 20[ ]
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EXHIBIT G-2
[FORM OF
U.S. TAX COMPLIANCE CERTIFICATE]
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [ ], and each lender and issuing bank from time to time party thereto.
Pursuant to the provisions of Section 2.18 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN or IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT]
By:_________________________________
Name:
Title:
Date: ________ __, 20[ ]
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EXHIBIT G-3
[FORM OF
U.S. TAX COMPLIANCE CERTIFICATE]
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [ ], and each lender and issuing bank from time to time party thereto.
Pursuant to the provisions of Section 2.18 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a “bank” extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT]
By:_________________________________
Name:
Title:
Date: ________ __, 20[ ]
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EXHIBIT G-4
[FORM OF
U.S. TAX COMPLIANCE CERTIFICATE]
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [ ], and each lender and issuing bank from time to time party thereto.
Pursuant to the provisions of Section 2.18 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a “bank” extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided in this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER]
By:_________________________________
Name:
Title:
Date: ________ __, 20[ ]
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
| | | | | |
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
OR
| | | | | |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________ to _________________
OR
| | | | | |
| ¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report _________________
Commission file number: 001-34677
| | |
| SCORPIO TANKERS INC. |
| (Exact name of Registrant as specified in its charter) |
| |
| (Translation of Registrant’s name into English) |
| |
| Republic of the Marshall Islands |
| (Jurisdiction of incorporation or organization) |
| |
| 9, Boulevard Charles III Monaco 98000 |
| (Address of principal executive offices) |
| |
| Mr. Emanuele Lauro |
| +377-9798-5716 |
| investor.relations@scorpiotankers.com |
| 9, Boulevard Charles III Monaco 98000 |
| (Name, Telephone, E-mail and/or Facsimile, and address of Company Contact Person) |
Securities registered or to be registered pursuant to section 12(b) of the Act.
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock, par value $0.01 per share | STNG | New York Stock Exchange |
| 7.00% Senior Notes due 2025 | SBBA | New York Stock Exchange |
Securities registered or to be registered pursuant to section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2021 there were 58,369,516 outstanding shares of common stock, par value $0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filer x | | Accelerated filer ¨ | | Non-accelerated filer ¨ | | Emerging growth company ¨ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting
Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| | | | | | | | |
| | | U.S. GAAP |
| X | | International Financial Reporting Standards as issued by the International Accounting Standards Board |
| | | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. This document includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection therewith. This report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance, and are not intended to give any assurance as to future results. We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. When used in this document, the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek,” “plan,” “potential,” “continue,” “contemplate,” “possible,” “target,” “project,” “likely,” “may,” “might,” “would,” “could” and similar expressions, terms, or phrases may identify forward-looking statements.
These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and our future financial results and readers should not place undue reliance on them. The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
In addition to important factors and matters discussed elsewhere in this report, and in the documents incorporated by reference herein, important factors that, in our view, could cause our actual results and developments to differ materially from those discussed in the forward-looking statements include:
•our future operating or financial results;
•the strength of world economies and currencies;
•fluctuations in interest rates and foreign exchange rates;
•the impact of the expected discontinuance of the London Interbank Offered Rate, or LIBOR, after 2021 on interest rates of our credit facilities that reference LIBOR;
•general market conditions, including the market for our vessels, fluctuations in spot and charter rates and vessel values;
•the length and severity of the ongoing novel coronavirus (COVID-19) outbreak, including its impact on the demand for seaborne transportation of petroleum products;
•availability of financing and refinancing;
•our business strategy and other plans and objectives for growth and future operations, including planned and unplanned capital expenditures;
•our ability to successfully employ our vessels;
•planned, pending or recent acquisitions, business strategy and expected capital spending or operating expenses, including drydocking, surveys, upgrades and insurance costs;
•potential liability from pending or future litigation;
•the impact of increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance or ESG policies;
•general domestic and international political conditions, including the impact of conflict in Ukraine;
•potential disruption of shipping routes due to accidents or political events;
•vessel breakdowns and instances of off-hire;
•competition within our industry;
•the supply of and demand for vessels comparable to ours;
•corruption, piracy, militant activities, political instability, terrorism, and ethnic unrest in locations where we may operate;
•delays and cost overruns in construction projects;
•our level of indebtedness;
•our ability to obtain financing and to comply with the restrictive and other covenants in our financing arrangements;
•our need for cash to meet our debt service obligations;
•our levels of operating and maintenance costs, including bunker prices, drydocking and insurance costs;
•our ability to successfully identify, consummate, integrate, and realize the expected benefits from acquisitions;
•reputational risks;
•availability of skilled workers and the related labor costs and related costs;
•compliance with governmental, tax, environmental and safety regulation;
•any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) or other applicable regulations relating to bribery;
•general economic conditions and conditions in the oil and natural gas industry;
•effects of new products and new technology in our industry;
•the failure of counterparties to fully perform their contracts with us;
•our dependence on key personnel;
•adequacy of insurance coverage;
•our ability to obtain indemnities from customers;
•changes in laws, treaties or regulations applicable to us;
•the volatility of the price of our common shares and our other securities;
•other factors that may affect our future results; and
•these factors and other risk factors described in this annual report and other reports that we furnish or file with the U.S. Securities and Exchange Commission, or the SEC.
These factors and the other risk factors described in this report are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements, which speak only as of their dates. We undertake no obligation, and specifically decline any obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see our Risk Factors in "Item 3. Key Information - D. Risk Factors" of this annual report for a more complete discussion of these and other risks and uncertainties.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Unless the context otherwise requires, when used in this annual report, the terms “Scorpio Tankers,” the “Company,” “we,” “our” and “us” refer to Scorpio Tankers Inc. and its subsidiaries. “Scorpio Tankers Inc.” refers only to Scorpio Tankers Inc. and not its subsidiaries. Unless otherwise indicated, all references to “dollars,” “US dollars” and “$” in this annual report are to the lawful currency of the United States. We use the term deadweight tons, or dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, in describing the size of tankers.
As used herein, “SLR2P” refers to the Scorpio LR2 Pool, “SLR1P” refers to the Scorpio LR1 Pool, “SMRP” refers to the Scorpio MR Pool, and “SHTP” refers to the Scorpio Handymax Tanker Pool, which are spot market-oriented tanker pools in which certain of our vessels operate.
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
The following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our securities. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results or cash available for the payment of dividends on our common shares and interest on our debt securities, or the trading price of our securities.
The following is a summary of the risk factors which are described in further detail in subsequent sections.
•The tanker industry is cyclical and volatile.
•We are dependent on spot-oriented pools and spot charters.
•An over-supply of tanker capacity may prolong or further depress the current low charter rates.
•Acts of piracy on ocean-going vessels could adversely affect our business.
•Changes in fuel, or bunkers, prices may adversely affect our profits.
•Tanker rates also fluctuate based on seasonal variations in demand.
•A shift in consumer demand from oil towards other energy sources or changes to trade patterns for refined oil products may have a material adverse effect on our business.
•An inability to effectively time investments could negatively impact our results of operations and financial
condition.
•Volatility in economic conditions throughout the world could have an adverse impact on our business.
•We are exposed to volatility in the London Interbank Offered Rate, or LIBOR.
•If we cannot meet our customers' quality and compliance requirements we may not be able to operate our
vessels profitably.
•We are required to make significant investments in ballast water management.
•Sulfur regulations to reduce air pollution from ships are likely to cause us to incur significant costs.
•We are subject to complex laws and regulations, including environmental laws and regulations.
•If we fail to comply with international safety regulations, we may be subject to increased liability.
•Developments in safety and environmental requirements relating to the recycling of vessels may result
escalated and unexpected costs.
•We operate tankers worldwide, and as a result, we are exposed to inherent operational and international risks.
•Increased inspection procedures could increase costs and disrupt our business.
•Outbreaks of epidemic and pandemic diseases, including COVID-19, and governmental responses thereto
could adversely affect our business.
•Political instability, terrorist or other attacks, and war or international hostilities can affect the tanker industry, which may adversely affect our business.
•We may experience adverse consequences if our vessels call on ports located in countries or territories that
are subject to sanctions or embargoes.
•The smuggling of drugs or other contraband onto our vessels may lead to governmental claims.
•Maritime claimants could arrest or attach our vessels.
•Governments could requisition our vessels during a period of war or emergency.
•Technological innovation could reduce our charterhire income and the value of our vessels.
•Breakdowns in our information technology, including as a result of cyberattacks, may negatively impact our business.
•Increasing scrutiny and changing expectations from investors, lenders and other market participants with
respect to our Environmental, Social and Governance policies may impose additional costs on us or expose us to additional risks.
•Our business could be affected if labor interruptions are not resolved in a timely manner.
•We may not realize all of the anticipated benefits of our investment scrubbers.
•We cannot assure you that our internal controls over financial reporting will be sufficient.
•We may have difficulty managing our planned growth properly.
•We operate secondhand vessels, which exposes us to increased operating costs.
•An increase in operating costs would decrease earnings and available cash.
•We will be required to make additional capital expenditures should we determine to expand the number of
vessels in our fleet and to maintain all our vessels.
•Declines in charter rates and other market deterioration have caused, and could cause, us to incur impairment charges.
•Our stock price has been historically volatile.
•The market values of our vessels may decrease.
•If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly
competitive international tanker market.
•If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, at the end of a
vessel’s useful life our revenue will decline.
•Our ability to obtain additional financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers.
•We cannot guarantee that our Board of Directors will declare dividends.
•United States tax authorities could treat us as a “passive foreign investment company”.
•We may have to pay tax on United States source shipping income.
•We are subject to certain risks with respect to our counterparties on contracts.
•Our insurance may not be adequate to cover our losses.
•Because we obtain some of our insurance through protection and indemnity associations, which result in
significant expenses to us, we may be required to make additional premium payments.
•Penalties can occur for the failure to comply with the U.S. Foreign Corrupt Practices Act.
•We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law.
•Because we are a foreign corporation, it may be difficult to serve process on or enforce a United States
judgment against us.
•The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.
•We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business.
•There may be conflicts of interest between us and our managers that may not be resolved in our favor.
•Our founder, Chairman and Chief Executive Officer, and Vice President have affiliations with our administrator and commercial and technical managers which may create conflicts of interest.
•Certain of our officers do not devote all of their time to our business.
•Our commercial and technical managers are each privately held companies.
•Servicing our current or future indebtedness limits funds available for other purposes.
•Our debt and lease financing agreements contain restrictive and financial covenants.
RISKS RELATED TO OUR INDUSTRY
The tanker industry is cyclical and volatile, which may adversely affect our earnings and available cash flow.
The tanker industry is both cyclical and volatile in terms of charter rates and profitability. Periodic adjustments to the supply of and demand for oil tankers cause the industry to be cyclical in nature. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short and medium-term liquidity. A worsening of current global economic conditions may cause tanker charter rates to decline and thereby adversely affect our ability to charter or re-charter our vessels or to sell them on the expiration or termination of their charters, and the rates payable in respect of our vessels currently operating in tanker pools, or any renewal or replacement charters that we enter into, may not be sufficient to allow us to operate our vessels profitably. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. The factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
The factors that influence demand for tanker capacity include:
•supply of and demand for energy resources and oil and petroleum products;
•changes in the consumption of oil and petroleum products due to availability of new, alternative energy sources or changes in the price of oil and petroleum products relative to other energy sources or other factors making consumption of oil and petroleum products less attractive;
•regional availability of refining capacity and inventories compared to geographies of oil production regions;
•national policies regarding strategic oil inventories (including if strategic reserves are set at a lower level in the future as oil decreases in the energy mix);
•global and regional economic and political conditions, including armed conflicts, terrorist activities, embargoes and strikes;
•currency exchange rates;
•the distance over which oil and oil products are to be moved by sea;
•changes in seaborne and other transportation patterns;
•changes in governmental or maritime self-regulatory organizations’ rules and regulations or actions taken by regulatory authorities;
•environmental and other legal and regulatory developments;
•business disruptions, including supply chain issues, due to natural or other disasters, or otherwise;
•developments in international trade, including those relating to the imposition of tariffs;
•competition from alternative sources of energy; and
•international sanctions, embargoes, import and export restrictions, nationalizations and wars.
The factors that influence the supply of tanker capacity include:
•supply of and demand for energy resources and oil and petroleum products;
•demand for alternative sources of energy;
•the number of newbuilding orders and deliveries, including slippage in deliveries;
•the number of vessel casualties;
•technological advances in tanker design and capacity;
•the number of shipyards and ability of shipyards to deliver vessels;
•availability of financing for new vessels and shipping activity;
•the degree of scrapping or recycling rate of older vessels, depending, amongst other things, on scrapping or recycling rates and international scrapping or recycling regulations;
•price of steel and vessel equipment;
•the number of conversions of tankers to other uses or conversions of other vessels to tankers;
•the number of product tankers trading crude or "dirty" oil products (such as fuel oil);
•the number of vessels that are out of service, namely those that are laid up, drydocked, awaiting repairs
or otherwise not available for hire;
•changes in government and industry environmental and other regulations that may limit the useful lives of tankers and environmental concerns and regulations;
•product imbalances (affecting the level of trading activity);
•developments in international trade, including refinery additions and closures;
•port or canal congestion; and
•speed of vessel operation.
In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance costs, insurance coverage costs, the efficiency and age profile of the existing tanker fleet in the market, and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
We anticipate that the future demand for our tankers will be dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global tanker fleet and the sources and supply of oil and petroleum products to be transported by sea. Given the number of new tankers currently on order with shipyards, the capacity of the global tanker fleet seems likely to increase and there can be no assurance as to the timing or extent of future economic growth. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
Declines in oil and natural gas prices for an extended period of time, or market expectations of potential decreases in these prices, could negatively affect our future growth in the tanker and offshore sector. Sustained periods of low oil and natural gas prices typically result in reduced exploration and extraction because oil and natural gas companies’ capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a material effect on demand for our services, and periods of low demand can cause excess vessel supply and intensify the competition in the industry, which often results in vessels, particularly older and less technologically-advanced vessels, being idle for long periods of time. We cannot predict the future level of demand for our services or future conditions of the oil and natural gas industry. Any decrease in exploration, development or production expenditures by oil and natural gas companies could reduce our revenues and materially harm our business, results of operations and cash available for distribution.
We are dependent on spot-oriented pools and spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.
As of March 18, 2022, all of our vessels were employed in either the spot market or in spot market-oriented tanker pools such as the SLR2P, SLR1P, SMRP or SHTP, which we refer to collectively as the Scorpio Pools and which are managed by companies that are members of the Scorpio group of companies, or Scorpio, exposing us to fluctuations in spot market charter rates. The spot charter market may fluctuate significantly based upon tanker and oil supply and demand. The successful operation of our vessels in the competitive spot charter market, including within the Scorpio Pools, depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot charter rates have declined below the operating cost of vessels. If spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
Our ability to renew expiring charters or obtain new charters will depend on the prevailing market conditions at the time. If we are not able to obtain new charters in direct continuation with existing charters or upon taking delivery of a newly acquired vessel, or if new charters are entered into at charter rates substantially below the existing charter rates or on terms otherwise less favorable compared to existing charter terms, our revenues and profitability could be adversely affected.
An over-supply of tanker capacity may prolong or further depress the current low charter rates, which may limit our ability to operate our tankers profitably.
The market supply of tankers is affected by a number of factors, such as supply and demand for energy resources, including oil and petroleum products, supply and demand for seaborne transportation of such energy resources, and the current and expected purchase orders for newbuildings. If the capacity of new tankers delivered exceeds the capacity of tankers being scrapped and converted to non-trading tankers, tanker capacity will increase. According to Drewry Shipping Consultants Ltd., or Drewry, as of January 31, 2022, the newbuilding order book, which extends to 2024 and beyond, equaled approximately 6.9% of the existing world tanker fleet and the order book may increase further in proportion to the existing fleet. If the supply of tanker capacity increases and if the demand for tanker capacity does not increase correspondingly or declines, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations and available cash.
In addition, product tankers may be "cleaned up" from "dirty/crude" trades and swapped back into the product tanker market which would increase the available product tanker tonnage which may in turn affect the supply and demand balance for product tankers. This could have an adverse effect on our future performance, results of operations, cash flows and financial position.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean, the Gulf of Guinea, the Gulf of Aden and the Sulu Sea. Sea piracy incidents continue to occur, with drybulk vessels and tankers particularly vulnerable to such attacks. If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones or Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew and security equipment costs, including costs which may be incurred to the extent we employ onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention or hijacking as a result of an act of piracy against our vessels, or increases in cost associated with seeking to avoid such events (including increased bunker costs resulting from vessels being rerouted or travelling at increased speeds as recommended by BMP4), or unavailability of insurance for our vessels, could have a material adverse impact on our business, results of operations, ability to pay dividends, cash flows and financial condition and may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
Changes in fuel, or bunkers, prices may adversely affect our profits.
Fuel, or bunkers, is typically the largest expense in our shipping operations for our vessels and changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, such as the recent conflict between Russia and Ukraine, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns.
In addition, since the implementation of the IMO’s sulfur oxide emission limits on January 1, 2020, we have been operating our vessels that have not yet been retrofitted with scrubbers using compliant low sulfur fuels, the price of which has increased as a result of increased demand. Fuel may continue to become much more expensive in the future, which may adversely affect the competitiveness of our business compared to other forms of transportation and reduce our profitability.
Tanker rates also fluctuate based on seasonal variations in demand.
Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted in the summer months. In addition, unpredictable weather patterns during the winter months in the northern hemisphere tend to disrupt vessel routing and scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter months. As a result, revenues generated by our vessels have historically been weaker during the quarters ended June 30 and September 30, and stronger in the quarters ended March 31 and December 31.
A shift in consumer demand from oil towards other energy sources or changes to trade patterns for refined oil products may have a material adverse effect on our business.
A significant portion of our earnings are related to the oil industry. We rely almost exclusively on the cash flows generated from the employment of our vessels that operate in the tanker sector of the shipping industry. Due to our lack of diversification, adverse developments in the tanker shipping industry have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets or lines of business. Adverse developments in the tanker business could therefore reduce our ability to meet our payment obligations and our profitability.
A shift in or disruption of the consumer demand from oil towards other energy resources such as electricity, natural gas, liquefied natural gas or hydrogen will potentially affect the demand for our product tankers. A shift from the use of internal combustion engine vehicles to electric vehicles may also reduce the demand for oil. These factors could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
“Peak oil” is the year when the maximum rate of extraction of oil is reached. Recent forecasts of “peak oil” range from 2019 to the 2040s, depending on economics and how governments respond to global warming. Irrespective of “peak oil”, the continuing shift in consumer demand from oil towards other energy resources such as wind energy, solar energy, hydrogen energy or nuclear energy, which shift appears to be accelerating as a result of the COVID-19 situation, as well shift in government commitments and support for energy transition programs, may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Seaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources of production, locations of consumption, pricing differentials and seasonality. Changes to the trade patterns of refined oil products may have a significant negative or positive impact on the ton-mile and therefore the demand for our product tankers. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
An inability to effectively time investments in and divestments of vessels could prevent the implementation of our business strategy and negatively impact our results of operations and financial condition.
Our strategy is to own and operate a fleet large enough to provide global coverage, but no larger than what the demand for our services can support over a longer period by both contracting newbuildings and through acquisitions and disposals in the second-hand market. Our business is greatly influenced by the timing of investments and/or divestments and contracting of newbuildings. If we are unable able to identify the optimal timing of such investments, divestments or contracting of newbuildings in relation to the shipping value cycle due to capital restraints, this could have a material adverse effect on our competitive position, future performance, results of operations, cash flows and financial position.
Volatility in economic conditions throughout the world could have an adverse impact on our results of operations and financial condition.
Our business and profitability are affected by the overall level of demand for our vessels, which in turn is affected by trends in global economic conditions. There has historically been a strong link between the development of the world economy and demand for energy, including oil and gas. In the past, declines in global economic activity significantly reduced the level of demand for our vessels. The world economy continues to face a number of challenges and an extended period of deterioration in the outlook for the world economy could reduce the overall demand for oil and gas and for our services. Since the beginning of calendar year 2020, the COVID-19 pandemic has resulted in numerous actions by governments and governmental agencies in an attempt to mitigate the spread or any resurgence of the virus, including travel bans, quarantines, and other emergency public health measures, including lockdown measures. While many of these measures have since been relaxed, we cannot predict whether and to what degree such measures will be reinstituted in the event of any resurgence in the COVID-19 virus or any variants thereof. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets which has reduced the global demand for oil and refined petroleum products. These negative impacts could continue or worsen, even after the pandemic itself diminishes or ends. We expect that the impact of the COVID-19 virus and the uncertainty in the supply of oil will continue to cause volatility in the commodity markets. The scale and duration of the impact of these factors remain unknown but could have a material impact on our earnings, cash flow and financial condition for 2022.
Also, as a result of concerns about the stability of financial markets generally, and the solvency of counterparties specifically, the availability and cost of obtaining money from the public and private equity and debt markets has become more difficult. Many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt, and reduced, and in some cases ceased, to provide funding to borrowers and other market participants, including equity and debt investors, and some have been unwilling to invest on attractive terms or even at all. Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, or that we will be able to refinance our existing and future credit facilities, on acceptable terms or at all. If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise. These risks factors, overall, may have a material adverse effect on our results of operations and financial condition and may cause the price of our common shares to decline.
Continued economic slowdown in the Asia Pacific region may exacerbate the effect on us of the recent slowdown in the rest of the world. For example, following the emergence of the COVID-19 pandemic, China experienced reduced industrial activity with temporary closures of factories and other facilities, labor shortages and restrictions on travel. The International Monetary Fund has warned that continuing geopolitical tensions between the United States and China could derail recovery from the impacts of COVID-19. Although the United States and China signed a trade agreement in early 2020, there is no assurance that the Chinese economy will not experience a significant contraction in the future. As such, our financial condition and results of operations, as well as our future prospects, would likely be impeded by a continuing or worsening economic downturn in any of these countries.
In addition, President Xi Jinping committed his country to achieving carbon neutrality by 2060 at the UN General Assembly despite that carbon emissions are currently a prominent part of China’s economic and industrial structure as it relies heavily on nonrenewable energy sources, generally lacks energy efficiency, and has a rapidly growing energy demand. The method by which China attempts to achieve carbon neutrality by 2060, and any attendant reduction in the demand for oil, petroleum and related products, could have a material adverse effect on our business, cash flows and results of operations.
We are exposed to volatility in the London Interbank Offered Rate, which can result in higher than market interest rates and charges against our income.
Interest in most financing agreements in our industry has been based on published rates for LIBOR, which has historically been volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. The publication of U.S. Dollar LIBOR for the one-week and two-month U.S. Dollar LIBOR tenors ceased on December 31, 2021, and the ICE Benchmark Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced the publication of all other U.S. Dollar LIBOR
tenors will cease on June 30, 2023. The United States Federal Reserve concurrently issued a statement advising banks to cease issuing U.S. Dollar LIBOR instruments after 2021. As such, we will need to transition our existing loan agreements from U.S. Dollar LIBOR to an alternative reference rate prior to June 2023.
In response to the anticipated discontinuation of LIBOR, working groups are converging on alternative reference rates. The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has proposed an alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate, or “SOFR.” At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates. The impact of such a transition from LIBOR to SOFR or another alternative reference rate could be significant for us.
In order to manage our exposure to interest rate fluctuations under LIBOR, SOFR or any other alternative rate, we have and may from time to time use interest rate derivatives to effectively fix some of our floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. Interest rate derivatives may also be impacted by the transition from LIBOR to SOFR.
Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market rates, and SOFR over time may bear little or no relation to the historical indicative data. Additionally, our credit facilities may include a credit adjustment on SOFR due to LIBOR representing an unsecured lending rate while SOFR represents a secured lending rate. The possible volatility of and uncertainty around SOFR as a LIBOR replacement rate and the applicable credit adjustment could result in higher borrowing costs for us, which may adversely affect our liquidity, financial condition, and results of operations.
If we, including the Scorpio Pools, cannot meet our customers' quality and compliance requirements we may not be able to operate our vessels profitably which could have an adverse effect on our future performance, results of operations, cash flows and financial position.
Customers, in particular those in the oil industry, have an increasingly high focus on quality and compliance standards with their suppliers across the entire value chain, including the shipping and transportation segment. Our, and the Scorpio Pools', continuous compliance with these standards and quality requirements is vital for our operations. Related risks could materialize in multiple ways, including a sudden and unexpected breach in quality and/or compliance concerning one or more vessels, or a continuous decrease in the quality concerning one or more vessels occurring over time. Moreover, continuous increasing requirements from oil industry constituents can further complicate our ability to meet the standards. Any noncompliance by us, or the Scorpio Pools, either suddenly or over a period of time, on one or more vessels, or an increase in requirements by oil operators above and beyond what we deliver, may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
We are required to make significant investments in ballast water management which may have a material adverse effect on our future performance, results of operations, and financial position.
The International Convention for the Control and Management of Vessels' Ballast Water and Sediments, or the BWM Convention, aims to prevent the spread of harmful aquatic organisms from one region to another, by establishing standards and procedures for the management and control of ships' ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate. The BWM Convention was ratified in September 2016 and entered into force in September 2017. The IMO has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel’s ballast water. Depending on the date of the International Oil Pollution Prevention, or IOPP, renewal survey, existing vessels constructed before September 8, 2017, must comply with the updated D-2 standard on or after September 8, 2019. Ships constructed on or after September 8, 2017 are to comply with the D-2 standards on or after September 8, 2017. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. The cost of such systems, including installation, is expected to be between $1.0 million and $1.5 million per vessel.
115 of the 124 vessels in our owned, lease financed or bareboat chartered-in fleet currently have ballast water treatment systems installed. Additionally, sixteen vessels are under contract to have ballast water treatment systems installed. All vessels will be required to have ballast water treatment systems installed by the third quarter of 2023. We cannot be assured that these systems will be approved by the regulatory bodies of every jurisdiction in which we may wish to conduct our business. Accordingly, we may have to make additional investments in these vessels and substantial investments in the remaining vessels in our fleet that do not carry any such equipment. The investment in ballast water treatment systems could have an adverse material impact on our business, financial condition, and results of operations depending on the ability to install effective ballast water treatment systems and the extent to which existing vessels must be modified to accommodate such systems.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (“VGP”) program and U.S. National Invasive Species Act (“NISA”) are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018, requires that the EPA develop national standards of performance for approximately 30 discharges, similar to those found in the VGP within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge National Standards of Performance under VIDA. Within two years after the EPA publishes its final Vessel Incidental Discharge National Standards of Performance, the U.S. Coast Guard must develop corresponding implementation, compliance, and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs.
Sulfur regulations to reduce air pollution from ships are likely to require retrofitting of vessels and may cause us to incur significant costs.
Effective January 1, 2020, the International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels requires vessels to comply with its low sulfur fuel oil requirement, which cuts sulfur levels from 3.5% to 0.5%. The interpretation of "fuel oil used on board" includes use in main engines, auxiliary engines and boilers. Shipowners may comply with this regulation by (i) using 0.5% sulfur fuels on board, which is available around the world but at a higher cost due to increased market demand; (ii) installing exhaust gas cleaning systems, known as scrubbers, for cleaning of the exhaust gas; or (iii) by retrofitting vessels to be powered by liquefied natural gas, which may not be a viable option for shipowners due to the lack of supply network and high costs involved in this process. Costs of compliance with these regulatory changes may be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
We have entered into agreements with third parties to purchase and install Exhaust Gas Cleaning Systems, known as “scrubbers”, on 98 vessels in our fleet for an estimated cost of $2.5 million per vessel, which we have financed and plan to continue to finance through new loan facilities, increases in current loan facilities, and working capital. As of March 18, 2022, we have successfully installed scrubbers on 81 of the vessels in our fleet (six of which have recently been sold). For our vessels
that have not yet been retrofitted with scrubbers, we are complying with current IMO standards by using compliant bunkers and fuels with 0.5% sulfur content.
We are subject to complex laws and regulations, including environmental laws and regulations that can increase our liability and adversely affect our business, results of operations, cash flows and financial condition, and our available cash.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. Compliance with such laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast and bilge waters, maintenance and inspection, elimination of tin-based paint, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents.
A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental requirements can also affect the resale value or useful lives of our vessels, could require a reduction in cargo capacity, ship modifications or operational changes or restrictions, could lead to decreased availability of insurance coverage for environmental matters or could result in the denial of access to certain jurisdictional waters or ports or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including clean-up obligations and natural resource damages liability, in the event that there is a release of hazardous materials from our vessels or otherwise in connection with our operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. We could also become subject to personal injury or property damage claims relating to the release of hazardous substances associated with our existing or historic operations. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels, and could harm our reputation with current or potential charterers of our tankers.
In addition, many environmental requirements are designed to reduce the risk of pollution, such as from oil spills, and our compliance with these requirements could be costly. To comply with these and other regulations, including: (i) the sulfur emission requirements of Annex VI of the International Convention for the Prevention of Marine Pollution from Ships, or MARPOL, which instituted a global 0.5% (lowered from 3.5% as of January 1, 2020) sulfur cap on marine fuel consumed by a vessel, unless the vessel is equipped with a scrubber, and (ii) the International Convention for the Control and Management of Ships’ Ballast Water and Sediments of the International Maritime Organization, or the IMO, which requires vessels to install expensive ballast water treatment systems, we may be required to incur additional costs to meet new maintenance and inspection requirements, develop contingency plans for potential spills, and obtain insurance coverage. The increased demand for low sulfur fuels may increase the costs of fuel for our vessels that do not have scrubbers. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of doing business and which may materially and adversely affect our operations. Further, we are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition and available cash.
Please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in the Shipping Industry” for a discussion of the environmental and other regulations applicable to us.
If we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the IMO’s International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code, promulgated by the IMO and the International Convention for the Safety of Life at Sea of 1974, or SOLAS Convention. The ISM Code requires the party with operational control of a vessel to develop and maintain an extensive “safety management system” that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Failure to comply with the ISM code may subject us to increased liability and may invalidate existing insurance or decrease available insurance coverage for our affected vessels and such failure may result in a denial of access to, or detention in, certain ports. The U.S. Coast Guard and European Union authorities enforce compliance with the ISM and International Ship and Port Facility Security Code, or the ISPS Code, and prohibit non-compliant vessels from trading in U.S. and European Union ports. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position. Given that the IMO continues to review and introduce new regulations, it is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations. We are required by various governmental and quasigovernmental agencies to obtain certain permits, licenses, certificates, and financial assurances with respect to our operations.
Recent action by the IMO's Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. By IMO resolution, administrations are encouraged to ensure that cyber-risk management systems are incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1, 2021. In February 2021, the U.S. Coast Guard published guidance on addressing cyber risks in a vessel’s safety management system. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.
Please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in the Shipping Industry” for a discussion of the environmental and other regulations applicable to us.
Developments in safety and environmental requirements relating to the recycling of vessels may result in escalated and unexpected costs.
The 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, or the Hong Kong Convention, aims to ensure ships being recycled once they reach the end of their operational lives, do not pose any unnecessary risks to the environment, human health and safety. The Hong Kong Convention has yet to be ratified by the required number of countries to enter into force. Upon the Hong Kong Convention’s entry into force, each ship sent for recycling will have to carry an inventory of its hazardous materials. The hazardous materials, whose use or installation are prohibited in certain circumstances, are listed in an appendix to the Hong Kong Convention. Ships will be required to have surveys to verify their inventory of hazardous materials initially, throughout their lives and prior to the ship being recycled. The Hong Kong Convention, which is currently open for accession by IMO member states, will enter into force 24 months after the date on which 15 IMO member states, representing at least 40% of world merchant shipping by gross tonnage, have ratified or approved accession. As of the date of this annual report, 17 countries have ratified or approved accession of the Hong Kong Convention but the requirement of 40% of world merchant shipping by gross tonnage has not yet been satisfied.
On November 20, 2013, the European Parliament and the Council of the EU adopted the Ship Recycling Regulation, which retains the requirements of the Hong Kong Convention and requires that certain commercial seagoing vessels flying the flag of an EU member state may be recycled only in facilities included on the European list of permitted ship recycling facilities.
Apart from that, any vessel, including ours, is required to set up and maintain an Inventory of Hazardous Materials from December 31, 2018 for EU flagged new ships and from December 31, 2020 for EU flagged existing ships and Non-EU flagged ships calling at a port or anchorage of an EU member state. Such a system includes information on the hazardous materials with a quantity above the threshold values specified in relevant EU Resolution and that are identified in ship’s structure and equipment. This inventory should be properly maintained and updated, especially after repairs, conversions or unscheduled maintenance on board the ship.
These regulatory requirements may lead to cost escalation by shipyards, repair yards and recycling yards. This may then result in a decrease in the residual recycling value of a vessel, which could potentially not cover the cost to comply with the latest requirements, which may have an adverse effect on our future performance, results of operations, cash flows and financial position.
We operate tankers worldwide, and as a result, we are exposed to inherent operational and international risks, which may adversely affect our business and financial condition.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather, and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. For example, the recent conflict in Ukraine has recently resulted in missile attacks on commercial vessels in the Black Sea. These hazards may result in death or injury to persons, loss of revenues or property, payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships, market disruptions, and interference with shipping routes (such as delay or rerouting), which may reduce our revenue or increase our expenses and also subject us to litigation. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations and available cash.
Increased inspection procedures could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination and trans-shipment points. Inspection procedures can result in the seizure of the cargo and/or our vessels, delays in loading, offloading or delivery and the levying of customs duties, fines or other penalties against us. It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
The continuing effects of the COVID-19 pandemic and other outbreaks of epidemic and pandemic diseases and governmental responses thereto could materially and adversely affect our business, financial condition, and results of operations.
Since the beginning of calendar year 2020, the outbreak of COVID-19 that originated in China in late 2019 and that has spread to most nations around the globe has resulted in numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus, including travel bans, quarantines, and other emergency public health measures, and a number of countries implemented lockdown measures. These measures resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets, the effects of which continued throughout 2021. While many of these measures have since been relaxed, we cannot predict whether and to what degree such measures will be reinstituted in the event of any resurgence in the COVID-19 virus or any variants thereof. If the COVID-19 pandemic continues on a prolonged basis or becomes more severe, the adverse impact on the global economy and the rate environment for tanker vessels may deteriorate and our operations and cash flows may be negatively impacted. Relatively weak global economic conditions during periods of volatility have and may continue to have a number of adverse consequences for tanker and other shipping sectors, including, among other things:
•low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
•decreases in the market value of tanker vessels and limited second-hand market for the sale of vessels;
•limited financing for vessels;
•loan covenant defaults; and
•declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.
The COVID-19 pandemic and measures to contain its spread have negatively impacted regional and global economies and trade patterns in markets in which we operate, the way we operate our business, and the businesses of our charterers and suppliers. These negative impacts could continue or worsen, even after the pandemic itself diminishes or ends. Companies, including us, have also taken precautions, such as requiring employees to work remotely and imposing travel restrictions, while some other businesses have been required to close entirely. Moreover, we face significant risks to our personnel and operations due to the COVID-19 pandemic. Our crews face risk of exposure to COVID-19 as a result of travel to ports in which cases of COVID-19 have been reported. Our shore-based personnel likewise face risk of such exposure, as we maintain offices in areas that have been impacted by the spread of COVID-19.
Measures against COVID-19 in a number of countries have restricted crew rotations on our vessels, which may continue or become more severe. We have experienced, and may continue to experience, disruptions to our normal vessel operations caused by increased deviation time associated with positioning our vessels to countries in which we can undertake a crew rotation in compliance with such measures. We have had, and may continue to have, increased expenses due to days in which our vessels are unable to earn revenue in order to deviate to certain ports on which we would ordinarily not call during a typical voyage. We have incurred, and may continue to incur, additional expenses associated with testing, personal protective equipment, quarantines, and travel expenses such as airfare costs in order to perform crew rotations in the current environment. Delays in crew rotations have also caused us to incur additional costs related to crew bonuses paid to retain the existing crew members on board and may continue to do so.
The COVID-19 pandemic and measures in place against the spread of the virus have led to a highly difficult environment in which to dispose of vessels given difficulty to physically inspect vessels. The impact of COVID-19 has also resulted in reduced industrial activity globally, and more specifically, in China with temporary closures of factories and other facilities, labor shortages and restrictions on travel.
The ultimate extent to which the COVID-19 pandemic impacts our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict, and subject to change, including, but not limited to, the duration, scope, severity, proliferation of variants and increase in the transmissibility of the virus, its impact on the global economy, actions taken to contain or limit the impact of COVID-19, such as the availability of an effective vaccine or treatment, geographic variation in how countries and states are handling the pandemic, how long current
restrictions over travel and economic activity in many countries across the globe remain in place over the course of the pandemic, and how quickly and to what extent normal economic and operating conditions may potentially resume.
Effects of the current and any future pandemic may include, among others: deterioration of economic conditions and activity and of demand for oil and other petroleum products; operational disruptions to us (such as but not limited to, crew rotation and crew fatigue) or our customers due to worker health risks and the effects of new regulations, directives or practices implemented in response to the pandemic (such as travel restrictions for individuals and vessels and quarantining and physical distancing); potential delays in (a) the loading and discharging of cargo on or from our vessels, (b) vessel inspections and related certifications by class societies, customers or government agencies and (c) maintenance (including access to spare parts), modifications or repairs to, or drydocking of, our existing vessels due to worker health or other business disruptions; reduced cash flow and financial condition, including potential liquidity constraints; potential reduced access to capital as a result of any credit tightening generally or due to continued declines in global financial markets; potential reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels; potential decreases in the market values of our vessels and any related impairment charges or breaches relating to vessel-to-loan financial covenants; potential disruptions, delays or cancellations in the construction of new vessels, which could reduce our future growth opportunities; potential non-performance by counterparties relying on force majeure clauses and potential deterioration in the financial condition and prospects of our customers, joint venture partners or other business partners.
Political instability, terrorist or other attacks, and war or international hostilities can affect the tanker industry, which may adversely affect our business.
We conduct most of our operations outside of the United States, and our business, results of operations, cash flows and financial condition may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the current political instability in the Middle East and the South China Sea region and other geographic countries and areas, geopolitical events such as Brexit, terrorist or other attacks, war (or threatened war) or international hostilities, such as those between the United States and North Korea, and Russia and Ukraine. Terrorist attacks, as well as the frequent incidents of terrorism in the Middle East, and the continuing response of the United States and others to these attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertainty in the world's financial markets and may affect our business, operating results and financial condition. Continuing conflicts and recent developments in Ukraine and the Middle East may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets.
The recent military conflict in Ukraine has had a significant direct and indirect impact on the trade of refined petroleum products. This conflict has resulted in the United States, United Kingdom, and the European Union, among other countries, implementing sanctions and executive orders against citizens, entities, and activities connected to Russia. Some of these sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil from Russia to the United States or the United Kingdom. We cannot foresee what other sanctions or executive orders may arise that affect the trade of petroleum products. Furthermore, the conflict and ensuing international response has disrupted the supply of Russian oil to the global market, and as a result, the price of oil and petroleum products has risen significantly. We cannot predict what effect the higher price of oil and petroleum products will have on demand, and it is possible that the current conflict in Ukraine could adversely affect our financial condition, results of operations, cash flows, financial position and future performance.
As a result of the above, insurers have increased premiums and reduced or restricted coverage for losses caused by terrorist acts generally. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs. Additionally, Brexit, or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could in turn adversely impact our business and operations.
Further, governments may turn and have turned to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, in recent years, leaders in the United States and China have implemented certain increasingly protective trade measures, including tariffs, which have been somewhat mitigated by the recent trade deal (first phase trade agreement) between the United States and China in early 2020, which, among other things,
requires China to purchase over $50 billion of energy products including crude oil. The results of the 2020 presidential election in the United States have created significant uncertainty about the future relationship between the United States, China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. However, it is not yet clear how the new United States administration under President Biden may deviate from the former administration’s protectionist foreign trade policies. Protectionist developments, or the perception that they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from regions globally, (b) the length of time required to transport goods and (c) the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs, which could have an adverse impact on our charterers' business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect on our business, results of operations or financial condition.
In the past, political instability has also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region and most recently in the Black Sea in connection with the recent conflict between Russia and Ukraine. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea, the Gulf of Guinea off the coast of West Africa and the Gulf of Aden off the coast of Somalia.
In February of 2022, President Biden and several European leaders announced various economic sanctions against Russia in connection with the aforementioned conflicts in the Ukraine region, which may adversely impact our business, given Russia’s role as a major global exporter of crude oil and natural gas. Our business could also be adversely impacted by trade tariffs, trade embargoes or other economic sanctions that limit trading activities by the United States or other countries against countries in the Middle East, Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures, which may, among other things, impair or prevent certain of our counterparties from performing their obligations under contracts with us or with the pools in which our vessels operate.
Any of these occurrences could have a material adverse impact on our future performance, results of operations, cash flows, financial position and our ability to pay any cash distributions to our stockholders.
If our vessels call on ports located in countries or territories that are subject to sanctions or embargoes imposed by the U.S. government, the European Union, the United Nations, or other governments, it could result in monetary fines or other penalties imposed on us and may adversely affect our reputation and the market for our securities.
Although no vessels owned or operated by us called on ports located in countries or territories subject to country-wide or territory-wide sanctions and/or embargoes imposed by the U.S. government or other authorities (“Sanctioned Jurisdictions”) during 2021 in violation of applicable sanctions laws, and we intend to maintain compliance with all applicable sanctions and embargo laws and regulations, our vessels may call on ports in Sanctioned Jurisdictions in the future on charterers’ instructions and without our consent. If such activities result in a sanctions violation, we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our ordinary shares could be adversely affected. Although we endeavor to take precautions reasonably designed to mitigate such activities, including relevant provisions in charter agreements forbidding the use of our vessels in trade that would violate economic sanctions, there can be no assurance that we will maintain such compliance, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations.
The sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. Current or future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the U.S. administration, the EU, and/or other international bodies. In particular, the ongoing conflict in Ukraine could result in the imposition of further economic sanctions by the United States and the European Union against Russia. If we determine that such sanctions require us to terminate existing or future contracts to which we or our subsidiaries are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm. Currently, to the best of our knowledge, we do not believe that any of our existing counterparties are affiliated with persons or entities that are subject to such sanctions.
Any future violation of applicable sanctions and embargo laws and regulations could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional
investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our securities may adversely affect the price at which our securities trade. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries or territories. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries or territories subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries or territories, or engaging in operations associated with those countries or territories pursuant to contracts with third parties that are unrelated to those countries or territories or entities controlled by their governments. Investor perception of the value of our securities may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Maritime claimants could arrest or attach our vessels, which would have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our business or require us to pay large sums of money to have the arrest lifted, which would have a negative effect on our cash flows.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our ships.
Governments could requisition our vessels during a period of war or emergency, which may negatively impact our business, financial condition, results of operations and available cash.
A government could requisition one or more of our vessels for title or hire. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels may negatively impact our business, financial condition, results of operations and available cash.
Technological innovation could reduce our charterhire income and the value of our vessels.
The charterhire rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. We may face competition from companies with more modern vessels with more fuel efficient designs than our vessels, and if new tankers carriers are built that are more efficient or more flexible or have longer physical lives than the current generation vessels, competition from the current vessels and any more technologically advanced vessels could adversely affect the amount of charterhire payments we receive for our vessels and the resale value of our vessels could significantly decrease. Similarly, technologically advanced vessels are needed to comply with environmental laws the investment in which along with the foregoing could have a material adverse effect on our results of operations, charter hire payments and resale value of vessels. As a result, our available cash could be adversely affected.
Breakdowns in our information technology, including as a result of cyberattacks, may negatively impact our business, including our ability to service customers, and may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Our ability to operate our business and service our customers is dependent on the continued operation of our information technology, or IT, systems, including our IT systems that relate to, among other things, the location, operation,
maintenance and employment of our vessels. Our IT systems may be compromised by a malicious third party, man-made or natural events, or the intentional or inadvertent actions or inactions by our employees or third-party service providers. If our IT systems experience a breakdown, including as a result of cyberattacks, our business information may be lost, destroyed, disclosed, misappropriated, altered or accessed without consent, and our IT systems, or those of our service providers, may be disrupted.
Cybercrime attacks could cause disclosure and destruction of business databases and could expose the Company to extortion by making business data temporarily unreadable. As cyberattacks become increasingly sophisticated, and as tools and resources become more readily available to malicious third parties, there can be no guarantee that our actions, security measures and controls designed to prevent, detect or respond to intrusion, to limit access to data, to prevent destruction or alteration of data or to limit the negative impact from such attacks, can provide absolute security against compromise.
Any breakdown in our IT systems, including breaches or other compromises of information security, whether or not involving a cyberattack, may lead to lost revenues resulting from a loss in competitive advantage due to the unauthorized disclosure, alteration, destruction or use of proprietary information, including intellectual property, the failure to retain or attract customers, the disruption of critical business processes or information technology systems and the diversion of management's attention and resources. In addition, such breakdown could result in significant remediation costs, including repairing system damage, engaging third-party experts, deploying additional personnel, training employees and compensation or incentives offered to third parties whose data has been compromised. We may also be subject to legal claims or legal proceedings, including regulatory investigations and actions, and the attendant legal fees as well as potential settlements, judgments and fines.
Moreover, cyber-attacks against the Ukrainian government and other countries in the region have been reported in connection with the recent conflicts between Russia and Ukraine. To the extent such attacks have collateral effects on global critical infrastructure or financial institutions, such developments could adversely affect our business, operating results and financial condition. At this time, it is difficult to assess the likelihood of such threat and any potential impact at this time.
Even without actual breaches of information security, protection against increasingly sophisticated and prevalent cyberattacks may result in significant future prevention, detection, response and management costs, or other costs, including the deployment of additional cybersecurity technologies, engaging third-party experts, deploying additional personnel and training employees. Further, as cyberthreats are continually evolving, our controls and procedures may become inadequate, and we may be required to devote additional resources to modify or enhance our systems in the future. Such expenses could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on ESG practices especially as they relate to the environment health and safety, diversity, labor conditions and human rights in recent years, and have focused on the implications and social cost of their investments. The increased attention and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Failure to adapt to or comply with evolving investor, lender or other industry shareholder expectations and standards, or the perception of not responding appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may damage such a company’s reputation or stock price, resulting in direct or indirect material and adverse effects on the company’s business and financial condition.
The increase in shareholder proposals submitted on environmental matters and, in particular, climate-related proposals in recent years indicates that we may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments in us, especially given the highly focused
and specific trade of crude oil transportation in which we are engaged. If we do not meet these standards, our business and/or our ability to access capital could be harmed.
Additionally, certain investors and lenders may exclude oil transport companies, such as us, from their investing portfolios altogether due to ESG factors. These limitations in both the debt and equity capital markets may affect our ability to grow as our plans for growth may include accessing the equity and debt capital markets. If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with wide ranging ESG requirements. Members of the investment community are also increasing their focus on ESG disclosures, including disclosures related to greenhouse gases and climate change in the energy industry in particular, and diversity and inclusion initiatives and governance standards among companies more generally. As a result, we may face increasing pressure regarding our ESG disclosures. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.
Moreover, from time to time, in alignment with our sustainability priorities, we may establish and publicly announce goals and commitments in respect of certain ESG items. While we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters. If we fail to achieve or improperly report on our progress toward achieving our environmental goals and commitments, the resulting negative publicity could adversely affect our reputation and/or our access to capital.
Finally, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other, non-fossil fuel markets, which could have a negative impact on our access to and costs of capital.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
We, indirectly through Scorpio Ship Management S.A.M., or SSM, our technical manager, employ masters, officers and crews to man our vessels. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
RISKS RELATED TO OUR COMPANY
We may not realize all of the anticipated benefits of our investment in exhaust gas cleaning systems, or 'scrubbers.'
We expect to retrofit a substantial majority of our vessels with exhaust gas cleaning systems, or scrubbers. The scrubbers will enable our ships to use high sulfur fuel oil, which is less expensive than low sulfur fuel oil, in certain parts of the world. As of March 18, 2022, we have installed scrubbers on 81 vessels (six of which have recently been sold), with an additional 16 vessels expected to be retrofitted with scrubbers. The total estimated investment for these systems, including estimated installation costs is expected to be approximately $2.5 million per vessel, which we are financing through new loan facilities, increases in current loan facilities, and working capital.
There is a risk that some or all of the expected benefits of our investment in scrubbers may fail to materialize. The realization of such benefits may be affected by a number of factors, many of which are beyond our control, including but not limited to the pricing differential between high and low sulfur fuel oil, the availability of low sulfur fuel oil in the ports in which we operate and the impact of changes in the laws and regulations regulating the discharge and disposal of wash water.
Failure to secure financing, or to realize the anticipated benefits of our investment in scrubbers, could have a material adverse impact on our business, results of operations, cash flows, financial condition and available cash.
We cannot assure you that our internal controls and procedures over financial reporting will be sufficient.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley. Section 404 of Sarbanes-Oxley requires that we evaluate and determine the effectiveness of our internal controls over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We dedicate a significant amount of time and resources to ensure compliance with these regulatory requirements. We will continue to evaluate areas such as corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We will make changes in any of these and other areas, including our internal control over financial reporting, which we believe are necessary. However, these and other measures we may take may not be sufficient to allow us to satisfy our obligations as a public company on a timely and reliable basis.
We may have difficulty managing our planned growth properly.
We have and may continue to grow by expanding our operations and adding to our fleet. Any future growth will primarily depend upon a number of factors, some of which may not be within our control, including our ability to effectively identify, purchase, finance, develop and integrate any tankers or businesses. Furthermore, the number of employees that perform services for us and our current operating and financial systems may not be adequate as we expand the size of our fleet, and we may not be able to effectively hire more employees or adequately improve those systems. Finally, acquisitions may require additional equity issuances or debt issuances (with amortization payments), or entry into other financing arrangements which could, among other things, reduce our available cash. If any such events occur, our business, financial condition and results of operations may be adversely affected and the amount of cash available for distribution as dividends to our shareholders may be reduced.
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. The expansion of our fleet may impose significant additional responsibilities on our management and staff, and the management and staff of our commercial and technical managers, and may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.
We operate secondhand vessels, which exposes us to increased operating costs which could adversely affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.
We have acquired and may continue to acquire secondhand vessels. We are entitled to inspect such vessels prior to purchase, but this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Generally, we do not receive the benefit of warranties from the builders for the secondhand vessels that we acquire.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
An increase in operating costs would decrease earnings and available cash.
Under time charter agreements, the charterer is responsible for voyage costs and the owner is responsible for the vessel operating costs. We currently do not have any vessels on long-term time charter-out agreements (with initial terms of one year or greater). We have 22 vessels operating under bareboat charter-in agreements and the remaining vessels in our fleet are either owned or finance leased. When our owned, finance leased vessels, or bareboat chartered-in vessels are employed in one of the Scorpio Pools, the pool is responsible for voyage expenses and we are responsible for vessel costs. As of March 18, 2022, all of our owned, finance leased vessels and bareboat chartered-in vessels were employed through the Scorpio Pools. When our vessels operate directly in the spot market, we are responsible for both voyage expenses and vessel operating costs. Our vessel operating costs include the costs of crew, fuel (for spot chartered vessels), provisions, deck and engine stores, insurance and maintenance and repairs, which depend on a variety of factors, many of which are beyond our control. Further, if our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydocking repairs are unpredictable and can be substantial. Increases in any of these expenses would decrease earnings and available cash. Please see “We will be required to make additional capital expenditures should we determine to expand the number of vessels in our fleet and to maintain all our vessels.”
We will be required to make additional capital expenditures should we determine to expand the number of vessels in our fleet and to maintain all our vessels.
Our business strategy is based in part upon the expansion of our fleet through the purchase of additional vessels. If we are unable to fulfill our obligations under any memorandum of agreement for any current or future vessel acquisitions, the sellers of such vessels may be permitted to terminate such contracts and we may forfeit all or a portion of the down payments we have already made under such contracts, and we may be sued for, among other things, any outstanding balances we are obligated to pay and other damages.
In addition, we will incur significant maintenance costs for our existing and any newly-acquired vessels. A newbuilding vessel must be drydocked within five years of its delivery from a shipyard, and vessels are typically drydocked every 30 months thereafter, not including any unexpected repairs. We estimate the cost to drydock a vessel to be between $500,000 and $1,500,000, excluding costs relating to compliance with applicable ballast water treatment requirements and costs related to the installation of scrubbers, depending on the size and condition of the vessel and the location of drydocking.
If we do not generate or reserve enough cash flow from operations to pay for our capital expenditures, we may need to incur additional indebtedness or enter into alternative financing arrangements, which may be on terms that are unfavorable to us. If we are unable to fund our obligations or to secure financing, it would have a material adverse effect on our results of operations.
Please also see "We are required to make significant investments in ballast water management which may have a material adverse effect on our future performance, results of operations, and financial position", "We may not realize all of the anticipated benefits of our investment in exhaust gas cleaning systems, or 'scrubbers'" and "We are subject to complex laws and regulations, including environmental laws and regulations that can adversely affect our business, results of operations, cash flows and financial conditions, and our available cash."
Declines in charter rates and other market deterioration may cause us to incur impairment charges.
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential impairment indicators and projection of future cash flows related to the vessels is complex and requires us to make various estimates including future freight rates, earnings from the vessels and discount rates. All of these items have been historically volatile.
In accordance with IFRS, we evaluate the recoverable amount as the higher of fair value less costs to sell and value in use. If the recoverable amount is less than the carrying amount of the vessel, the vessel is deemed impaired. The carrying values of our vessels may not represent their fair market value at any point in time because the new market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. For the year ended December 31, 2020, we evaluated the recoverable amount of our vessels and recognized $14.2 million of impairment charge related to certain MR vessels where the value in use calculations were below their carrying amounts. The recoverable amount of goodwill is tested in a similar manner, and our carrying value of goodwill relating to the LR1 reportable segment (which arose from the acquisition of Navig8 Product Tankers Inc. in 2017), resulted in an additional impairment charge of $2.6 million. During the year ended December 31, 2021, we did not record an impairment charge. Please see Notes 1 and 7 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
We cannot assure you that we will not recognize additional impairment losses in future years. Any impairment charges incurred as a result of further declines in charter rates could negatively affect our business, financial condition, operating results or the trading price of our securities.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common stock could incur substantial losses.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. Our stock prices may experience rapid and substantial decreases or increases in the foreseeable future that are unrelated to our operating performance or prospects. In addition, the ongoing outbreak of COVID-19 has caused broad stock market and industry fluctuations. The stock market in general and the market for shipping companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience substantial losses on their investment in our common stock. The market price for our common stock may be influenced by many factors, including the following:
•investor reaction to our business strategy;
•our continued compliance with the listing standards of the NYSE;
•regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our industry;
•variations in our financial results or those of companies that are perceived to be similar to us;
•our ability or inability to raise additional capital and the terms on which we raise it;
•declines in the market prices of stocks generally;
•trading volume of our common stock;
•sales of our common stock by us or our stockholders;
•general economic, industry and market conditions; and
•other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the ongoing COVID-19 pandemic, adverse weather and climate conditions could disrupt our operations or result in political or economic instability.
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance, and may be inconsistent with any improvements in actual or expected operating performance, financial condition or other indicators of value. Since the stock price of our common stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our common stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could
materially and adversely affect our business, financial condition, results of operations and growth prospects. There can be no guarantee that our stock price will remain at current prices.
Additionally, recently, securities of certain companies have experienced significant and extreme volatility in stock price due short sellers of shares of common stock, known as a “short squeeze”. These short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks have abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.
The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or trigger certain financial covenants under our current or future debt facilities and we may incur a loss if we sell vessels following a decline in their market value.
The fair market values of our vessels have generally experienced high volatility. The fair market values for tankers declined significantly from historically high levels reached in 2008 and remain at relatively low levels. Such prices may fluctuate depending on a number of factors including, but not limited to, the prevailing level of charter rates and day rates, general economic and market conditions affecting the international shipping industry, types, sizes and ages of vessels, supply and demand for vessels, availability of or developments in other modes of transportation, competition from other tanker companies, cost of newbuildings, applicable governmental or other regulations and technological advances. In addition, as vessels grow older, they generally decline in value. If the fair market values of our vessels decline, we may not be in compliance with certain covenants contained in our secured credit facilities, which may result in an event of default. In such circumstances, we may not be able to refinance our debt, obtain additional financing or make distributions to our shareholders and our subsidiaries may not be able to make distributions to us. The prepayment of certain debt facilities may be necessary to cause us to maintain compliance with certain covenants in the event that the value of the vessels falls below certain levels. If we are not able to comply with the covenants in our secured credit facilities, and are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet.
Additionally, if we sell one or more of our vessels at a time when vessel prices have fallen, the sale price may be less than the vessel’s carrying value on our consolidated financial statements, resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a reduction in earnings. Furthermore, if vessel values fall significantly, this could indicate a decrease in the recoverable amount for the vessel which may result in an impairment adjustment in our financial statements, which could adversely affect our financial results and condition.
For further information, please see “Item 5. Operating and Financial Review and Prospects.”
If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly competitive international tanker market, which would negatively affect our financial condition and our ability to expand our business.
The operation of tanker vessels and transportation of crude and petroleum products is extremely competitive, in an industry that is capital intensive and highly fragmented. Demand for transportation of oil and oil products has declined, and could continue to decline, which could lead to increased competition. Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. We will have to compete with other tanker owners, including major oil companies as well as independent tanker companies.
Our market share may decrease in the future. We may not be able to compete profitably as we expand our business into new geographic regions or provide new services. New markets may require different skills, knowledge or strategies than we use in our current markets, and the competitors in those new markets may have greater financial strength and capital resources than us.
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, at the end of a vessel’s useful life our revenue will decline, which would adversely affect our business, results of operations, financial condition, and available cash.
If we do not set aside funds or are unable to borrow or raise funds, including through equity issuances, for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives, which we expect to occur between 2037 and 2045, depending on the vessel. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations, financial condition, and available cash per share would be adversely affected. Any funds set aside for vessel replacement will reduce available cash.
Our ability to obtain additional financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing at all or at a higher than anticipated cost may materially affect our results of operations and our ability to implement our business strategy.
We cannot guarantee that our Board of Directors will declare dividends.
Our Board of Directors may, in its sole discretion, from time to time, declare and pay cash dividends in accordance with our organizational documents and applicable law. Our Board of Directors makes determinations regarding the payment of dividends in its sole discretion, and there is no guarantee that we will continue to pay dividends in the future.
In addition, the markets in which we operate our vessels are volatile and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period. We may also incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described herein. If additional financing is not available to us on acceptable terms or at all, our Board of Directors may determine to finance or refinance asset acquisitions with cash from operations, which would reduce the amount of any cash available for the payment of dividends. Please see “Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy.”
United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax consequences to United States shareholders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and proposed method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, our income from our time and voyage chartering activities should not constitute “passive income,” and the assets that we own and operate in connection with the production of that income should not constitute assets that produce or are held for the production of “passive income.”
There is substantial legal authority supporting this position, consisting of case law and United States Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations change.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders would face adverse United States federal income tax consequences and incur certain information reporting obligations. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be subject to United States federal income tax at the then prevailing rates on ordinary income plus interest, in respect of excess distributions and upon any gain from the disposition of their common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the common shares. See “Item 10. Additional Information - E. Taxation - Passive Foreign Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.
We may have to pay tax on United States source shipping income, which would reduce our earnings.
Under the Code, 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the regulations promulgated thereunder by the United States Department of the Treasury.
We and our subsidiaries intend to take the position that we qualify for this statutory tax exemption for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. For example, we may no longer qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders with a five percent or greater interest in our common shares, or 5% Shareholders, owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year, and there do not exist sufficient 5% Shareholders that are qualified shareholders for purposes of Section 883 of the Code to preclude nonqualified 5% Shareholders from owning 50% or more of our common shares for more than half the number of days during such taxable year or we are unable to satisfy certain substantiation requirements with regard to our 5% Shareholders. Due to the factual nature of the issues involved, there can be no assurances on the tax-exempt status of us or any of our subsidiaries.
If we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year, we or our subsidiaries could be subject for such year to an effective 2% United States federal income tax on the shipping income we or they derive during such year which is attributable to the transport of cargoes to or from the United States. The imposition of this tax would have a negative effect on our business and would decrease our earnings available for distribution to our shareholders.
We are subject to certain risks with respect to our counterparties on contracts, including our vessel employment arrangements, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
We have entered into, and may enter into in the future, various contracts, including, without limitation, charter and pooling agreements relating to the employment of our vessels, newbuilding contracts, debt facilities, and other agreements. Such agreements subject us to counterparty risks. The ability and willingness of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic or political conditions, the condition of the maritime and offshore industries, and the overall financial condition of the counterparty.
In addition, with respect to our charter arrangements, in depressed market conditions, our charterers may no longer need a vessel that is then under charter or may be able to obtain a comparable vessel at lower rates. As a result, charterers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Furthermore, it is possible that parties with whom we have charter contracts may be impacted by events in Russia and Ukraine or the resulting sanctions. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates. As a result, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends on our common shares and interest on our debt securities and comply with covenants in our credit facilities.
Our insurance may not be adequate to cover our losses that may result from our operations due to the inherent operational risks of the tanker industry.
We carry insurance to protect us against most of the accident-related risks involved in the conduct of our business, including marine hull and machinery insurance, protection and indemnity insurance, which includes pollution risks, crew insurance and war risk insurance. However, we may not be adequately insured to cover losses from our operational risks, which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular claims and our insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with applicable maritime regulatory organizations. Any significant uninsured or under-insured loss or liability could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash. In addition, we may not be able to obtain adequate insurance coverage at reasonable rates in the future during adverse insurance market conditions.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts generally.
Because we obtain some of our insurance through protection and indemnity associations, which result in significant expenses to us, we may be required to make additional premium payments.
We may be subject to increased premium payments, or calls, in amounts based on our claim records, the claim records of our managers, as well as the claim records of other members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our protection and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or as amended (the "FCPA"). We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Though we have implemented monitoring procedures and required policies, guidelines, contractual terms and audits, these measures may not prevent or detect failures by our agents or intermediaries regarding compliance.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and, as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.
It may be difficult to serve process on or enforce a United States judgment against us, our officers and our directors because we are a foreign corporation.
We are a corporation formed in the Republic of the Marshall Islands, and some of our directors and officers and certain of the experts named in this report are located outside the United States. In addition, a substantial portion of our assets and the assets of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us or any of these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is substantial doubt that the courts of the Republic of the Marshall Islands or of the non-U.S. jurisdictions in which our offices are located would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws.
The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.
RISKS RELATED TO OUR RELATIONSHIP WITH SCORPIO AND ITS AFFILIATES
We are dependent on our managers and their ability to hire and retain key personnel, and there may be conflicts of interest between us and our managers that may not be resolved in our favor.
Our success depends to a significant extent upon the abilities and efforts of our technical manager, SSM, our commercial manager, Scorpio Commercial Management S.A.M., or SCM, and our management team. Our success will depend upon our and our managers’ ability to hire and retain key members of our management team. The loss of any of these individuals could adversely affect our business prospects and financial condition.
In addition, difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not maintain “key man” life insurance on any of our officers.
Our technical and commercial managers are members of Scorpio, which is owned and controlled by the Lolli-Ghetti family, of which our founder, Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. In addition, all of our executive officers serve in similar management positions in certain other companies within Scorpio. These relationships may create conflicts of interest in matters involving or affecting us and our customers, including in the chartering, purchase, sale and operation of the vessels in our fleet versus vessels managed by other members of Scorpio. Conflicts of interest may arise between us, on the one hand, and our commercial and technical managers, on the other hand. As a result of these conflicts, our commercial and technical managers, who have limited contractual duties, may favor their own or other owner’s interests over our interests. These conflicts may have unfavorable results for us.
Our founder, Chairman and Chief Executive Officer, and Vice President have affiliations with our administrator and commercial and technical managers which may create conflicts of interest.
Emanuele Lauro, our founder, Chairman and Chief Executive Officer, and Filippo Lauro, our Vice President, are members of the Lolli-Ghetti family which owns and controls Scorpio. Annalisa Lolli-Ghetti is the majority owner of Scorpio (of which our administrator and commercial and technical managers are members) and beneficially owns approximately 6.1% of our outstanding common shares. These responsibilities and relationships could create conflicts of interest between us, on the one hand, and our administrator and/or commercial and technical managers, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus vessels managed by other companies affiliated with our commercial or technical managers. Our commercial and technical managers may give preferential treatment to vessels that are time chartered-in by related parties because our founder, Chairman and Chief Executive Officer and members of his family may receive greater economic benefits. In particular, as of the date of this annual report, our commercial and technical managers provide commercial and technical management services to approximately 64 and 48 vessels respectively, other than the vessels in our fleet, that are owned, operated or managed by entities affiliated with Messrs. Lauro, and such entities may operate or acquire additional vessels that will compete with our vessels in the future. Such conflicts may have an adverse effect on our results of operations. In addition, certain members of Scorpio may benefit from economies of scale all of which may not be passed along to us.
Certain of our officers do not devote all of their time to our business, which may hinder our ability to operate successfully.
Our Chief Executive Officer, President, Chief Operating Officer, Vice President and Chief Financial Officer participate in business activities not associated with us, some of whom serve as members of the management teams of Eneti Inc. (NYSE: NETI) (formerly Scorpio Bulkers Inc.), or Eneti, and as a result, they may devote less time to us than if they were not engaged in other business activities and may owe fiduciary duties to the shareholders of both us as well as shareholders of other companies with which they may be affiliated, including Eneti and other companies within Scorpio. This may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest will be resolved in our favor. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our commercial and technical managers are each privately held companies and there is little or no publicly available information about them.
SCM is our commercial manager and SSM is our technical manager. SCM’s and SSM’s ability to render management services will depend in part on their own financial strength. Circumstances beyond our control could impair our commercial manager’s or technical manager’s financial strength, and because each is a privately held company, information about the financial strength of our commercial manager and technical manager is not available. As a result, we and our shareholders might have little or no advance warning of financial or other problems affecting our commercial manager or technical manager even though their financial or other problems could have a material adverse effect on us.
RISKS RELATED TO OUR INDEBTEDNESS
Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.
As of December 31, 2021, we had approximately $3.14 billion in interest-bearing debt or obligations due under leasing arrangements. Borrowings under our debt facilities and lease financing arrangements require us to dedicate a part of our cash flow from operations to the payment of interest and principal on our debt. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our secured debt facilities and certain of our lease financing arrangements bear interest at variable rates. As described in Item 11 - Quantitative and Qualitative Disclosures About Market Risk, increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as seeking to raise additional capital, refinancing or restructuring our debt, selling tankers, or reducing or delaying capital investments. However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations.
If we are unable to meet our debt obligations or if some other default occurs under our debt facilities, our lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from our debt facilities.
Our debt and lease financing agreements contain restrictive and financial covenants which may limit our ability to conduct certain activities, and further, we may be unable to comply with such covenants, which could result in a default under the terms of such agreements.
Our debt and lease financing agreements impose operating and financial restrictions on us. These restrictions may limit our ability, or the ability of our subsidiaries party thereto, to, among other things:
•\pay dividends and make capital expenditures if we do not repay amounts drawn under our debt facilities or if there is another default under our debt facilities;
•incur additional indebtedness, including the issuance of guarantees;
•create liens on our assets;
•change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel;
•sell our vessels;
•merge or consolidate with, or transfer all or substantially all our assets to, another person; or
•enter into a new line of business.
Therefore, we will need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends to our shareholders if we determine to do so in the future, finance our future operations or capital requirements, make acquisitions or pursue business opportunities.
In addition, the terms and conditions of certain of our borrowings require us to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in our fleet. Should our charter rates or vessel values materially decline in the future, we may seek to obtain waivers or amendments from our lenders with respect to such financial ratios and covenants, or we may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet any such financial ratios and satisfy any such financial covenants. Events beyond our control, including changes in the economic and business conditions in the shipping markets in which we operate, may affect our ability to comply with these covenants. We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so or amend these requirements. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our credit facilities would prevent us from borrowing additional money under our credit facilities or lease financing arrangements and could result in a default under our credit facilities. If a default occurs under our credit facilities or lease financing arrangements, the counterparties could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of our assets. Moreover, in connection with any waivers or amendments to our credit facilities or lease financing arrangements that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities or lease financing arrangements. These restrictions may further restrict our ability to, among other things, pay dividends, repurchase our common shares, make capital expenditures, or incur additional indebtedness.
Furthermore, our debt and lease financing agreements contain cross-default provisions that may be triggered if we default under the terms of any one of our financing agreements. In the event of default by us under one of our debt agreements, the lenders under our other debt or lease financing agreements could determine that we are in default under such other financing agreements. Such cross defaults could result in the acceleration of the maturity of such indebtedness under these agreements and the lenders thereunder may foreclose upon any collateral securing that indebtedness, including our vessels, even if we were to subsequently cure such default. In addition, our credit facilities and lease financing arrangements contain subjective acceleration clauses under which the debt could become due and payable in the event of a material adverse change in our business. In the event of such acceleration or foreclosure, we might not have sufficient funds or other assets to satisfy all of our obligations, which would have a material adverse effect on our business, results of operations and financial condition.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Scorpio Tankers Inc. was incorporated in the Republic of the Marshall Islands pursuant to the BCA on July 1, 2009. We provide seaborne transportation of refined petroleum products worldwide. We began our operations in October 2009 with three vessels. In April 2010, we completed our initial public offering, and our common stock commenced trading on the New York Stock Exchange, or NYSE, under the symbol “STNG.” We have since expanded, and as of March 18, 2022, our fleet consisted of 124 wholly owned, leased financed or bareboat chartered-in tankers (42 LR2, 6 LR1, 62 MR and 14 Handymax) with a weighted average age of approximately 6.2 years.
Our principal executive offices are located at 9, Boulevard Charles III, Monaco 98000 and our telephone number at that address is +377-9798-5716. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. The address of the Company's Internet site is http://www.scorpiotankers.com. None of the information contained on these websites is incorporated into or forms a part of this annual report.
Fleet Development
For information regarding the development of our fleet, including vessel acquisitions and newbuilding deliveries, please see “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Capital Expenditures-Vessel acquisitions and payments for vessels under construction.”
Recent Developments
Vessel Sales
In January 2022, we entered into agreements to sell two MRs (2013 built STI Fontvieille and 2019 built STI Majestic) and 12 LR1s. The sales prices of STI Fontvieille, STI Majestic, and the 12 LR1s are $23.5 million, $34.9 million, and $413.8 million, respectively. We expect to record an aggregate loss of approximately $48.0 million during the first quarter of 2022 relating to these sales.
In February 2022, we exercised the purchase option on our AVIC Lease Financing arrangement and repaid the outstanding balance of $17.2 million relating to STI Fontvieille as part of the sale of this vessel, which closed shortly thereafter.
In March 2022, we closed on the sales of the six LR1 vessels, STI Excelsior, STI Executive, STI Excellence, STI Pride, STI Providence and STI Prestige, and we repaid $18.4 million on our Credit Agricole Credit Facility, $39.5 million on our Citi K-Sure Credit Facility, $38.7 million on our $225.0 Million Credit Facility and $21.2 million on our 2021 $43.6 Million Credit Facility as a result of these transactions.
In March 2022 we entered into an agreement to sell an MR product tanker (STI Benicia) for $26.5 million. This sale is expected to close in the second quarter of 2022. Scorpio Services Holding Limited ("SSH"), a related party, owns a non-controlling 7.5% interest in the buyer of STI Benicia. We expect to record a loss of approximately $5.3 million during the first quarter of 2022 as a result of this agreement.
Debt
In March 2022, we drew down $3.4 million from our BNPP Sinosure Credit Facility to partially finance the scrubber installations on two LR1 product tankers.
Declaration of Dividend
On February 11, 2022, our Board of Directors declared a quarterly cash dividend of $0.10 per common share, which was paid on March 15, 2022 to all shareholders of record as of March 2, 2022.
Convertible Notes due 2022 and 2025
On March 2, 2022, the conversion rates of the Convertible Notes Due 2022 and Convertible Notes Due 2025, were adjusted to reflect the payment of a cash dividend on March 15, 2022 to all shareholders of record as of March 2, 2022. The
new conversion rates for the Convertible Notes due 2022 and 2025 is 27.3142 of the Company's common shares representing an increase of the prior conversion rates of 0.1571 for each $1,000 principal amount of the Convertible Notes due 2022 and 2025.
As of March 18, 2022, the Convertible Notes Due 2025 have accreted an additional $2.4 million pursuant to its accretion feature, which is described in Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
At the Market Offering Program
In January 2021, we entered into a note distribution agreement, or the Distribution Agreement, with B. Riley Securities, Inc., as sales agent, or the Agent, under which we may offer and sell, from time to time, up to an additional $75.0 million aggregate principal amount of our 7.00% Senior Notes Due 2025, or the Additional Notes. Since January 1, 2022 and through the date of this report, we issued, in aggregate, $0.4 million principal amount of Additional Notes for net proceeds (net of sales agent commissions and offering expenses) of $0.4 million. There is $32.5 million of remaining availability under this program as of date of this report.
B. Business Overview
We provide seaborne transportation of refined petroleum products worldwide. As of March 18, 2022, our fleet consisted of 124 wholly owned, finance leased or bareboat chartered-in tankers (42 LR2, 6 LR1, 62 MR and 14 Handymax) with a weighted average age of approximately 6.2 years, which we refer to collectively as our Operating Fleet.
The following table sets forth certain information regarding our Operating Fleet as of March 18, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vessel Name | | Year Built | | DWT | | Ice class | | Employment | | Vessel type | | Scrubber | |
| Owned, finance leased or bareboat chartered-in vessels | | | | | | | | | | | | | |
| 1 | STI Brixton | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 2 | STI Comandante | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 3 | STI Pimlico | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 4 | STI Hackney | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 5 | STI Acton | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 6 | STI Fulham | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 7 | STI Camden | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 8 | STI Battersea | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 9 | STI Wembley | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 10 | STI Finchley | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 11 | STI Clapham | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 12 | STI Poplar | | 2014 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 13 | STI Hammersmith | | 2015 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 14 | STI Rotherhithe | | 2015 | | 38,734 | | 1A | | SHTP (1) | | Handymax | | N/A | |
| 15 | STI Amber | | 2012 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 16 | STI Topaz | | 2012 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 17 | STI Ruby | | 2012 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| 18 | STI Garnet | | 2012 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 19 | STI Onyx | | 2012 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 20 | STI Ville | | 2013 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| 21 | STI Duchessa | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| 22 | STI Opera | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| 23 | STI Texas City | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 24 | STI Meraux | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 25 | STI San Antonio | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 26 | STI Venere | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 27 | STI Virtus | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 28 | STI Aqua | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 29 | STI Dama | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 30 | STI Benicia | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | (5) |
| 31 | STI Regina | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 32 | STI St. Charles | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 33 | STI Mayfair | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 34 | STI Yorkville | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 35 | STI Milwaukee | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 36 | STI Battery | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 37 | STI Soho | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 38 | STI Memphis | | 2014 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 39 | STI Tribeca | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 40 | STI Gramercy | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 41 | STI Bronx | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 42 | STI Pontiac | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 43 | STI Manhattan | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 44 | STI Queens | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 45 | STI Osceola | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 46 | STI Notting Hill | | 2015 | | 49,687 | | 1B | | SMRP (2) | | MR | | Yes | |
| 47 | STI Seneca | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 48 | STI Westminster | | 2015 | | 49,687 | | 1B | | SMRP (2) | | MR | | Yes | |
| 49 | STI Brooklyn | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 50 | STI Black Hawk | | 2015 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 51 | STI Galata | | 2017 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 52 | STI Bosphorus | | 2017 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| 53 | STI Leblon | | 2017 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 54 | STI La Boca | | 2017 | | 49,990 | | — | | SMRP (2) | | MR | | Yes | |
| 55 | STI San Telmo | | 2017 | | 49,990 | | 1B | | SMRP (2) | | MR | | Not Yet Installed | |
| 56 | STI Donald C Trauscht | | 2017 | | 49,990 | | 1B | | SMRP (2) | | MR | | Not Yet Installed | |
| 57 | STI Esles II | | 2018 | | 49,990 | | 1B | | SMRP (2) | | MR | | Not Yet Installed | |
| 58 | STI Jardins | | 2018 | | 49,990 | | 1B | | SMRP (2) | | MR | | Not Yet Installed | |
| 59 | STI Magic | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 60 | STI Majestic | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | (5) |
| 61 | STI Mystery | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 62 | STI Marvel | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 63 | STI Magnetic | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 64 | STI Millennia | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 65 | STI Magister | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 66 | STI Mythic | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 67 | STI Marshall | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 68 | STI Modest | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 69 | STI Maverick | | 2019 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 70 | STI Miracle | | 2020 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 71 | STI Maestro | | 2020 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 72 | STI Mighty | | 2020 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 73 | STI Maximus | | 2020 | | 50,000 | | — | | SMRP (2) | | MR | | Yes | |
| 74 | STI Excel | | 2015 | | 74,000 | | — | | SLR1P (3) | | LR1 | | Yes | (5) |
| 75 | STI Expedite | | 2016 | | 74,000 | | — | | SLR1P (3) | | LR1 | | Not Yet Installed | (5) |
| 76 | STI Exceed | | 2016 | | 74,000 | | — | | SLR1P (3) | | LR1 | | Not Yet Installed | (5) |
| 77 | STI Experience | | 2016 | | 74,000 | | — | | SLR1P (3) | | LR1 | | Not Yet Installed | (5) |
| 78 | STI Express | | 2016 | | 74,000 | | — | | SLR1P (3) | | LR1 | | Yes | (5) |
| 79 | STI Precision | | 2016 | | 74,000 | | — | | SLR1P (3) | | LR1 | | Yes | (5) |
| 80 | STI Elysees | | 2014 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 81 | STI Madison | | 2014 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 82 | STI Park | | 2014 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 83 | STI Orchard | | 2014 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 84 | STI Sloane | | 2014 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 85 | STI Broadway | | 2014 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 86 | STI Condotti | | 2014 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 87 | STI Rose | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 88 | STI Veneto | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 89 | STI Alexis | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 90 | STI Winnie | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 91 | STI Oxford | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 92 | STI Lauren | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 93 | STI Connaught | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 94 | STI Spiga | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 95 | STI Savile Row | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 96 | STI Kingsway | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 97 | STI Carnaby | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 98 | STI Solidarity | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 99 | STI Lombard | | 2015 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 100 | STI Grace | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 101 | STI Jermyn | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 102 | STI Sanctity | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 103 | STI Solace | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 104 | STI Stability | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 105 | STI Steadfast | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 106 | STI Supreme | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Not Yet Installed | |
| 107 | STI Symphony | | 2016 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 108 | STI Gallantry | | 2016 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 109 | STI Goal | | 2016 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 110 | STI Nautilus | | 2016 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 111 | STI Guard | | 2016 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 112 | STI Guide | | 2016 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 113 | STI Selatar | | 2017 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 114 | STI Rambla | | 2017 | | 109,999 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 115 | STI Gauntlet | | 2017 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 116 | STI Gladiator | | 2017 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 117 | STI Gratitude | | 2017 | | 113,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 118 | STI Lobelia | | 2019 | | 110,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 119 | STI Lotus | | 2019 | | 110,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 120 | STI Lily | | 2019 | | 110,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 121 | STI Lavender | | 2019 | | 110,000 | | — | | SLR2P (4) | | LR2 | | Yes | |
| 122 | STI Beryl | | 2013 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| 123 | STI Le Rocher | | 2013 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| 124 | STI Larvotto | | 2013 | | 49,990 | | — | | SMRP (2) | | MR | | Not Yet Installed | |
| Total owned, finance leased and bareboat charter-in fleet DWT | | | | 8,729,170 | | | | | | | | | |
| | | | | |
| (1) | This vessel operates in the Scorpio Handymax Tanker Pool, or SHTP. SHTP is a Scorpio Pool and is operated by Scorpio Commercial Management S.A.M., or SCM. SHTP and SCM are related parties to the Company. |
| (2) | This vessel operates in the Scorpio MR Pool, or SMRP. SMRP is a Scorpio Pool and is operated by SCM. SMRP is a related party to the Company. |
| (3) | This vessel operates in the Scorpio LR1 Pool, or SLR1P. SLR1P is a Scorpio Pool and is operated by SCM. SLR1P is a related party to the Company. |
| (4) | This vessel operates in the Scorpio LR2 Pool, or SLR2P. SLR2P is a Scorpio Pool and is operated by SCM. SLR2P is a related party to the Company. |
| (5) | This vessel is currently held for sale. |
Chartering Strategy
Generally, we operate our vessels in commercial pools operated by related entities, on time charters or in the spot market. The overall mix of how our vessels are employed varies from time to time based on many factors including our view of the future market conditions.
Commercial Pools
To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial managers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market, but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment, or COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market. As of March 18, 2022, all of the vessels in our Operating Fleet operate in one of the Scorpio Pools.
Time Charters
Time charters give us a fixed and stable cash flow for a known period of time. Time charters also mitigate in part the seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future, we may opportunistically look to enter our vessels into time charter contracts. We may also enter into time charter contracts with profit sharing agreements, which enable us to benefit if the spot market increases.
Spot Market
A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable but may enable us to capture increased profit margins during periods of improvements in tanker rates. We also consider short-term time charters (with initial terms of less than one year) as spot market voyages.
Management of our Fleet
Commercial and Technical Management
Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the terms and conditions set forth under a revised master agreement which was effective as from January 1, 2018 (the "Revised Master Agreement"). The Revised Master Agreement may be terminated by either party upon 24 months' notice, unless terminated earlier in accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a notice period of three months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a payment equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially similar terms.
SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also manages the Scorpio Pools. When our vessels are operating in one of the Scorpio Pools, SCM, the pool manager, charges fees of $300 per vessel per day with respect to our LR1 vessels, $250 per vessel per day with respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessel owners in these pools, including third-party owned vessels. For commercial management of our vessels that are not operating in any of the Scorpio Pools, we pay SCM a fee of $250 per vessel per day for each LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessel, plus 1.25% commission on gross revenues per charter fixture. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges our vessels to effectively reduce such commissions to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.
SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. We pay SSM an annual fee of $175,000 plus additional amounts for certain itemized services per vessel to provide technical management services for each of our owned vessels.
Amended Administrative Services Agreement
We have an Amended Administrative Services Agreement with Scorpio Services Holding Limited ("SSH"), or our Administrator, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is a related party to us. We reimburse our Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. The services provided to us by our Administrator may be sub-contracted to other entities within Scorpio.
Further, pursuant to our Amended Administrative Services Agreement, our Administrator, on behalf of itself and other members of Scorpio, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.
Our Amended Administrative Services Agreement may be terminated by us upon two years' notice.
The International Oil Tanker Shipping Industry
All the information and data presented in this section, including the analysis of the oil tanker shipping industry, has been provided by Drewry. The statistical and graphical information contained herein is drawn from Drewry’s database and other sources. According to Drewry: (i) certain information in Drewry’s database is derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (iii) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.
Oil Tanker Demand
In broad terms, demand for oil products traded by sea is primarily affected by global and regional economic conditions, as well as other factors such as changes in the location of productive capacity, and variations in regional prices. Demand for shipping capacity is a product of the physical quantity of the cargo (measured, depending on the cargo in terms of tons or cubic metrics), together with the distance the cargo is carried. Demand cycles move broadly in line with developments in the global economy, with the growth rate of demand for products slowing significantly and becoming negative in some years in the period immediately after the onset of the global economic downturn in late 2008, before recovering gradually from 2011 with general improvement in the global macro-economic environment. Low crude prices between 2015 and 2017 induced greater consumption, which led to increased seaborne trade of crude oil as well as refined products. Growth in seaborne trade slowed in 2018 because of inventory drawdowns in crude as well as refined products. In 2019, decline in seaborne trade was on account of lower refinery runs and weaker economic growth.
The outbreak of COVID-19 severely affected demand for crude oil and refined petroleum products as several major economies enforced lockdowns to contain the spread of the virus and mitigate the damage caused by the pandemic. Accordingly, the world seaborne tanker trade, including crude oil, oil products and chemicals fell 8.6% to 3,105 million tons in 2021. The decline in trade from 3,396 million tons in 2019 was mainly led by a plunge of 8.5% and 11.7% in both crude oil and oil products trade to a total of 1,885 million tons and 931 million tons, respectively.
However, world seaborne tanker trade grew slightly to 3,116 million tons in 2021 mainly due to a sharp recovery global oil demand. Global oil demand increased 5.4 mbpd in 2021 fueled by robust economic growth, rising vaccination rates and higher mobility levels. Several countries authorised emergency use of various COVID-19 vaccines and a widespread availability of these vaccines has played a key role in containing the pandemic, which will support the seaborne trade and tanker demand. The recent energy crisis, which started in October 2021, has provided the much-needed boost to oil demand which is now expected to return to the pre-pandemic level by the end of 2022, earlier than 2023 as had been forecast in the IEA’s previous report. However, the surge in new COVID-19 cases globally since November 2021 is expected to slow the recovery in global oil demand to some extent.
In 2021, 3,116 million tons of crude oil, products and vegetable oils/chemicals were moved by sea. Of this, crude shipments constituted 1,878 million tons of cargo, products 943 million tons, with the balance made up of other bulk liquids, including vegetable oils, chemicals and associated products.
World Seaborne Tanker Trade
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Crude Oil | | Refined Products | | Veg Oils/ Chemicals | | Total |
| Year | | Mill T | | % Y-o-Y | | Mill T | | % Y-o-Y | | Mill T | | % Y-o-Y | | Mill T | | % Y-o-Y |
| 2002 | | 1,756 | | 0.3 % | | 519 | | 0.3 % | | 122 | | 7.0 % | | 2,396 | | 0.6 % |
| 2003 | | 1,860 | | 5.9 % | | 550 | | 6.0 % | | 129 | | 5.9 % | | 2,538 | | 5.9 % |
| 2004 | | 1,963 | | 5.6 % | | 599 | | 8.8 % | | 141 | | 9.5 % | | 2,703 | | 6.5 % |
| 2005 | | 1,994 | | 1.6 % | | 646 | | 8.0 % | | 156 | | 10.5 % | | 2,797 | | 3.5 % |
| 2006 | | 1,996 | | 0.1 % | | 677 | | 4.7 % | | 166 | | 6.5 % | | 2,839 | | 1.5 % |
| 2007 | | 2,008 | | 0.6 % | | 723 | | 6.8 % | | 176 | | 5.9 % | | 2,907 | | 2.4 % |
| 2008 | | 2,014 | | 0.3 % | | 765 | | 5.8 % | | 179 | | 1.8 % | | 2,957 | | 1.7 % |
| 2009 | | 1,928 | | (4.2) % | | 777 | | 1.6 % | | 202 | | 12.9 % | | 2,907 | | (1.7) % |
| 2010 | | 1,997 | | 3.6 % | | 810 | | 4.3 % | | 217 | | 7.4 % | | 3,024 | | 4.0 % |
| 2011 | | 1,941 | | (2.8) % | | 860 | | 6.3 % | | 228 | | 5.1 % | | 3,029 | | 0.2 % |
| 2012 | | 1,988 | | 2.4 % | | 859 | | (0.2) % | | 240 | | 5.3 % | | 3,087 | | 1.9 % |
| 2013 | | 1,920 | | (3.4) % | | 904 | | 5.3 % | | 252 | | 5.1 % | | 3,077 | | (0.3) % |
| 2014 | | 1,904 | | (0.9) % | | 914 | | 1.1 % | | 252 | | (0.1) % | | 3,070 | | (0.2) % |
| 2015 | | 1,974 | | 3.7 % | | 963 | | 5.3 % | | 266 | | 5.4 % | | 3,202 | | 4.3 % |
| 2016 | | 2,050 | | 3.9 % | | 999 | | 3.8 % | | 267 | | 0.6 % | | 3,317 | | 3.6 % |
| 2017 | | 2,109 | | 2.9 % | | 1,043 | | 4.3 % | | 283 | | 5.8 % | | 3,435 | | 3.6 % |
| 2018 | | 2,096 | | (0.6) % | | 1,055 | | 1.1 % | | 293 | | 3.4 % | | 3,443 | | 0.2 % |
| 2019 | | 2,061 | | (1.7) % | | 1,036 | | (1.8) % | | 300 | | 2.4 % | | 3,396 | | (1.4) % |
| 2020 | | 1,885 | | (8.5) % | | 931 | | (10.1) % | | 289 | | (3.6) % | | 3,105 | | (8.6) % |
| 2021* | | 1,878 | | (0.4) % | | 943 | | 1.3 % | | 295 | | 2.1 % | | 3,116 | | 0.3 % |
| CAGR (2016-2021) | | (1.7)% | | | | (1.2)% | | | | 2.0% | | | | (1.2)% | | |
| CAGR (2011-2021) | | (0.3)% | | | | 0.9% | | | | 2.6% | | | | 0.3% | | |
* Provisional estimate
Source: GTIS, Drewry
The volume of oil moved by sea was affected by the economic recession in 2008 and 2009, but since then, renewed growth in the world economy and in oil demand has had a positive impact on seaborne trade. Oil demand has benefited from economic growth in Asia, especially in China, where oil consumption increased by a compound average growth rate (CAGR) of 4.9% between 2011 and 2021 to touch 14.8 million barrels per day (mbpd). Low per capita oil consumption in developing countries, such as China and India, compared with the developed world provides scope for higher oil consumption in these economies. Conversely, oil consumption in developed OECD economies has been in decline for much of the last decade, but in 2015, this trend was reversed for the United States (U.S.) and some European countries primarily due to the positive impact of lower oil prices on demand for products such as gasoline. Oil demand in OECD economies declined at a CAGR of 1.0% from 47.0 mbpd in 2016 to 44.7 mbpd in 2021.
World Oil Consumption: 1992-2021*
(Million bpd)
* Provisional estimate
Source: IEA, Drewry
Global oil demand grew at a CAGR of 0.8% during 2011-2021. Global oil demand plunged 9.1% to 90.9 mbpd in 2020 on account of demand destruction due to COVID-19. However, the easing of mobility restrictions and resumption of economic activities coupled with the launch of several COVID-19 vaccines, have supported the global oil demand in 2021. The global oil demand increased from 90.9 mbpd in 2020 to 96.5 mbpd in 2021.
Oil Product Exports & Imports
Products trades have received a boost in the last decade as a result of developments in E&P activity in the U.S. As a result of the development of shale oil deposits, domestic crude oil production increased at a CAGR of 9.5% between 2008 and 2015 to 9.4 mbpd. Horizontal drilling and hydraulic fracturing have triggered a shale oil revolution and rising crude oil production has also ensured the availability of cheaper feedstocks to local refineries. As a result, the U.S. has become a major net exporter of products.
Oil Product Exports - Major Growth Regions
(Million bpd)
Source: JODI, Drewry
In a short span of time, the U.S. has become the largest exporter of refined products in the world, with supplies from U.S. Gulf Coast terminals heading to most parts of the globe. By way of illustration, U.S. product exports have grown 1.9x between 2011 and 2020 to 4.8 mbpd. A significant proportion of these exports were carried by MR product tankers, which constitute about 55% of global product tanker fleet capacity and have been the mainstay of seaborne trade in refined petroleum products. However, lower crude oil prices in 2015 and 2016 adversely impacted U.S. shale oil producers, and accordingly, crude production in the region was on the decline from May 2015 to September 2016. Nevertheless, the production cut by OPEC members from January 2017 came as a relief for domestic producers and U.S. crude production continued to increase; the U.S. became the largest crude producer in the world in September 2018. U.S. crude production increased at a CAGR of 6.7% during 2015-19 to 12.2 mbpd. U.S. crude oil production declined 8.1% yoy in 2020 to 11.3 mbpd following the sharp decline in crude oil prices amid weak global oil demand due to the pandemic. In 2021, US crude oil production declined 1.4% to 11.2 mbpd as companies contained output due to lower demand.
The shift in the location of global oil production is also being accompanied by a shift in the location of global refinery capacity and throughput. In short, capacity and throughput are moving from the developed to the developing world. Between 2011 and 2021, the total OECD refining throughput declined at 5.8% CAGR to 34.3 mbpd, largely because of cutbacks in OECD Europe and OECD Americas. Refinery throughput of OECD countries declined 13.1% yoy to 33.1 mbpd in 2020 mainly because of the pandemic which hit global oil demand and higher inventory levels. In 2020, refining throughput of OECD countries accounted for 44.5% of global refinery throughput. After a record drop in 2020, OECD refinery runs gathered steam in 2021 with improvement in oil demand, but high crude oil prices led to drawdowns in the inventory of refined products, limiting the gains in refinery runs to some extent.
Asia (excluding China) and the Middle East added about 2.54 mbpd of refinery capacity during 2018-2020, a substantial part of which is destined for international markets. Nearly 230 kbpd of new refining capacity in the Middle East and another 490 kbpd in Asia (270 kbpd in China) came online in 2021 with nearly 910 kbpd of existing refinery capacity in North America, Europe, and Asia Oceania were phased out during the same year. As a result of these developments, countries such as India, China and Saudi Arabia have consolidated their positions as major exporters of products. Export-oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the developed world, have promoted long-haul shipments to cater to the demand for products.
Oil Product Imports - Major Growth Regions
(Million bpd)
Source: JODI, Drewry
Current Tanker Fleet
Crude oil is transported in uncoated vessels, which range upwards in size from 55,000 dwt. Products are carried predominantly in coated ships and include commodities such as gas oil, gasoline, jet fuel, kerosene and naphtha (often referred to as ‘clean products’), and fuel oil and vacuum gas oil (often referred to as ‘dirty products’). In addition, some product tankers are also able to carry bulk liquid chemicals and edible oils and fats if they have the appropriate International Maritime Organization (IMO) certification. These vessels are classified as product/chemical tankers, and as such, they represent a swing element in supply, having the ability to move between trades depending on market conditions. Clean petroleum products are therefore carried by non-IMO product tankers and IMO certified product/chemical tankers. IMO tankers will also carry, depending on their tank coatings, a range of other products including organic and inorganic bulk liquid chemicals, vegetable oils and animal fats and special products such as molasses.
The global tanker fleet expanded 1.4% yoy (based on capacity) in 2021 mainly due to high demolitions. Weaker market conditions favored demolitions with the opening of scrapyards and higher scrap prices. The year 2021 witnessed the highest number of product tankers being scrapped during the last five years, but the fleet expanded as deliveries exceeded demolitions. As of January 31, 2022, the total oil tanker fleet (crude, products, and product/chemical tankers) consisted of 5,396 ships with a combined capacity of 613.2 mdwt.
The Oil Tanker Fleet - January 31, 2022
| | | | | | | | | | | | | | | | | |
| Deadweight Tons | Number of | | Capacity | |
| Vessel Type | (Dwt) | Vessels | % of Fleet | (m Dwt) | % of Fleet |
Crude Tankers (1) | | | | | |
| VLCC/ULCC | 200,000+ | 851 | 37.7 | 262.4 | 60.1 |
| Suezmax | 120-199,999 | 609 | 27.0 | 95.1 | 21.8 |
| Aframax | 80-119,999 | 668 | 29.6 | 73.2 | 16.8 |
| Panamax | 55-79,999 | 75 | 3.3 | 5.2 | 1.2 |
| Handymax | 40-54,999 | 5 | 0.2 | 0.2 | — |
| Handy | 25-39,999 | 4 | 0.2 | 0.1 | — |
| Handy | 10-24,999 | 46 | 2.0 | 0.7 | 0.2 |
| Total Fleet | | 2,258 | 100.0 | 436.9 | 100.0 |
| | | | | |
| Product Tankers | | | | | |
| Long Range 3 (LR3) | 120-199,999 | 21 | 1.4 | 3.3 | 3.3 |
| Long Range 2 (LR2) | 80-119,999 | 404 | 27.0 | 44.5 | 44.5 |
| Long Range 1 (LR1) | 55-79,999 | 347 | 23.2 | 25.5 | 25.6 |
| Medium Range 2 (MR2) | 40-54,999 | 429 | 28.6 | 20.2 | 20.2 |
| Medium Range 1 (MR1) | 25-39,999 | 109 | 7.3 | 3.7 | 3.7 |
| Handy | 10-24,999 | 188 | 12.6 | 2.7 | 2.7 |
| Total Fleet | | 1,498 | 100.0 | 99.9 | 100.0 |
| | | | | |
Product/Chemical Tankers (2) | | | | |
| Long Range 3 (LR3) | 120-199,999 | — | — | — | — |
| Long Range 2 (LR2) | 80-119,999 | 2 | 0.1 | 0.2 | 0.3 |
| Long Range 1 (LR1) | 55-79,999 | 35 | 2.1 | 2.6 | 3.3 |
| Medium Range 2 (MR2) | 40-54,999 | 1,279 | 78.0 | 62.1 | 81.4 |
| Medium Range 1 (MR1) | 25-39,999 | 295 | 18.0 | 11.0 | 14.4 |
| Handy | 10-24,999 | 29 | 1.8 | 0.4 | 0.6 |
| Total Fleet | | 1,640 | 100.0 | 76.3 | 100.0 |
| | | | | |
| Product & Product/Chemical Fleet | | | | |
| Long Range 3 (LR3) | 120-199,999 | 21 | 0.7 | 3.3 | 1.9 |
| Long Range 2 (LR2) | 80-119,999 | 406 | 12.9 | 44.7 | 25.4 |
| Long Range 1 (LR1) | 55-79,999 | 382 | 12.2 | 28.1 | 15.9 |
| Medium Range 2 (MR2) | 40-54,999 | 1,708 | 54.4 | 82.3 | 46.7 |
| Medium Range 1 (MR1) | 25-39,999 | 404 | 12.9 | 14.7 | 8.3 |
| Handy | 10-24,999 | 217 | 6.9 | 3.1 | 1.8 |
| Total Fleet | | 3,138 | 100.0 | 176.2 | 100.0 |
| | | | | |
| Crude, Product and Product/Chemical Tanker Fleet | | | |
| VLCC/ULCC | 200,000+ | 851 | 15.8 | 262.4 | 42.8 |
| Suezmax/LR3 | 120-199,999 | 630 | 11.7 | 98.4 | 16.0 |
| Aframax/LR2 | 80-119,999 | 1,074 | 19.9 | 117.9 | 19.2 |
| Panamax/LR1 | 55-79,999 | 457 | 8.5 | 33.3 | 5.4 |
| Handy/Medium Range | 40-54,999 | 1,713 | 31.7 | 82.5 | 13.5 |
| Handy/Medium Range | 25-39,999 | 408 | 7.6 | 14.8 | 2.4 |
| Handy/Handymax | 10-54,999 | 263 | 4.9 | 3.8 | 0.6 |
| Total Fleet | | 5,396 | 100.0 | 613.1 | 100.0 |
(1)Included shuttle tankers and tankers on storage duties
(2)Excludes pure chemical tankers
Source: Drewry
The world product tanker fleet as of January 31, 2022, consisted of 3,138 vessels with a combined capacity of 176.2mdwt. The breakdown of the fleet by type (crude, product and product/chemical) and by size, together with the orderbook for newbuilding tankers as of January 31, 2022, is illustrated in the table below.
The World Tanker Orderbook (1) - January 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vessel Type | Deadweight | | Orderbook | | Orderbook % Fleet | 2022 | 2023 | 2024+ |
| (Dwt) | | No | m Dwt | | No | Dwt | No | m Dwt | No | m Dwt | No | m Dwt |
| | | | | | | | | | | | | |
Crude Tankers (1) |
| VLCC/ULCC | 200,000+ | | 65.0 | 19.7 | | 7.6 | 7.5 | 41.0 | 12.4 | 24.0 | 7.3 | — | — |
| Suezmax | 120-199,999 | | 53.0 | 8.0 | | 8.7 | 8.4 | 35.0 | 5.4 | 10.0 | 1.6 | 8.0 | 1.0 |
| Aframax | 80-119,999 | | 44.0 | 5.0 | | 6.6 | 6.9 | 23.0 | 2.6 | 20.0 | 2.3 | 1.0 | 0.1 |
| Panamax | 55-79,999 | | 1.0 | 0.1 | | 1.3 | 1.3 | 1.0 | 0.1 | — | — | — | — |
| Handymax | 40-54,999 | | — | — | | — | — | — | — | — | — | — | — |
| Handy | 25-39,999 | | — | — | | — | — | — | — | — | — | — | — |
| Handy | 10-24,999 | | — | — | | — | — | — | — | — | — | — | — |
| Total Fleet | | | 163.0 | 32.8 | | 7.2 | 7.5 | 100 | 20.5 | 54 | 11.2 | 9 | 1.1 |
| | | | | | | | | | | | | |
| Product Tankers |
| Long Range 3 (LR3) | 120-199,999 | | 12.0 | 1.4 | | 57.1 | 43.4 | 7.0 | 0.8 | 5.0 | 0.6 | — | — |
| Long Range 2 (LR2) | 80-119,999 | | 30.0 | 3.4 | | 7.4 | 7.6 | 10.0 | 1.1 | 14.0 | 1.6 | 6.0 | 0.7 |
| Long Range 1 (LR1) | 55-79,999 | | — | — | | — | — | — | — | — | — | — | — |
| Medium Range 2 (MR2) | 40-54,999 | | 15.0 | 0.8 | | 3.5 | 3.7 | 12.0 | 0.6 | 3.0 | 0.2 | — | — |
| Medium Range 1 (MR1) | 25-39,999 | | — | — | | — | — | — | — | — | — | — | — |
| Handy | 10-24,999 | | 4.0 | 0.1 | | 2.1 | 3.3 | 4.0 | 0.1 | — | — | — | — |
| Total Fleet | | | 61.0 | 5.7 | | 4.1 | 5.6 | 33.0 | 2.6 | 22.0 | 2.4 | 6.0 | 0.7 |
| | | | | | | | | | | | | |
Product/Chemical Tankers (2) |
| Long Range 3 (LR3) | 120-199,999 | | — | — | | — | — | — | — | — | — | — | — |
| Long Range 2 (LR2) | 80-119,999 | | — | — | | — | — | — | — | — | — | — | — |
| Long Range 1 (LR1) | 55-79,999 | | — | — | | — | — | — | — | — | — | — | — |
| Medium Range 2 (MR2) | 40-54,999 | | 69.0 | 3.4 | | 5.4 | 5.5 | 38.0 | 1.9 | 31.0 | 1.5 | — | — |
| Medium Range 1 (MR1) | 25-39,999 | | 7.0 | 0.2 | | 2.4 | 2.2 | 7.0 | 0.2 | — | — | — | — |
| Handy | 10-24,999 | | — | — | | — | — | — | — | — | — | — | — |
| Total Fleet | | | 76.0 | 3.6 | | 4.6 | 4.8 | 45.0 | 2.1 | 31.0 | 1.5 | — | — |
| | | | | | | | | | | | | |
| Product & Product/Chemical Fleet |
| Long Range 3 (LR3) | 120-199,999 | | 12.0 | 1.4 | | 57.1 | 43.4 | 7.0 | 0.8 | 5.0 | 0.6 | — | — |
| Long Range 2 (LR2) | 80-119,999 | | 30.0 | 3.4 | | 7.4 | 7.5 | 10.0 | 1.1 | 14.0 | 1.6 | 6.0 | 0.7 |
| Long Range 1 (LR1) | 55-79,999 | | — | — | | — | — | — | — | — | — | — | — |
| Medium Range 2 (MR2) | 40-54,999 | | 84.0 | 4.2 | | 4.9 | 5.1 | 50.0 | 2.5 | 34.0 | 1.7 | — | — |
| Medium Range 1 (MR1) | 25-39,999 | | 7.0 | 0.2 | | 1.7 | 1.6 | 7.0 | 0.2 | — | — | — | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Handy | 10-24,999 | | 4.0 | 0.1 | | 1.8 | 2.8 | 4.0 | 0.1 | — | — | — | — |
| Total Fleet | | | 137.0 | 9.3 | | 4.4 | 5.3 | 78.0 | 4.7 | 53.0 | 3.9 | 6.0 | 0.7 |
| | | | | | | | | | | | | |
| Crude, Product and Product/Chemical Tanker Fleet |
| VLCC/ULCC | 200,000+ | | 65.0 | 19.7 | | 7.6 | 7.5 | 41.0 | 12.4 | 24.0 | 7.3 | — | — |
| Suezmax/LR3 | 120-199,999 | | 65.0 | 9.4 | | 10.3 | 9.6 | 42.0 | 6.3 | 15.0 | 2.2 | 8.0 | 1.0 |
| Aframax/LR2 | 80-119,999 | | 74.0 | 8.4 | | 6.9 | 7.1 | 33.0 | 3.7 | 34.0 | 3.9 | 7.0 | 0.8 |
| Panamax/LR1 | 55-79,999 | | 1.0 | 0.1 | | 0.2 | 0.2 | 1.0 | 0.1 | — | — | — | — |
| Handy/Medium Range | 40-54,999 | | 84.0 | 4.2 | | 4.9 | 5.1 | 50.0 | 2.5 | 34.0 | 1.7 | — | — |
| Handy/Medium Range | 25-39,999 | | 7.0 | 0.2 | | 1.7 | 1.6 | 7.0 | 0.2 | — | — | — | — |
| Handy/Handymax | 10-54,999 | | 4.0 | 0.1 | | 1.5 | 2.3 | 4 | 0.1 | 0 | — | 0 | — |
| Total Fleet | | | 300.0 | 42.1 | | 5.6 | 6.9 | 178.0 | 25.3 | 107.0 | 15.1 | 15.0 | 1.8 |
(1) Included shuttle tankers and tankers on storage duties
(2) Product and product/chemical tankers only, excludes pure chemical tankers
Source: Drewry
As of January 31, 2022, the orderbook for product and product/chemical tankers of above 10,000 dwt comprised 137 vessels with combined capacity of 9.3 mdwt, equivalent to 5.3% of the existing fleet in capacity terms. Based on the total orderbook and scheduled deliveries, nearly 4.8 mdwt is expected to be delivered in the remaining months of 2022, followed by 3.9 mdwt in 2023 and the remaining 0.7 mdwt in 2023. In recent years however the orderbook has been affected by the non-delivery of vessels (sometimes referred to as ‘slippage’). Some of this slippage resulted from delays, either through mutual agreement or through shipyard problems, while others were due to vessel cancellations. Slippage is likely to remain an issue going forward, and as such, it will have a moderating effect on growth in the product tanker fleet over the next three years. After lackluster deliveries due to the closure of shipyards in 2020 on account of the pandemic, deliveries increased in 2021.
Ballast Water Management Convention
All deep-sea vessels engaged in international trade are required to have ballast water treatment systems installed before 8 September 2024. For a VLCC tanker, the retrofit cost could be as much as USD 2.0 million per vessel, including labor. Expenditure of this kind has become another factor impacting the decision to scrap older vessels after the Ballast Water Management Convention came into force in 2019.
IMO 2020 regulation on low sulfur fuel
The second regulation, which came into force on January 1, 2020, and impacted vessel supply particularly in 2020, is the drive to introduce low sulfur fuels. For many years, heavy fuel oil (“HFO”) has been the main fuel of the shipping industry. It is relatively inexpensive and widely available, but it is ‘dirty’ from an environmental point of view. The sulfur content of HFO is extremely high and is the reason that maritime shipping accounts for 8% of global emissions of sulfur dioxide (“SO2”), an important source for acid rain as well as respiratory diseases.
The IMO, the governing body of international shipping, has made a decisive effort to shift the industry away from HFO to cleaner fuels with less harmful effects on the environment and human health. Effective in 2015, ships operating within the Emission Control Areas (“ECAs”) covering the Economic Exclusive Zone of North America, the Baltic Sea, the North Sea, and the English Channel, are required to use marine gas oil with allowable sulfur content up to 1,000 parts per million (“ppm”). In the lead-up to 2020, when the shipping industry started to prepare for a new low sulfur norm, two factors were closely watched: 1) the spread between (expensive) very low-sulfur fuel and (cheaper) high-sulfur fuel and, 2) scrubber retrofitting activity.
IMO GHG Strategy
The IMO has been devising strategies to reduce greenhouse gases (GHG) and carbon emissions from ships. According to the announcement in 2018, the IMO plans to initiate measures to reduce CO2 emissions intensity by at least 40% by 2030 and 70% by 2050 from the levels in 2008. It also plans to introduce measures to reduce GHG emissions by 50% by 2050 from the 2008 levels. These are likely to be achieved by setting energy efficiency requirements and encouraging shipowners to use alternative fuels such as biofuels, and electro-/synthetic fuels such as hydrogen or ammonia. It may include limiting the speed of the ships. Currently, there is uncertainty regarding the exact measures that the IMO will undertake to achieve these targets. Although the current macroeconomic environment is the main deterrent, IMO-related uncertainty is also a key factor preventing ship owners from placing new orders, as the vessels with conventional propulsion systems may have a high environmental compliance cost and possible faster depreciation in asset values in the future. Some shipowners are ahead of the curve by having ordered LNG-fueled/methanol ships in order to comply with stricter regulations that may be announced in the future.
In June 2021, the IMO adopted amendments to the International Convention for the Prevention of Pollution from ships that will require vessels to reduce their greenhouse gas emissions. These amendments are a combination of technical and operational measures and are expected to come into force on 1 November 2022, with the requirements for Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) certification, effective 1 January 2023. These will be monitored by the flag administration and corrective actions will be required in the event of constant non-compliance. A review clause requires the IMO to review the effectiveness of the implementation of the CII and EEXI requirements, by 1 January 2026 at the latest. EEXI is a technical measure and would apply to ships above 400 GT. It indicates the energy efficiency of the ship compared to a baseline and is based on a required reduction factor (expressed as a percentage relative to the Energy Efficiency Design Index baseline).
On the other hand, CII is an operational measure which specifies carbon intensity reduction requirements for vessels with 5,000 GT and above. The CII determines the annual reduction factor needed to ensure continuous improvement of the ship’s operational carbon intensity within a specific rating level. The operational carbon intensity rating would be given on a scale of A, B, C, D or E indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level, respectively. The performance level would be recorded in the ship’s Ship Energy Efficiency Management Plan (SEEMP). A ship rated D for three consecutive years, or E, would have to submit a corrective action plan, to show how the required index (C or above) would be achieved. To reduce carbon intensity, shipowners can switch from oil to alternative fuels such as LNG or methanol. Some marine fuels such as ammonia and hydrogen have zero-carbon content. In the long term, ammonia can emerge as a cost-effective alternative fuel but in the short term, it seems unviable. Other options include propeller upgrading/polishing, hull cleaning/coating and retrofitting vessels with the wind-assisted propulsion system. Reducing ship speeds also helps in complying with the regulations as it lowers fuel consumption and it is easy to implement.
In addition to the IMO regulation, the EU has proposed a set of proposals including EU Emissions Trading System and FuelEU Maritime Initiative. It lays down rules regarding GHG intensity of energy used on-board all ships arriving in the EU. It aims to reduce GHG emission by 26% by 2040 and 75% by 2050 compared to 2020 levels. It also makes obligatory for ships to use on-shore power supply or zero-emission technology in ports in the EU. These initiatives are applicable to 50% of the emission from voyages arriving at or departing from an EU port. All shipowners trading in the European waters will need to comply with these regulations.
The emission control regulations are likely to slow the speed of the vessels in next few years. Consequently, it will lead to a reduction in the supply of ships and therefore, it will benefit shipowners with younger fleets in short to medium term as charter rates should potentially increase with lower supply of ships. In the long term, the ships may switch to alternative low/zero carbon fuels to comply with emission regulations.
Besides the IMO regulations, the decarbonization of shipping is being propelled by various state and non-state stakeholders of the shipping industry. In recent years, there has been several developments towards it such as Sea Cargo Charter, Poseidon Principles (for ship finance banks) and Poseidon Principles for Marine Insurance. In addition, there has been several industry led initiatives to facilitate movement towards low/zero-carbon shipping such as Getting to Zero Coalition, The
Castor Initiative for Ammonia, Global Centre for Maritime Decarbonisation and the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping.
Alternative fuels for shipping
The IMO has target to reduce Green House Gas (GHG) emission by 50% in 2050. This can’t be achieved with the low sulphur fuel and has encouraged innovation in alternative fuels. IMO has also been planning other technical and operational measures in order to meet emission targets. Alternative fuels like LPG and methanol are mainly used on vessels carrying these as cargo. However, LNG is used as fuel in LNG vessels and also in other vessels. Hydrogen and ammonia are in the initial stages of development as a marine fuel. LNG expected to remain as a preferred alternative fuel in the near to medium term due to its availability. However, LNG is still a fossil fuel and is unable to meet IMO 2050 decarbonisation targets and methane slips continue to be a heavily debated issue. Another drawback is that LNG propulsion requires an LNG capable engine which would require an additional capex and increased fuel storage space. Biofuel could emerge as a preferred alternative fuel because of its successful trials, especially considering that no major modification of engine is needed, and therefore, no significant additional capex is required.
Energy Transition
Traditionally, fossil fuel-based energy sources such as oil, natural gas and coal have propelled the global economy, but their share has been declining over the past few years from 86.9% in 2011 to 84.3% in 2019 with the share of oil remaining stagnant at around 33% during the period. However, the energy transition from fossil fuel-based energy to renewable sources of energy is currently underway which has received a boost from the accelerated sales of electric vehicles (“EVs”), even though their share in total sales was a meager 2.5% in 2019. As the cost of EVs becomes competitive against internal combustion engine vehicles, and charging infrastructure is developed across the world, sales of EVs are expected to gain momentum, reducing the demand for gasoline and diesel in the long run. Increasing focus on decarbonisation will also impact the global oil demand going forward. The demand for naphtha and jet fuel is likely to remain robust and will be the key driver of global trade in crude and refined petroleum products.
The Oil Tanker Freight Market
Tanker charter hire rates and vessel values for all tankers are influenced by the supply-demand dynamics of the tanker market. Also, in general terms, time charter rates are less volatile than spot rates as they reflect the fact that the vessel is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand, and are thus prone to more volatility. The trend in spot rates since 2002 for the main vessel classes is shown in the table below.
Crude Tanker - Spot (TCE) Rates: 2002-2022*
(US$/Day)
| | | | | | | | | | | | | | |
| Year | Caribs | NW Europe | West Africa | AG |
| USAC | NW Europe | Caribs/USES | Japan |
| 40-70,000 DWT | 70-100,000 DWT | 150-160,000 DWT | 280-300,000 DWT |
| 2002 | 16,567 | 22,800 | 19,325 | 21,667 |
| 2003 | 28,833 | 41,883 | 37,367 | 49,342 |
| 2004 | 42,158 | 55,408 | 64,792 | 95,258 |
| 2005 | 34,933 | 57,517 | 40,883 | 59,125 |
| 2006 | 28,792 | 47,067 | 40,142 | 51,142 |
| 2007 | 30,100 | 41,975 | 35,392 | 45,475 |
| 2008 | 36,992 | 56,408 | 52,650 | 89,300 |
| 2009 | 13,450 | 19,883 | 20,242 | 29,483 |
| 2010 | 17,950 | 27,825 | 19,658 | 40,408 |
| 2011 | 8,817 | 10,500 | 12,758 | 8,700 |
| 2012 | 12,408 | 9,100 | 14,275 | 12,275 |
| 2013 | 13,475 | 11,427 | 13,308 | 12,325 |
| 2014 | 21,383 | 23,360 | 23,567 | 24,625 |
| 2015 | 23,725 | 37,509 | 38,350 | 67,928 |
| 2016 | 13,133 | 24,333 | 21,592 | 42,183 |
| 2017 | 8,942 | 7,643 | 11,255 | 22,617 |
| 2018 | 7,892 | 9,181 | 11,075 | 20,825 |
| 2019 | 17,892 | 23,041 | 24,350 | 41,667 |
| 2020 | 19,300 | 17,661 | 23,058 | 56,308 |
| 2021 | 10,458 | 491 | 2,967 | (75) |
| Jan-22 | 9,200 | (633) | 400 | (4,000) |
*Up to January 2022
Source: Drewry, Note - These rates do not account for vessel triangulation
Product Tanker - Spot (TCE) Rates: 2011-2022*
(US$/Day)
| | | | | | | | | | | | | | |
| Year | Baltic | UKC | Arabian Gulf | Arabian Gulf |
| UK Continent | USAC | Japan | Japan |
| 25-39,999 DWT | 40-54,999 DWT | 55-79,999 DWT | 80-119,000 DWT |
| 2011 | NA | 9,720 | 3,723 | 7,528 |
| 2012 | NA | 8,064 | 6,379 | 8,106 |
| 2013 | NA | 9,474 | 7,576 | 8,505 |
| 2014 | NA | 9,435 | 10,523 | 14,163 |
| 2015 | NA | 18,769 | 23,685 | 28,783 |
| 2016 | NA | 8,508 | 12,290 | 15,006 |
| 2017 | 8,966 | 7,442 | 7,225 | 7,936 |
| 2018 | 8,367 | 6,196 | 8,002 | 9,411 |
| 2019 | 11,777 | 10,739 | 14,242 | 18,698 |
| 2020 | 12,690 | 13,117 | 19,949 | 27,777 |
| 2021 | 5,189 | 4,507 | 6,218 | 5,923 |
| Jan-22 | 11,796 | 4,987 | 2,827 | 1,400 |
*Up to January 2022, NA implies not available
Source: Baltic, Drewry, Note - These rates do not account for vessel triangulation
Product tanker rates were weak during 2010-2013 due to lower demand and excess supply. Freight rates in the tanker sector started to improve in the second half of 2014 as result of low growth in vessel supply and rising vessel demand. In the products sector, a number of factors combined to push up rates, including:
•Increased trade due to higher stocking activity and improved demand for oil products
•Longer voyage distances because of refining capacity additions in Asia
•Product tankers also carrying crude encouraged by firm freight rates for dirty tankers
•Lower bunker prices contributing to higher net earnings
Freight rates remained firm throughout 2015 and in the first half of 2016, leading to greater revenue and improved profitability for ship-owners. However, in the second half of 2016, tanker freight rates declined sharply as a result of the increased tanker supply outweighing the demand for tankers. A spate of newbuilding deliveries in 2017 aggravated the situation further for ship-owners and the average one-year spot charter rate declined further. The situation worsened further and TCE rates were below breakeven rates on key routes for the first nine months of 2018. However, towards the end of 2018, the vessel earnings began to improve as supply growth was moderating in the wake of record high demolitions and reduced new vessel ordering. Increase in product tanker freight rates in 2019 was driven by slow fleet growth and a spike in diesel trade before IMO 2020 regulations came into effect on 1 January 2020. Product tanker freight rates surged to multi-year highs on trickle-down effect from crude tanker market in October 2019 as well as US sanctions on Cosco Shipping Tanker (Dalian) Co, geopolitical tensions and tight supply resulted.
However, in 2020 the tanker market underwent an unprecedented turbulence due to the outbreak of COVID-19. The sudden demand destruction due to lockdown measures and limited availability of onshore storage led to a surge in demand for tankers for floating storage of crude oil as well as refined products. Accordingly, TCE rates of oil tankers rallied across vessel classes in March and April 2020; for instance, average spot TCE rates for MR tankers shot up 131% from US$19,289/day in February 2020 to US$44,618/day in April 2020. However, reduced crude oil production and refinery runs since May 2020 and gradual recovery in demand led to continuous decline in vessel earnings in the latter half of the year as several vessels locked in
floating storage rejoined the trading fleet. On a yearly basis though, TCE rates for MR vessels increased 74.1% yoy on average in 2020, while for LR vessels it declined 15% yoy during the same period. In 2021, freight rates declined due to inventory de-stocking and more vessels joining the supply from floating storage.
With the virus spreading globally, the weak demand for refinery products led to an increase in both onshore and offshore stocking activity in early 2020 as the increasing use of product tankers as storage facilities coupled with global port congestions resulted in a surge in product tanker rates in March and April. However, offshore storage declined significantly in 2021, driving the freight rates lower. At the end of January 2022, 2.25 mdwt of non-IMO coated tankers comprising nearly 2.3% of the product tanker fleet was used for offshore storage. This figure was lower than the 6 mdwt (about 6.2% of the product tanker fleet) of non-IMO coated tankers deployed for floating storage at the peak of the contango opportunities in the oil market in April 2020, indicating a declining trend in on-the-water storage of crude oil. Product tankers coming out from floating storage increase vessel supply and have an adverse impact of spot rates.
Oil Tanker Newbuilding Prices
Newbuilding prices increased significantly between 2003 and 2007 primarily as a result of increased tanker demand and limited shipbuilding capacity. Thereafter, prices weakened in the face of a poor freight market and lower levels of new ordering. In late 2013, prices started to recover and they continued to edge up slowly during 2014 before falling marginally in late 2015. Moreover, newbuilding prices fell further in 2016 because of excess capacity available at shipyards, accompanied with low steel prices. New orders declined on account of diminishing earnings potential of oil tankers, and mandatory compliance to Tier III emission for ships ordered on or after January 1, 2016, as well as owners’ limited access to cost-effective capital.
Newbuild prices remained stable throughout 2017. However, asset values of newbuilds increased 3-13% in 2019 as they benefited from high charter rates across vessel classes. Newbuild prices declined in 2020 due to lower orders and weak market prospects. An increase in newbuild prices in 2021 despite weak vessel earnings was fuelled by the increased bargaining power of shipyards that have emerged as price setters with yards flushed with excess ordering, albeit from other shipping sectors, and are hence hard pressed for time for any new orders. Tanker shipowners are also willing to pay extra sums in anticipation of the improved market at the time of delivery of the vessels.
Oil Tankers: Newbuilding Prices: 2002-2022*
(In millions of U.S. Dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year End | 37,000(1) | 50,000(1) | 75,000(1) | 110,000(1) | 75,000(2) | 110,000(2) | 160,000(2) | 300,000(2) |
| DWT | DWT | DWT | DWT | DWT | DWT | DWT | DWT |
| 2002 | 24.5 | 26.5 | 33.0 | 38.0 | 31.0 | 36.0 | 44.0 | 66.0 |
| 2003 | 28.5 | 30.5 | 36.5 | 42.0 | 34.5 | 40.0 | 52.0 | 73.0 |
| 2004 | 34.0 | 39.0 | 43.0 | 59.0 | 41.0 | 57.0 | 68.0 | 105.0 |
| 2005 | 37.5 | 42.0 | 45.0 | 61.0 | 43.0 | 59.0 | 71.0 | 120.0 |
| 2006 | 40.5 | 47.5 | 52.0 | 67.0 | 50.0 | 65.0 | 78.0 | 128.0 |
| 2007 | 46.0 | 54.0 | 66.0 | 80.0 | 64.0 | 78.0 | 90.0 | 146.0 |
| 2008 | 40.0 | 46.5 | 59.0 | 73.5 | 57.0 | 71.5 | 87.0 | 142.0 |
| 2009 | 31.0 | 36.0 | 44.5 | 54.0 | 42.5 | 52.0 | 62.0 | 101.0 |
| 2010 | 33.0 | 36.0 | 48.0 | 59.0 | 44.6 | 57.0 | 67.0 | 105.0 |
| 2011 | 31.5 | 36.0 | 46.0 | 54.8 | 44.6 | 52.8 | 61.7 | 99.0 |
| 2012 | 30.0 | 33.0 | 44.0 | 50.0 | 42.4 | 48.0 | 56.5 | 92.0 |
| 2013 | 31.0 | 35.0 | 45.0 | 53.5 | 42.1 | 51.5 | 59.0 | 93.5 |
| 2014 | 33.0 | 37.0 | 47.5 | 56.0 | 44.9 | 54.0 | 65.0 | 97.0 |
| 2015 | 32.0 | 35.5 | 47.0 | 53.5 | 45.0 | 51.5 | 63.0 | 94.0 |
| 2016 | 30.0 | 32.0 | 41.0 | 47.0 | 39.0 | 45.0 | 54.0 | 83.0 |
| 2017 | 31.0 | 33.0 | 41.0 | 46.0 | 38.2 | 44.0 | 55.0 | 81.0 |
| 2018 | 31.4 | 35.3 | 41.4 | 48.8 | 40.8 | 46.8 | 58.7 | 88.0 |
| 2019 | 32.0 | 36.0 | 45.0 | 51.0 | 43.0 | 49.0 | 61.0 | 92.7 |
| 2020 | 31.4 | 34.8 | 44.2 | 50.2 | 42.2 | 48.2 | 58.6 | 88.8 |
| 2021 | 33.0 | 37.3 | 46.0 | 55.2 | 44.0 | 53.2 | 66.5 | 98.4 |
| Jan-22 | 36.0 | 41.0 | 50.0 | 62.0 | 48.0 | 60.0 | 76.0 | 113.0 |
| | | | | | | | |
| Long-term average | 32.7 | 36.7 | 45.3 | 54.3 | 43.2 | 52.3 | 63.1 | 98.4 |
(1) Coated tankers
(2) Uncoated tankers
*Up to January 2022
Source: Drewry
Second-hand Prices
Second-hand values primarily, albeit with a lag, reflect prevailing and expected charter rates. During extended periods of high charter rates, vessel values tend to appreciate and vice versa. However, vessel values are also influenced by other factors, including the age and shipyard of the vessel. Prices for young vessels, those about up to five-years old, are also influenced by newbuilding prices, while prices for old vessels, near the end of their useful economic life, those around at or in excess of 25 years, are influenced by the value of scrap steel.
The table below illustrates the movements of prices for second-hand oil tankers from 2002 to January 2022. In late 2013, prices for all modern tankers increased as a result of improvement in freight rates and positive market sentiment, and further gains were recorded in 2014 and 2015. However, in 2016, second-hand prices saw a double-digit decline on account of weakening freight rates. For illustration, the second-hand price of a five-year old LR vessel of 95,000 dwt capacity fell 35% from US$46 million in 2015 to US$30 million in 2016. However, the market saw increased demand for modern second-hand vessels in 2017 and 2018, in anticipation of a recovery in the freight market and buyers trying to take advantage of historically low asset prices. As such, second-hand modern product tanker prices increased in the range of 3-10% in 2018. Second-hand prices of crude and product tankers increased steeply in 2019 in tandem with a surge in charter rates. With the surge in product tanker and crude tanker freight rates due to higher demand for floating storage driven by the pandemic, second-hand prices of product and crude tankers increased between 5.4% and 14.7% in April 2020 compared to the average second-hand prices in full-year 2019. However, second-hand asset prices declined in the remainder of 2020 on account of the steep decline in freight rates. The uptrend in newbuild tanker prices coupled with higher demolition prices pushed up second-hand vessel prices in 2021.
Oil Tanker Second-hand Prices for 5 year old vessels: 2002-2022*
(In millions of U.S. Dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year End | 37,000(1) | 45,000(1) | 75,000(1) | 95,000(1) | 75,000(2) | 95,000(2) | 150,000(2) | 300,000(2) |
| DWT | DWT | DWT | DWT | DWT | DWT | DWT | DWT |
| 2002 | 15.5 | 21.5 | 23.0 | 31.5 | 21.0 | 29.5 | 39.0 | 55.0 |
| 2003 | 24.5 | 29.5 | 26.0 | 39.0 | 24.0 | 37.0 | 47.0 | 70.0 |
| 2004 | 36.0 | 42.0 | 40.0 | 59.0 | 38.0 | 57.0 | 73.0 | 112.0 |
| 2005 | 40.0 | 45.5 | 48.5 | 60.0 | 46.5 | 58.0 | 75.0 | 110.0 |
| 2006 | 40.0 | 47.5 | 50.0 | 65.0 | 48.0 | 63.0 | 77.0 | 115.0 |
| 2007 | 40.0 | 52.0 | 61.0 | 70.5 | 59.0 | 68.5 | 87.0 | 130.0 |
| 2008 | 36.0 | 42.0 | 48.0 | 57.0 | 46.0 | 55.0 | 77.0 | 110.0 |
| 2009 | 21.0 | 24.0 | 34.5 | 40.0 | 32.5 | 38.0 | 53.0 | 77.5 |
| 2010 | 21.5 | 24.0 | 37.0 | 44.0 | 35.0 | 42.0 | 58.0 | 85.5 |
| 2011 | 24.0 | 27.0 | 34.0 | 35.5 | 32.0 | 33.5 | 45.5 | 58.0 |
| 2012 | 21.0 | 24.0 | 27.0 | 29.5 | 25.0 | 27.5 | 40.0 | 57.0 |
| 2013 | 25.0 | 29.0 | 33.0 | 35.0 | 31.0 | 33.0 | 42.0 | 60.0 |
| 2014 | 23.0 | 24.0 | 35.5 | 44.0 | 33.5 | 42.0 | 57.0 | 76.0 |
| 2015 | 26.0 | 27.0 | 38.0 | 48.0 | 36.0 | 46.0 | 60.0 | 80.0 |
| 2016 | 20.0 | 22.0 | 30.0 | 32.0 | 28.0 | 30.0 | 42.0 | 60.0 |
| 2017 | 21.0 | 24.0 | 29.0 | 32.0 | 27.0 | 30.0 | 40.0 | 62.0 |
| 2018 | 23.0 | 27.0 | 31.0 | 34.0 | 29.0 | 32.0 | 44.0 | 64.0 |
| 2019 | 24.7 | 28.8 | 33.2 | 39.5 | 31.2 | 37.5 | 49.7 | 70.8 |
| 2020 | 24.3 | 28.0 | 32.6 | 40.0 | 30.6 | 38.0 | 49.2 | 70.4 |
| 2021 | 24.5 | 27.8 | 33.2 | 40.3 | 31.3 | 38.3 | 46.8 | 69.0 |
| Jan-22 | 26.0 | 30.0 | 33.5 | 44.5 | 31.5 | 42.5 | 48.0 | 72.0 |
| Long-term average | 26.2 | 30.7 | 35.9 | 43.6 | 33.9 | 41.6 | 54.8 | 79.3 |
(1) Coated tankers
(2) Uncoated tankers
*Up to January 2022
Source: Drewry
Sustainability Initiatives and Focus on ESG
We aim to uphold and advance a set of principles and practices regarding Environmental, Social and Governance (“ESG”) matters and have developed, adopted, and implemented ESG initiatives within our operations and business culture. In adopting these initiatives, our primary goals are to reduce the environmental impact of our operations, create a safe and healthy work environment, both at sea and onshore, and engage in responsible corporate governance practices. Our Board of Directors, which
includes six independent members, oversees our ESG strategy, evaluates and adopts ESG initiatives including those relating to sustainability and climate change, assesses ESG risks and opportunities, and promotes responsible ESG practices within our Company. In August 2021, we published our second comprehensive sustainability report, which was prepared in accordance with the Sustainability Accounting Standards Board ("SASB") Marine Transportation standard, and which disclosed our ESG performance in 2020. The sustainability report is available on our website at www.scorpiotankers.com. The information included on our website is not incorporated by reference into this annual report.
ESG initiatives we have undertaken include, among others:
•Signing the Call to Action for Shipping Decarbonization, pledging to offer net zero emission shipping services by 2030, measure carbon intensity and assess climate alignment of our vessels on an annual basis, develop and improve digital and other management tools to measure greenhouse gas emissions from the full supply chain to compare activities and optimize operations.
•Our continuing membership in:
◦The International Seafarers’ Welfare and Assistance Network (ISWAN)
◦The Trident Alliance (Sulphur Enforcement)
◦Intertanko ESG Working Group
◦Marine Anti-Corruption Network (MACN)
•Aligning our internal policies with certain UN Sustainable Development Goals relating to work and economic growth, climate action, and life below water.
•Supporting the principles of the Sea Cargo Charter.
•Creating a direct reporting line from our environmental compliance audit and training team (SECAT) to our Board of Directors.
•Signing the Neptune Declaration on Seafarer Wellbeing and Crew Change.
•Committing to responsible ship recycling in accordance with the Hong Kong Convention and conducted in compliance with the IMO Convention for the Safe and Environmentally Sound Recycling of Ships.
•Equipping all vessels with appropriate ballast water treatment systems.
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard (“USCG”), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The International Maritime Organization, or the IMO, the United Nations agency for maritime safety and the prevention of pollution by vessels, has adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as “MARPOL,” the SOLAS Convention, and the International Convention on Load Lines of 1966 (the “LL Convention”). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to drybulk, tanker and LNG carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to noxious liquid substances carried in bulk and harmful substances carried in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.
In 2012, the IMO’s Marine Environmental Protection Committee, or the "MEPC," adopted a resolution amending the International Code for the Construction and Equipment of Ships Carrying Dangerous Chemicals in Bulk, or the "IBC Code." The provisions of the IBC Code are mandatory under MARPOL and the SOLAS Convention. These amendments, which entered into force in June 2014 and took effect on January 1, 2021, pertain to revised international certificates of fitness for the carriage of dangerous chemicals in bulk and identifying new products that fall under the IBC Code. All our vessels complying have been issued new certificates accordingly
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits “deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of “volatile organic compounds” from certain vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs) are also prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.
The MEPC adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Ships are now required to obtain bunker delivery notes and International Air Pollution Prevention ("IAPP") Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were adopted and took effect March 1, 2020, with the exception of vessels fitted with exhaust gas cleaning equipment (“scrubbers”) which can carry fuel of higher sulfur content. These regulations subject ocean-going vessels to stringent emissions controls and may cause us to incur substantial costs.
Sulfur content standards are even stricter within certain ECAs. As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency ("EPA") or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations. In December 2021, the member states of the Convention for the Protection of the Mediterranean Sea Against Pollution (“Barcelona Convention”) agreed to support the designation of a new ECA in the Mediterranean. The group plans to submit a formal proposal to the IMO by the end of 2022 with the goal of having the ECA implemented by 2025.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in 2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection having commenced on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans, ("SEEMPS"), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index ("EEDI"). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014. Additionally, MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEDI’s “phase 3” requirements from January 1, 2025 to April 1, 2022 for several ship types, including gas carriers, general cargo ships, and LNG carriers.
As part of the wider push towards both the IMO’s 2030 and 2050 greenhouse gas targets, MEPC has agreed draft regulations relating to the Energy Efficiency Existing Ship Index (“EEXI”), confirmed at MEPC 76 (June 2021). The regulations will enter into force from 1st January 2023. The requirements include: (1) a technical requirement to reduce carbon intensity based on EEXI, and (2) operational carbon intensity reduction requirements, based on a new operational carbon intensity indicator (“CII”). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship types and categories. With respect to the CII, the draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual operational CII achieved against a determined required annual operational CII. Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1, 2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP would need to include certain mandatory content. MEPC 75 also approved draft amendments to MARPOL Annex I to prohibit the use and carriage for use as fuel of heavy fuel oil (“HFO”) by ships in Arctic waters on and after July 1, 2024. The draft amendments introduced at MEPC 75 were adopted at the MEPC 76 session on June 2021 and are expected to enter into force in November 2022. Additionally, MEPC 77 adopted a non-binding resolution which urges Member States and ship operators to voluntarily use distillate or other cleaner alternative fuels or methods of propulsion that are safe for ships and could contribute to the reduction of Black Carbon emissions from ships when operating in or near the Arctic.
Any vessels that will not meet these new requirements will need to adopt energy-saving/emission reducing technology, through retrofits, to reach compliant levels. This creates a vast array of implications for the tanker industry going forward.
Recycling of older ships could accelerate as the investments to comply with regulations are not feasible. One of the most efficient ways of reducing emissions is reducing power, this would in turn limit vessel speed and with that supply.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for Maritime Claims ("LLMC") sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with the SOLAS Convention and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificates are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers ("GBS Standards").
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code ("IMDG Code"). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas. The upcoming amendments, which will come into force on June 1, 2022, include (1) addition of a definition of dosage rate, (2) additions to the list of high consequence dangerous goods, (3) new provisions for medical/clinical waste, (4) addition of various ISO standards for gas cylinders, (5) a new handling code, and (6) changes to stowage and segregation provisions.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers ("STCW"). As of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified the SOLAS Convention and STCW generally employ the classification
societies, which have incorporated the SOLAS Convention and STCW requirements into their class rules, to undertake surveys to confirm compliance.
The IMO's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (the “Polar Code”). The Polar Code, which entered into force on January 1, 2017, covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions. The Polar Code applies to new ships constructed after January 1, 2017, and after January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. By IMO resolution, administrations are encouraged to ensure that cyber-risk management systems are incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1, 2021. In February 2021, the U.S. Coast Guard published guidance on addressing cyber risks in a vessel’s safety management system. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted the BWM Convention in 2004. The BWM Convention entered into force on September 8, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date “existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (“IOPP”) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemicals, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72's amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessments of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial. Additionally, in November 2020, MEPC 75 adopted amendments to the BWM Convention which would require a commissioning test of the ballast water management system for the initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have an installed BWM system certified under the BWM Convention. These amendments are expected to enter into force on June 1, 2022.
Once mid-ocean exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many
countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000 ("CLC"). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the "Bunker Convention") to impose strict liability on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in a ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the CLC or the Bunker Convention have not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the "Anti-fouling Convention." The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti-fouling System Certificate is issued for the first time; and subsequent surveys when the anti-fouling systems are altered or replaced.
In November 2020, MEPC 75 approved draft amendments to the Anti-fouling Convention to prohibit anti-fouling systems containing cybutryne, which would apply to ships from January 1, 2023, or, for ships already bearing such an anti-fouling system, at the next scheduled renewal of the system after that date, but no later than 60 months following the last application to the ship of such a system. In addition, the IAFS Certificate has been updated to address compliance options for anti-fouling systems to address cybutryne. Ships which are affected by this ban on cybutryne must receive an updated IAFS Certificate no later than two years after the entry into force of these amendments. Ships which are not affected (i.e. with anti-fouling systems which do not contain cybutryne) must receive an updated IAFS Certificate at the next Anti-fouling application to the vessel. These amendments were formally adopted at MEPC 76 in June 2021.
We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-fouling Convention.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of
access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all “owners and operators” whose vessels trade or operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.’s territorial sea and its 200 nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to include:
(i) injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
(ii) injury to, or economic losses resulting from, the destruction of real and personal property;
(iii) loss of subsistence use of natural resources that are injured, destroyed or lost;
(iv) net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
(v) lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
(vi) net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective November 12, 2019, the USCG adjusted the limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,000 per gross ton or $19,943,400 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to
provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG’s financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling, and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement’s (“BSEE”) revised Production Safety Systems Rule (“PSSR”), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019, which rolled back certain reforms regarding the safety of drilling operations, and former U.S. President Trump has proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling. In January 2021, current U.S. President Biden signed an executive order temporarily blocking new leases for oil and gas drilling in federal waters. However, attorneys general from 13 states filed suit in March 2021 to lift the executive order, and in June 2021, a federal judge in Louisiana granted a preliminary injunction against the Biden administration, stating that the power to pause offshore oil and gas leases “lies solely with Congress.” With these rapid changes, compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining vessel owners’ responsibilities under these laws. The Company intends to comply with all applicable state regulations in the ports where the Company’s vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have an adverse effect on our business and results of operations.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. Our vessels operating in such regulated port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these existing requirements.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of “waters of the United States” (“WOTUS”), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of WOTUS. In 2019 and 2020, the agencies repealed the prior WOTUS Rule and promulgated the Navigable Waters Protection Rule (“NWPR”) which significantly reduced the scope and oversight of EPA and the Department of the Army in traditionally non-navigable waterways. On August 30, 2021, a federal district court in Arizona vacated the NWPR and directed the agencies to replace the rule. On December 7, 2021, the EPA and the Department of the Army proposed a rule that would reinstate the pre-2015 definition. On February 24, 2022, the EPA announced ten roundtables to facilitate discussion on the implementation of WOTUS, which will meet in Spring and Summer of 2022. On January 24, 2022, the U.S. Supreme Court granted certiorari for Sackett v. EPA, for which oral arguments will likely be held in Fall 2022, and will address the scope of WOTUS and may impact the rulemaking.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018 and replaces the 2013 Vessel General Permit (“VGP”) program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act (“NISA”), such as mid-ocean ballast exchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under the CWA, requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive
ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic, the North Sea and the English Channel (the so called "SOx-Emission Control Area"). As of January 2020, EU member states must also ensure that ships in all EU waters, except SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
On September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime sector in the European Union’s carbon market. On July 14, 2021, the European Parliament formally proposed its plan, which would involve gradually including the maritime sector from 2023 and phasing the sector in over a three-year period. This will require shipowners to buy permits to cover these emissions. Contingent on negotiations and a formal approval vote, these proposed regulations may not enter into force for another year or two.
International Labour Organization
The International Labour Organization (the "ILO") is a specialized agency of the UN that has adopted the Maritime Labour Convention 2006, ("MLC 2006"). A Maritime Labour Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between ports, in another country. We believe that all our vessels are in substantial compliance with and are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The U.S. initially entered into the agreement, but on June 1, 2017, the former U.S. President Trump announced that the United States intends to withdraw from the Paris Agreement, and that withdrawal became effective on November 4, 2020. On January 20, 2021, U.S. President Biden signed an executive order to rejoin the Paris Agreement, which the U.S. officially rejoined on February 19, 2021.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies “levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses. At MEPC 77, the Member States agreed to initiate the revision of the Initial IMO Strategy on Reduction of GHG emissions from ships, recognizing the need to strengthen the ambition during the revision process. A final draft Revised IMO GHG Strategy would be considered by MEPC 80 (scheduled to meet in spring 2023), with a view to adoption. Compliance with these regulations and other changes in laws, regulations and obligations relating to climate change affects the propulsion options in subsequent vessel designs and could increase our costs related to acquiring new vessels, operating and maintaining our existing vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information. As previously discussed, regulations relating to the inclusion of greenhouse gas emissions from the maritime sector in the European Unions’ carbon market are also forthcoming.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources, and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, former U.S. President Trump signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions, and in August 2019, the Administration announced plans to weaken regulations for methane emissions. On August 13, 2020, the EPA released rules rolling back standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S. President Biden recently directed the EPA to publish a proposed rule suspending, revising, or rescinding certain of these rules. On November 2, 2021, the EPA issued a proposed rule under the CAA designed to reduce methane emissions from oil and gas sources. The proposed rule would reduce 41 million tons of methane emissions between 2023 and 2035 and cut methane emissions in the oil and gas sector by approximately 74 percent compared to emissions from this sector in 2005. EPA also anticipates issuing a supplemental proposed rule in 2022 to include additional methane reduction measures following public input and anticipates issuing a final rule by the end of 2022. If these new regulations are finalized, they could affect our operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 (“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port Facility Security Code (“the ISPS Code”). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s flag state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; the development of vessel security plans; ship identification number to be permanently marked on a vessel's hull; a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS Convention. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified “in class” by a classification society which is a member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or the Rules, which apply to oil tankers and bulk carriers contracted for construction on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. All of our vessels are certified as being “in class” by all the applicable Classification Societies (e.g., American Bureau of Shipping, Lloyd's Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance, including war loss of hire and freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we consider it appropriate), which covers business interruptions that result in the loss of use of a vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance provided by mutual protection and indemnity associations, or P&I Associations, covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.”
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. The International Group’s website states that the Pool provides a mechanism for sharing all claims in excess of US$10 million up to, currently, approximately US$3.2 billion. In case of an ‘overspill’ claim, which would fall back on the collective membership and on the total limitation of the liability of group membership, that amount may go up to approximately US$8.2 billion. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I Associations comprising the International Group.
C. Organizational Structure
Please see Exhibit 8.1 to this annual report for a list of our current significant subsidiaries.
D. Property, Plants and Equipment
Our only material physical assets consist of our vessels which are owned through our separate, wholly-owned subsidiaries. For a description of our fleet, see “Item 4. Information on the Company—B. Business Overview.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following presentation of management’s discussion and analysis of results of operations and financial condition should be read in conjunction with our consolidated financial statements, accompanying notes thereto and other financial information appearing in “Item 18. Financial Statements.” You should also carefully read the following discussion with the sections of this annual report entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview—The International Oil Tanker Shipping Industry,” and “Cautionary Statement Regarding Forward-Looking Statements.” Our consolidated financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020, and 2019 have been prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements are presented in U.S. dollars ($) unless otherwise indicated. Any amounts converted from another non-U.S. currency to U.S. dollars in this annual report are at the rate applicable at the relevant date, or the average rate during the applicable period.
We generate revenues by charging customers for the transportation of their refined oil and other petroleum products using our vessels. These services are generally provided under the following basic types of contractual relationships:
•Voyage charters, which are charters for short intervals that are priced on current, or “spot,” market rates.
•Time or bareboat charters, which are vessels chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates.
•Commercial Pools, whereby we participate with other shipowners to operate a large number of vessels as an integrated transportation system, which offers customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools negotiate charters primarily in the spot market but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and COAs (described below), thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market.
For all types of vessels in contractual relationships, we are responsible for crewing and other vessel operating costs for our owned, lease financed, or bareboat chartered-in vessels and the charterhire expense for vessels that we time or bareboat charter-in.
The table below illustrates the primary distinctions among these different employment arrangements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Voyage Charter | | Time Charter | | Bareboat Charter | | Commercial Pool |
| Typical contract length | | Single voyage | | One year or more | | One year or more | | Varies |
Hire rate basis(1) | | Varies | | Daily | | Daily | | Varies |
Voyage expenses(2) | | We pay | | Customer pays | | Customer pays | | Pool pays |
Vessel operating costs for owned, finance leased, or bareboat chartered-in vessels(3) | | We pay | | We pay | | Customer pays | | We pay |
Charterhire expense for time or bareboat chartered-in vessels(3) | | We pay | | We pay | | We pay | | We pay |
Off-hire(4) | | Customer does not pay | | Customer does not pay | | Customer pays | | Pool does not pay |
(1)“Hire rate” refers to the basic payment from the charterer for the use of the vessel.
(2)“Voyage expenses” refers to expenses incurred due to a vessel’s traveling from a loading port to a discharging port, such as fuel (bunker) cost, port expenses, agent’s fees, canal dues and extra war risk insurance, as well as commissions.
(3)“Vessel operating costs” and "Charterhire expense" are defined below under “—Important Financial and Operational Terms and Concepts.”
(4)“Off-hire” refers to the time a vessel is not available for service due primarily to scheduled and unscheduled repairs or drydockings. For time chartered-in vessels, we do not pay the charterhire expense when the vessel is off-hire.
As of March 18, 2022, all of our wholly owned, lease financed or bareboat chartered-in vessels were operating in the Scorpio Pools.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts. These include the following:
Vessel revenues. Vessel revenues primarily include revenues from time charters, pool revenues and voyage charters (in the spot market). Vessel revenues are affected by hire rates and the number of days a vessel operates. Vessel revenues are also affected by the mix of business between vessels on time charter, vessels in pools and vessels operating on voyage charter. Revenues from vessels in pools and on voyage charter are more volatile, as they are typically tied to prevailing market rates.
Voyage charters. Voyage charters, or spot voyages, are charters under which the customer pays a transportation charge for the movement of a specific cargo between two or more specified ports. We pay all of the voyage expenses under these charters.
Voyage expenses. Voyage expenses primarily include bunkers, port charges, canal tolls, cargo handling operations and brokerage commissions paid by us under voyage charters. These expenses are subtracted from voyage charter revenues to calculate TCE revenue, a non-IFRS measure, which is defined below.
Vessel operating costs. For our owned, lease financed, and bareboat chartered-in vessels, we are responsible for vessel operating costs, which include crewing, repairs and maintenance, insurance, spares and stores, lubricating oils, communication expenses, and technical management fees. The three largest components of our vessel operating costs are crewing, spares and stores, and repairs and maintenance. Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic drydocking. Please read “Drydocking” below. We expect these expenses to increase as our fleet matures and to the extent that it expands.
Additionally, these costs include technical management fees that we paid to SSM, which is controlled by the Lolli-Ghetti family. Pursuant to our Revised Master Agreement, SSM provides us with technical services, and we provide them with the ability to subcontract technical management of our vessels with our approval.
Charterhire expense. Charterhire is the amount we pay the owner for time or bareboat chartered-in vessels. The amount is usually for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates. Time or bareboat chartered-in vessels are accounted for pursuant to IFRS 16 - Leases.
The responsibility for vessel operating expenses for the different types of charter agreements are as follows:
•Time chartered-in vessels. The vessel's owner is responsible for the vessel operating costs.
•Bareboat chartered-in vessels. The charterer is responsible for the vessel operating costs.
Drydocking. We periodically drydock each of our owned or lease financed vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, each vessel is drydocked every 30 months to 60 months. We capitalize a substantial portion of the costs incurred during
drydocking and amortize those costs on a straight-line basis from the completion of a drydocking to the estimated completion of the next drydocking. We immediately expense costs for routine repairs and maintenance performed during drydocking that do not improve or extend the useful lives of the assets. The number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures.
Depreciation. Depreciation expense typically consists of:
•charges related to the depreciation of the historical cost of our owned, or lease financed vessels (less an estimated residual value) over the estimated useful lives of the vessels;
•charges related to the depreciation of our right of use assets (accounted for under IFRS 16) which is based upon the straight-line depreciation of the right of use asset over the life of the lease or the useful life of the asset, if a purchase obligation or a purchase option is reasonably certain to be exercised; and
•charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking.
Time charter equivalent (TCE) revenue or rates. We report TCE revenues, a non-IFRS measure, because (i) we believe it provides additional meaningful information in conjunction with voyage revenues and voyage expenses, the most directly comparable IFRS measures, (ii) it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance, (iii) it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods, and (iv) we believe that it presents useful information to investors. TCE revenue is vessel revenue less voyage expenses, including bunkers and port charges. The TCE rate achieved on a given voyage is expressed in U.S. dollars/day and is generally calculated by taking TCE revenue and dividing that figure by the number of revenue days in the period. For a reconciliation of TCE revenue, deduct voyage expenses from revenue on our consolidated statements of income or loss.
Revenue days. Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs or drydockings. Consequently, revenue days represent the total number of days available for the vessel to earn revenue. Idle days, which are days when a vessel is available to earn revenue, yet is not employed, are included in revenue days. We use revenue days to show changes in net vessel revenues between periods.
Average number of vessels. Historical average number of owned or lease financed vessels consists of the average number of vessels that were in our possession during a period. We use average number of vessels primarily to highlight changes in vessel operating costs and depreciation and amortization.
Contract of affreightment. A contract of affreightment, or COA, relates to the carriage of specific quantities of cargo with multiple voyages over the same route and over a specific period of time which usually spans a number of years. A COA does not designate the specific vessels or voyage schedules that will transport the cargo, thereby providing both the charterer and shipowner greater operating flexibility than with voyage charters alone. The charterer has the flexibility to determine the individual voyage scheduling at a future date while the shipowner may use different vessels to perform these individual voyages. As a result, COAs are mostly entered into by large fleet operators, such as pools or shipowners with large fleets of the same vessel type. We pay the voyage expenses while the freight rate normally is agreed on a per cargo ton basis.
Commercial pools. To increase vessel utilization and revenues, we participate in commercial pools with other shipowners and operators of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and
COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market while providing a higher level of service offerings to customers.
Operating days. Operating days are the total number of available days in a period with respect to the owned, leased financed, or bareboat chartered-in vessels, before deducting available days due to off-hire days and days in drydock. Operating days is a measurement that is only applicable to our owned, lease financed, or bareboat chartered-in vessels, not time chartered-in vessels.
Items You Should Consider When Evaluating Our Results
You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:
Our vessel revenues are affected by cyclicity in the tanker markets. The cyclical nature of the tanker industry causes significant increases or decreases in the revenue we earn from our vessels, particularly those vessels we trade in the spot market or in spot market-oriented pools. We employ a chartering strategy to capture upside opportunities in the spot market while using fixed-rate time charters to reduce downside risks, depending on SCM’s outlook for freight rates, oil tanker market conditions and global economic conditions. Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of, and demand for, tanker capacity. The supply of tanker capacity is influenced by the number and size of new vessels built, vessels scrapped, converted and lost, the number of vessels that are out of service, and regulations that may effectively cause early obsolescence of tonnage. The demand for tanker capacity is influenced by, among other factors:
•global and regional economic and political conditions;
•increases and decreases in production of and demand for crude oil and petroleum products;
•increases and decreases in OPEC oil production quotas;
•the distance crude oil and petroleum products need to be transported by sea; and
•developments in international trade and changes in seaborne and other transportation patterns.
Tanker rates also fluctuate based on seasonal variations in demand. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted in the summer months. In addition, unpredictable weather patterns during the winter months in the northern hemisphere tend to disrupt vessel routing and scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter months. As a result, revenues generated by our vessels have historically been weaker during the quarters ended June 30 and September 30, and stronger in the quarters ended March 31 and December 31.
Our expenses were affected by the fees we pay SCM, SSM, and SSH for commercial management, technical management and administrative services, respectively. SCM, SSM and SSH, companies controlled by the Lolli-Ghetti family of which our founder, Chairman and Chief Executive Officer and our Vice President are members, provide commercial, technical and administrative management services to us, respectively. We pay fees under our Revised Master Agreement with SCM and SSM, for our vessels that operate both within and outside of the Scorpio Pools. The fees charged to our vessels operating within the Scorpio Pools are identical to what SCM charges third-party owned vessels operating within the Scorpio Pools. When our vessels are operating in one of the Scorpio Pools, SCM, the pool manager, charges fees of $300 per vessel per day with respect to our LR1 vessels, $250 per vessel per day with respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per charter fixture. For commercial management of our vessels that are not operating in any of the Scorpio Pools, we pay SCM a fee of $250 per vessel per day for each LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessel, plus 1.25% commission on gross revenues per charter fixture.
Pursuant to the Revised Master Agreement, the fixed annual technical management fee that we pay to SSM was reduced from $250,000 per vessel to $175,000, effective January 1, 2018 and certain services previously provided as part of the fixed fee are now itemized. The aggregate cost, including the costs that are now itemized, for the services
provided under the technical management agreement did not and are not expected to materially differ from the annual management fee charged prior to the amendment.
We also reimburse our Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described in "Item 4 - Information on the Company".
A.Operating Results
Results of Operations for the year ended December 31, 2021 compared to the year ended December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | Change | | Percentage |
| In thousands of U.S. dollars | | 2021 | | 2020 | | favorable / (unfavorable) | | Change |
| Vessel revenue | | $ 540,786 | | $ 915,892 | | $ (375,106) | | (41) % |
| Vessel operating costs | | (334,840) | | (333,748) | | (1,092) | | — % |
| Voyage expenses | | (3,455) | | (7,959) | | 4,504 | | 57 % |
| Depreciation - owned or sale leaseback vessels | | (197,467) | | (194,268) | | (3,199) | | (2) % |
| Depreciation - right of use assets | | (42,786) | | (51,550) | | 8,764 | | 17 % |
| Impairment of vessels | | — | | (14,207) | | 14,207 | | 100 % |
| Impairment of goodwill | | — | | (2,639) | | 2,639 | | 100 % |
| General and administrative expenses | | (52,746) | | (66,187) | | 13,441 | | 20 % |
| Financial expenses | | (144,104) | | (154,971) | | 10,867 | | 7 % |
| Loss on Convertible Notes exchange | | (5,504) | | — | | (5,504) | | N/A |
| Gain on repurchase of Convertible Notes | | — | | 1,013 | | (1,013) | | (100) % |
| Financial income | | 3,623 | | 1,249 | | 2,374 | | 190 % |
| Other income / (expenses), net | | 2,058 | | 1,499 | | 559 | | 37 % |
| Net (loss) / income | | $ (234,435) | | $ 94,124 | | $ (328,559) | | 349 % |
Net (loss) / income. Net loss for the year ended December 31, 2021 was $234.4 million, a decrease of $328.6 million, or 349%, from the net income of $94.1 million for the year ended December 31, 2020. The differences between the two periods are discussed below.
Vessel revenue. Vessel revenue for the year ended December 31, 2021 was $540.8 million, a decrease of $375.1 million, or 41%, from vessel revenue of $915.9 million for the year ended December 31, 2020. TCE revenue (a non-IFRS measure) per day decreased to $11,466 per day during the year ended December 31, 2021 from $19,655 per day during the year ended December 31, 2020. This decrease was partially offset by an increase in revenue days to 46,865 days from 46,192 days for the years ended December 31, 2021 and 2020, respectively. The decrease in revenue is discussed below by reportable segment.
The following is a summary of our consolidated revenue by revenue type, in addition to TCE revenue per day and total revenue days.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | Change | | Percentage |
| In thousands of U.S. dollars | | 2021 | | 2020 | | favorable / (unfavorable) | | Change |
| Pool revenue by operating segment | | | | | | | | |
| MR | | $ 256,874 | | $ 340,937 | | $ (84,063) | | (25) % |
| LR2 | | 180,912 | | 369,476 | | (188,564) | | (51) % |
| Handymax | | 50,143 | | 105,355 | | (55,212) | | (52) % |
| LR1 | | 47,053 | | 87,028 | | (39,975) | | (46) % |
| Total pool revenue | | 534,982 | | 902,796 | | (367,814) | | (41) % |
| Voyage revenue (spot market) | | 5,804 | | 13,096 | | (7,292) | | (56) % |
| Gross revenue | | 540,786 | | 915,892 | | (375,106) | | (41) % |
| Voyage expenses | | (3,455) | | (7,959) | | 4,504 | | 57 % |
TCE revenue (1) | | $ 537,331 | | $ 907,933 | | $ (370,602) | | (41) % |
| | | | | | | | |
Daily pool TCE by operating segment: (1) | | | | | | | | |
| MR pool | | $ 11,427 | | $ 16,306 | | $ (4,879) | | (30) % |
| LR2 pool | | 12,208 | | 27,048 | | (14,840) | | (55) % |
| Handymax pool | | 9,541 | | 14,854 | | (5,313) | | (36) % |
| LR1 pool | | 11,707 | | 21,594 | | (9,887) | | (46) % |
| Consolidated daily pool TCE | | 11,489 | | 19,761 | | (8,272) | | (42) % |
| Voyage (spot market) - daily TCE | | 8,237 | | 12,871 | | (4,634) | | (36) % |
| Consolidated daily TCE | | 11,466 | | 19,655 | | (8,189) | | (42) % |
| | | | | | | | |
| Pool revenue days per operating segment | | | | | | | | |
| MR | | 22,480 | | 20,908 | | 1,572 | | 8 % |
| LR2 | | 14,819 | | 13,660 | | 1,159 | | 8 % |
| Handymax | | 5,215 | | 7,074 | | (1,859) | | (26) % |
| LR1 | | 4,019 | | 4,030 | | (11) | | — % |
| Total pool revenue days | | 46,533 | | 45,672 | | 861 | | 2 % |
| Voyage (spot market) revenue days | | 332 | | 520 | | (188) | | (36) % |
| Total revenue days | | 46,865 | | 46,192 | | 673 | | 1 % |
(1) We report TCE revenues, a non-IFRS measure, because (i) we believe it provides additional meaningful information in conjunction with voyage revenues and voyage expenses, the most directly comparable IFRS measures, (ii) it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance, (iii) it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods, and (iv) we believe that it presents useful information to investors.
Pool revenue. Pool revenue for the year ended December 31, 2021 was $535.0 million, a decrease of $367.8 million, or 41% from $902.8 million for the year ended December 31, 2020. The decrease in pool revenue was due to a decrease in pool TCE revenue per day across all of our reportable segments, partially offset by an increase in pool revenue days to 46,533 for the year ended December 31, 2021 from 45,672 for the year ended December 31, 2020.
Initially, the onset of the COVID-19 pandemic in March 2020 resulted in a sharp reduction in economic activity and a corresponding reduction in the global demand for oil and refined petroleum products. This period of time was marked by extreme volatility in the oil markets and the development of a steep contango in the prices of oil and refined petroleum products. Consequently, an abundance of arbitrage and floating storage opportunities opened up, which resulted in record increases in spot TCE rates late in the first quarter of 2020 and throughout the second quarter of 2020. These market dynamics, which were driven by arbitrage trading rather than underlying consumption, led to a build-up of global oil and refined petroleum product inventories. In June 2020, as underlying oil markets stabilized and global economies began to recover, the excess inventories that built up during this period began to slowly unwind thus causing demand for the seaborne transportation of refined petroleum products to decline.
Although there has been positive progress during 2021 to mitigate the impact of the COVID-19 pandemic (through the introduction of vaccines and the easing of travel restrictions and other restrictive measures), there are lingering negative impacts of the virus, which have arisen through the spread of more contagious and vaccine resistant variants and have hampered a full re-opening of the global economy, preventing demand for refined petroleum products from reaching pre-pandemic levels.
MR pool revenue. MR pool revenue for the year ended December 31, 2021 was $256.9 million, a decrease of $84.1 million, or 25%, from $340.9 million for the year ended December 31, 2020. MR pool daily TCE revenue decreased to $11,427 per day from $16,306 per day during the years ended December 31, 2021 and 2020, respectively. This decrease was driven by the favorable market conditions in the first half of 2020 where the strength in the market prior to the onset of the COVID-19 pandemic was followed by the COVID-19 precipitated volatility in the commodities markets, which significantly benefited demand for our vessels. The daily TCE rates earned by our vessels during the first half of 2020 offset the adverse market conditions experienced during the second half of 2020 to result in a net overall improvement during the year. These adverse market conditions, coupled with a steep decline in the underlying consumption of refined petroleum products persisted throughout 2021, resulting in a significant decline in MR pool revenue as compared to the year ended December 31, 2020.
Pool revenue days increased to 22,480 days from 20,908 days during the years ended December 31, 2021 and 2020, respectively. MR vessels had no offhire days for drydock, ballast water treatment system and scrubber installations during the year ended December 31, 2021, as compared to 1,355 offhire days in the year ended December 31, 2020.
LR2 pool revenue. Pool revenue from LR2 vessels for the year ended December 31, 2021 was $180.9 million, a decrease of $188.6 million, or 51%, from $369.5 million for the year ended December 31, 2020. Pool TCE revenue per day decreased to $12,208 per day from $27,048 per day during the years ended December 31, 2021 and 2020, respectively. This decrease was driven by the favorable market conditions in the first half of 2020 where the strength in the market prior to the onset of the COVID-19 pandemic was followed by the COVID-19 precipitated volatility in the commodities markets. LR2s benefited from these market conditions as the steep contango in the oil markets led to the utilization of larger vessels, such as LR2s and LR1s, for floating storage. Additionally, the LR2 market remained relatively resilient to the general market headwinds during the second half of 2020 as increased volumes of naphtha were transported to the far east to meet increased demand of the petrochemical industry, which use naphtha as a feedstock when prices relative to propane are favorable. These market conditions abated during 2021 which, along with the COVID-19 precipitated reductions in the underlying demand for refined petroleum products, resulted in a significant decline in LR2 pool revenue for the year ended December 31, 2021.
LR2 pool revenue days increased to 14,819 days from 13,660 days during the years ended December 31, 2021 and 2020, respectively. LR2s were offhire for 437 days for drydock, ballast water treatment system and scrubber installations during the year ended December 31, 2021 as compared to 1,440 offhire days during the year ended December 31, 2020. This decrease was due to a reduction in the number and duration of drydocks and scrubber installations during the year ended December 31, 2021, the durations of which were not as meaningfully impacted by COVID-19 restrictions as compared to the year ended December 31, 2020.
Handymax pool revenue. Handymax pool revenue for the year ended December 31, 2021 was $50.1 million, a decrease of $55.2 million, or 52%, from $105.4 million for the year ended December 31, 2020. Handymax pool revenue
TCE revenue per day decreased to $9,541 per day from $14,854 per day during the years ended December 31, 2021 and 2020, respectively. Handymax vessels experienced a strong start to 2020 driven by the January 1, 2020 implementation date of the IMO low sulfur emissions standards. The spike in daily TCE rates brought on by the COVID-19 pandemic supported the handymax market, albeit to a lesser extent than the larger vessel classes, as smaller vessel classes are not traditionally utilized for floating storage opportunities. Moreover, the adverse market conditions due to the COVID-19 pandemic that began in the second half of 2020, which caused reductions in the underlying demand for refined petroleum products, persisted throughout 2021 resulting in a significant decrease in Handymax pool revenue.
Pool revenue days decreased to 5,215 days from 7,074 days during the years ended December 31, 2021 and 2020, respectively, resulting in an aggregate decrease of 1,859 pool revenue days. This decrease was due to the redelivery of three Handymax vessels upon the expiration of their bareboat charters in the second and third quarters of 2020, and the redelivery of four Handymax vessels upon the expiration of their bareboat charters in March 2021.
LR1 pool revenue. LR1 pool revenue for the year ended December 31, 2021 was $47.1 million, a decrease of $40.0 million, or 46%, from $87.0 million for the year ended December 31, 2020. LR1 TCE revenue per day decreased to $11,707 per day from $21,594 per day during the years ended December 31, 2021 and 2020, respectively. This decrease was driven by the favorable market conditions in the first half of 2020 where the strength in the market prior to the onset of the COVID-19 pandemic was followed by the COVID-19 precipitated volatility in the commodities markets. LR1s benefited from these market conditions as the steep contango in the oil markets led to the utilization of larger vessels, such as LR2s and LR1s, for floating storage. The daily TCE rates earned by our vessels during the first half of 2020 offset the adverse market conditions experienced during the second half of 2020 to result in a net overall improvement during the year. These adverse market conditions persisted throughout 2021 which resulted in a significant decrease in LR1 pool revenue for the year ended December 31, 2021.
LR1 pool revenue days remained consistent with 4,019 days and 4,030 days during the years ended December 31, 2021 and 2020, respectively.
Voyage revenue (spot market). Voyage revenue (spot revenue) consists of spot market voyages and short-term time charters. Voyage revenue for the year ended December 31, 2021 was $5.8 million, a decrease of $7.3 million or 56%, from $13.1 million for the year ended December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | Change | | Percentage |
| In thousands of U.S. dollars | | 2021 | | 2020 | | favorable / (unfavorable) | | Change |
| LR2 | | $ — | | $ 6,112 | | $ (6,112) | | (100.0) % |
| MR | | 5,804 | | 6,984 | | (1,180) | | (16.9) % |
| Total voyage revenue (spot market) | | $ 5,804 | | $ 13,096 | | $ (7,292) | | (55.7) % |
•Spot market voyages: Six MR product tankers operated in the spot market on voyage charters for an aggregate 332 revenue days during the year ended December 31, 2021. These voyages earned $5.8 million in spot market revenue during that period. Seven MR and four LR2 product tankers operated in the spot market on voyage charters for an aggregate 520 revenue days during the year ended December 31, 2020. These voyages earned $13.1 million in spot market revenue during that period.
•Short-term time charters: We consider short-term time charters (less than one year) as spot market voyages. No vessels were employed on short-term time charters during the years ended December 31, 2021 and 2020.
Time charter-out revenue. There was no time charter-out revenue (representing time charters with initial terms of one year or greater) for the years ended December 31, 2021 and 2020.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2021 were $334.8 million, an increase of $1.1 million, from $333.7 million for the year ended December 31, 2020. Vessel operating days decreased to
48,114 days from 49,562 days for the years ended December 31, 2021 and 2020, respectively. Vessel operating cost per day across increased to an average of $6,959 per day during the year ended December 31, 2021 from an average of $6,734 during the year ended December 31, 2020. Vessel operating costs by operating segment are discussed below.
The following table is a summary of our vessel operating costs by operating segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | Change | | Percentage |
| In thousands of U.S. dollars | | 2021 | | 2020 | | favorable / (unfavorable) | | change |
| Vessel operating costs | | | | | | | | |
| MR | | $ 161,086 | | $ 147,851 | | $ (13,235) | | (9) % |
| LR2 | | 105,714 | | 107,710 | | 1,996 | | 2 % |
| Handymax | | 38,157 | | 47,791 | | 9,634 | | 20 % |
| LR1 | | 29,883 | | 30,396 | | 513 | | 2 % |
| Total vessel operating costs | | $ 334,840 | | $ 333,748 | | $ (1,092) | | — % |
| | | | | | | | |
| Vessel operating costs per day | | | | | | | | |
| MR | | $ 7,005 | | $ 6,520 | | $ (485) | | (7) % |
| LR2 | | 6,896 | | 7,007 | | 111 | | 2 % |
| Handymax | | 7,055 | | 6,710 | | (345) | | (5) % |
| LR1 | | 6,823 | | 6,921 | | 98 | | 1 % |
| Consolidated vessel operating costs per day | | 6,959 | | 6,734 | | (225) | | (3) % |
| | | | | | | | |
| Operating days | | | | | | | | |
| MR | | 22,995 | | 22,675 | | 320 | | 1 % |
| LR2 | | 15,330 | | 15,372 | | (42) | | — % |
| Handymax | | 5,409 | | 7,123 | | (1,714) | | (24) % |
| LR1 | | 4,380 | | 4,392 | | (12) | | — % |
| Total operating days | | 48,114 | | 49,562 | | (1,448) | | (3) % |
MR vessel operating costs. Vessel operating costs for our MR segment were $161.1 million for the year ended December 31, 2021, an increase of $13.2 million, or 9%, from $147.9 million for the year ended December 31, 2020. Operating days increased by 320 days to 22,995 days from 22,675 days during the years ended December 31, 2021 and 2020, respectively as a result of the delivery of four newbuilding MRs throughout 2020. Operating costs per day increased to $7,005 per day from $6,520 per day, for the years ended December 31, 2021 and 2020, respectively, which was primarily attributable to (i) costs incurred to transition technical managers for certain MRs that were acquired from Trafigura Maritime Logistics Pte. Ltd. in 2019 and (ii) increased crewing related costs due to COVID-19.
LR2 vessel operating costs. Vessel operating costs for our LR2 segment were $105.7 million for the year ended December 31, 2021, a decrease of $2.0 million, or 2%, from $107.7 million for the year ended December 31, 2020. LR2 operating costs per day remained stable, decreasing slightly to $6,896 per day from $7,007 per day for the years ended December 31, 2021 and 2020, respectively. LR2 operating days also remained stable, decreasing slightly to 15,330 days from 15,372 days during the years ended December 31, 2021 and 2020, respectively.
Handymax vessel operating costs. Vessel operating costs for our Handymax segment were $38.2 million for the year ended December 31, 2021, a decrease of $9.6 million, or 20%, from $47.8 million for the year ended December 31, 2020. Handymax operating days decreased by 1,714 days to 5,409 days from 7,123 days during the years ended December 31, 2021 and 2020, respectively. This decrease was the result of the redelivery of three Handymax vessels upon the expiration of their bareboat charters in the second and third quarters of 2020, and the redelivery of four Handymax vessels upon the expiration of their bareboat charters in March 2021. Daily operating costs for our
Handymax vessels increased to $7,055 per day during the year ended December 31, 2021 from $6,710 per day during the year ended December 31, 2020, which was the result of unplanned repairs undertaken on certain of the Handymax vessels during the period.
LR1 vessel operating costs. Vessel operating costs for our LR1 segment for the year ended December 31, 2021 were $29.9 million, a decrease of $0.5 million, or 2%, from $30.4 million for the year ended December 31, 2020. Daily operating costs per day remained stable, decreasing slightly to $6,823 per day during the year ended December 31, 2021 from $6,921 per day during the year ended December 31, 2020. Operating days for LR1 vessels remained consistent at 4,380 and 4,392 days during the years ended December 31, 2021 and 2020, respectively.
Voyage expenses. Voyage expenses were $3.5 million for the year ended December 31, 2021, a decrease of $4.5 million, or 57%, from $8.0 million for the year ended December 31, 2020. The decrease was primarily the result of the mix of vessels that traded in the spot market between the two periods. Six MR product tankers traded in the spot market during the year ended December 31, 2021, whereas seven MR and four LR2 product tankers traded in the spot market during the year ended December 31, 2020. LR2s, being our largest vessel class, have higher fuel consumption than the smaller vessels, which therefore had a corresponding impact on voyage expenses.
Depreciation - Owned and lease financed vessels. Depreciation expense for owned and lease financed vessels was $197.5 million for the year ended December 31, 2021, an increase of $3.2 million, or 2%, from $194.3 million for the year ended December 31, 2020. This increase was the result of an increase in expenditures for drydocks, ballast water treatment systems, and scrubber installation that occurred throughout 2020 and 2021.
Depreciation - Right of use assets. Depreciation - right of use assets for the year ended December 31, 2021 was $42.8 million, a decrease of $8.8 million, or 17%, from $51.6 million for the year ended December 31, 2020. Right of use asset depreciation expense decreased as a result of the redelivery of three Handymax vessels upon the expiration of their bareboat charters in the second and third quarters of 2020, and the redelivery of four Handymax vessels upon the expiration of their bareboat charters in March 2021. These decreases were partially offset by the delivery of four newbuilding MRs in 2020, whose leasehold interests were acquired from Trafigura Maritime Logistics Pte. Ltd. in 2019.
Impairment of vessels. Impairment of vessels for the year ended December 31, 2020 was $14.2 million. As a result of our impairment testing as of December 31, 2020, the recoverable amounts for certain of the MRs in our fleet were below their carrying amounts, which resulted in an aggregate impairment charge of $14.2 million. There was no impairment charge recorded as a result of our impairment testing for the year ended December 31, 2021.
Impairment of goodwill. Impairment of goodwill for the year ended December 31, 2020 was $2.6 million. The recoverable amount of goodwill is tested by estimating the future cash flows of the reportable segments to which the goodwill is allocated. Our assessment of the carrying value of goodwill that was allocated to our LR1 reportable segment, which arose from our acquisition of Navig8 Product Tankers Inc. in 2017, resulted in an impairment charge to goodwill of $2.6 million. There was no impairment charge recorded as a result of our impairment testing for the year ended December 31, 2021.
General and administrative expenses. General and administrative expenses were $52.7 million for the year ended December 31, 2021, a decrease of $13.4 million, or 20%, from $66.2 million for the year ended December 31, 2020. The change was primarily driven by a decrease in compensation related expenses (amortization of restricted stock and salaries).
Financial expenses. Financial expenses were $144.1 million for the year ended December 31, 2021, a decrease of $10.9 million, or 7%, from $155.0 million for the year ended December 31, 2020.
Financial expenses for the year ended December 31, 2021 primarily consisted of (i) interest payable on debt of $116.0 million, (ii) accretion of our Convertible Notes due in 2022 and 2025 of $13.3 million, (iii) amortization of loan fees of $7.6 million, (iv) accretion of the premiums and discounts primarily recorded as part of the purchase price allocation on the indebtedness assumed from Navig8 Product Tankers Inc. in 2017 of $3.7 million, and (v) the loss on extinguishment of debt and write-off of deferred financing fees of $3.6 million.
Financial expenses for the year ended December 31, 2020 primarily consisted of (i) interest payable on debt of $132.4 million, (ii) accretion of our Convertible Notes Due 2022 of $8.4 million, (iii) amortization of loan fees of $6.7 million, (iv) the loss on extinguishment of debt and write-off of deferred financing fees of $4.1 million and (v) accretion of the premiums and discounts recorded as part of the purchase price allocation on the indebtedness assumed from Navig8 Product Tankers Inc. in 2017 of $3.4 million.
Interest expense decreased during the year ended December 31, 2021 as a result of lower average LIBOR rates, which underpin all of our variable rate borrowings, when compared to the year ended December 31, 2020. As a result of the onset of the COVID-19 pandemic in March 2020, LIBOR rates decreased significantly during the year ended December 31, 2020. Given the timing of when interest rates are fixed on our variable rate borrowings, this decrease primarily impacted our interest expense in the second half of that year and these low rates persisted throughout 2021. The average carrying value of our debt was relatively unchanged at $3.14 billion as of December 31, 2021 compared to $3.13 billion as of December 31, 2020.
The loss on extinguishment of debt and write-off of deferred financing fees during the years ended December 31, 2021 and 2020, respectively, were as follows:
•During the year ended December 31, 2021, our loss on extinguishment of debt and write-off of deferred financing fees was $3.6 million, which consisted of (i) $3.0 million of write-offs of deferred financing fees related to the refinancing of existing indebtedness on certain vessels, and (ii) $0.6 million of write-offs of the discounts that were initially recorded as part of the purchase price allocation on the debt assumed from Navig8 Product Tankers Inc. in 2017, and were written off as part of the refinancing of the existing debt on certain vessels in 2021.
•During the year ended December 31, 2020, our loss on extinguishment of debt and write-off of deferred financing fees was $4.1 million, which consisted of (i) $2.7 million of write-offs of deferred financing fees related to the refinancing of the existing indebtedness on certain vessels, (ii) $2.0 million of cash prepayment fees, primarily from the refinancing of certain vessels under our CSSC Lease Financing, offset by (iii) $0.7 million of write-offs of the premium and discounts that were initially recorded as part of the purchase price allocation on debt assumed from Navig8 Product Tankers Inc. in 2017, and were written off as part of the refinancing of the existing debt on certain vessels during 2020.
Loss on Convertible Notes exchange. Loss on Convertible Notes exchange was $5.5 million for the year ended December 31, 2021. In March 2021 and June 2021, we completed the exchange of approximately $62.1 million and $19.4 million, respectively, in aggregate principal amount of Convertible Notes Due 2022 for approximately $62.1 million and $19.4 million, respectively in aggregate principal amount of new 3.00% Convertible Notes due 2025 (the "Convertible Notes Due 2025") pursuant to separate, privately negotiated, agreements with certain holders of the Convertible Notes Due 2022, which we refer to as the 2021 Convertible Notes Exchanges. We have accounted for the 2021 Convertible Notes Exchanges as extinguishments of the original financial liability and the recognition of a new liability on the basis that the terms of the Convertible Notes Due 2022 are substantially different to the terms of the Convertible Notes Due 2025. We recorded an aggregate loss on the extinguishment of the Convertible Notes Due 2022 of $5.5 million as a result of the 2021 Convertible Notes Exchanges, which primarily arose from (i) the difference between the carrying value and the face value of the Convertible Notes Due 2022 on the date of the exchange, and (ii) transaction costs directly attributable to the 2021 Convertible Notes Exchanges.
Gain on repurchase of Convertible Notes. Gain on repurchase of Convertible Notes was $1.0 million for the year ended December 31, 2020. The gain relates to the repurchase of $52.3 million face value of our Convertible Notes Due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million. The carrying value of the debt portion of the amount repurchased was $47.7 million in aggregate on the dates of repurchase.
Financial income. Financial income was $3.6 million for the year ended December 31, 2021, an increase of $2.4 million, or 190%, from $1.2 million for the year ended December 31, 2020. This increase was driven by a gain of $2.9 million recorded as a result of the modification of our CSSC Lease Financing arrangement during the year ended December 31, 2021. This transaction, and the related accounting, is which is described in Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F. The remaining financial income primarily relates to interest earned on our cash balance.
Results of Operations for the year ended December 31, 2020 compared to the year ended December 31, 2019
For a discussion of our results for the year ended December 31, 2020 compared to the year ended December 31, 2019, please see “Item 5 - Operating and Financial Review and Prospects - A. Operating Results - Results of Operations for the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019” contained in our annual report on Form 20-F for the year ended December 31, 2020, filed with the SEC on March 31, 2021.
B. Liquidity and Capital Resources
Our primary source of funds for our short-term and long-term liquidity needs is expected to be the cash flows generated from our vessels, which primarily operate in the Scorpio Pools, in the spot market or on time charter, in addition to cash on hand. We believe that the Scorpio Pools reduce volatility because (i) they aggregate the revenues and expenses of all pool participants and distribute net earnings to the participants based on an agreed upon formula and (ii) some of the vessels in the pool are on time charter. Furthermore, spot charters provide flexibility and allow us to fix vessels at prevailing rates.
The cash flows we generate from our vessels have been, and continue to be, impacted by the COVID-19 pandemic. Initially, the onset of the COVID-19 pandemic resulted in a sharp reduction of economic activity and a corresponding reduction in the global demand for oil and refined petroleum products. This period of time was marked by extreme volatility in the oil markets and the development of a steep contango in the prices of oil and refined petroleum products. Consequently, an abundance of arbitrage and floating storage opportunities opened up, which resulted in record increases in spot TCE rates during the second quarter of 2020. These market dynamics led to a build-up of global oil and refined petroleum product inventories. In June 2020, as underlying oil markets stabilized and global economies began to recover, the excess inventories that built up during this period began to slowly unwind thus causing demand for the seaborne transportation of refined petroleum products to decline.
These market conditions, coupled with underlying oil consumption that has yet to reach pre-pandemic levels, have had an adverse impact on spot TCE rates throughout 2021. Nevertheless, the easing of restrictive measures and successful roll-out of vaccines in certain countries during 2021 served as a catalyst for an economic recovery in many countries throughout the world. Consequently, oil prices continue to push upward on the back of steadily increasing consumption, recently reaching highs not seen since 2014, and existing inventories of refined petroleum products have recently fallen below multi-year averages. Though these dynamics have set the stage for a long-term recovery, spot TCE rates remained subdued during 2021 as demand was still below pre-pandemic levels. We expect that the COVID-19 pandemic will continue to cause volatility in the commodities markets. The scale and duration of these circumstances is unknowable but could continue to have a material adverse impact on our earnings, cash flow and financial condition
As of December 31, 2021, certain of our credit facilities had scheduled maturities within 2022 and the first quarter of 2023. These consisted of the financings for four vessels under our Citibank / K-Sure Credit Facility for $76.8 million in aggregate, the financing for one vessel under our Credit Agricole Credit Facility for $16.5 million, one vessel under our 2021 $21.0 Million Credit Facility for $17.5 million and our Convertible Notes Due 2022 for $69.7 million are scheduled to mature within 2022. Additionally, the financings for three vessels under our Credit Agricole Credit Facility for $49.1 million in aggregate are scheduled to mature during the first quarter of 2023.
In the first quarter of 2022, we entered into agreements to sell 15 vessels (12 LR1s, and three MRs), seven of which have closed as of the date of this report. These sales are expected to raise over $196 million in aggregate new liquidity, after the repayment of debt. Additionally, the 12 LR1s that have been, or are expected to be sold, are financed under the aforementioned credit facilities that are expected to mature within 12 months of the date of this report, with the exception of our 2021 $21.0 Million Credit Facility for $17.5 million and our Convertible Notes Due 2022 for $69.7 million.
We currently project that we will have adequate financial resources to continue in operation and meet our financial commitments (including but not limited to debt service obligations, obligations under sale and leaseback arrangements, commitments under other leasing arrangements, and commitments under our scrubber and BWTS contracts) for a period of at least twelve months from the date of this annual report.
A protracted extension of the adverse market conditions brought on by the COVID-19 pandemic could cause us to breach the covenants under our financing arrangements and could have a material adverse effect on our business, results of operations, cash flows and financial condition. These circumstances could cause us to seek covenant waivers from our lenders and to pursue other means to raise liquidity, such as through the sale of vessels or in the capital markets, to meet our obligations. A discussion and analysis of our key risks, including sensitivities thereto, can be found in "Item 3. Key Information - D. Risk Factors" and "Item 11. Quantitative and Qualitative Disclosures About Market Risk".
We continuously evaluate potential transactions that we believe will be accretive to earnings, enhance shareholder value or are in the best interests of the Company, which may include the pursuit of additional vessel sales, business combinations, the acquisition of vessels or related businesses, the expansion of our operations, repayment of existing debt, share repurchases, short-term investments or other uses. Any funds received may be used by us for any corporate purpose. In connection with any transaction, we may enter into additional financing arrangements, refinance existing arrangements or raise capital through public or private debt or equity offerings of our securities. Any funds raised by us may be used for any corporate purpose. There is no guarantee that we will grow the size of our fleet or enter into transactions that are accretive to our shareholders.
As of December 31, 2021, our cash balance was $230.4 million, which was more than our cash balance of $187.5 million as of December 31, 2020. The changes in our cash balance are discussed below under the section entitled Cash Flows. As of March 18, 2022 and December 31, 2021, we had approximately $3.0 billion and $3.2 billion in aggregate outstanding indebtedness, respectively (which reflects the amounts payable under term loan facilities, lease financing arrangements and lease liabilities, and excludes unamortized deferred financing fees or other premiums and discounts). All of our credit facilities are described below under “Long-Term Debt Obligations and Credit Arrangements.”
As of December 31, 2021, our long-term liquidity needs were primarily comprised of our debt repayment obligations for our secured credit facilities, lease financing arrangements, obligations under our time and bareboat charter-in arrangements (which are accounted for under IFRS 16- Leases).
Equity Issuances
At the Market Share Issuance Program
In November 2019, we entered into an “at the market” offering program (the "ATM Program") pursuant to which we may sell up to $100 million of our common shares, par value $0.01 per share. As part of the ATM Program, we entered into an equity distribution agreement dated November 7, 2019 (the “Sales Agreement”), with BTIG, LLC, as sales agent (the “Agent”). In accordance with the terms of the Sales Agreement, we may offer and sell our common shares from time to time through the Agent by means of ordinary brokers’ transactions on the NYSE at market prices, in block transactions, or as otherwise agreed upon by the Agent and the Company.
During the year ended December 31, 2020, we sold an aggregate of 137,067 of our common shares under the ATM Program at an average price of $18.79 per share for aggregate net proceeds of $2.6 million.
Securities Repurchase Programs
In May 2015, our Board of Directors authorized a Securities Repurchase Program to purchase up to an aggregate of $250 million of our securities.
•Between July 1, 2020 and September 7, 2020, we repurchased $52.3 million face value of our Convertible Notes due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million.
•In September 2020, we acquired an aggregate of 1,170,000 of our common shares at an average price of $11.18 per share for a total of $13.1 million. The repurchased shares are being held as treasury shares.
In September 2020, our Board of Directors authorized a new Securities Repurchase Program to purchase up to an aggregate of $250 million of securities, which, in addition to our common shares, currently consist of our Senior Notes due 2025 (NYSE: SBBA), which were issued in May 2020, Convertible Notes due 2022, which were issued in May and July 2018, and Convertible Notes due 2025, which were issued in March and June 2021. The aforementioned repurchases of common stock and convertible notes were executed under the previous securities repurchase program, which has since been terminated. Any future purchases of our securities will be made under the new $250 million securities repurchase program and no securities have been repurchased under this program during the year ended December 31, 2021 and through March 18, 2022.
2013 Equity Incentive Plan
For a description of issuances of our common shares pursuant to our 2013 Equity Incentive Plan, see “Item 6. Directors, Senior Management and Employees - B. Compensation - 2013 Equity Incentive Plan.”
Cash Flows
The table below summarizes our sources and uses of cash for the periods presented:
| | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Cash flow data | | | |
| Net cash inflow/(outflow) | | | |
| Operating activities | $ 73,300 | | $ 419,381 |
| Investing activities | (52,278) | | (174,477) |
| Financing activities | 21,882 | | (259,696) |
Cash flow from operating activities
Fiscal year ended December 31, 2021 compared to fiscal year ended December 31, 2020
Operating cash flows are driven by our results of operations along with movements in working capital. The following table sets forth the components of our operating cash flows for the years ended December 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | Change | | Percentage |
| In thousands of U.S. dollars | | 2021 | | 2020 | | favorable / (unfavorable) | | Change |
Vessel revenue (1) | | $ 540,786 | | $ 915,892 | | $ (375,106) | | (41) % |
Vessel operating costs (1) | | (334,840) | | (333,748) | | (1,092) | | — % |
Voyage expenses (1) | | (3,455) | | (7,959) | | 4,504 | | 57 % |
General and administrative expenses - cash (1)(2) | | (29,815) | | (37,681) | | 7,866 | | 21 % |
Financial expenses - cash (1) (3) | | (115,983) | | (134,454) | | 18,471 | | 14 % |
Change in working capital (4) | | 14,337 | | 14,583 | | (246) | | (2) % |
| Financial income - cash | | 171 | | 681 | | (510) | | (75) % |
| Other | | 2,099 | | 2,067 | | 32 | | 2 % |
| Operating cash flow | | $ 73,300 | | $ 419,381 | | $ (346,081) | | (83) % |
(1)See “Item 5. Operating and Financial Review and Prospects- A. Operating Results” for information on these variations for the years ended December 31, 2021 and 2020.
(2)Cash general and administrative expenses are general and administrative expenses from our consolidated statements of income or loss excluding the amortization of restricted stock of $22.9 million and $28.5 million for the years ended December 31, 2021 and 2020, respectively.
(3)Cash financial expenses represents interest payable on our outstanding indebtedness and lease financing obligations. These amounts are derived from Financial expenses from our consolidated statements of income or loss excluding (i) the amortization of deferred financing fees of $7.6 million and $6.7 million for the years ended December 31, 2021 and 2020, respectively, (ii) the write-off of deferred financing fees and unamortized discounts on sale and leaseback facilities of $3.6 million and $2.0 million over these same periods, (iii) the accretion of our Convertible Notes Due 2022 and Convertible Notes Due 2025 of $13.3 million and $8.4 million over these same periods, and (iv) accretion of $3.7 million and $3.4 million related primarily to the premiums and discounts recorded as part of the purchase price allocation on the indebtedness assumed from Navig8 Product Tankers Inc. in 2017 during the years ended December 31, 2021 and 2020. Cash financial expenses decreased primarily as a result of lower average LIBOR rates during the year ended December 31, 2021 as compared to the year ended December 31, 2020. As a result of the onset of the COVID-19 pandemic in March 2020, LIBOR rates decreased significantly during the year ended December 31, 2020. Given the timing of when interest rates are fixed on our variable rate borrowings, this decrease primarily impacted our interest expense in the second half of that year and throughout 2021. The average carrying value of our debt was relatively unchanged at $3.14 billion as of December 31, 2021 compared to $3.13 billion as of December 31, 2020.
(4)The change in working capital in 2021 was primarily driven by an increase in accounts payable, a decrease in prepaid expenses and other current assets and inventories, offset by increases in accounts receivable and other assets and a decrease in accrued expenses. These working capital movements were primarily driven by the timing of receipts from customers and payments to suppliers.
The change in working capital in 2020 was primarily driven by decreases in accounts receivable, prepaid expenses and other current assets and other assets offset by decreases in accounts payable and accrued expenses, as well as an increase in inventories. The decrease in accounts receivable is due to timing. The end of 2019 marked a period of rising revenues driven by the onset of the IMO's low sulfur emission standard regulations, which served as a catalyst for the demand of the seaborne transportation of refined petroleum products. Accounts receivable at December 31, 2019 reflects the impact of these conditions. Conversely, the decreased accounts receivable balance at December 31, 2020 reflects the adverse market conditions brought on by the COVID-19 pandemic, which materialized for our business during the second half of 2020. The decreases in accrued expenses and accounts payable were driven by the timing of payments to suppliers in addition to a reduction in accrued interest given the decrease in LIBOR rates from 2019 to 2020. The remaining changes in working capital were also driven by the timing of the payments related to such items.
Cash flow from investing activities
The following table sets forth the components of our investing cash flows for the years ended December 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | Change | | Percentage |
| In thousands of U.S. dollars | | 2021 | | 2020 | | favorable / (unfavorable) | | Change |
| Cash inflows | | | | | | | | |
Distributions from dual fuel tanker joint venture (1) | | 1,525 | | — | | 1,525 | | N/A |
| Total investing cash inflows | | $ 1,525 | | $ — | | $ 1,525 | | N/A |
| | | | | | | | |
Investment in dual fuel tanker joint venture (1) | | (6,701) | | — | | (6,701) | | N/A |
Drydock, scrubber and BWTS payments (owned, lease financed, and bareboat-in vessels) (2) | | (47,102) | | (174,477) | | 127,375 | | 73 % |
| Total investing cash outflows | | (53,803) | | (174,477) | | 120,674 | | 69 % |
| | | | | | | | |
| Net cash outflow from investing activities | | (52,278) | | (174,477) | | 122,199 | | 70 % |
(1)In August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel MR methanol tankers (built between 2016 and 2021) which, in addition to traditional petroleum products, are designed to carry methanol both as a cargo and to consume it as a fuel, along with four ice class 1A LR1 product tankers. The dual-fuel MR methanol tankers are currently on long-term time charter contracts greater than five years. As part of this agreement, we acquired a 50% interest in a joint venture that ultimately has a minority interest in the entities that own the vessels for final consideration of $6.7 million. We account for our interest in this joint venture using the equity method pursuant to IFRS 11 - Joint arrangements. Under this guidance, the investment is initially measured at cost, and the carrying amount of the investment is adjusted in subsequent periods based on our share of profits or losses from the joint venture (adjusted for any fair value adjustments made upon initial recognition). Any distributions received from the joint venture reduce the carrying amount.
This joint venture issued a cash distribution of $1.5 million in December 2021, which arose primarily as a result of the sale of two of the LR1s during the fourth quarter of 2021.
(2)Drydock, scrubber, ballast water treatment system and other vessel related payments represent the cash paid in 2021 and 2020 for the drydocking of our vessels, payments made as part of the agreements to purchase and install scrubbers and ballast water treatment systems and other vessel equipment.
In July 2018, we executed an agreement to purchase 55 ballast water treatment systems from an unaffiliated third-party supplier for total consideration of $36.2 million. We paid $2.1 million as installment payments under this agreement during the year ended December 31, 2020. No installment payments were paid during the year ended December 31, 2021. An aggregate of $0.5 million and $18.3 million were paid during the years ended December 31, 2021 and 2020, respectively, as installation costs.
From August 2018 through November 2018, we entered into agreements with two unaffiliated third-party suppliers to retrofit a total of 77 of our tankers with scrubbers. In June and September 2019, we exercised options to retrofit an additional 14 and seven of our vessels, respectively, with scrubbers for total consideration of $30.3 million. In April 2020, we reached an agreement to postpone the purchase and installation of scrubbers on 19 vessels. In February 2021 we signed an agreement to retain the option to purchase these scrubbers through February 2023 and in August 2021, we exercised the option to purchase six scrubbers.
We paid $10.7 million and $43.9 million as installment payments under these agreements during the years ended December 31, 2021 and 2020, respectively. Additionally, an aggregate of $4.2 million and $68.2 million were paid during the years ended December 31, 2021 and 2020, respectively, as installation costs.
Twenty-one of our vessels were drydocked in accordance with their scheduled, class required special surveys and $31.6 million (which includes $4.9 million related to the installation of new equipment) was paid as part of these drydocks during the year ended December 31, 2021.
Thirty-four of our vessels were drydocked in accordance with their scheduled, class required special surveys and $42.0 million (which includes $5.4 million related to the installation of new equipment) was paid as part of these drydocks during the year ended December 31, 2020.
Cash flow from financing activities
Cash flows from financing activities primarily consist of: the issuance, repayment and costs related to our secured and unsecured debt, sale and leaseback liabilities, and IFRS 16 lease liabilities; the issuance and costs related to our common stock; the payment of dividends to our common shareholders; and, the activity within our Securities Repurchase Program (defined below). The following table sets forth the components of our financing cash flows for the years ended December 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | Change | | Percentage |
| In thousands of U.S. dollars | | 2021 | | 2020 | | favorable / (unfavorable) | | Change |
| Cash inflows | | | | | | | | |
Drawdowns from our secured credit facilities(1) | | $ 68,593 | | $ 462,512 | | $ (393,919) | | (85) % |
Proceeds from sale and leaseback transactions(1) | | 540,282 | | 214,778 | | 325,504 | | 152 % |
Issuance of Unsecured Senior Notes Due 2025(1) | | 41,929 | | 28,100 | | 13,829 | | 49 % |
Issuance of Convertible Notes Due 2025(1) | | 119,419 | | — | | 119,419 | | N/A |
Gross proceeds from issuance of common stock(2) | | — | | 2,601 | | (2,601) | | (100) % |
Decrease in restricted cash(3) | | 502 | | 7,001 | | (6,499) | | (93) % |
| Total financing cash inflows | | 770,725 | | 714,992 | | 55,733 | | 8 % |
| | | | | | | | |
| Cash outflows | | | | | | | | |
Repayments on our secured credit facilities(1) | | (488,436) | | (486,731) | | (1,705) | | — % |
Repayments under sale and leaseback liabilities(1) | | (162,491) | | (259,591) | | 97,100 | | 37 % |
Repayments under IFRS 16 lease liabilities (1) | | (56,729) | | (77,913) | | 21,184 | | 27 % |
Repurchases of convertible notes(1) | | — | | (46,737) | | 46,737 | | 100 % |
Repayments of senior unsecured notes(1) | | — | | (53,750) | | 53,750 | | 100 % |
Dividend payments(4) | | (23,320) | | (23,302) | | (18) | | — % |
Common stock repurchases(5) | | — | | (13,115) | | 13,115 | | 100 % |
Debt issuance costs(6) | | (17,820) | | (13,523) | | (4,297) | | (32) % |
Equity issuance costs(2) | | (47) | | (26) | | (21) | | (81) % |
| Total financing cash outflows | | (748,843) | | (974,688) | | 225,845 | | 23 % |
| | | | | | | | |
| Net cash inflow / (outflow) from financing activities | | $ 21,882 | | $ (259,696) | | $ 281,578 | | 108 % |
(1)The following table sets forth the cash drawdowns and repayments on our secured credit facilities, unsecured debt, sale and leaseback liabilities, and IFRS 16 lease liabilities during the years ended December 31, 2021 and 2020. During these periods, certain credit facilities, unsecured debt, and lease financing arrangements were either entered into, drawn, or repaid in full. We refer to Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F for further details of all of our financing arrangements, including the activity that occurred during the years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| | Drawdowns | | Repayments | | Drawdowns | | Repayments |
| In thousands of U.S. dollars | | | | | | | | |
| KEXIM Credit Facility | | — | | (15,932) | | — | | (183,082) |
| ABN AMRO Credit Facility | | — | | — | | — | | (91,954) |
| ING Credit Facility | | 2,128 | | (193,476) | | 77,985 | | (18,076) |
| 2018 NIBC Credit Facility | | — | | (31,066) | | 3,125 | | (3,680) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 Credit Facility | | — | | — | | — | | (131,499) |
| Credit Agricole Credit Facility | | — | | (8,569) | | — | | (8,568) |
| ABN AMRO/K-Sure Credit Facility | | — | | (41,827) | | — | | (3,851) |
| Citibank/K-Sure Credit Facility | | — | | (8,417) | | — | | (8,416) |
| ABN AMRO / SEB Credit Facility | | — | | (97,856) | | 6,312 | | (11,781) |
| Hamburg Commercial Bank Credit Facility | | — | | (3,291) | | 1,429 | | (3,264) |
| Prudential Credit Facility | | — | | (5,546) | | — | | (5,085) |
| 2019 DNB / GIEK Credit Facility | | — | | (7,113) | | 55,500 | | (2,937) |
| BNPP Sinosure Credit Facility | | 1,915 | | (10,334) | | 101,461 | | (6,728) |
| 2020 $225.0 Million Credit Facility | | — | | (63,254) | | 216,700 | | (7,810) |
| 2021 $21.0 Million Credit Facility | | 21,000 | | (1,755) | | — | | — |
| 2021 $43.6 Million Credit Facility | | 43,550 | | — | | — | | — |
| Total Secured Credit Facilities | | $ 68,593 | | $ (488,436) | | $ 462,512 | | $ (486,731) |
| Unsecured Senior Notes Due 2020 | | — | | — | | — | | (53,750) |
| Convertible Notes Due 2022 | | — | | — | | — | | (46,737) |
| Unsecured Senior Notes Due 2025 | | 41,929 | | — | | 28,100 | | — |
| Convertible Notes Due 2025 | | 119,419 | | — | | — | | — |
| Total Unsecured Senior Notes | | $ 161,348 | | $ — | | $ 28,100 | | $ (100,487) |
| Ocean Yield Lease Financing | | — | | (11,245) | | — | | (11,024) |
| CMBFL Lease Financing | | — | | — | | — | | (57,063) |
| BCFL Lease Financing (LR2s) | | 3,814 | | (10,690) | | 1,773 | | (8,724) |
| CSSC Lease Financing | | 11,848 | | (10,313) | | — | | (94,908) |
| CSSC Scrubber Financing | | — | | (4,443) | | 1,568 | | (8,101) |
| BCFL Lease Financing (MRs) | | 5,779 | | (14,639) | | 1,926 | | (11,988) |
| 2018 CMBFL Lease Financing | | — | | (13,007) | | 10,125 | | (11,561) |
| $116.0 Million Lease Financing | | 1,926 | | (9,938) | | 5,653 | | (7,892) |
| AVIC Lease Financing | | — | | (13,327) | | 4,600 | | (12,177) |
| China Huarong Lease Financing | | 10,000 | | (16,834) | | — | | (13,500) |
| $157.5 Million Lease Financing | | — | | (14,143) | | — | | (14,143) |
| COSCO Lease Financing | | — | | (7,700) | | — | | (7,700) |
| 2020 CMBFL Lease Financing | | — | | (3,241) | | 45,383 | | (810) |
| 2020 TSFL Sale and Leaseback | | — | | (3,322) | | 47,250 | | — |
| 2020 SPDBFL Lease Financing | | — | | (9,389) | | 96,500 | | — |
| 2021 AVIC Lease Financing | | 96,352 | | (5,439) | | — | | — |
| 2021 CMBFL Lease Financing | | 79,050 | | (4,485) | | — | | — |
| 2021 TSFL Lease Financing | | 57,663 | | (3,286) | | — | | — |
| 2021 CSSC Lease Financing | | 57,400 | | (3,507) | | — | | — |
| 2021 $146.3 Million Lease Financing | | 146,250 | | — | | — | | — |
| 2021 Ocean Yield Lease Financing | | 70,200 | | (417) | | — | | — |
| Prepaid interest expense | | — | | (3,126) | | — | | — |
| Total Sale and Leaseback Liabilities | | $ 540,282 | | $ (162,491) | | $ 214,778 | | $ (259,591) |
| | | | | | | | |
| IFRS 16 - Leases - 3 MRs | | — | | (7,668) | | — | | (12,174) |
| IFRS 16 - Leases - 7 Handymax | | — | | (1,879) | | — | | (7,256) |
| IFRS 16 - Leases - $670.0 Million | | — | | (46,561) | | — | | (58,483) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prepaid interest expense | | — | | (621) | | — | | — |
| Total IFRS 16 Lease Liabilities | | $ — | | $ (56,729) | | $ — | | $ (77,913) |
(2) During the year ended December 31, 2020, we sold an aggregate of 137,067 of our common shares pursuant to our ATM Program at an average price of $18.79 per share for aggregate net proceeds of $2.6 million.
(3) During the years end December 31, 2021 and 2020, we refinanced the amounts borrowed under our ABN AMRO/K-Sure Credit Facility, 2017 Credit Facility and CMBFL Lease Financing arrangement. As a result of the transactions, $0.5 million and $7.0 million of restricted cash was released during the years end December 31, 2021 and 2020 pursuant to the terms of these arrangements, respectively.
(4) Dividend payments to shareholders were $23.3 million and $23.3 million for the years ended December 31, 2021 and 2020, respectively. These dividends represent dividends of $0.40 per share (based on the number of shares outstanding on each of the record dates) for each of the years ended December 31, 2021 and 2020.
(5) Common stock repurchases during the year ended December 31, 2020 represent the repurchase of 1,170,000 of our common shares at an average price of $11.18 per share for a total of $13.1 million. No shares were repurchased during the year ended December 31, 2021.
(6) Debt issuance costs relate to costs incurred for our secured credit facilities and lease financing arrangements which are described in Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
Long-Term Debt Obligations and Lease Financing Arrangements
We refer to Note 6 and Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F for further details on our secured credit facilities, sale and leaseback liabilities, IFRS 16 lease liabilities, Senior Notes Due 2025, Convertible Notes Due 2022 and Convertible Notes Due 2025.
Our secured credit facilities may be secured by, among other things:
•a first priority mortgage over the relevant collateralized vessels;
•a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility;
•a pledge of earnings generated by the mortgaged vessels for the specific facility; and
•a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
Our debt and lease financing agreements may require us to comply with a number of covenants, including financial covenants related to liquidity, consolidated net worth, maximum leverage ratios, loan to value ratios and collateral maintenance, informational requirements, including the delivery of quarterly and annual financial statements and annual projections, and restrictive covenants, including maintenance of adequate insurances; compliance with laws (including environmental); compliance with the Employee Retirement Income and Security Act, or ERISA; maintenance of flag and class of the vessels; restrictions on consolidations, mergers or sales of assets; approvals on changes in the manager of the vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants. Furthermore, our debt and lease financing agreements contain customary events of default, including cross-default provisions, as well as subjective acceleration clauses under which the debt could become due and payable in the event of a material adverse change in our business.
The following is a table summarizing our indebtedness as of December 31, 2021 and March 18, 2022. The balances set forth below reflect the principal amounts due under each facility or lease financing arrangement as of each date and do not reflect any: (i) unamortized deferred financing fees; (ii) discounts / premiums attributable to the debt, either assumed in a business combination that was recorded as part of the purchase price allocation or as part of the market issuance of a security; and (iii) deposits held by the lessor. The balances for the unsecured Senior Notes Due 2025 represents the face value of this instrument. The balances for the Convertible Notes Due 2022 represents the face
value of this instrument, and the balances for the Convertible Notes Due 2025 represents the face value of this instrument plus interest that has accreted since the date of issuance pursuant to its accretion feature, which is described in Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
| | | | | | | | | | | | | | |
| In thousands of U.S. dollars | | Amount outstanding at December 31, 2021 | | Amount outstanding at March 18, 2022 |
Credit Agricole Credit Facility (1) | | 73,591 | | 53,578 |
Citibank / K-Sure Credit Facility (2) | | 78,401 | | 37,881 |
| Hamburg Commercial Credit Facility | | 37,024 | | 37,024 |
| Prudential Credit Facility | | 44,832 | | 43,445 |
| 2019 DNB / GIEK Credit Facility | | 45,450 | | 45,450 |
BNPP Sinosure Credit Facility (3) | | 86,314 | | 89,761 |
2020 $225 Million Credit Facility (4) | | 145,636 | | 103,819 |
| 2021 $21.0 Million Credit Facility | | 19,245 | | 18,660 |
2021 $43.6 Million Credit Facility (5) | | 43,550 | | 21,222 |
| Ocean Yield Lease Financing | | 127,263 | | 124,463 |
| BCFL Lease Financing (LR2s) | | 79,321 | | 76,560 |
| CSSC Lease Financing | | 135,843 | | 132,202 |
| BCFL Lease Financing (MRs) | | 68,888 | | 65,115 |
| 2018 CMBFL Lease Financing | | 111,986 | | 108,734 |
| $116.0 Million Lease Financing | | 95,789 | | 93,246 |
AVIC Lease Financing (6) | | 106,405 | | 86,315 |
| China Huarong Lease Financing | | 103,416 | | 99,208 |
| $157.5 Million Lease Financing | | 109,657 | | 106,121 |
| COSCO Lease Financing | | 61,050 | | 61,050 |
| 2020 CMBFL Lease Financing | | 41,332 | | 40,927 |
| 2020 TSFL Sale and Leaseback | | 43,928 | | 43,098 |
| 2020 SPDBFL Lease Financing | | 90,006 | | 88,382 |
| 2021 AVIC Lease Financing | | 91,886 | | 90,073 |
| 2021 CMBFL Lease Financing | | 74,565 | | 74,160 |
| 2021 TSFL Lease Financing | | 54,377 | | 54,377 |
| 2021 CSSC Lease Financing | | 53,893 | | 52,578 |
| 2021 $146.3 Million Lease Financing | | 146,250 | | 143,583 |
| 2021 Ocean Yield Lease Financing | | 69,783 | | 68,340 |
Unsecured Senior Notes Due 2025 (7) | | 70,209 | | 70,571 |
| Convertible Notes Due 2022 | | 69,695 | | 69,695 |
Convertible Notes Due 2025 (8) | | 208,133 | | 210,496 |
| IFRS 16 - Leases - 3 MR | | 29,268 | | 27,313 |
| IFRS 16 - Leases - $670.0 Million | | 546,730 | | 534,950 |
| Total | | $ 3,163,716 | | $ 2,972,397 |
(1) In March 2022, we repaid $18.4 million on this credit facility as part of the sale of STI Excelsior.
(2) In March 2022, we repaid $39.5 million on this credit facility as part of the sales of STI Excellence and STI Executive. As part of this repayment, $2.0 million was concurrently released from the debt service reserve account, which was previously held as restricted cash.
(3) In March 2022, we drew down $3.4 million from the BNPP Sinosure Credit Facility to partially finance the scrubber installations on two LR1 product tankers.
(4) In March 2022, we repaid $38.7 million on the $225.0 Million Credit Facility as part of the sales of STI Pride and STI Providence.
(5) In March 2022, we repaid $21.2 million on the 2021 $43.6 Million Credit Facility as part of the sale of STI Prestige.
(6) In February 2022, we repaid $17.2 million on the AVIC Lease Financing arrangement as part of the sale of STI Fontvieille.
(7) As of March 18, 2022, we have sold an additional $0.4 million principal amount of Additional Notes under the Distribution Agreement for the Senior Notes Due 2025.
(8) As of March 18, 2022, the Convertible Notes Due 2025 have accreted an additional $2.4 million pursuant to its accretion feature, which is described in Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
Capital Expenditures
Vessel acquisitions and payments for vessels under construction
During the years ended December 31, 2020 and 2019, our vessel acquisitions and payments for vessels under construction consisted of purchases of vessels (or assumptions of leases) from third parties including from Trafigura Maritime Logistics Pte. Ltd., vessels delivered under construction contracts with various shipyards, installment payments, capitalized interest and other costs for vessels under construction. We made cash payments to acquire the vessels part of the Trafigura Transaction vessels of $3.0 million during the year ended December 31, 2019.
We did not enter into any agreements to construct vessels during the years ended December 31, 2021, 2020, and 2019 but we did have vessels delivered during those periods. During the year ended December 31, 2019, we assumed the leasehold obligations on 19 vessels as part of the Trafigura Transaction four of which were under construction as of December 31, 2019. The leases commenced upon delivery from the shipyard on two vessels in January 2020, one in March 2020, and one in September 2020.
The table set forth below lists the vessels that were acquired or delivered during the years ended December 31, 2020 and 2019. No vessels were acquired or delivered in 2021.
| | | | | | | | | | | | | | | | | |
| Vessel Type | Constructed/Acquired | During the years ended December 31, | |
| Name | 2020 | 2019 | |
| STI Miracle | MR | Acquired | January | | (1) |
| STI Maestro | MR | Acquired | January | | (1) |
| STI Mighty | MR | Acquired | March | | (1) |
| STI Maximus | MR | Acquired | September | | (1) |
| STI Magic | MR | Acquired | | September | (1) |
| STI Majestic | MR | Acquired | | September | (1) |
| STI Mystery | MR | Acquired | | September | (1) |
| STI Marvel | MR | Acquired | | September | (1) |
| STI Magnetic | MR | Acquired | | September | (1) |
| STI Millennia | MR | Acquired | | September | (1) |
| STI Magister | MR | Acquired | | September | (1) |
| STI Mythic | MR | Acquired | | September | (1) |
| STI Magister | MR | Acquired | | September | (1) |
| STI Modest | MR | Acquired | | September | (1) |
| STI Maverick | MR | Acquired | | September | (1) |
| STI Lobelia | LR2 | Acquired | | September | (1) |
| STI Lotus | LR2 | Acquired | | September | (1) |
| STI Lily | LR2 | Acquired | | September | (1) |
| STI Lavender | LR2 | Acquired | | September | (1) |
| | | | | |
| | | 4 | 15 | |
(1) This vessel was acquired from Trafigura as part of the Trafigura Transaction and is classified as a Right of use asset.
Sales of vessels
We did not sell any vessels during the years ended December 31, 2021, 2020, and 2019. See the section entitled "Item 4. Information on the Company - A. History and Development of the Company - Recent Developments - Vessel Sales" for a description of the sales of an aggregate of 15 vessels that were agreed to in 2022.
Drydock
During the years ended December 31, 2021, 2020, and 2019, we completed the following drydocks, as described below:
| | | | | | | | | | | |
| Drydock | Total |
| Costs in thousands of U.S. dollars | Vessels | Off-hire days | Cost |
| Drydock in-progress at December 31, 2018 | | | $ 1,544 |
| Costs incurred in 2019 | | | 40,471 |
| Drydock completed in 2019 (1) | 34 | 1,575 | 33,609 |
| Drydock in-progress at December 31, 2019 | | | $ 8,406 |
| Costs incurred in 2020 | | | 33,901 |
| Drydock completed in 2020 (1) | 34 | 2,431 | 39,322 |
| Drydock in-progress at December 31, 2020 | | | $ 2,985 |
| Costs incurred in 2021 | | | 27,116 |
| Drydock completed in 2021 (1) | 21 | 803 | 28,128 |
| Drydock in-progress at December 31, 2021 | | | $ 1,973 |
(1) Drydocks completed in 2019 includes 11 offhire days from drydocks which commenced in 2018. Drydocks completed in 2020 includes 433 offhire days from drydocks which commenced in 2019. Drydocks completed in 2021 includes 112 offhire days from drydocks which commenced in 2020. Offhire days include offhire days for installations of BWTS and / or scrubbers.
As our fleet matures and expands, our drydock expenses will likely increase. Ongoing costs for compliance with environmental regulations and society classification survey costs are a component of our vessel operating costs. With the exception of the recent ratification of the ballast water treatment convention as described in "Item 3. Key Information - D. Risk Factors", we are not currently aware of any regulatory changes or environmental liabilities that we anticipate will have a material impact on our results of operations or financial condition.
Ballast Water Treatment Systems and Scrubbers
In July 2018, we executed an agreement to purchase 55 ballast water treatment systems from an unaffiliated third-party supplier for total consideration of $36.2 million. These systems are expected to be installed over the next five years, as each respective vessel under the agreement is due for its International Oil Pollution Prevention, or IOPP, renewal survey.
We expect to retrofit the substantial majority of our vessels with exhaust gas cleaning systems, or scrubbers. The scrubbers will enable our ships to use high sulfur fuel oil, which is less expensive than low sulfur fuel oil, in certain parts of the world. From August 2018 through November 2018, we entered into agreements with two separate suppliers to retrofit a total of 77 of our tankers with such systems for total consideration of $116.1 million (which excludes installation costs). These systems are expected to be installed from 2019 through 2023. We also obtained options to retrofit additional tankers under these agreements.
In June and September 2019, we exercised the option to retrofit 14 and seven additional vessels, respectively, with scrubbers for total consideration of $30.3 million.
In April 2020, we reached an agreement to postpone the purchase and installation of scrubbers on 19 vessels. In February 2021, we amended an agreement with respect to the purchase of scrubbers on 19 of our vessels to extend the availability period to purchase these scrubbers. In August 2021, we exercised the option to purchase six scrubbers, which are expected to be installed during the first six months of 2022.
•During 2021, one of our vessels was fitted with a scrubber and none were fitted with BWTS.
•During 2020, 46 of our vessels were fitted with scrubbers and 22 were fitted with BWTS.
The following table summarizes Ballast Water Treatment Systems activity for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | |
| Ballast Water Treatment Systems | Total |
| Costs in thousands of U.S. dollars | Vessels | Off-hire days | Cost |
Costs incurred in 2019 (1) | | | $ 45,450 |
BWTS completed in 2019 (2) | 28 | 1,245 | 42,894 |
| BWTS in-progress at December 31, 2019 | | | $ 2,556 |
Costs incurred in 2020 (1) | | | 30,922 |
BWTS completed in 2020 (2) | 22 | 1,663 | 33,303 |
| BWTS in-progress at December 31, 2020 | | | $ 175 |
Costs incurred in 2021 (1) | | | 218 |
BWTS completed in 2021 (2) | — | — | (65) |
| BWTS in-progress at December 31, 2021 | | | $ 458 |
(1) Includes capitalized interest of $0.2 million and $1.1 million in 2020 and 2019, respectively.
(2) Offhire days include offhire days for drydock and/or installations of scrubbers.
The following table summarizes scrubber installation activity for the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | |
| Scrubber | Total |
| Costs in thousands of U.S. dollars | Vessels | Off-hire days | Cost |
Costs incurred in 2019 (1) | | | $ 98,788 |
Scrubber completed in 2019 - notional drydock (2) | | | 4,800 |
Scrubber completed in 2019 (3) | 32 | 1,905 | 84,649 |
| Scrubber in-progress at December 31, 2019 | | | $ 9,339 |
Costs incurred in 2020 (1) | | | 135,349 |
Scrubber completed in 2020 - notional drydock (2) | | | 6,900 |
Scrubber completed in 2020 (3) | 46 | 3,507 | 132,439 |
| Scrubber in-progress at December 31, 2020 | | | $ 5,349 |
Costs incurred in 2021 (1) | | | 4,371 |
Scrubber completed in 2021 - notional drydock (2) | | | 150 |
Scrubber completed in 2021 (3) | 1 | 83 | 4,774 |
| Scrubber in-progress at December 31, 2021 | | | $ 4,796 |
(1) Includes capitalized interest of $0.2 million, $1.2 million and $1.8 million in 2021, 2020 and 2019, respectively.
(2) For a newly installed scrubber, a notional component of approximately 10% is allocated from the scrubber's cost. The notional scrubber cost is estimated by us, based on the expected costs that we expect will incur for this equipment at the next scheduled drydock date and relates to the replacement of certain components and maintenance of other components. This notional scrubber cost is carried separately from the cost of the scrubber. Subsequent costs are recorded at actual cost incurred. The notional component of the scrubber is depreciated on a straight-line basis to the next estimated drydock date and the remaining cost is depreciated over the remaining useful life of the vessel.
(3) Offhire days include offhire days for drydock and/or installations of BWTS.
Our Fleet—Illustrative comparison of excess of carrying amounts over estimated charter-free market value of certain vessels
During the past few years, the market values of vessels have experienced particular volatility and as a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below the carrying amounts of those vessels.
The table set forth below indicates the carrying amount of each of our vessels or right of use assets as of December 31, 2021 and December 31, 2020 and the aggregate difference between the carrying amount and the market value represented by such vessels or right of use assets (see footnotes to the table set forth below). This aggregate difference represents the approximate analysis of the amount by which we believe we would record a loss if we sold those vessels or right of use assets, in the current environment, on industry standard terms, in cash transactions and to a willing buyer where we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy. For purposes of this calculation, we have assumed (i) that the vessels would be sold at a price that reflects our estimate of their basic market values and (ii) for vessels that are under lease financing arrangements or are recorded as right of use assets under IFRS 16 - Leases, the carrying value of the vessel at the date indicated, would be the price at which we would purchase those vessels back from the lessor. Additionally, we have not obtained valuations for certain of our leased vessels that are accounted for as right of use assets under IFRS 16 - Leases, however we have included their carrying amounts in the table set forth below.
Our estimate of basic market value assumes that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:
•reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
•news and industry reports of similar vessel sales;
•news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates;
•approximate market values for our vessels or similar vessels that we have received from ship brokers, whether solicited or unsolicited, or that ship brokers have generally disseminated;
•offers that we may have received from potential purchasers of our vessels; and
•vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values and revenues are highly volatile; as such, our estimates may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Carrying value as of, | |
| Vessel Name | Year Built | | December 31, 2021 | | December 31, 2020 | |
| 1 | STI Amber | 2012 | | 27.4 | (1) | 29.1 | |
| 2 | STI Topaz | 2012 | | 27.4 | (1) | 29.2 | |
| 3 | STI Ruby | 2012 | | 25.2 | (1) | 26.6 | |
| 4 | STI Garnet | 2012 | | 27.5 | (1) | 29.3 | |
| 5 | STI Onyx | 2012 | | 27.6 | (1) | 29.3 | |
| 6 | STI Fontvieille | 2013 | | 26.1 | (1) | 27.6 | |
| 7 | STI Ville | 2013 | | 26.5 | (1) | 28.0 | |
| 8 | STI Duchessa | 2014 | | 26.3 | (2) | 27.7 | |
| 9 | STI Wembley | 2014 | | 26.4 | (1) | 27.7 | |
| 10 | STI Opera | 2014 | | 26.3 | (2) | 27.7 | |
| 11 | STI Texas City | 2014 | | 30.8 | (1) | 32.3 | |
| 12 | STI Meraux | 2014 | | 30.6 | (1) | 32.3 | |
| 13 | STI San Antonio | 2014 | | 30.7 | (1) | 32.4 | |
| 14 | STI Venere | 2014 | | 28.3 | (2) | 30.0 | |
| 15 | STI Virtus | 2014 | | 28.6 | (2) | 30.2 | |
| 16 | STI Aqua | 2014 | | 28.9 | (2) | 30.5 | |
| 17 | STI Dama | 2014 | | 28.8 | (2) | 30.4 | |
| 18 | STI Benicia | 2014 | | 31.6 | (1) | 33.3 | |
| 19 | STI Regina | 2014 | | 29.0 | (2) | 30.6 | |
| 20 | STI St. Charles | 2014 | | 30.6 | (1) | 32.3 | |
| 21 | STI Yorkville | 2014 | | 29.4 | (2) | 31.0 | |
| 22 | STI Milwaukee | 2014 | | 32.4 | (1) | 34.1 | |
| 23 | STI Battery | 2014 | | 29.4 | (2) | 30.9 | |
| 24 | STI Brixton | 2014 | | 26.1 | (1) | 27.5 | |
| 25 | STI Comandante | 2014 | | 25.0 | (1) | 26.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 26 | STI Pimlico | 2014 | | 26.1 | (1) | 27.4 | |
| 27 | STI Hackney | 2014 | | 26.1 | (1) | 27.4 | |
| 28 | STI Acton | 2014 | | 26.4 | (1) | 27.7 | |
| 29 | STI Fulham | 2014 | | 26.2 | (1) | 27.6 | |
| 30 | STI Camden | 2014 | | 26.2 | (1) | 27.6 | |
| 31 | STI Finchley | 2014 | | 26.4 | (1) | 27.8 | |
| 32 | STI Clapham | 2014 | | 26.8 | (1) | 28.2 | |
| 33 | STI Poplar | 2014 | | 26.7 | (1) | 28.1 | |
| 34 | STI Elysees | 2014 | | 43.9 | (1) | 46.2 | |
| 35 | STI Madison | 2014 | | 44.1 | (1) | 46.3 | |
| 36 | STI Park | 2014 | | 44.0 | (1) | 46.3 | |
| 37 | STI Orchard | 2014 | | 44.3 | (1) | 46.6 | |
| 38 | STI Sloane | 2014 | | 44.5 | (1) | 46.7 | |
| 39 | STI Broadway | 2014 | | 43.8 | (1) | 46.1 | |
| 40 | STI Condotti | 2014 | | 44.7 | (1) | 46.9 | |
| 41 | STI Battersea | 2014 | | 26.4 | (1) | 27.7 | |
| 42 | STI Memphis | 2014 | | 31.5 | (1) | 33.2 | |
| 43 | STI Mayfair | 2014 | | 29.7 | (2) | 31.4 | |
| 44 | STI Soho | 2014 | | 29.6 | (2) | 31.3 | |
| 45 | STI Tribeca | 2015 | | 30.1 | (2) | 31.8 | |
| 46 | STI Hammersmith | 2015 | | 27.0 | (1) | 28.5 | |
| 47 | STI Rotherhithe | 2015 | | 27.3 | (1) | 28.8 | |
| 48 | STI Rose | 2015 | | 49.6 | (1) | 52.1 | |
| 49 | STI Gramercy | 2015 | | 29.7 | (2) | 31.3 | |
| 50 | STI Veneto | 2015 | | 44.9 | (1) | 47.1 | |
| 51 | STI Alexis | 2015 | | 49.5 | (1) | 52.0 | |
| 52 | STI Bronx | 2015 | | 30.4 | (2) | 32.1 | |
| 53 | STI Pontiac | 2015 | | 32.7 | (1) | 34.5 | |
| 54 | STI Manhattan | 2015 | | 30.0 | (2) | 31.8 | |
| 55 | STI Winnie | 2015 | | 45.6 | (1) | 47.9 | |
| 56 | STI Oxford | 2015 | | 45.9 | (1) | 48.1 | |
| 57 | STI Queens | 2015 | | 30.3 | (2) | 32.0 | |
| 58 | STI Osceola | 2015 | | 32.4 | (1) | 34.2 | |
| 59 | STI Lauren | 2015 | | 45.6 | (1) | 47.9 | |
| 60 | STI Connaught | 2015 | | 45.4 | (1) | 47.6 | |
| 61 | STI Notting Hill | 2015 | | 33.4 | (1) | 35.3 | |
| 62 | STI Spiga | 2015 | | 49.0 | (1) | 51.4 | |
| 63 | STI Seneca | 2015 | | 33.1 | (1) | 34.8 | |
| 64 | STI Savile Row | 2015 | | 49.8 | (1) | 52.2 | |
| 65 | STI Westminster | 2015 | | 33.6 | (1) | 35.3 | |
| 66 | STI Brooklyn | 2015 | | 30.4 | (2) | 31.9 | |
| 67 | STI Kingsway | 2015 | | 50.4 | (1) | 52.8 | |
| 68 | STI Lombard | 2015 | | 50.8 | (1) | 53.3 | |
| 69 | STI Carnaby | 2015 | | 50.5 | (1) | 52.9 | |
| 70 | STI Black Hawk | 2015 | | 33.0 | (1) | 34.6 | |
| 71 | STI Excel | 2015 | | 33.0 | (1) | 33.9 | |
| 72 | STI Solidarity | 2015 | | 38.8 | (2) | 40.1 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 73 | STI Grace | 2016 | | 45.8 | (2) | 45.4 | |
| 74 | STI Jermyn | 2016 | | 46.6 | (1) | 48.1 | |
| 75 | STI Excelsior | 2016 | | 34.1 | (1) | 34.8 | |
| 76 | STI Expedite | 2016 | | 34.0 | (1) | 35.1 | |
| 77 | STI Exceed | 2016 | | 34.1 | (1) | 34.8 | |
| 78 | STI Executive | 2016 | | 36.7 | (1) | 37.9 | |
| 79 | STI Excellence | 2016 | | 36.8 | (1) | 37.8 | |
| 80 | STI Experience | 2016 | | 34.7 | (1) | 35.5 | |
| 81 | STI Express | 2016 | | 37.1 | (1) | 38.1 | |
| 82 | STI Precision | 2016 | | 37.8 | (1) | 38.0 | |
| 83 | STI Prestige | 2016 | | 37.5 | (1) | 37.9 | |
| 84 | STI Pride | 2016 | | 37.5 | (1) | 37.8 | |
| 85 | STI Providence | 2016 | | 37.4 | (1) | 37.8 | |
| 86 | STI Sanctity | 2016 | | 40.4 | (2) | 41.2 | |
| 87 | STI Solace | 2016 | | 40.2 | (2) | 41.4 | |
| 88 | STI Stability | 2016 | | 40.7 | (2) | 42.4 | |
| 89 | STI Steadfast | 2016 | | 40.5 | (2) | 41.0 | |
| 90 | STI Supreme | 2016 | | 38.6 | (2) | 38.6 | |
| 91 | STI Symphony | 2016 | | 40.1 | (2) | 41.2 | |
| 92 | STI Gallantry | 2016 | | 40.1 | (2) | 39.9 | |
| 93 | STI Goal | 2016 | | 39.8 | (2) | 39.9 | |
| 94 | STI Nautilus | 2016 | | 39.6 | (2) | 40.0 | |
| 95 | STI Guard | 2016 | | 39.9 | (2) | 39.7 | |
| 96 | STI Guide | 2016 | | 39.7 | (2) | 39.9 | |
| 97 | STI Selatar | 2017 | | 46.4 | (2) | 48.1 | |
| 98 | STI Rambla | 2017 | | 47.2 | (2) | 48.9 | |
| 99 | STI Galata | 2017 | | 33.8 | (2) | 35.4 | |
| 100 | STI Bosphorus | 2017 | | 31.5 | (2) | 32.9 | |
| 101 | STI Leblon | 2017 | | 34.2 | (2) | 35.9 | |
| 102 | STI La Boca | 2017 | | 34.3 | (2) | 36.0 | |
| 103 | STI San Telmo | 2017 | | 32.8 | (2) | 34.3 | |
| 104 | STI Donald C Trauscht | 2017 | | 33.2 | (2) | 34.7 | |
| 105 | STI Gauntlet | 2017 | | 41.1 | (2) | 42.1 | |
| 106 | STI Gladiator | 2017 | | 41.1 | (2) | 42.3 | |
| 107 | STI Gratitude | 2017 | | 40.9 | (2) | 42.4 | |
| 108 | STI Esles II | 2018 | | 33.4 | (2) | 34.9 | |
| 109 | STI Jardins | 2018 | | 33.5 | (2) | 35.0 | |
| 110 | STI Magic | 2019 | | 35.5 | (2) | 37.1 | |
| 111 | STI Majestic | 2019 | | 35.5 | (2) | 37.1 | |
| 112 | STI Mystery | 2019 | | 35.5 | (2) | 37.1 | |
| 113 | STI Marvel | 2019 | | 35.5 | (2) | 37.1 | |
| 114 | STI Magnetic | 2019 | | 35.5 | (2) | 37.1 | |
| 115 | STI Millennia | 2019 | | 35.5 | (2) | 37.1 | |
| 116 | STI Master | 2019 | | 35.5 | (2) | 37.1 | |
| 117 | STI Mythic | 2019 | | 35.6 | (2) | 37.2 | |
| 118 | STI Marshall | 2019 | | 35.6 | (2) | 37.2 | |
| 119 | STI Modest | 2019 | | 35.6 | (2) | 37.2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 120 | STI Maverick | 2019 | | 36.0 | (1) | 37.6 | |
| 121 | STI Lobelia | 2019 | | 49.9 | (2) | 52.1 | |
| 122 | STI Lotus | 2019 | | 49.9 | (2) | 52.0 | |
| 123 | STI Lily | 2019 | | 49.9 | (2) | 52.1 | |
| 124 | STI Lavender | 2019 | | 49.9 | (2) | 52.1 | |
| 125 | STI Miracle | 2020 | | 36.6 | (2) | 38.2 | |
| 126 | STI Maestro | 2020 | | 36.5 | (2) | 38.1 | |
| 127 | STI Mighty | 2020 | | 36.8 | (2) | 38.4 | |
| 128 | STI Maximus | 2020 | | 38.0 | (1) | 39.6 | |
| 129 | Style | 2008 | | N/A | (4) | 0.5 | |
| 130 | Stone | 2008 | | N/A | (4) | 0.5 | |
| 131 | Steel | 2008 | | N/A | (4) | 0.5 | |
| 132 | Sky | 2007 | | N/A | (4) | 0.6 | |
| 133 | STI Le Rocher | 2013 | | 9.1 | (3) | 11.9 | |
| 134 | STI Larvotto | 2013 | | 9.1 | (3) | 11.8 | |
| 135 | STI Beryl | 2013 | | 9.5 | (3) | 12.3 | |
| | | | | | | |
| | | | $ 4,606.1 | | $ 4,810.1 | |
(1) As of December 31, 2021, the basic charter-free market value is lower than each vessel’s carrying value. We believe that the aggregate carrying value of these vessels exceeded their aggregate basic charter-free market value by approximately $177.9 million.
(2) As of December 31, 2021, the basic charter-free market value was higher than each vessel’s carrying value. We believe that the aggregate carrying value of these vessels was lower than their aggregate basic charter-free market value by approximately $124.0 million.
(3) This vessel is a leased vessel that is being accounted for as a ROU vessel under IFRS 16 - Leases. Accordingly, the carrying value reflects the present value of the minimum lease payments plus initial direct costs at the commencement date of the lease less straight-line depreciation over the life of the lease. Independent valuations were not obtained for these vessels, however, they were included as part of our impairment testing as described above.
(4) These vessels were leased vessels that were being accounted for as ROU vessels under IFRS 16 - Leases. The bareboat charters on these vessels expired during the year ended December 31, 2021.
Material Cash Requirements
The following table sets forth our material cash requirements as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Less than | | 1 to 3 | | 3 to 5 | | More than |
| In thousands of U.S. dollars | 1 year | | years | | years | | 5 years |
Principal obligations under secured credit facilities (1) | $ 169,342 | | $ 194,752 | | $ 209,949 | | $ — |
Principal obligations under sale and leaseback liabilities (1) | 183,494 | | 380,472 | | 606,533 | | 495,139 |
Principal obligations under IFRS 16 - lease liabilities (1) | 55,136 | | 110,173 | | 81,604 | | 329,085 |
Estimated interest payments on secured bank loans (2) | 14,629 | | 24,258 | | 7,584 | | — |
Estimated interest payments on sale and leaseback liabilities (2) | 68,304 | | 135,354 | | 88,482 | | 41,866 |
Estimated interest payments on IFRS 16 - lease liabilities (2) | 23,074 | | 47,761 | | 39,095 | | 14,441 |
Technical management fees (3) | 16,152 | | — | | — | | — |
Commercial management fees (4) | 17,041 | | — | | — | | — |
Ballast Water Treatment System purchase commitments (5) | 2,495 | | — | | — | | — |
Exhaust Gas Cleaning System purchase commitments (6) | 11,982 | | 7,325 | | — | | — |
Convertible notes (7) | 69,695 | | — | | 208,133 | | — |
Convertible notes - estimated interest payments (8) | 7,045 | | 12,000 | | 45,427 | | — |
Senior unsecured notes (9) | — | | — | | 70,209 | | — |
Senior unsecured notes - estimated interest payments (10) | 4,915 | | 9,829 | | 2,457 | | — |
| Total | $ 643,304 | | $ 921,924 | | $ 1,359,473 | | $ 880,531 |
(1)Represents principal and maturity payments due on our secured credit facilities, sale and leaseback liabilities and IFRS 16 - lease liabilities which are described in Note 6 and Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F. These payments are based on amounts outstanding as of December 31, 2021.
(2)Represents estimated interest payments on our secured credit facilities, sale and leaseback liabilities and IFRS 16 - lease liabilities. These payments were estimated by taking into consideration: (i) the margin on each financing arrangement and (ii) the forward interest rate curve calculated from interest swap rates, as published by a third party, as of December 31, 2021.
The forward curve was calculated as follows as of December 31, 2021:
| | | | | | | | |
| Year 1 | 0.55 % | |
| Year 2 | 1.33 % | |
| Year 3 | 1.63 % | |
| Year 4 | 1.61 % | (A) |
| Year 5 | 1.75 % | |
| Year 6 | 1.69 % | (A) |
| Year 7 | 1.80 % | |
| Year 8 | 1.76 % | (A) |
| Year 9 | 1.81 % | (A) |
| Year 10 | 1.87 % | |
(A)Third party published interest swap rates were unavailable. As such, we interpolated these rates using the averages of the years in which swap rates were published.
Interest was then estimated using the rates mentioned above multiplied by the amounts outstanding under our various financing arrangements using the balance as of December 31, 2021 and taking into consideration the scheduled amortization of such arrangements going forward until their respective maturities. As of December 31, 2021, the weighted-average margin on our variable rate financing was (i) 2.39% on our secured credit facilities, (ii) 3.54% on our sale and leaseback liabilities, and (iii) 3.50% on our IFRS 16 - lease liabilities. Additionally, the following sale and leaseback liabilities and IFRS 16 - lease liabilities do not have a variable interest component: BCFL Lease Financing (MRs); $116.0 Million Lease Financing; the scrubber portion of BCFL Lease Financing (LR2s); and IFRS 16 - Leases - 3 MR. Accordingly, the interest portion of these liabilities are calculated using the implied interest rate in these agreements.
(3)Our technical manager, SSM, charges fees for its services pursuant to a Revised Master Agreement. Pursuant to this agreement, the fixed annual technical management fee is $175,000, and certain other services are itemized. The aggregate cost, including the costs that are itemized, are approximately $250,000 per year. Under the terms of the Revised Master Agreement, the termination fees are subject to a notice period of three months and a payment equal to three months of management fees which would be due and payable upon the sale of a vessel, so long as such termination does not amount to a change of control of the Company, including a sale of all or substantially all vessels, in which case, a payment equal to 24 months of management fees will apply.
(4)We pay our commercial manager, SCM, $250 per vessel per day for LR2 vessels, $300 per vessel per day for LR1/Panamax and Aframax vessels, $325 per vessel per day for MR and Handymax vessels plus a 1.50% commission on gross revenue for vessels that are in one of the Scorpio Pools. When the vessels are not in the pools, SCM charges fees of $250 per vessel per day for LR1/Panamax and LR2/Aframax vessels, $300 per vessel per day for Handymax and MR vessels plus a 1.25% commission on gross revenue.
These fees are subject to a notice period of three months and a payment equal to three months of management fees which would be due and payable upon the sale of a vessel, so long as such termination does not amount to a change of control of the Company, including a sale of all or substantially all vessels, in which case, a payment equal to 24 months of management fees will apply.
(5)Represents obligations as of December 31, 2021 under our agreements to purchase ballast water treatment systems as described in the section above entitled "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Capital Expenditures". These amounts exclude installation costs and are subject to change as installation times are finalized.
(6)Represents obligations as of December 31, 2021 under our agreement to purchase exhaust gas cleaning systems ("scrubbers") as described in the section above entitled "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Capital Expenditures".
(7)Represents the principal due at maturity on our Convertible Notes Due 2022 and our Convertible Notes Due 2025 (including the Accreted Principal Amount of $8.1 million, which is defined in Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F) as of December 31, 2021.
(8)Represents estimated coupon interest payments on our Convertible Notes Due 2022 and our Convertible Notes Due 2025 as of December 31, 2021. The Convertible Notes Due 2022 bear interest at a coupon rate of 3.00% per annum and mature in May 2022. The Convertible Notes Due 2025 bear interest at a coupon rate of 3.00% per annum and mature in May 2025.
(9)Represents the principal due at maturity on our Senior Notes Due 2025 as of December 31, 2021.
(10)Represents estimated coupon interest payments on our Senior Notes Due 2025 as of December 31, 2021. The Senior Notes Due 2025 bear interest at a coupon rate of 7.00% per annum and mature in June 2025.
Off-Balance Sheet Arrangements
As of December 31, 2021, we were committed to purchasing scrubbers and ballast water treatment systems.
See “Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources” and "Item 7. Major Shareholders and Related Party Transactions - B. Related Party Transactions" for further information.
C. Research and Development, Patents and Licenses, Etc.
Not applicable.
D. Trend Information
See "Item 4. Information on the Company - B. Business Overview - The International Oil Tanker Shipping Industry."
E. Critical Accounting Estimates
In the application of the accounting policies, we are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
A description of the significant accounting judgments and estimates can be found in Note 1 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Set forth below are the names, ages and positions of our directors and executive officers as of the date of this annual report. Our Board of Directors is elected annually, and each director elected holds office for a three-year term or until his or her successor shall have been duly elected and qualified, except in the event of his or her death, resignation, removal or the earlier termination of his or her term of office. The terms of our Class I directors expire at the 2023 annual meeting of shareholders, the terms of our Class II directors expire at the 2024 annual meeting of shareholders, and the terms of our Class III directors expire at the 2022 annual meeting of shareholders. Officers are elected from time to time by vote of our Board of Directors and hold office until a successor is elected. The business address for each director and executive officer is the address of our principal executive office which is Scorpio Tankers Inc., 9, Boulevard Charles III, Monaco 98000.
Certain of our officers participate in business activities not associated with us. As a result, they may devote less time to us than if they were not engaged in other business activities and may owe fiduciary duties to both our shareholders as well as shareholders of other companies to which they may be affiliated, including other Scorpio companies. This may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest would be resolved in our favor. While there are no formal requirements or guidelines for the allocation of our officers' time between our business and the business of members of Scorpio, their performance of their duties is subject to the ongoing oversight of our Board of Directors.
| | | | | | | | | | | | | | |
| Name | | Age | | Position |
| Emanuele A. Lauro | | 43 | | Chairman, Class I Director, and Chief Executive Officer |
| Robert Bugbee | | 61 | | President and Class II Director |
| Cameron Mackey | | 53 | | Chief Operating Officer and Class III Director |
| Brian Lee | | 55 | | Chief Financial Officer |
| Filippo Lauro | | 45 | | Vice President |
| Alexandre Albertini | | 45 | | Class III Director |
| Ademaro Lanzara | | 79 | | Class I Director |
| Marianne Økland | | 59 | | Class III Director |
| Jose Tarruella | | 50 | | Class II Director |
| Reidar Brekke | | 60 | | Class II Director |
| Merrick Rayner | | 66 | | Class I Director |
Biographical information concerning the directors and executive officers listed above is set forth below.
Emanuele A. Lauro, Chairman and Chief Executive Officer
Emanuele A. Lauro, the Company's founder, has served as Chairman and Chief Executive Officer since the closing of our initial public offering in April 2010. He also co-founded and serves as Chairman and Chief Executive Officer of Eneti Inc. (NYSE: NETI), which was formed in 2013. Mr. Emanuele Lauro also served as director and Chief Executive Officer of Hermitage Offshore Services Ltd. between 2018 and 2021. Mr. Emanuele Lauro joined Scorpio in 2003 and has continued to serve there in a senior management position since 2004. Under his leadership, Scorpio has grown from an owner of three vessels in 2003 to become a leading operator and manager of more than 200 vessels in 2021. Over the course of the last several years, Mr. Emanuele Lauro has founded and developed all of the Scorpio Pools in addition to several other ventures such as Scorpio Logistics, which owns and operates specialized assets engaged in the transshipment of dry cargo commodities and invests in coastal transportation and port infrastructure developments in Asia and Africa since 2007. He is the President of the Monaco Chamber of Shipping and is also a member of the Advisory Board of Fordham University. In addition, Mr. Emanuele Lauro served as director of the Standard Club from May 2013 to January 2019. He has a degree in international business from the European Business School, London. Mr. Emanuele Lauro is the brother of our Vice President, Mr. Filippo Lauro.
Robert Bugbee, President and Director
Robert Bugbee has served as a Director and President since the closing of our initial public offering in April 2010. He has more than 36 years of experience in the shipping industry. Mr. Bugbee also co-founded and serves as President and Director of Eneti Inc. since July and April 2013, respectively. He also served as President and director of Hermitage Offshore Services Ltd. between 2018 and 2021. He joined Scorpio in March 2009 and has continued to serve there in a senior management position. Prior to joining Scorpio, Mr. Bugbee was a partner at Ospraie Management LLP between 2007 and 2008, a company which advises and invests in commodities and basic industries. From 1995 to 2007, he was employed at OMI Corporation, or OMI, a NYSE-listed tanker company which was sold in 2007. While at OMI, Mr. Bugbee served as President from January 2002 until the sale of the company, and before that served as Executive Vice President since January 2001, Chief Operating Officer since March 2000, and Senior Vice President from August 1995 to June 1998. Mr. Bugbee joined OMI in February 1995. Prior to this, he was employed by Gotaas-Larsen Shipping Corporation since 1984. During this time, Mr. Bugbee took a two year sabbatical beginning 1987 for the M.I.B. Program at the Norwegian School for Economics and Business Administration in Bergen. He has a B.A. (Honors) from London University.
Cameron Mackey, Chief Operating Officer and Director
Cameron Mackey has served as the Company's Chief Operating Officer since the closing of our initial public offering in April 2010 and as a Director since May 2013. Mr. Mackey also serves as Chief Operating Officer of Eneti Inc. since July 2013. He also served as Chief Operating Officer of Hermitage Offshore Services Ltd. between 2018 and 2021 and as a director since July 2019 He joined Scorpio in March 2009, where he continues to serve in a senior management position. Prior to joining Scorpio, Mr. Mackey was an equity and commodity analyst at Ospraie Management LLC from 2007 to 2008. Prior to that, he was Senior Vice President of OMI Marine Services LLC from
2004 to 2007, where he was also in Business Development from 2002 to 2004. Mr. Mackey has been employed in the shipping industry since 1994 and, earlier in his career, was employed in unlicensed and licensed positions in the merchant navy, primarily on tankers in the international fleet of Mobil Oil Corporation, where he held the qualification of Master Mariner. He has an M.B.A. from the Sloan School of Management at the Massachusetts Institute of Technology, a B.S. from the Massachusetts Maritime Academy and a B.A. from Princeton University.
Brian Lee, Chief Financial Officer
Brian Lee has served as Chief Financial Officer since the closing of our initial public offering in April 2010. He joined Scorpio in April 2009, where he continues to serve in a senior management position. He has been employed in the shipping industry since 1998. Prior to joining Scorpio, he was the Controller of OMI from 2001 until the sale of the company in 2007. Mr. Lee has an M.B.A. from the University of Connecticut and has a B.S. in Business Administration from the University at Buffalo, State University of New York.
Filippo Lauro, Vice President
Mr. Filippo Lauro has served as an executive officer of the Company with the title of Vice President since May 2015. He also serves as Vice President of Eneti Inc. since June 2016. Mr. Filippo Lauro served as Vice President of Hermitage Offshore Services Ltd. between 2018 and 2021. Mr. Filippo Lauro joined Scorpio in 2010 and has continued to serve there in a senior management position. Prior to joining Scorpio, he was the founder of and held senior executive roles in several private companies, primarily active in real estate, golf courses and resorts development. Mr. Filippo Lauro is the brother of our Chairman and Chief Executive Officer, Mr. Emanuele Lauro.
Ademaro Lanzara, Director
Ademaro Lanzara has served on our Board of Directors since the closing of our initial public offering in April 2010 and is our lead independent director. Mr. Lanzara has served as Chairman of Alkemia Capital Partners Sgr SpA, Padova since June 2018. Mr. Lanzara previously served as the Chairman of NEM Sgr SpA, Vicenza from November 2013 to June 2018, as the Chairman of BPV Finance (International) Plc Dublin from 2008 to May 2018, as the deputy Chairman and Chairman of the Audit and Compliance Committee of Cattolica Life DAC, Dublin from 2011 to July 2017 and as Chairman of BPVI Fondi Sgr SpA, Milano from April 2012 to November 2013. From 1963 to 2006, Mr. Lanzara held a number of positions with BNL spa Rome, a leading Italian banking group, including Deputy Group CEO, acting as the Chairman of the Credit Committee and Chairman of the Finance Committee. He also served as Chairman and/or director of a number of BNL controlled banks or financial companies in Europe, the United States and South America. He formerly served as a director of each of Istituto dell’Enciclopedia Italiana fondata da Giovanni Treccani Spa, Rome, Italy, the Institute of International Finance Inc. in Washington DC, Compagnie Financiere Edmond de Rothschild Banque, in Paris, France, ABI-Italian Banking Association in Rome, Italy, FITD-Interbank deposit Protection Fund, in Rome, Italy, ICC International Chamber of Commerce Italian section, Rome, Italy and Co-Chairman Round Table of Bankers and Small and Medium Enterprises, European Commission, in Brussels, Belgium. Mr. Lanzara has an economics degree (graduated magna cum laude) from the University of Naples, a law degree from the University of Naples and completed the Program for Management Development (PMD) at Harvard Business School.
Alexandre Albertini, Director
Alexandre Albertini has served on our Board of Directors since the closing of our initial public offering in April 2010. Mr. Albertini has more than 21 years of experience in the shipping industry. He has been employed by Marfin Management SAM, a drybulk ship management company, since 1997 and has served as its CEO since October 2010. Marfin operates Handymax to Ultramax dry cargo vessels, providing services such as technical and crew management as well as insurance, legal, financial, and information technology. In 2017, Mr. Albertini founded Factor8 Shipping SARL, a drybulk commercial management company managing on average 15 vessels. He also serves as President of Ant. Topic srl, a vessel and crewing agent based in Trieste, Italy. Mr. Albertini serves on the board of a private company in addition to various trade associations; BIMCO, Monaco Chamber of Shipping and since January 2016 has been a Director of The Steamship Mutual Underwriting Association (Bermuda) Limited.
Marianne Økland, Director
Marianne Økland has served on the Company's Board of Directors since April 2013. She is also an independent director on the Professional Welsh Rugby Board responsible for the Welsh national teams and the four professional regional teams and was a non-executive director and Chair of the Audit Committee at Hermitage Offshore Services Ltd. Between 2010 and 2019, she held various non-executive director positions at IDFC Limited, IDFC Alternatives (India), Islandsbanki (Iceland), the National Bank of Greece and NLB (Slovenia). She was also a member of the Audit Committee of the National Bank of Greece, and the Chair of the Audit Committee of each of IDFC Limited and NLB (Slovenia). In addition, Ms. Økland served as Managing Director of Avista Partners, a London based consultancy company that provides advisory services and raises capital, from 2009 to 2018. Between 1993 and 2008, she held various investment banking positions at JP Morgan Chase & Co. and UBS where she focused on debt capital raising and structuring. Ms. Økland has led many transactions for large Nordic banks and insurance companies and worked on some of the most significant mergers and acquisitions in these sectors. Between 1988 and 1993, she headed European operations of Marsoft, a Boston, Oslo and London based consulting firm that advises banks and large shipping, oil and raw material companies on shipping strategies and investments. Ms. Økland holds a M.Sc. degree in Finance and Economics from the Norwegian School of Economics and Business Administration where she also worked as a researcher and taught mathematics and statistics.
Jose Tarruella, Director
Jose Tarruella has served on our Board of Directors since May 2013. He is the founder and Chairman of Taorfi Gestion s.l., a company specializing in advertising and public relations, since February 2018. Mr. Tarruella is also the founder and Chairman of Camino de Esles s.l., a high-end restaurant chain with franchises throughout Madrid, Spain, since 2007. Prior to forming Taorfi Gestion and Camino de Esles, Mr. Tarruella was a Director in Group Tragaluz, which owns and operates restaurants throughout Spain. Mr. Tarruella also acted as a consultant for the Spanish interests of Rank Group plc (LSE: RNK.L) a leading European gaming-based entertainment business. He has been involved in corporate relations for Esade Business School in Madrid. He earned an International MBA from Esade Business School in Barcelona and an MA from the University of Navarre in Spain.
Reidar C. Brekke, Director
Reidar C. Brekke has served on the Company's Board of Directors since December 2016. Mr. Brekke has over 21 years’ experience in the international energy, container logistics and transportation sector. He also serves as a partner of Brightstar Capital Partners, a middle market private equity firm. From June 2010 to January 2022 he was a member of the Board of Directors of Performance Shipping Inc. (NASDAQ: PSHG) and from December 2012 to August 2018, Mr. Brekke served as a board member and President of Intermodal Holdings LP, a New York based portfolio company that invests in and operates marine containers. From 2008 to 2012, Mr. Brekke served as President of Energy Capital Solution Inc., a company that provides strategic and financial advisory services to international shipping, logistics and energy related companies. From 2003 to 2008, he served as Manager of Poten Capital Services LLC, a registered broker-dealer specialized in the maritime sector. Prior to 2003, Mr. Brekke served as Chief Financial Officer, then President and Chief Operating Officer, of SynchroNet Marine, a logistics service provider to the global container transportation industry. He also held various senior positions with AMA Capital Partners LLC (formerly American Marine Advisers), a merchant banking firm focused on the maritime and energy industries. Furthermore, Mr. Brekke has been an adjunct professor at Columbia University’s School of International and Public Affairs - Center for Energy, Marine Transportation and Public Policy. Mr. Brekke graduated from the New Mexico Military Institute in 1986 and has an MBA from the University of Nevada, Reno.
Merrick Rayner, Director
Merrick Rayner has served on our Board of Directors since September 2017. Mr. Rayner has 42 years of experience in the tanker business. From 1974 to 2003, Mr. Rayner was a broker at H. Clarkson & Company Limited shipbrokers, with experience in both the deep-sea tanker chartering business as well as new and second-hand vessel sale and purchase. From 1987 to 1989, Mr. Rayner served as Director of Clarkson Sale and Purchase Division. From 1989 until leaving H. Clarkson & Company Limited in 2003, he was a director of the company, and also served as a director of Clarkson Research Studies from 1992 until 2003. In 2003, Mr. Rayner joined E.A. Gibson’s shipbrokers as a broker,
where he developed the company’s time charter and projects group. He also served as a director of Gibson’s from 2012 until his retirement in 2016. Mr. Rayner currently resides in the United Kingdom.
B. Compensation
We paid an aggregate compensation of $23.0 million, $33.2 million and $32.5 million to our senior executive officers in 2021, 2020, and 2019, respectively. Executive management remuneration was as follows during these periods:
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 | | 2019 |
| Short-term employee benefits (salaries) | $ 5,488 | | $ 10,989 | | $ 10,821 |
Share-based compensation (1) | 17,476 | | 22,217 | | 21,712 |
| Total | $ 22,964 | | $ 33,206 | | $ 32,533 |
(1)Represents the amortization of restricted stock issued under our equity incentive plans. See Note 14 to our Consolidated Financial Statements included herein for further description.
Each of our non-employee directors receive cash compensation in the aggregate amount of $60,000 annually, plus an additional fee of $10,000 for each committee on which a director serves plus an additional fee of $25,000 for each committee for which a director serves as Chairman, per year, plus an additional fee of $35,000 to the lead independent director, per year, plus $2,000 for each meeting, plus reimbursements for actual expenses incurred while acting in their capacity as a director. During each of the years ended December 31, 2021 and 2020, we paid aggregate cash compensation of $0.9 million and $0.9 million to our directors, respectively. Our officers and directors are also eligible to receive awards under our equity incentive plan which is described below under “—2013 Equity Incentive Plan.”
We believe that it is important to align the interests of our directors and management with that of our shareholders. In this regard, we have determined that it will generally be beneficial to us and to our shareholders for our directors and management to have a stake in our long-term performance. We expect to have a meaningful component of our compensation package for our directors and management consisted of equity interests in us in order to provide them on an on-going basis with a meaningful percentage of ownership in us.
There are no material post-employment benefits for our executive officers or directors. By law, our employees in Monaco are entitled to a one-time payment of up to two months' salary upon retirement if they meet certain minimum service requirements.
2013 Equity Incentive Plan
In April 2013, we adopted an equity incentive plan, which was amended in March 2014 and which we refer to as the 2013 Equity Incentive Plan, under which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates are eligible to receive incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock. We initially reserved a total of 500,000 common shares for issuance under the 2013 Equity Incentive Plan which was increased by an aggregate of 4,342,783 common shares through December 31, 2018 and subsequently revised as follows:
The following is the reloading of additional common shares in 2019, 2020 and 2021 under the 2013 Equity Incentive Plan:
| | | | | | | | | | | |
| Date of Reload | Common Shares Reserved | Par Value |
| 1 | February 2019 | 86,977 | $0.01 per share |
| 2 | July 2019 | 134,893 | $0.01 per share |
| 3 | December 2019 | 529,624 | $0.01 per share |
| 4 | June 2020 | 362,766 | $0.01 per share |
| 5 | December 2020 | 367,603 | $0.01 per share |
| 6 | June 2021 | 386,883 | $0.01 per share |
| 7 | October 2021 | 693,864 | $0.01 per share |
All other terms of the 2013 Equity Incentive Plan remained unchanged.
Under the terms of the 2013 Equity Incentive Plan, stock options and stock appreciation rights granted under the 2013 Equity Incentive Plan will have an exercise price equal to the fair market value of a common share on the date of grant, unless otherwise determined by the plan administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of grant. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan administrator, but in no event will they be exercisable later than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting, forfeiture and other terms and conditions as determined by the plan administrator. Following the vesting of a restricted stock unit, the award recipient will be paid an amount equal to the number of vested restricted stock units multiplied by the fair market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction, change in capitalization or other extraordinary event. In the event of a “change in control” (as defined in the 2013 Equity Incentive Plan), unless otherwise provided by the plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
Our Board of Directors may amend or terminate the 2013 Equity Incentive Plan and may amend outstanding awards, provided that no such amendment or termination may be made that would materially impair any rights, or materially increase any obligations, of a grantee under an outstanding award. Shareholder approval of plan amendments will be required under certain circumstances. Unless terminated earlier by our Board of Directors, the 2013 Equity Incentive Plan will expire ten years from the date the plan was adopted.
The following paragraphs summarize our grants of restricted stock during the years ended December 31, 2021, 2020, and 2019. The vesting periods of these grants are determined by the plan administrator and generally range from one to five years. Additionally, vesting of these grants is generally subject to a grantee's continued employment with the Company through the vesting date unless the grantee is terminated without cause or due to the grantee's death or disability.
In June 2019, we issued 112,750 shares of restricted stock to our employees and 107,500 to SSH employees for no cash consideration. The share price on the issuance date was $24.93 per share. The vesting schedule of the restricted stock issued to both our employees and SSH employees is (i) one-third of the shares vest on June 6, 2022, (ii) one-third of the shares vest on June 5, 2023 and (iii) one-third of the shares vest on June 4, 2024.
In July 2019, we issued 230,170 shares of restricted stock to our employees for no cash consideration. The share price on the issuance date was $26.23 per share. The vesting schedule of the restricted stock issued to our employees is (i) one-third of the shares vest on May 24, 2022, (ii) one-third of the shares vest on May 23, 2023, and (iii) one-third of the shares vest on May 22, 2024.
In December 2019, we issued 60,000 shares of restricted stock to our independent directors for no cash consideration. The share price on the issuance date was $33.90 per share. The vesting schedule of the restricted stock issued to our independent directors is (i) one-third of the shares vested on December 4, 2020, (ii) one-third of the shares vested on December 3, 2021, and (iii) one-third of the shares vest on December 2, 2022.
In January 2020, we issued 469,680 shares of restricted stock to certain of our employees for no cash consideration. The share price on the issuance date was $36.73 per share. The vesting schedule for these restricted shares is (i) one-third of the shares vest on September 8, 2022, (ii) one-third of the shares vest on September 7, 2023, and (iii) one-third of the shares vest on September 5, 2024.
In September 2020, we issued 220,500 shares of restricted stock to certain of our employees for no cash consideration. The share price on the issuance date was $11.15 per share. The vesting schedule for these restricted shares is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In September 2020, we issued 141,900 shares of restricted stock to certain SSH employees for no cash consideration. The share price on the issuance date was $11.15 per share. The vesting schedule of the restricted stock issued to SSH employees is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In December 2020, we issued 90,000 shares of restricted stock to our independent directors and 3,000 to an SSH employee for no cash consideration. The share price on the issuance date was $11.36 per share. The vesting schedule of the restricted stock issued to independent directors is (i) one-third of the shares vested on December 3, 2021, (ii) one-third of the shares vest on December 2, 2022, and (iii) one-third of the shares vest on December 1, 2023. The vesting schedule of restricted stock issued to the SSH employee is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In April 2021, we issued 276,369 shares of restricted stock to certain of our employees for no cash consideration. The share price on the issuance date was $18.38 per share. The vesting schedule for these restricted shares is (i) one-third of the shares vest on March 1, 2024, (ii) one-third of the shares vest on March 3, 2025, and (iii) one-third of the shares vest on March 2, 2026.
Employment Agreements
We have entered into employment agreements with the majority of our executives. These employment agreements remain in effect until terminated in accordance with their terms upon not less than between 24 months' and 36 months' prior written notice, depending on the terms of the employment agreement applicable to each executive. Pursuant to the terms of their respective employment agreements, our executives are prohibited from disclosing or unlawfully using any of our material confidential information.
Upon a change in control of us, the annual bonus provided under the employment agreement becomes a fixed bonus of between 150% and 250% of the executive’s base salary, and the executive may receive an assurance bonus equal to the fixed bonus, depending on the terms of the employment agreement applicable to each executive.
Any such executive may be entitled to receive upon termination an assurance bonus equal to such fixed bonus and an immediate lump-sum payment in an amount equal to three times the sum of the executive’s then current base salary and the assurance bonus, and he will continue to receive all salary, compensation payments and benefits, including additional bonus payments, otherwise due to him, to the extent permitted by applicable law, for the remaining balance of his then-existing employment period. If an executive’s employment is terminated for cause or voluntarily by the employee, he shall not be entitled to any salary, benefits or reimbursements beyond those accrued through the date of his termination, unless he voluntarily terminated his employment in connection with certain conditions. Those conditions include a change in control combined with a significant geographic relocation of his office, a material diminution of his duties and responsibilities, and other conditions identified in the employment agreement.
C. Board Practices
Our Board of Directors currently consists of nine directors, six of whom have been determined by our Board of Directors to be independent under the rules of the NYSE and the rules and regulations of the SEC. Our Board of Directors has an Audit Committee, a Nominating and Corporate Governance Committee, a Compensation Committee and a Regulatory and Compliance Committee, each of which is comprised of certain of our independent directors, who are Messrs. Alexandre Albertini, Ademaro Lanzara, Jose Tarruella, Reidar Brekke, Mrs. Marianne Økland and Mr. Merrick Rayner. The Audit Committee, among other things, reviews our external financial reporting, engages our external auditors and oversees our internal audit activities, procedures and the adequacy of our internal controls. In addition, provided that no member of the Audit Committee has a material interest in such transaction, the Audit Committee is responsible for reviewing transactions that we may enter into in the future with other members of Scorpio that our board believes may present potential conflicts of interests between us and Scorpio. The Nominating and Corporate Governance Committee is responsible for recommending to the Board of Directors nominees for director appointments and directors for appointment to board committees and advising the board with regard to corporate governance practices. The Compensation Committee oversees our equity incentive plan and recommends director and senior employee compensation. The Regulatory and Compliance Committee oversees our operations to minimize environmental impact by the constant monitoring and measuring of progress of our vessels. Our shareholders may also nominate directors in accordance with procedures set forth in our bylaws.
D. Employees
As of December 31, 2021 and 2020, we had 26 and 25 shore-based employees, respectively. SSM and SCM were responsible for our commercial and technical management.
E. Share Ownership
The following table sets forth information regarding the share ownership of our common stock as of March 18, 2022 by our directors and executive officers, including the restricted shares issued to our executive officers and to our independent directors as well as distributions of dividends from Eneti, a related party, and shares purchased in the open market.
| | | | | | | | | | | | | | |
| Name | | No. of Shares | | % Owned (5) |
Emanuele A. Lauro (1) | | 714,681 | | 1.22 % |
Robert Bugbee (2) | | 2,143,599 | | 3.67 % |
Cameron Mackey (3) | | 732,862 | | 1.26 % |
Brian M. Lee (4) | | 693,720 | | 1.19 % |
| All other executive officers and directors individually | | * | | * |
(1)Includes 595,893 unvested shares of restricted stock from the 2013 Equity Incentive Plan.
(2)Includes 595,893 unvested shares of restricted stock from the 2013 Equity Incentive Plan and assuming the full exercise of call options on 1,535,000 common shares.
(3)Includes 424,156 unvested shares of restricted stock from the 2013 Equity Incentive Plan.
(4)Includes 303,758 unvested shares of restricted stock from the 2013 Equity Incentive Plan.
(5)Based on 58,369,516 common shares outstanding as of March 18, 2022.
* The remaining executive officers and directors individually each own less than 1% of our outstanding shares of common stock.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
A. Major shareholders.
The following table sets forth information regarding beneficial ownership of our common stock for owners of more than five percent of our common stock, of which we are aware as of March 18, 2022.
| | | | | | | | | | | | | | |
| Name | | No. of Shares | | % Owned (3) |
| Scorpio Holdings Limited | | 3,556,735 | (1) | 6.1 % |
| Blackrock Inc. | | 3,712,955 | (2) | 6.4 % |
(1) This information is derived from a Schedule 13D/A filed with the SEC on December 23, 2020 and other information made available to the Company.
(2) This information is derived from a Schedule 13G/A filed with the SEC on February 3, 2022.
(3) Based on 58,369,516 common shares outstanding as of March 18, 2022.
As of March 18, 2022, we had 162 shareholders of record, 60 of which were located in the United States and held an aggregate of 55,679,052 shares of our common stock, representing 95.39% of our outstanding shares of common stock. However, one of the U.S. shareholders of record is Cede & Co., a nominee of The Depository Trust Company, which held 54,005,736 shares of our common stock, as of that date.
Additionally, Eneti currently owns 2,155,140 common shares of the Company, representing approximately 3.7% of our outstanding common shares as of March 18, 2022, which it acquired through transactions directly with the Company.
B. Related Party Transactions
Management of Our Fleet
Revised Master Agreement
On September 29, 2016, we agreed to amend our master agreement, or the Master Agreement, with SCM and SSM under a deed of amendment, or the Deed of Amendment. Pursuant to the terms of the Deed of Amendment, on November 15, 2016, we entered into definitive documentation to memorialize the agreed amendments to the Master Agreement, or the Amended and Restated Master Agreement.
On February 22, 2018, we entered into definitive documentation to memorialize agreed amendments to the Amended and Restated Master Agreement under a deed of amendment, or the Amendment Agreement. The Amended and Restated Master Agreement as amended by the Amendment Agreement, or the Revised Master Agreement, is effective as from January 1, 2018.
Pursuant to the Revised Master Agreement, the fixed annual technical management fee was reduced from $250,000 per vessel to $175,000, and certain services previously provided as part of the fixed fee are now itemized. The aggregate cost, including the costs that are now itemized, for the services provided under the technical management agreement have not, and are not expected to materially differ from the annual management fee charged prior to the amendment.
The independent members of our Board of Directors unanimously approved the revised technical management agreement described in the preceding paragraph.
Commercial and Technical Management
Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the Revised Master Agreement (described above), which may be terminated by either party upon 24 months' notice, unless terminated earlier in accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a notice period of three months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a payment equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially similar terms.
SCM’s services include securing employment for our vessels in the spot market and on time charters. SCM also manages the Scorpio Pools. When our vessels are in the Scorpio Pools, SCM, the pool manager, charges fees of $300 per vessel per day with respect to our LR1/Panamax vessels and Aframax vessels, $250 per vessel per day with respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third-party owned vessels. For commercial management of our vessels that do not operate in any of the Scorpio Pools, we pay SCM a fee of $250 per vessel per day for each LR1/Panamax and LR2/Aframax vessel and $300 per vessel per day for each Handymax and MR vessel, plus 1.25% commission on gross revenues per charter fixture. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges the Company’s vessels to effectively reduce such to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.
SSM’s services include day-to-day vessel operation, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. Prior to January 1, 2018, we paid SSM $685 per vessel per day to provide technical management services for each of our vessels. This fee was based on contracted rates that were the same as those charged to other third party vessels managed by SSM at the time the management agreements were entered into. Effective January 1, 2018, the fixed annual technical management fee was reduced from $250,000 per vessel to $175,000, and certain services previously provided as part of the fixed fee are now itemized, as noted above.
Amended Administrative Services Agreement
We have an Amended Administrative Services Agreement with SSH or our Administrator, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is a related party to us. We reimburse our current Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. The services provided to us by our Administrator may be sub-contracted to other entities within Scorpio.
Further, pursuant to our Amended Administrative Services Agreement, our Administrator, on behalf of itself and other members of Scorpio, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.
Tanker pools
To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. The managers of the pools negotiate charters with customers primarily in the spot market but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market while providing a higher level of service offerings to customers. When we employ a vessel in the spot charter market, we generally place such vessel in a tanker pool managed by our commercial manager that pertains to that vessel’s size class. The earnings allocated to vessels (charterhire expense for the pool) are aggregated and divided on the basis of a weighted scale, or Pool Points, which reflect comparative voyage results on hypothetical benchmark routes. The Pool Point system generally favors those vessels with greater cargo-carrying capacity and those with better fuel consumption. Pool Points are also awarded to vessels capable of carrying clean products and to vessels capable of trading in certain ice conditions. We currently participate in four pools: the Scorpio LR2 Pool, the Scorpio LR1 Pool, the Scorpio MR Pool and the Scorpio Handymax Tanker Pool.
SCM is responsible for the commercial management of participating vessels in the pools, including the marketing, chartering, operating and bunker (fuel oil) purchases of the vessels. The Scorpio LR2 Pool is administered by Scorpio LR2 Pool Ltd., the Scorpio LR1 Pool is administered by Scorpio LR1 Pool Ltd, the Scorpio MR Pool is administered by Scorpio MR Pool Ltd. and the Scorpio Handymax Tanker Pool is administered by Scorpio Handymax Tanker Pool Ltd. Our founder, Chairman and Chief Executive Officer and Vice President are members of the Lolli-Ghetti family which owns a majority of the issued and outstanding stock of Scorpio LR2 Pool Ltd., Scorpio LR1 Pool Ltd., Scorpio MR Pool Ltd., and Scorpio Handymax Tanker Pool Ltd., or the Pool Entities. Taking into account the recommendations of a pool committee and a technical committee, each of which is comprised of representatives of each pool participant, the Pool Entities set the respective pool policies and issue directives to the pool participants and SCM. The pool participants remain responsible for all other costs including the financing, insurance, manning and technical management of their vessels. The earnings of all of the vessels are aggregated and divided according to the relative performance capabilities of the vessel and the actual earning days for which each vessel is available.
Our Relationship with Scorpio and its Affiliates
Scorpio is owned and controlled by the Lolli-Ghetti family, of which Messrs. Emanuele Lauro and Filippo Lauro are members. Annalisa Lolli-Ghetti is majority owner of Scorpio (of which our administrator and commercial and technical managers are members) and beneficially owns approximately 6.1% of our common shares. We are not affiliated with any other entities in the shipping industry other than those that are members of Scorpio.
In addition, Mr. Emanuele Lauro, Mr. Robert Bugbee and other members of our senior management have an indirect minority equity interest in SSH, our Administrator, a member of Scorpio.
SCM and SSM, our commercial manager and technical manager, respectively, are also members of Scorpio. For information regarding the details regarding our relationship with SCM, SSM and SSH, please see “– Management of our Fleet.”
Our Board of Directors consists of nine individuals, six of whom are independent directors. Three of the independent directors form the board’s Audit Committee and, pursuant to the Audit Committee charter, are required to review all potential conflicts of interest between us and related parties, including Scorpio. Our three non-independent directors and all of our executive officers serve in senior management positions in certain other companies within Scorpio.
Transactions with Related Parties
Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related parties) in the consolidated statements of income and balance sheet are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| In thousands of U.S. dollars | | 2021 | | 2020 | | 2019 |
Pool revenue(1) | | | | | | |
| Scorpio MR Pool Limited | | $ 256,874 | | $ 340,937 | | $ 261,727 |
| Scorpio LR2 Pool Limited | | 180,912 | | 369,476 | | 260,893 |
| Scorpio Handymax Tanker Pool Limited | | 50,143 | | 105,355 | | 103,150 |
| Scorpio LR1 Pool Limited | | 47,053 | | 87,028 | | 66,009 |
Voyage revenue(2) | | — | | 2,334 | | — |
Voyage expenses(3) | | (1,461) | | (3,507) | | (2,414) |
Vessel operating costs(4) | | (35,427) | | (33,896) | | (31,732) |
Administrative expenses(5) | | (13,557) | | (13,876) | | (12,975) |
(1)These transactions relate to revenue earned in the Scorpio Pools. The Scorpio Pools are related parties. When our vessels are in the Scorpio Pools, SCM, the pool manager, charges fees of $300 per vessel per day with respect to our LR1/Panamax and Aframax vessels, $250 per vessel per day with respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus a commission of 1.50% on gross revenue per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third party vessels. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges the Company’s vessels to effectively reduce such to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.
(2)These transactions relate to revenue earned in the spot market on voyages chartered through SSH, a related party affiliate.
(3)Related party expenditures included within voyage expenses in the consolidated statements of income or loss consist of the following:
•Expenses due to SCM, a related party, for commissions related to the commercial management services provided by SCM under the commercial management agreement for vessels that are not in one of the Scorpio Pools. SCM’s services include securing employment, in the spot market and on time charters, for our vessels. When not in one of the Scorpio Pools, each vessel pays (i) flat fees of $250 per day for LR1/Panamax and LR2/Aframax vessels and $300 per day for Handymax and MR vessels and (ii) commissions of 1.25% of their gross revenue per charter fixture. These expenses are included in voyage expenses in the consolidated statements of income or loss. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges the Company’s vessels to effectively reduce such to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.
•Bunkers of $2.6 million, $3.6 million, and $0.8 million were purchased from a related party bunker provider during the years ended December 31, 2021, 2020, and 2019, respectively. These bunkers were purchased when our vessels were operating in the spot market, outside of the Scorpio Pools. Approximately $1.4 million, $2.9 million, and $0.3 million, respectively, of these purchases were consumed during the spot market voyages, and the remaining unconsumed portion was considered a working capital contribution to the pool (see below for a description on the accounting for working capital contributions to the Scorpio Pools) when the vessels re-joined the pools during the years ended December 31, 2021 and 2020, respectively.
•Voyage expenses of $19,175, $4,925 and $4,357 charged by a related party port agent during the years ended December 31, 2021, 2020 and 2019 respectively. SSH has a majority equity interest in a port agent that provides supply and logistical services for vessels operating in its regions.
(4)Related party expenditures included within vessel operating costs in the consolidated statements of income or loss consist of the following:
•Technical management fees of $32.7 million, $31.9 million, and $30.0 million charged by SSM, a related party, during the years ended December 31, 2021, 2020. and 2019 respectively. SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants, and providing technical support. SSM administers the payment of salaries to our crew on our behalf. The crew wages that were administered by SSM (and disbursed through related party subcontractors of SSM) were $152.0 million, $146.0 million, and $138.9 million during the years ended December 31, 2021, 2020 and 2019 respectively. SSM's annual technical management fee is a fixed fee of $175,000 per vessel plus certain itemized expenses pursuant to the technical management agreement.
•Vessel operating expenses of $2.7 million, $2.0 million and $1.7 million charged by a related party port agent during the years ended December 31, 2021, 2020 and 2019, respectively. SSH has a majority equity interest in a port agent that provides supply and logistical services for vessels operating in its regions.
(5)We have an Amended Administrative Services Agreement with SSH for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH also administers the payroll for certain of our employees. SSH is a related party to us. The services provided to us by SSH may be sub-contracted to other entities within Scorpio. The expenses incurred under this agreement were recorded in general and administrative expenses in the consolidated statement of income or loss and were as follows:
•The expense for the year ended December 31, 2021 of $13.6 million included (i) administrative fees of $12.2 million charged by SSH, (ii) restricted stock amortization of $1.3 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash consideration pursuant to the 2013 Equity Incentive Plan, and (iii) the reimbursement of expenses of $51,962 to SSH and $14,726 to SCM.
•The expense for the year ended December 31, 2020 of $13.9 million included (i) administrative fees of $12.6 million charged by SSH, (ii) restricted stock amortization of $1.2 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $19,772 to SSH and $45,539 to SCM.
•The expense for the year ended December 31, 2019 of $13.0 million included (i) administrative fees of $11.4 million charged by SSH, (ii) restricted stock amortization of $1.1 million, which relates to the issuance of an aggregate of 221,900 shares of restricted stock to SSH employees for no cash consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $0.2 million to SSH and $0.2 million to SCM.
We had the following balances with related parties, which have been included in the consolidated balance sheets:
| | | | | | | | | | | |
| | As of December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Assets: | | | |
Accounts receivable (due from the Scorpio Pools) (1) | $ 36,216 | | $ 26,413 |
Accounts receivable and prepaid expenses (SSM) (2) | 3,426 | | 4,259 |
Other assets (pool working capital contributions) (3) | 73,161 | | 73,161 |
| Liabilities: | | | |
| Accounts payable and accrued expenses (SSM) | 9,844 | | 935 |
| Accounts payable and accrued expenses (owed to the Scorpio Pools) | 2,548 | | 945 |
| Accounts payable and accrued expenses (SSH) | 1,888 | | 404 |
| Accounts payable and accrued expenses (related party port agent) | 674 | | 355 |
| Accounts payable and accrued expenses (SCM) | 25 | | 58 |
(1)Accounts receivable due from the Scorpio Pools relate to hire receivables for revenues earned and receivables from working capital contributions. The amounts as of December 31, 2020 included $1.1 million of working capital contributions made on behalf of our vessels to the Scorpio Pools. Upon entrance into such pools, all vessels are required to make working capital contributions of both cash and bunkers. Additional working capital contributions can be made from time to time based on the operating needs of the pools. These amounts are accounted for and repaid as follows:
•For vessels in the Scorpio LR2 Pool, Scorpio LR1 Pool, Scorpio MR Pool and Scorpio Handymax Tanker Pool, the initial contribution amount is repaid, without interest, upon a vessel’s exit from the pool no later than six months after the exit date. Bunkers on board a vessel exiting the pool are credited against such repayment at the actual invoice price of the bunkers. For all owned or lease financed vessels we assume that these contributions will not be repaid within 12 months and are thus classified as non-current within other assets on the consolidated balance sheets.
•For time or bareboat chartered-in vessels we classify the initial contributions as current (within accounts receivable) or non-current (within other assets) according to the expiration of the contract. Any additional working capital contributions are repaid when sufficient net revenues become available to cover such amounts.
(2) Accounts receivable and prepaid expenses from SSM primarily relate to advances made for vessel operating expenses (such as crew wages) that will either be reimbursed or applied against future costs.
(3) Represents the non-current portion of working capital receivables as described above.
Private Placement
In September 2019, we closed on a private placement with SSH for $15.0 million, in exchange for an aggregate of 517,241 of our common shares at $29.00 per share.
Other transactions
Starting in October 2019, we provided guarantees in respect of the payment obligations of a related party bunker provider (who is engaged in the procurement of bunkers on behalf of the Company and the Scorpio Pools) toward its physical suppliers. These guarantee agreements expired during the year ended December 31, 2021 and no amounts were paid to this provider under these guarantees during the years ended December 31, 2021 and 2020.
In August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel MR methanol tankers (built between 2016 and 2021) along with four ice class 1A LR1 product tankers. Two of the LR1 tankers that are part of this joint venture are commercially and technically managed by SCM and SSM, respectively.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements.”
Legal Proceedings
To our knowledge, we are not currently a party to any other lawsuit that, if adversely determined, would have a material adverse effect on our financial position, results of operations or liquidity. As such, we do not believe that pending legal proceedings, taken as a whole, should have any significant impact on our financial statements. From time to time in the future we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. While we expect that these claims would be covered by our existing insurance policies, those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We have not been involved in any legal proceedings which may have, or have had, a significant effect on our financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our financial position, results of operations or liquidity.
Dividend Policy
The declaration and payment of dividends is subject at all times to the discretion of our Board of Directors. The timing and amount of dividends, if any, depends on, among other things, our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our loan agreements and finance lease arrangements, the provisions of Marshall Islands law affecting the payment of dividends and other factors.
We are a holding company with no material assets other than the equity interests in our wholly-owned subsidiaries. As a result, our ability to pay dividends, if any, depends on our subsidiaries and their ability to distribute funds to us. Our credit facilities and lease financing arrangements have restrictions on our ability, and the ability of certain of our subsidiaries, to pay dividends in the event of a default or breach of covenants under the agreements. Under such circumstances, we or our subsidiaries may not be able to pay dividends so long as we are in default or have breached certain covenants of a credit facility or lease financing arrangement without our lender’s consent or waiver of the default or breach. In addition, Marshall Islands law generally prohibits the payment of dividends (i) other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or (ii) when a company is insolvent or (iii) if the payment of the dividend would render the company insolvent.
In addition, we may incur expenses or liabilities, including extraordinary expenses, decreases in revenues, including as a result of unanticipated off-hire days or loss of a vessel, or increased cash needs that could reduce or eliminate the amount of cash that we have available for distribution as dividends.
Any dividends paid by us will be income to a United States shareholder. Please see “Item 10. Additional Information - E. Taxation” for additional information relating to the United States federal income tax treatment of our dividend payments, if any are declared in the future.
For the years ended December 31, 2021, 2020 and 2019, we paid aggregate dividends to our shareholders in the amount of $23.3 million, $23.3 million and $21.3 million, respectively. We have paid the following dividends per share in respect of the periods set forth below:
| | | | | | | | |
| Date Paid | | Dividends per Share |
| March 28, 2019 | | $0.10 |
| June 27, 2019 | | $0.10 |
| September 27, 2019 | | $0.10 |
| December 13, 2019 | | $0.10 |
| March 13, 2020 | | $0.10 |
| June 15, 2020 | | $0.10 |
| September 29, 2020 | | $0.10 |
| December 14, 2020 | | $0.10 |
| March 15, 2021 | | $0.10 |
| June 15, 2021 | | $0.10 |
| September 29, 2021 | | $0.10 |
| December 15, 2021 | | $0.10 |
| March 15, 2022 | | $0.10 |
B. Significant Changes
There have been no significant changes since the date of the annual consolidated financial statements included in this report, other than as described in Note 23 - Subsequent Events to our consolidated financial statements included herein.
ITEM 9. OFFER AND THE LISTING
A. Offer and Listing Details
Please see “Item 9. Offer and Listing - C. Markets.”
B. Plan of Distribution
Not applicable.
C. Markets
Since our initial public offering, our shares of common stock have traded on the NYSE under the symbol “STNG.” Our Senior Notes Due 2025 are listed for trading on the NYSE under the symbol “SBBA.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Our amended and restated articles of incorporation have been filed as Exhibit 3.1 to Amendment No. 2 to our Registration Statement on Form F-1 (Registration No. 333-164940), filed with the SEC on March 18, 2010. Our amended and restated bylaws are filed as Exhibit 1.2 to our Annual Report on Form 20-F filed with the SEC on June 29, 2010. In June 2014, after receiving shareholder approval, we amended our amended and restated articles of incorporation to increase our authorized common stock to 400,000,000 from 250,000,000. This amendment to our amended and restated articles of incorporation is filed as Exhibit 3.1 to our Annual Report on Form 20-F filed with the SEC on March 31, 2015. In June 2018, after receiving shareholder approval, we amended our amended and restated articles of incorporation to increase our authorized common stock to 750,000,000 from 400,000,000. This amendment to our amended and restated articles of incorporation is filed as Exhibit 3.1 to the Form 6-K filed with the SEC on June 1, 2018. The share numbers in this paragraph have not been retroactively adjusted to reflect the below reverse stock split.
On January 18, 2019, we effected a one-for-ten reverse stock split. Our shareholders approved the reverse stock split including a change in authorized common shares at the special meeting of shareholders held on January 15, 2019. Pursuant to this reverse stock split, the total number of authorized common shares was reduced to 150,000,000 shares and common shares outstanding were reduced from 513,975,324 shares to 51,397,470 shares (which reflects adjustments for fractional share settlements). The par value was not adjusted as a result of the reverse stock split. The amended and restated articles of incorporation to effect the reverse stock split and change in authorized common shares from 750,000,000 to 150,000,000 is included as Exhibit 3.1 to the Form 6-K filed with the SEC on January 18, 2019. The information contained in these exhibits is incorporated by reference herein.
Below is a summary of the description of our capital stock, including the rights, preferences and restrictions attaching to each class of stock. Because the following is a summary, it does not contain all information that you may find useful. For more complete information, you should read our amended and restated articles of incorporation, as amended (the "Articles of Incorporation") and amended and restated bylaws (the "Bylaws"), which are incorporated by reference herein.
Purpose
Our purpose, as stated in our Articles of Incorporation, is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the BCA. Our Articles of Incorporation and Bylaws do not impose any limitations on the ownership rights of our shareholders.
Authorized capitalization
Under our Articles of Incorporation, we have authorized 175,000,000 registered shares, consisting of 150,000,000 common shares, par value $0.01 per share, of which 58,369,516 shares were issued and outstanding as of March 18, 2022 and 25,000,000 preferred shares, par value $0.01 per share, of which no shares are issued and outstanding.
Description of Common Shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding preferred shares, holders of our common shares are entitled to receive ratably all dividends, if any, declared by our Board of Directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common shares are entitled to receive pro rata our remaining assets available for distribution. Holders of our common shares do not have conversion, redemption or pre-emptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of our common shares are subject to the rights of the holders of any preferred shares, which we may issue in the future.
Description of Preferred Shares
Our Articles of Incorporation authorize our Board of Directors to establish one or more series of preferred stock and to determine, with respect to any series of preferred stock, the terms and rights of that series, including the designation of the series, the number of shares of the series, the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series, and the voting rights, if any, of the holders of the series.
Directors
Our directors are elected by a plurality of the votes cast by shareholders entitled to vote. There is no provision for cumulative voting.
Our Articles of Incorporation require our Board of Directors to consist of at least one member. Our Board of Directors consists of nine members. Our Bylaws may be amended by the vote of a majority of our entire Board of Directors.
Directors are elected annually on a staggered basis, and each shall serve for a three-year term and until his or her successor shall have been duly elected and qualified, except in the event of his or her death, resignation, removal, or the earlier termination of his or her term of office. Our Board of Directors, as advised by our Compensation Committee, has the authority to fix the amounts which shall be payable to the members of the Board of Directors for attendance at any meeting or for services rendered to us.
Shareholder Meetings
Under our Bylaws, annual meetings of shareholders will be held at a time and place selected by our Board of Directors. The meetings may be held in or outside of the Republic of the Marshall Islands. Special meetings may be called at any time by a majority of our Board of Directors, the chairman of our Board of Directors or an officer of the Company who is also a director. Our Board of Directors may set a record date between 15 and 60 days before the date of any meeting to determine the shareholders that will be eligible to receive notice and vote at the meeting. One or more shareholders representing at least one-third of the total voting rights of our total issued and outstanding shares present in person or by proxy at a shareholder meeting shall constitute a quorum for the purposes of the meeting.
Dissenters’ Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions and receive payment of the fair market value of their shares. In the event of any further amendment of our Articles of Incorporation, a shareholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which our shares are primarily traded on a local or national securities exchange.
Shareholders’ Derivative Actions
Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder bringing the action is a holder of common shares both at the time the derivative action is commenced and at the time of the transaction to which the action relates.
Limitations on Liability and Indemnification of Officers and Directors
The BCA authorizes corporations to limit or eliminate the personal liability of directors to corporations and their shareholders for monetary damages for certain breaches of directors' fiduciary duties. Our Bylaws include a provision that eliminates the personal liability of directors for actions taken as a director to the fullest extent permitted by law.
Our Bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly authorized to advance certain expenses (including attorney's fees and disbursements and court costs) to our directors and officers and carry directors' and officers' insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and this insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our Bylaws may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, shareholders' investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Anti-Takeover Effect of Certain Provisions of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
Several provisions of our Articles of Incorporation and Bylaws, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (i) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (ii) the removal of incumbent officers and directors.
Blank Check Preferred Stock
Under the terms of our Articles of Incorporation, our Board of Directors has authority, without any further vote or action by our shareholders, to issue up to 25 million shares of blank check preferred stock. Our Board of Directors may issue preferred shares on terms calculated to discourage, delay or prevent a change of control of us or the removal of our management.
Election and Removal of Directors
Our Articles of Incorporation prohibit cumulative voting in the election of directors. Our Bylaws require parties other than the Board of Directors to give advance written notice of nominations for the election of directors. Our Articles of Incorporation also provide that our directors may be removed for cause upon the affirmative vote of not less than two-thirds of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders
Our Articles of Incorporation and our Bylaws provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders. Our Bylaws provide that, unless otherwise prescribed by law, only a majority of our Board of Directors, the chairman of our Board of Directors or an officer of the Company who is also a director may call special meetings of our shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a shareholder may be prevented from calling a special meeting for shareholder consideration of a proposal over the opposition of our Board of Directors and shareholder consideration of a proposal may be delayed until the next annual meeting.
Advance notice requirements for shareholder proposals and director nominations
Our Bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder's notice must be received at our principal executive offices not less than 150 days nor more than 180 days prior to the one-year anniversary of the immediately preceding annual meeting of shareholders. Our Bylaws also specify requirements as to the form and content of a shareholder's notice. These provisions may impede shareholders' ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.
Classified Board of Directors
As described above, our Articles of Incorporation provide for the division of our Board of Directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered three-year terms. Accordingly, approximately one-third of our Board of Directors will be elected each year. This classified board provision could discourage a
third party from making a tender offer for our shares or attempting to obtain control of us. It could also delay shareholders who do not agree with the policies of our Board of Directors from removing a majority of our Board of Directors for two years.
Business combinations
Although the BCA does not contain specific provisions regarding "business combinations" between companies organized under the laws of the Marshall Islands and "interested shareholders," we have included these provisions in our Articles of Incorporation. Specifically, our Articles of Incorporation prohibit us from engaging in a "business combination" with certain persons for three years following the date the person becomes an interested shareholder. Interested shareholders generally include:
•any person who is the beneficial owner of 15% or more of our outstanding voting stock; or
•any person who is our affiliate or associate and who held 15% or more of our outstanding voting stock at any time within three years before the date on which the person's status as an interested shareholder is determined, and the affiliates and associates of such person.
Subject to certain exceptions, a business combination includes, among other things:
•certain mergers or consolidations of us or any direct or indirect majority-owned subsidiary of ours;
•any sale, lease, exchange, mortgage, pledge, transfer or other disposition of our assets or of any subsidiary of ours having an aggregate fair market value equal to 10% or more of either the aggregate fair market value of all of our assets, determined on a combined basis, or the aggregate value of all of our outstanding stock;
•certain transactions that result in the issuance or transfer by us of any stock of ours to the interested shareholder;
•any transaction involving us or any of our subsidiaries that has the effect of increasing the proportionate share of any class or series of stock, or securities convertible into any class or series of stock, of ours or any such subsidiary that is owned directly or indirectly by the interested shareholder or any affiliate or associate of the interested shareholder; and
•any receipt by the interested shareholder of the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through us.
These provisions of our Articles of Incorporation do not apply to a business combination if:
•before a person became an interested shareholder, our Board of Directors approved either the business combination or the transaction in which the shareholder became an interested shareholder;
•upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, other than certain excluded shares;
•at or following the transaction in which the person became an interested shareholder, the business combination is approved by our Board of Directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock that is not owned by the interested shareholder;
•the shareholder was or became an interested shareholder prior to the closing of our initial public offering in 2010;
•a shareholder became an interested shareholder inadvertently and (i) as soon as practicable divested itself of ownership of sufficient shares so that the shareholder ceased to be an interested shareholder; and (ii) would not, at any time within the three-year period immediately prior to a business combination between us and such shareholder, have been an interested shareholder but for the inadvertent acquisition of ownership; or
•the business combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required under our Articles of Incorporation which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an interested shareholder during the previous three years or who became an interested shareholder with the approval of the
board; and (iii) is approved or not opposed by a majority of the members of the Board of Directors then in office (but not less than one) who were directors prior to any person becoming an interested shareholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are limited to:
(i) a merger or consolidation of us (except for a merger in respect of which, pursuant to the BCA, no vote of our shareholders is required);
(ii) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of us or of any direct or indirect majority-owned subsidiary of ours (other than to any direct or indirect wholly-owned subsidiary or to us) having an aggregate fair market value equal to 50% or more of either the aggregate fair market value of all of our assets determined on a consolidated basis or the aggregate fair market value of all the outstanding shares; or
(iii) a proposed tender or exchange offer for 50% or more of our outstanding voting stock.
Registrar and Transfer Agent
The registrar and transfer agent for our common shares is Computershare Trust Company, N.A.
Listing
Our common shares are listed on the NYSE under the symbol “STNG.”
C. Material Contracts
We refer you “Item 6. Directors, Senior Management and Employees-B. Compensation-2013 Equity Incentive Plan” and “Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions” for a discussion of the contracts that we consider to be both material and outside the ordinary course of business during the two-year period immediately preceding the date of this annual report. Certain of these material agreements that are to be performed in whole or in part at or after the date of this annual report are attached as exhibits to this annual report.
Other than as set forth above, there were no material contracts, other than contracts entered into in the ordinary course of business, to which we were a party during the two-year period immediately preceding the date of this annual report.
D. Exchange Controls
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.
E. Taxation
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material United States federal income tax consequences to us of our activities and to United States Holders and Non-United States Holders, each as defined below, of the ownership of common shares. The following discussion of United States federal income tax matters is based on the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. The discussion below is based, in part, on the description of our business in this Report and assumes that we conduct our business as described herein. References in the following discussion to the “Company,” “we,” “our” and “us” are to Scorpio Tankers Inc. and its subsidiaries on a consolidated basis.
United States Federal Income Taxation of Operating Income: In General
We earn and anticipate that we will continue to earn substantially all our income from the hiring or leasing of vessels for use on a time charter basis, from participation in a pool or from the performance of services directly related to those uses, all of which we refer to as Shipping Income.
Unless exempt from United States federal income taxation under the rules of Section 883 of the Code, or Section 883, as discussed below, a foreign corporation such as us will be subject to United States federal income taxation on its Shipping Income that is treated as derived from sources within the United States, which we refer to as “United States Source Shipping Income.” For United States federal income tax purposes, “United States Source Shipping Income” includes 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
Shipping Income attributable to transportation exclusively between non-United States ports will be considered to be 100% derived from sources entirely outside the United States. Shipping Income derived from sources outside the United States will not be subject to any United States federal income tax.
Shipping Income attributable to transportation exclusively between United States ports is considered to be 100% derived from United States sources. However, we are not permitted by United States law to engage in the transportation of cargoes that produces 100% United States Source Shipping Income.
Unless exempt from tax under Section 883, our gross United States Source Shipping Income would be subject to a 4% tax imposed without allowance for deductions, as described more fully below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 and the Treasury Regulations thereunder, a foreign corporation will be exempt from United States federal income taxation on its United States Source Shipping Income if:
(1) it is organized in a “qualified foreign country,” which is one that grants an “equivalent exemption” from tax to corporations organized in the United States in respect of each category of shipping income for which exemption is being claimed under Section 883; and
(2) one of the following tests is met:
(A) more than 50% of the value of its shares is beneficially owned, directly or indirectly, by “qualified shareholders,” which as defined includes individuals who are “residents” of a qualified foreign country, which we refer to as the “50% Ownership Test”; or
(B) its shares are “primarily and regularly traded on an established securities market” in a qualified foreign country or in the United States, to which we refer as the “Publicly-Traded Test”.
The Republic of the Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are incorporated, has been officially recognized by the IRS as a qualified foreign country that grants the requisite “equivalent exemption” from tax in respect of each category of shipping income we earn and currently expect to earn in the future. Therefore, we will be exempt from United States federal income taxation with respect to our United States Source Shipping Income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.
For our 2021 taxable tax year, we intend to take the position that we satisfy the Publicly-Traded Test and we anticipate that we will continue to satisfy the Publicly-Traded Test for future taxable years. However, as discussed below, this is a factual determination made on an annual basis. We do not currently anticipate a circumstance under which we would be able to satisfy the 50% Ownership Test.
Publicly-Traded Test
The Treasury Regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be considered to be “primarily traded” on an established securities market in a country if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. Our common shares, which constitute our sole class of issued and outstanding stock, are “primarily traded” on the NYSE.
Under the Treasury Regulations, our common shares will be considered to be “regularly traded” on an established securities market if one or more classes of our stock representing more than 50% of our outstanding stock, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on such market, to which we refer as the “Listing Threshold.” Since our common shares are listed on the NYSE, we expect to satisfy the Listing Threshold.
It is further required that with respect to each class of stock relied upon to meet the Listing Threshold, (i) such class of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, or the “Trading Frequency Test”; and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year, or the “Trading Volume Test.” We currently satisfy and anticipate that we will continue to satisfy the Trading Frequency Test and Trading Volume Test. Even if this were not the case, the Treasury Regulations provide that the Trading Frequency Test and Trading Volume Test will be deemed satisfied if, as is the case with our common shares, such class of stock is traded on an established securities market in the United States and such class of stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of stock will not be considered to be “regularly traded” on an established securities market for any taxable year during which 50% or more of the vote and value of the outstanding shares of such class are owned, actually or constructively under specified attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of such class of outstanding shares, to which we refer as the “5% Override Rule.”
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and value of our common shares, or “5% Shareholders,” the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the SEC as owning 5% or more of our common shares. The Treasury Regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
In the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will nevertheless not apply if we can establish that within the group of 5% Shareholders, there are sufficient qualified shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group from owning 50% or more of our common shares for more than half the number of days during the taxable year. In order to benefit from this exception to the 5% Override Rule, we must satisfy certain substantiation requirements in regards to the identity of our 5% Shareholders.
We believe that we currently satisfy the Publicly-Traded Test and intend to take this position on our United States federal income tax return for the 2021 taxable year. However, there are factual circumstances beyond our control that could cause us to lose the benefit of the Section 883 exemption. For example, if we trigger the 5% Override Rule for any future taxable year, there is no assurance that we will have sufficient qualified 5% Shareholders to preclude nonqualified 5% Shareholders from owning 50% or more of our common shares for more than half the number of days during such taxable year, or that we will be able to satisfy the substantiation requirements in regards to our 5% Shareholders.
United States Federal Income Taxation in Absence of Section 883 Exemption
If the benefits of Section 883 are unavailable, our United States source shipping income would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the “4% Gross Basis Tax Regime,” to the extent that such income is not considered to be “effectively connected” with the conduct of a United States trade or business, as described below. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being United States source shipping income, the maximum effective rate of United States federal income tax on our shipping income would never exceed 2% under the 4% Gross Basis Tax Regime.
To the extent our United States source shipping income is considered to be “effectively connected” with the conduct of a United States trade or business, as described below, any such “effectively connected” United States source shipping income, net of applicable deductions, would be subject to United States federal income tax, currently imposed at a rate of 21%. In addition, we would generally be subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our United States trade or business.
Our United States Source Shipping Income would be considered “effectively connected” with the conduct of a United States trade or business only if:
•we have, or are considered to have, a fixed place of business in the United States involved in the earning of United States Source Shipping Income; and
•substantially all of our United States Source Shipping Income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.
We do not currently have, intend to have, or permit circumstances that would result in having, any vessel sailing to or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, it is anticipated that none of our United States source shipping income will be “effectively connected” with the conduct of a United States trade or business.
United States Federal Income Taxation of Gain on Sale of Vessels
If we qualify for exemption from tax under Section 883 in respect of the shipping income derived from the international operation of our vessels, then a gain from the sale of any such vessel should likewise be exempt from United States federal income tax under Section 883. If, however, our shipping income from such vessels does not for whatever reason qualify for exemption under Section 883, then any gain on the sale of a vessel will be subject to United States federal income tax if such sale occurs in the United States. To the extent possible, we intend to structure the sales of our vessels so that the gain therefrom is not subject to United States federal income tax. However, there is no assurance we will be able to do so.
United States Federal Income Taxation of United States Holders
The following is a discussion of the material United States federal income tax considerations relevant to an investment decision by a United States Holder, as defined below, with respect to our common shares. This discussion does not purport to deal with the tax consequences of owning common shares to all categories of investors, some of which may be subject to special rules. This discussion only addresses considerations relevant to those United States Holders who hold the common shares as capital assets, that is, generally for investment purposes. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of common shares.
As used herein, the term United States Holder means a beneficial owner of common shares that is an individual United States citizen or resident, a United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if (i) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) it has in place an election to be treated as a United States person for U.S. federal income tax purposes.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding common shares, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares to a United States Holder will generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of such earnings and profits will be treated first as a nontaxable return of capital to the extent of the United States Holder’s tax basis in his common shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, United States Holders that are corporations will generally not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common shares will generally be treated as “passive category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on our common shares to a United States Holder who is an individual, trust or estate, or a United States Non-Corporate Holder, will generally be treated as “qualified dividend income” that is taxable to such United States Non-Corporate Holder at preferential tax rates provided that (1) the common shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our common shares are traded); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which, as discussed below, we believe we have not been, we believe we are not and do not anticipate being in the future); (3) the United States Non-Corporate Holder has owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend; and (4) the United States Non-Corporate Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. Any distributions out of earnings and profits we pay which are not eligible for these preferential rates will be taxed as ordinary income to a United States Non-Corporate Holder.
Special rules may apply to any “extraordinary dividend”—generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder’s adjusted tax basis (or fair market value in certain circumstances) or dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder's adjusted tax basis (or fair market value upon the shareholder's election) in his common shares—paid by us. If we pay an “extraordinary dividend” on our common shares that is treated as “qualified dividend income,” then any loss derived by a United States Non-Corporate Holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or Other Disposition of Common Shares
Assuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the United States Holder from such sale, exchange or other disposition and the United States Holder’s tax basis in such shares. Such gain or loss will be treated as long-term capital gain or loss if the United States Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes. Long-term capital gains of United States Non-Corporate Holders are currently eligible for reduced rates of taxation. A United States Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a United States Holder that holds shares in a foreign corporation classified as a “passive foreign investment company”, or a PFIC, for United States federal income tax purposes. In general, we will be treated as a PFIC with respect to a United States Holder if, for any taxable year in which such Holder holds our common shares, either:
•at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or
•at least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income.
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the
subsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute “passive income” unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we have been, are, nor do we expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Accordingly, such income should not constitute passive income, and the assets that we own and operate in connection with the production of such income, in particular, the vessels, should not constitute assets that produce or are held for the production of passive income for purposes of determining whether we are a PFIC. Therefore, based on our current operations and future projections, we should not be treated as a PFIC with respect to any taxable year. There is substantial legal authority supporting this position, consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. It should be noted that in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with our position. Furthermore, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a United States Holder would be subject to different United States federal income taxation rules depending on whether the United States Holder makes an election to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF election.” As an alternative to making a QEF election, a United States Holder should be able to make a “mark-to-market” election with respect to our common shares, as discussed below. In addition, if we were to be treated as a PFIC for any taxable year, a United States Holder will generally be required to file an annual report with the IRS for that year with respect to such Holder’s common shares.
Taxation of United States Holders Making a Timely QEF Election
If a United States Holder makes a timely QEF election, which United States Holder we refer to as an Electing Holder, the Electing Holder must report for United States federal income tax purposes his pro rata share of our ordinary earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the taxable year of the Electing Holder, regardless of whether distributions were received from us by the Electing Holder. No portion of any such inclusions of ordinary earnings will be treated as “qualified dividend income.” Net capital gain inclusions of United States Non-Corporate Holders would be eligible for preferential capital gain tax rates. The Electing Holder’s adjusted tax basis in the common shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common shares and will not be taxed again once distributed. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to any taxable year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A United States Holder would make a timely QEF election for our shares by filing one copy of IRS Form 8621 with his United States federal income tax return for the first year in which he held such shares when we were a PFIC. If we were to be treated as a PFIC for any taxable year, we would provide each United States Holder with all necessary information in order to make the QEF election described above.
Taxation of United States Holders Making a “Mark-to-Market” Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will be the case, our common shares are treated as “marketable stock,” a United States Holder would be allowed to make a “mark-to-market” election with respect to our common shares, provided the United States Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the United States Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such Holder’s adjusted tax basis in the common shares. The United States Holder would also be permitted an ordinary loss in respect of the excess, if any, of the United States Holder’s adjusted tax basis in the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously
included in income as a result of the mark-to-market election. A United States Holder’s tax basis in his common shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the United States Holder.
Taxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a United States Holder who does not make either a QEF election or a “mark-to-market” election for that year, whom we refer to as a Non-Electing Holder, would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common shares), and (2) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:
•the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common shares;
•the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, would be taxed as ordinary income and would not be “qualified dividend income”; and
•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
United States Federal Income Taxation of Non-United States Holders
A beneficial owner of common shares (other than a partnership) that is not a United States Holder is referred to herein as a Non-United States Holder.
If a partnership holds common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding common shares, you are encouraged to consult your tax advisor.
Dividends on Common Stock
A Non-United States Holder generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to his common shares, unless that income is effectively connected with the Non-United States Holder’s conduct of a trade or business in the United States. If the Non-United States Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income is subject to United States federal income tax only if it is attributable to a permanent establishment maintained by the Non-United States Holder in the United States.
Sale, Exchange or Other Disposition of Common Shares
Non-United States Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares, unless:
•the gain is effectively connected with the Non-United States Holder’s conduct of a trade or business in the United States (and, if the Non-United States Holder is entitled to the benefits of a United States income tax treaty with respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-United States Holder in the United States); or
•the Non-United States Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
If the Non-United States Holder is engaged in a United States trade or business for United States federal income tax purposes, dividends on the common shares, and gains from the sale, exchange or other disposition of such shares, that are effectively connected with the conduct of that trade or business will generally be subject to regular United States federal income tax in the same manner as discussed in the previous section relating to the taxation of United States Holders. In addition, if you are a corporate Non-United States Holder, your earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional “branch profits” tax at a rate of 30%, or at a lower rate as may be specified by an applicable United States income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements if you are a non-corporate United States Holder. Such payments or distributions may also be subject to backup withholding if you are a non-corporate United States Holder and you:
•fail to provide an accurate taxpayer identification number;
•are notified by the IRS that you have failed to report all interest or dividends required to be shown on your United States federal income tax returns; or
•in certain circumstances, fail to comply with applicable certification requirements.
Non-United States Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an appropriate IRS Form W-8.
If you are a Non-United States Holder and you sell your common shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless you certify that you are a non-United States person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common shares through a non-United States office of a non-United States broker and the sales proceeds are paid to you outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to you outside the United States, if you sell your common shares through a non-United States office of a broker that is a United States person or has some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has documentary evidence in its records that you are a non-United States person and certain other conditions are met, or you otherwise establish an exemption.
Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that exceed your United States federal income tax liability by filing a refund claim with the IRS.
Individuals who are United States Holders (and to the extent specified in applicable Treasury Regulations, certain individuals who are Non- United States Holders and certain United States entities) who hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury regulations). Specified foreign financial assets would include, among other assets, our common shares, unless the shares are held through an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual United States Holder (and to the extent specified in applicable Treasury Regulations, an individual Non- United States Holder or a United States entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of United States federal income taxes of such holder for the related tax year may not close until three years after the date that the required IRS Form 8938 is filed. United States Holders (including United States entities) and Non- United States Holders are encouraged to consult their own tax advisors regarding their reporting obligations under this legislation.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits are available from http://www.sec.gov.
Shareholders may also visit the Investor Relations section of our website at www.scorpiotankers.com or request a copy of our filings at no cost, by writing or telephoning us at the following address: Scorpio Tankers Inc., 9, Boulevard Charles III Monaco 98000, +377-9798-5716. The information on our website is not incorporated by reference into this annual report.
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our unhedged variable-rate borrowings. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. From time to time, we will use interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our variable-rate debt and are not for speculative or trading purposes.
Based on the floating rate debt at December 31, 2021 and 2020, a one-percentage point increase in the floating interest rate would increase interest expense by $26.2 million and $26.8 million per year, respectively. The following table presents the due dates for the principal payments on our fixed and floating rate debt:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| In thousands of U.S. dollars | | 2022 | | 2023 - 2024 | | 2025- 2026 | | Thereafter |
| Principal payments floating rate debt (unhedged) | | $ 371,642 | | $ 592,829 | | $ 829,348 | | $ 824,224 |
| Principal payments fixed rate debt | | 106,025 | | 92,568 | | 347,080 | | — |
| Total principal payments on outstanding debt | | $ 477,667 | | $ 685,397 | | $ 1,176,428 | | $ 824,224 |
Spot Market Rate Risk
The cyclical nature of the tanker industry causes significant increases or decreases in the revenue that we earn from our vessels, particularly those vessels that operate in the spot market or participate in pools that are concentrated in the spot market such as the Scorpio Pools. We currently do not have any vessels employed on time charter contracts. Additionally, we have the ability to remove our vessels from the pools on relatively short notice if attractive time charter opportunities arise. A $1,000 per day increase or decrease in spot rates for all of our vessel classes would have increased or decreased our operating income by $46.9 million and $46.2 million for the years ended December 31, 2021 and 2020, respectively.
Foreign Exchange Rate Risk
Our primary economic environment is the international shipping market. This market utilizes the US dollar as its functional currency. Consequently, virtually all of our revenues and the majority of our operating expenses are in US dollars. However, we incur some of our combined expenses in other currencies, particularly the Euro. The amount and frequency of some of these expenses (such as vessel repairs, supplies and stores) may fluctuate from period to period. Depreciation in the value of the US dollar relative to other currencies will increase the US dollar cost of us paying such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations.
There is a risk that currency fluctuations will have a negative effect on our cash flows. We have not entered into any hedging contracts to protect against currency fluctuations. However, we have some ability to shift the purchase of goods and services from one country to another and, thus, from one currency to another, on relatively short notice. We may seek to hedge this currency fluctuation risk in the future.
Bunker Price Risk
Our operating results are affected by movement in the price of fuel oil consumed by the vessels – known in the industry as bunkers. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce our profitability. We do not hedge our exposure to bunker price risk.
Inflation
We do not expect inflation to be a significant risk to direct expenses in the current and foreseeable economic environment.
See Note 22 to our Consolidated Financial Statements included herein for additional information.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
We carried out an evaluation under the supervision, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021 to provide reasonable assurance that (1) information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
B. Management’s Annual Report on Internal Control Over Financial Reporting
In accordance with Rule 13a-15(f) and 15d-15(f) of the Exchange Act, the management of the Company is responsible for the establishment and maintenance of adequate internal controls over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Management has performed an assessment of the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2021 based on the provisions of Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in 2013. Based on our assessment, management determined that the Company’s internal controls over financial reporting was effective as of December 31, 2021 based on the criteria in Internal Control—Integrated Framework issued by COSO (2013).
C. Attestation Report of the Registered Public Accounting Firm
The effectiveness of Company’s internal control over financial reporting, at December 31, 2021, has been audited by PricewaterhouseCoopers Audit, an independent registered public accounting firm, as stated in their report which appears herein.
D. Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Reidar Brekke, who serves on the Audit Committee, qualifies as an “audit committee financial expert” and that he is “independent” in accordance with SEC rules.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Conduct and Ethics applicable to the Company's officers, directors, employees and agents, which complies with applicable guidelines issued by the SEC. Our Code of Conduct and Ethics as in effect on the date hereof, has been filed as an exhibit to this annual report and is also available on our website at www.scorpiotankers.com. The information on our website is not incorporated by reference into this annual report.
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES
(a) Audit Fees
Our principal accountant for fiscal years ended December 31, 2021 and 2020 was PricewaterhouseCoopers Audit and the audit fee for those periods was $683,400 and $701,600, respectively.
Our principal accountant, PricewaterhouseCoopers Audit, or its affiliates, provided additional services related to the reviews of our published interim financial results and related comfort letters, the May 2020 offering and 2021 Distribution Agreement to issue Additional Notes of our Senior Notes Due 2025. The aggregate fees for these services were $148,500 and $221,000 for the years ended December 31, 2021 and 2020, respectively.
(b) Audit-Related Fees
None
(c) Tax Fees
None
(d) All Other Fees
None
(e) Audit Committee’s Pre-Approval Policies and Procedures
Our Audit Committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees prior to the engagement of the independent auditor with respect to such services.
(f) Audit Work Performed by Other Than Principal Accountant if Greater Than 50%
Not applicable.
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In May 2015, our Board of Directors authorized a securities repurchase program to purchase up to an aggregate of $250 million of our securities.
•Between July 1, 2020 and September 7, 2020, we repurchased $52.3 million face value of our Convertible Notes due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million.
•In September 2020, we acquired an aggregate of 1,170,000 of our common shares at an average price of $11.18 per share for a total of $13.1 million. The repurchased shares are being held as treasury shares.
In September 2020, our Board of Directors authorized a new securities repurchase program to purchase up to an aggregate of $250 million of our securities, which, in addition to our common shares, currently consist of our Senior Notes due 2025 (NYSE: SBBA), which were issued in May 2020, Convertible Notes due 2022, which were issued in May and July 2018,
and Convertible Notes due 2025, which were issued in March 2021. The aforementioned repurchases of common stock and our convertible notes were executed under the previous securities repurchase program, which has since been terminated. Any future repurchases of our securities will be made under the new $250 million securities repurchase program. No securities have been repurchased under this program during the year ended December 31, 2021 and through March 18, 2022.
There were 58,369,516 common shares outstanding as of March 18, 2022.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
Pursuant to an exception for foreign private issuers, we, as a Marshall Islands company, are not required to comply with the corporate governance practices followed by U.S. companies under the NYSE listing standards. We believe that our established practices in the area of corporate governance are in line with the spirit of the NYSE standards and provide adequate protection to our shareholders. In this respect, we have voluntarily adopted NYSE required practices, such as (i) having a majority of independent directors, (ii) establishing audit, compensation and nominating committees and (iii) adopting a Code of Ethics.
There are two significant differences between our corporate governance practices and the practices required by the NYSE. The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE also requires that all independent directors meet in an executive session at least once a year. Marshall Islands law and our Bylaws do not require our non-management directors to regularly hold executive sessions without management. During 2021 and through the date of this annual report, our non-management directors met in executive session three times. The NYSE requires companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under Marshall Islands law and we have not adopted such guidelines.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
See “Item 18. Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
The financial information required by this Item is set forth beginning on page F-1 and is filed as part of this annual report.
ITEM 19. EXHIBITS
| | | | | |
Exhibit Number | Description |
| 1.1 | |
| 1.2 | |
| 1.3 | |
| 1.4 | |
| 2.1 | |
| 2.2 | |
| 2.3 | |
| 2.4 | |
| 2.5 | |
| 2.6 | |
| 2.7 | |
| 2.8 | |
| 4.1 | |
| 4.2 | |
| 4.2(a) | |
| 4.3 | |
| 4.3(a) | |
| 4.3(b) | |
| 8.1 | Subsidiaries of the Company |
| 11.1 | |
| 11.2 | |
| 11.3 | |
| 12.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
| 12.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer |
| 13.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 13.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101 | Inline Interactive Data Files |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
(1)Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 1) (File No. 333-164940) on March 10, 2010, and incorporated by reference herein.
(2)Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18, 2010, and incorporated by reference herein.
(3)Filed as an Exhibit to the Company’s Annual Report filed on Form 20-F on June 29, 2010, and incorporated by reference herein.
(4)Filed as an Exhibit to the Company’s Registration Statement on Form F-3 (File No. 333-173929) on May 4, 2011, and incorporated by reference herein.
(5)Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 29, 2013, and incorporated by reference herein.
(6)Filed as an Exhibit to the Company's Annual Report on Form 20-F on March 31, 2014, and incorporated by reference herein.
(7)Filed as an Exhibit to the Company’s Report on Form 6-K on May 13, 2014, and incorporated by reference herein.
(8)Filed as an Exhibit to the Company's Annual Report on Form 20-F on March 31, 2015, and incorporated by reference herein.
(9)Filed as an Exhibit to the Company's Annual Report on Form 20-F on March 16, 2017, and incorporated by reference herein.
(10)Filed as an Exhibit to the Company's Annual Report on Form 20-F on March 23, 2018, and incorporated by reference herein.
(11)Filed as an Exhibit to the Company’s Report on Form 6-K on May 16, 2018, and incorporated by reference herein.
(12)Filed as an Exhibit to the Company’s Report on Form 6-K on January 18, 2019, and incorporated by reference herein.
(13)Filed as an Exhibit to the Company’s Report on Form 6-K on May 29, 2020, and incorporated by reference herein.
(14)Filed as an Exhibit to the Company's Annual Report on Form 20-F on March 31, 2021, and incorporated by reference herein.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.
Dated: March 23, 2022
| | |
| Scorpio Tankers Inc. |
| (Registrant) |
| |
| /s/ Emanuele Lauro |
| Emanuele Lauro |
| Chief Executive Officer |
SCORPIO TANKERS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Scorpio Tankers Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Scorpio Tankers Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 15B. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment Assessment – Vessels (including Right of Use Assets for Vessels)
As described in Notes 5 and 6 to the consolidated financial statements, as of December 31, 2021 the carrying value of Vessels and Drydock was approximately $3.8 billion and the carrying value of Right of use assets for vessels was approximately $0.8 billion. As of December 31, 2021, the Company’s operating fleet consisted of 131 vessels, which are either owned or leased (finance or operating). As further described in Notes 1 and 7, management evaluates the carrying values of its vessels and drydock, and right of use assets for vessels (collectively, the “vessels”) to determine whether there is any indication that those values have suffered an impairment loss. If any such indication exists, management conducts an impairment test (on an individual vessel basis) by comparing the carrying value of each vessel to the higher of its (i) fair value less selling costs and (ii) value in use. Management determines fair value less selling costs by considering independent broker valuations. In estimating value in use, management estimates each vessel’s future cash flows, which are discounted to their present value. The discounted cash flow analysis requires management to develop estimates and assumptions related to forecasted vessel revenue, vessel operating expenses, drydock costs, utilization rate, remaining useful lives, residual values and discount rate.
The principal considerations for our determination that performing procedures relating to impairment assessment – vessels (including right of use assets for vessels) is a critical audit matter are the significant judgments by management when developing the value in use using the discounted cash flow technique. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence obtained related to each vessel’s future cash flows and significant assumptions. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s vessel impairment assessments. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the value in use model used by management; testing the completeness and accuracy of underlying data used in the model; and evaluating the reasonableness of significant assumptions related to future cash flows and discount rate. Evaluating the reasonableness of management’s assumptions related to future cash flows and discount rate involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the vessels, (ii) the consistency with external market and industry data and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the value in use model and evaluating the reasonableness of the discount rate assumption.
/s/PricewaterhouseCoopers Audit
Neuilly-sur-Seine, France
March 23, 2022
We have served as the Company’s auditor since 2013.
Scorpio Tankers Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2021 and 2020
| | | | | | | | | | | | | | | | | |
| | | | As of |
| In thousands of U.S. dollars | Notes | | December 31, 2021 | | December 31, 2020 |
| Assets | | | | | |
| Current assets | | | | | |
| Cash and cash equivalents | | | $ 230,415 | | $ 187,511 |
| Accounts receivable | | | 38,069 | | 33,017 |
| Prepaid expenses and other current assets | | | 7,954 | | 12,430 |
| Inventories | | | 8,781 | | 9,261 |
| Restricted cash | | | 4,008 | | — |
| Total current assets | | | 289,227 | | 242,219 |
| Non-current assets | | | | | |
| Vessels and drydock | | | 3,842,071 | | 4,002,888 |
| Right of use assets for vessels | | | 764,025 | | 807,179 |
| Other assets | | | 108,963 | | 92,145 |
| Goodwill | | | 8,900 | | 8,900 |
| Restricted cash | | | 783 | | 5,293 |
| Total non-current assets | | | 4,724,742 | | 4,916,405 |
| Total assets | | | $ 5,013,969 | | $ 5,158,624 |
| Current liabilities | | | | | |
| Current portion of long-term bank debt and bonds | | | 235,278 | | 172,705 |
| Sale and leaseback liability | | | 178,062 | | 131,736 |
| IFRS 16 - lease liability | | | 54,515 | | 56,678 |
| Accounts payable | | | 35,080 | | 12,863 |
| Accrued expenses | | | 24,906 | | 32,193 |
| Total current liabilities | | | 527,841 | | 406,175 |
| Non-current liabilities | | | | | |
| Long-term bank debt and bonds | | | 666,409 | | 971,172 |
| Sale and leaseback liability | | | 1,461,929 | | 1,139,713 |
| IFRS 16 - lease liability | | | 520,862 | | 575,796 |
| Total non-current liabilities | | | 2,649,200 | | 2,686,681 |
| Total liabilities | | | 3,177,041 | | 3,092,856 |
| Shareholders’ equity | | | | | |
| Issued, authorized and fully paid-in share capital: | | | | | |
| Common stock, $0.01 par value per share; 150,000,000 and 150,000,000 shares authorized; 58,369,516 and 58,093,147 outstanding shares as of December 31, 2021 and December 31, 2020, respectively. | | | 659 | | 656 |
| Additional paid-in capital | | | 2,855,798 | | 2,850,206 |
| Treasury shares | | | (480,172) | | (480,172) |
| Accumulated deficit | | | (539,357) | | (304,922) |
| Total shareholders’ equity | | | 1,836,928 | | 2,065,768 |
| Total liabilities and shareholders’ equity | | | $ 5,013,969 | | $ 5,158,624 |
The accompanying notes are an integral part of these consolidated financial statements.
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | For the year ended December 31, |
| In thousands of U.S. dollars except per share and share data | | Notes | | 2021 | | 2020 | | 2019 |
| Revenue | | | | | | | | |
| Vessel revenue | | | | $ 540,786 | | $ 915,892 | | $ 704,325 |
| Operating expenses | | | | | | | | |
| Vessel operating costs | | | | (334,840) | | (333,748) | | (294,531) |
| Voyage expenses | | | | (3,455) | | (7,959) | | (6,160) |
| Charterhire | | | | — | | — | | (4,399) |
| Depreciation - owned or sale and leaseback vessels | | | | (197,467) | | (194,268) | | (180,052) |
| Depreciation - right of use assets for vessels | | | | (42,786) | | (51,550) | | (26,916) |
| Impairment of vessels | | | | — | | (14,207) | | — |
| Impairment of goodwill | | | | — | | (2,639) | | — |
| General and administrative expenses | | | | (52,746) | | (66,187) | | (62,295) |
| Total operating expenses | | | | (631,294) | | (670,558) | | (574,353) |
| Operating (loss) / income | | | | (90,508) | | 245,334 | | 129,972 |
| Other (expense) and income, net | | | | | | | | |
| Financial expenses | | | | (144,104) | | (154,971) | | (186,235) |
| (Loss) / gain on repurchase/exchange of convertible notes | | | | (5,504) | | 1,013 | | — |
| Financial income | | | | 3,623 | | 1,249 | | 8,182 |
| Other income and (expenses), net | | | | 2,058 | | 1,499 | | (409) |
| Total other expense, net | | | | (143,927) | | (151,210) | | (178,462) |
| Net (loss) / income | | | | $ (234,435) | | $ 94,124 | | $ (48,490) |
| Attributable to: | | | | | | | | |
| Equity holders of the parent | | | | $ (234,435) | | $ 94,124 | | $ (48,490) |
| (Loss) / earnings per share | | | | | | | | |
| Basic | | | | $ (4.28) | | $ 1.72 | | $ (0.97) |
| Diluted | | | | $ (4.28) | | $ 1.67 | | $ (0.97) |
| Basic weighted average shares outstanding | | | | 54,718,709 | | 54,665,898 | | 49,857,998 |
| Diluted weighted average shares outstanding | | | | 54,718,709 | | 56,392,311 | | 49,857,998 |
There are no items of other comprehensive income or loss
The accompanying notes are an integral part of these consolidated financial statements.
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars except share data | Number of shares outstanding | | Share capital | | Additional paid-in capital | | Treasury shares | | Accumulated deficit | | Total |
| Balance as of January 1, 2019 | 51,397,562 | | $ 5,776 | | $ 2,648,599 | | $ (467,056) | | $ (348,307) | | $ 1,839,012 |
| Adoption of accounting standards (IFRS 16) | — | | — | | — | | — | | (2,249) | | (2,249) |
| Net loss for the period | — | | — | | — | | — | | (48,490) | | (48,490) |
| Reverse stock split - impact of fractional shares and change in total par value | (62) | | (5,198) | | 5,196 | | — | | — | | (2) |
| Issuance of restricted stock, net of forfeitures | 507,920 | | 5 | | (5) | | — | | — | | — |
| Amortization of restricted stock, net of forfeitures | — | | — | | 27,421 | | — | | — | | 27,421 |
| Net proceeds from private placement of common stock | 1,724,137 | | 17 | | 49,983 | | — | | — | | 50,000 |
| Shares issued as consideration for the Trafigura Transaction | 4,572,873 | | 46 | | 132,568 | | — | | — | | 132,614 |
Dividends paid, $0.40 per share (1) | — | | — | | (21,278) | | — | | — | | (21,278) |
| Purchase of treasury shares | (30) | | — | | — | | (1) | | — | | (1) |
| Equity issuance costs | — | | — | | (38) | | — | | — | | (38) |
| Balance as of December 31, 2019 | 58,202,400 | | $ 646 | | $ 2,842,446 | | $ (467,057) | | $ (399,046) | | $ 1,976,989 |
| | | | | | | | | | | |
| Net income for the period | — | | — | | — | | — | | 94,124 | | 94,124 |
| Issuance of restricted stock, net of forfeitures | 923,680 | | 9 | | (9) | | — | | — | | — |
| Amortization of restricted stock, net of forfeitures | — | | — | | 28,506 | | — | | — | | 28,506 |
Dividends paid, $0.40 per share (1) | — | | — | | (23,302) | | — | | — | | (23,302) |
| Net proceeds from issuance of common shares pursuant to at the market program | 137,067 | | 1 | | 2,574 | | — | | — | | 2,575 |
| Purchase of treasury shares | (1,170,000) | | | | — | | (13,115) | | — | | (13,115) |
| Equity issuance costs | — | | | | (9) | | — | | — | | (9) |
| Balance as of December 31, 2020 | 58,093,147 | | $ 656 | | $ 2,850,206 | | $ (480,172) | | $ (304,922) | | $ 2,065,768 |
| | | | | | | | | | | |
| Net loss for the period | — | | — | | — | | — | | (234,435) | | (234,435) |
| Equity component of issuance of Convertible Notes due 2025 | — | | — | | 7,502 | | — | | — | | 7,502 |
| Write off of equity portion of Convertible Notes due 2022 | — | | — | | (1,518) | | — | | — | | (1,518) |
| Issuance of restricted stock | 276,369 | | 3 | | (3) | | — | | — | | — |
| Amortization of restricted stock, net of forfeitures | — | | — | | 22,931 | | — | | — | | 22,931 |
| Dividends paid, $0.40 per share (1) | — | | — | | (23,320) | | — | | — | | (23,320) |
| Balance as of December 31, 2021 | 58,369,516 | | $ 659 | | $ 2,855,798 | | $ (480,172) | | $ (539,357) | | $ 1,836,928 |
(1) The Company's policy is to distribute dividends from available retained earnings first and then from additional paid in capital.
The accompanying notes are an integral part of these consolidated financial statements.
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the year ended December 31, |
| In thousands of U.S. dollars | Notes | | 2021 | | 2020 | | 2019 |
| Operating activities | | | | | | | |
| Net (loss) / income | | | $ (234,435) | | $ 94,124 | | $ (48,490) |
| Depreciation - owned or sale and leaseback vessels | | | 197,467 | | 194,268 | | 180,052 |
| Depreciation - right of use assets | | | 42,786 | | 51,550 | | 26,916 |
| Amortization of restricted stock | | | 22,931 | | 28,506 | | 27,421 |
| Impairment of goodwill and vessels | | | — | | 16,846 | | — |
| Amortization of deferred financing fees | | | 7,570 | | 6,657 | | 7,041 |
| Write-off of deferred financing fees and unamortized discounts on sale and leaseback facilities | | | 3,604 | | 2,025 | | 1,466 |
| Accretion of Convertible Notes | | | 13,265 | | 8,413 | | 11,375 |
| Gain on sale and leaseback amendment | | | (2,851) | | — | | — |
| Accretion of fair value measurement on debt assumed in business combinations | | | 3,682 | | 3,422 | | 3,615 |
| Loss / (gain) on repurchase / exchange of Convertible Notes | | | 5,504 | | (1,013) | | — |
| Share of income from dual fuel tanker joint venture | | | (560) | | — | | — |
| | | | 58,963 | | 404,798 | | 209,396 |
| Changes in assets and liabilities: | | | | | | | |
| Decrease / (increase) in inventories | | | 480 | | (615) | | (346) |
| (Increase) / decrease in accounts receivable | | | (5,052) | | 19,957 | | (8,458) |
| Decrease in prepaid expenses and other current assets | | | 4,476 | | 1,424 | | 1,816 |
| (Increase) / decrease in other assets | | | (601) | | 856 | | (7,177) |
| Increase / (decrease) in accounts payable | | | 20,716 | | (5,094) | | 4,019 |
| (Decrease) / increase in accrued expenses | | | (5,682) | | (1,945) | | 10,262 |
| | | | 14,337 | | 14,583 | | 116 |
| Net cash inflow from operating activities | | | 73,300 | | 419,381 | | 209,512 |
| Investing activities | | | | | | | |
| Investment in dual fuel tanker joint venture | | | (6,701) | | — | | — |
| Distributions from dual fuel tanker joint venture | | | 1,525 | | — | | — |
| Acquisition of vessels and payments for vessels under construction | | | — | | — | | (2,998) |
| Drydock, scrubber, ballast water treatment system and other vessel related payments (owned, sale leaseback and bareboat-in vessels) | | | (47,102) | | (174,477) | | (203,975) |
| Net cash outflow from investing activities | | | (52,278) | | (174,477) | | (206,973) |
| Financing activities | | | | | | | |
| Debt repayments | | | (650,927) | | (800,072) | | (343,351) |
| Issuance of debt | | | 650,804 | | 705,390 | | 108,589 |
| Debt issuance costs | | | (17,820) | | (13,523) | | (5,744) |
| Principal repayments on IFRS 16 lease liabilities | | | (56,729) | | (77,913) | | (36,761) |
| Issuance of convertible notes | | | 119,419 | | — | | — |
| Decrease / (increase) in restricted cash | | | 502 | | 7,001 | | (9) |
| Repurchase / repayment of Convertible Notes | | | — | | (46,737) | | (145,000) |
| Gross proceeds from issuance of common stock | | | — | | 2,601 | | 50,000 |
| Equity issuance costs | | | (47) | | (26) | | (333) |
| Dividends paid | | | (23,320) | | (23,302) | | (21,278) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Repurchase of common stock | | | — | | (13,115) | | (1) |
| Net cash inflow / (outflow) from financing activities | | | 21,882 | | (259,696) | | (393,888) |
| Increase / (decrease) in cash and cash equivalents | | | 42,904 | | (14,792) | | (391,349) |
| Cash and cash equivalents at January 1, | | | 187,511 | | 202,303 | | 593,652 |
| Cash and cash equivalents at December 31, | | | $ 230,415 | | $ 187,511 | | $ 202,303 |
| Supplemental information: | | | | | | | |
| Interest paid (which includes $0.2 million, $1.4 million and $2.8 million of interest capitalized during the years ended December 31, 2021, 2020 and 2019, respectively) | | | $ 114,671 | | $ 132,329 | | $ 182,707 |
Additionally, we completed the following non-cash transactions during the years ended December 31, 2021, 2020 and 2019:
•The March 2021 and June 2021 exchange of approximately $62.1 million and $19.4 million, respectively, in aggregate principal amount of Convertible Notes due 2022 for approximately $62.1 million and $19.4 million, respectively in aggregate principal amount of new 3.00% Convertible Notes due 2025 (the "Convertible Notes due 2025") pursuant to separate, privately negotiated, agreements with certain holders of the Convertible Notes due 2022, which we refer to as the 2021 Convertible Notes Exchanges. These transactions are described in Note 12.
•The 2020 deliveries of four MR tankers, whose leasehold interests were acquired as part of the Trafigura Transaction (defined below), which included the assumption of obligations under bareboat charter-in agreements of $138.8 million (whose obligations are recorded as part of the Company's IFRS 16 - $670 Million lease financing). This transaction is described in Note 6.
•The September 2019 acquisition of leasehold interests in 19 vessels from Trafigura Maritime Logistics Pte. Ltd. (“Trafigura”) for aggregate consideration of $803 million which included the assumption of $670.0 million of obligations under the bareboat charter agreements (of which, $531.5 million was recorded in September 2019 and the remaining obligations of $138.8 million were recorded in 2020 upon the delivery of four of the vessels from the shipyard). This transaction is described in Note 6.
•The 2019 recognition of $24.2 million of right of use assets and corresponding $24.2 million of lease liabilities (the obligations under these agreements are described as "IFRS 16 - Leases - seven Handymax") at the commencement date of seven bareboat charter-in agreements. This transaction is described in Note 6.
These transactions represent the significant non-cash transactions incurred during the years ended December 31, 2021, 2020 and 2019.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the consolidated financial statements
1.General information and significant accounting policies
Company
Scorpio Tankers Inc. and its subsidiaries (together “we”, “our” or the “Company”) are engaged in the seaborne transportation of refined petroleum products in the international shipping markets. Scorpio Tankers Inc. was incorporated in the Republic of the Marshall Islands on July 1, 2009. On April 6, 2010, we closed on our initial public offering, and our common stock currently trades on the New York Stock Exchange under the symbol "STNG."
Our fleet, as of December 31, 2021, consisted of 131 owned, sale and leaseback, or bareboat chartered-in product tankers (14 Handymax, 63 MR, 12 LR1 and 42 LR2).
Our vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM, which is majority owned by the Lolli-Ghetti family of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members. SCM’s services include securing employment for our vessels in pools, in the spot market, and on time charters.
Our vessels are technically managed by Scorpio Ship Management S.A.M., or SSM, which is majority owned by the Lolli-Ghetti family. SSM facilitates vessel support such as crew, provisions, deck and engine stores, insurance, maintenance and repairs, and other services necessary to operate the vessels such as drydocks and vetting/inspection under a technical management agreement.
We also have an administrative services agreement with Scorpio Services Holding Limited, or SSH, which is majority owned by the Lolli-Ghetti family. The administrative services provided under this agreement primarily include accounting, legal compliance, financial, information technology services, and the provision of administrative staff and office space, which are contracted to subsidiaries of SSH. We pay our managers fees for these services and reimburse them for direct or indirect expenses that they incur in providing these services.
Basis of accounting
The consolidated financial statements incorporate the financial statements of Scorpio Tankers Inc. and its subsidiaries. The consolidated financial statements have been presented in United States dollars, or USD or $, which is the functional currency of Scorpio Tankers Inc. and all its subsidiaries, and have been authorized for issue by the Board of Directors on March 22, 2022. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.
All inter-company transactions, balances, income and expenses were eliminated on consolidation.
Going concern
The financial statements have been prepared in accordance with the going concern basis of accounting as described further in the “Liquidity risk” section of Note 22.
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. We manage liquidity risk by maintaining adequate reserves and borrowing facilities and by continuously monitoring forecast and actual cash flows. Liquidity risks can manifest themselves when economic conditions deteriorate or when we have significant maturities of our financial instruments.
As of December 31, 2021, the financings for four vessels under our Citibank / K-Sure Credit Facility for $76.8 million in aggregate and the financing for one vessel under our Credit Agricole Credit Facility for $16.5 million are scheduled to mature within 2022. Additionally, the financings for three vessels under our Credit Agricole Credit Facility for $49.1 million in aggregate are scheduled to mature during the first quarter of 2023. As described in Note 23, in January and March 2022, we entered into agreements to sell 15 vessels, including all of the vessels that are collateralized under the aforementioned credit facilities, within 12 months from the date of these financial statements.
Furthermore, our Convertible Notes due 2022 are scheduled to mature in May 2022 for $69.7 million in aggregate principal amount, and one vessel under our 2021 $21.0 Million Credit Facility for $17.5 million is scheduled to mature in December 2022.
While we believe our current financial position, after taking into consideration the pending vessel sales, is adequate to address these cash outflows, a deterioration in economic conditions could cause us to breach the covenants under our financing arrangements and could have a material adverse effect on our business, results of operations, cash flows and financial condition. These circumstances could cause us to seek covenant waivers from our lenders and to pursue other means to raise liquidity, such as through the sale of vessels or in the capital markets, to meet our obligations.
Significant Accounting Policies
The following is a discussion of our significant accounting policies that were in effect during the years ended December 31, 2021, 2020, and 2019.
Revenue recognition
Revenue earned by our vessels is comprised of pool revenue, time charter revenue and voyage revenue.
(1)Pool revenue for each vessel is determined in accordance with the profit sharing terms specified within each pool agreement. In particular, the pool manager aggregates the revenues and expenses of all of the pool participants and distributes the net earnings to participants based on:
•the pool points attributed to each vessel (which are determined by vessel attributes such as cargo carrying capacity, fuel consumption, and construction characteristics); and
•the number of days the vessel participated in the pool in the period.
(2)Time charter agreements are when our vessels are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates.
(3)Voyage charter agreements are charter hires, where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified charter rate.
Of these revenue streams, revenue generated in the spot market from voyage charter agreements is within the scope of IFRS 15 - Revenue from Contracts with Customers, which was issued by the International Accounting Standards Board on May 28, 2014 and applied to an entity's first annual IFRS financial statements for a period beginning on or after January 1, 2018. IFRS 15 amended the existing accounting standards for revenue recognition and is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products or services are transferred to customers.
Revenue generated from pools and time charters is accounted for as revenue earned under operating leases and is therefore within the scope of IFRS 16 - Leases. IFRS 16, Leases, was issued by the International Accounting Standards Board on January 13, 2016 and applied to an entity's first annual IFRS financial statements for a period beginning on or after January 1, 2019. IFRS 16 amended the definition of what constitutes a lease to be a contract that conveys the right to control the use of an identified asset if the lessee has both (i) the right to obtain substantially all of the economic benefits from the use of the identified asset, and (ii) the right to direct the use of the identified asset throughout the period of use. We have determined that our existing pool and time charter-out arrangements meet the definition of leases under IFRS 16, with the Company as lessor, on the basis that the pool or charterer manages the vessels in order to enter into transportation contracts with their customers, and thereby enjoys the economic benefits derived from such arrangements. Furthermore, the pool or charterer can direct the use of a vessel (subject to certain limitations in the pool or charter agreement) throughout the period of use.
Moreover, under IFRS 16, we are also required to identify the lease and non-lease components of revenue and account for each component in accordance with the applicable accounting standard. In time charter-out or pool arrangements, we have determined that the lease component is the vessel and the non-lease component is the technical management services provided to operate the vessel. These components are accounted for as follows:
•All fixed lease revenue earned under these time charter-out arrangements is recognized on a straight-line basis over the term of the lease.
•Lease revenue earned under our pool arrangements is recognized as it is earned, since it is 100% variable.
•The non-lease component is accounted for as services revenue under IFRS 15 - Revenue from Contracts with Customers. This revenue is recognized “over time” as the customer (i.e. the pool or the charterer) is simultaneously receiving and consuming the benefits of the service.
The accounting for our different revenue streams pursuant to the above accounting standards is therefore summarized as follows:
Pool revenue
We recognize pool revenue based on quarterly reports from the pools which identifies the number of days the vessel participated in the pool, the total pool points for the period, the total pool revenue for the period, and the calculated share of pool revenue for the vessel.
Spot market revenue
For vessels operating in the spot market, we recognize revenue ‘over time’ as the customer (i.e. the charterer) is simultaneously receiving and consuming the benefits of the vessel. Under IFRS 15, the performance obligation has been identified as the transportation of cargo from one point to another. Therefore, in a spot market voyage under IFRS 15, revenue is recognized on a pro-rata basis commencing on the date that the cargo is loaded and concluding on the date of discharge.
Time charter revenue
Time charter revenue is recognized as services are performed based on the daily rates specified in the time charter contract.
Voyage expenses
Voyage expenses primarily include bunkers, port charges, canal tolls, cargo handling operations and brokerage commissions paid by us under voyage charters for vessels trading in the spot market. Under IFRS 15, voyage costs incurred in the fulfillment of a voyage charter are deferred and amortized over the course of the charter commencing on the date that the cargo is loaded and concluding on the date of discharge. Voyage costs are only deferred if they (i) relate directly to such charter, (ii) generate or enhance resources to be used in meeting obligations under the charter, and (iii) are expected to be recovered.
Vessel operating costs
Vessel operating costs, which include crewing, repairs and maintenance, insurance, stores, lubricating oil consumption, communication expenses, and technical management fees, are expensed as incurred for vessels that are owned, finance leased or bareboat chartered-in.
Earnings / (Loss) per share
Basic earnings / (loss) per share is calculated by dividing net income / (loss) attributable to equity holders of the parent by the weighted average number of common shares outstanding. Diluted earnings / (loss) per share is calculated by adjusting the net income / (loss) attributable to equity holders of the parent and the weighted average number of common shares used for calculating basic income / (loss) per share for the effects of all potentially dilutive shares. Such dilutive common shares are excluded when the effect would be to increase earnings per share or reduce a loss per share.
In the years ended December 31, 2021, 2020 and 2019, there were potentially dilutive items as a result of our (i) 2013 Equity Incentive Plan (as defined in Note 14), (ii) our Convertible Notes due 2019, (iii) our Convertible Notes due 2022, and (iv) our Convertible Notes due 2025 (all of which are described in Note 12).
We apply the if-converted method when determining diluted earnings / (loss) per share. This requires the assumption that all potential ordinary shares with respect to our Convertible Notes due 2019, Convertible Notes due 2022, and Convertible Notes due 2025 have been converted into ordinary shares at the beginning of the period or, if not in existence at the beginning of the period, the date of the issue of the financial instrument or the granting of the rights by which they are granted. Under this method, once potential ordinary shares are converted into ordinary shares during the period, the dividends, interest and other expense associated with those potential ordinary shares will no longer be incurred. The effect of conversion, therefore, is to increase income (or reduce losses) attributable to ordinary equity holders as well as the number of shares in issue. Conversion will not be assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.
The impact of potentially dilutive items on the calculations of earnings / (loss) per share are set forth in Note 21.
Leases
In a time or bareboat charter-in arrangement, we pay to lease a vessel for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, profit sharing or current market rates. In a time charter-in arrangement, the vessel’s owner is responsible for crewing and other vessel operating costs, whereas these costs are the responsibility of the charterer in a bareboat charter-in arrangement. Prior to the adoption of IFRS 16 - Leases in January 2019, the costs associated with these arrangements were recorded as charterhire expense.
IFRS 16 - Leases amended the existing accounting standards to require lessees to recognize, on a discounted basis, the rights and obligations created by the commitment to lease assets on the balance sheet as right-of-use assets and corresponding lease liabilities, unless the term of the lease is 12 months or less. As of December 31, 2021, we had 22 bareboat chartered-in vessels which are being accounted for under IFRS 16, Leases as right of use assets and related lease liabilities. Under IFRS 16, there is no charterhire expense for these vessels as the right of use assets are depreciated on a straight-line basis (through depreciation expense) over the lease term, and the lease liability is amortized over that same period (with a portion of each payment allocated to principal and a portion allocated to interest expense). We recorded charterhire expense during the year ended December 31, 2019 for certain vessels that were bareboat chartered-in for terms that were less than 12 months upon the date of transition to IFRS 16.
Foreign currencies
The individual financial statements of Scorpio Tankers Inc. and each of its subsidiaries are presented in the currency of the primary economic environment in which we operate (its functional currency), which in all cases is U.S. dollars. For the purpose of the consolidated financial statements, our results and financial position are also expressed in U.S. dollars.
In preparing the financial statements of Scorpio Tankers Inc. and each of its subsidiaries, transactions in currencies other than the U.S. dollar are recorded at the rate of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in other currencies are translated into the functional currency at rates ruling at that date. All resultant exchange differences have been recognized in the consolidated statements of income or loss. The amounts charged to the consolidated statements of income or loss during the years ended December 31, 2021, 2020 and 2019 were not significant.
Segment reporting
During the years ended December 31, 2021, 2020 and 2019, we owned, lease financed, or chartered-in vessels spanning four different vessel classes, Handymax, MR, LR1 and LR2, all of which earn revenues in the seaborne transportation of refined petroleum products in the international shipping markets. Each vessel within these segments also exhibits similar long-term financial performance and similar economic characteristics to the other vessels within the respective vessel class, thereby meeting the aggregation criteria pursuant to IFRS 8 - Operating Segments. We have therefore chosen to present our segment information by vessel class using the aggregated information from the individual vessels.
Segment results are evaluated based on reported net income or loss from each segment. The accounting policies applied to the reportable segments are the same as those used in the preparation of our consolidated financial statements.
It is not practical to report revenue or non-current assets on a geographical basis due to the global nature of the shipping market.
Vessels and drydock
Our fleet is measured at cost, which includes the cost of work undertaken to enhance the capabilities of the vessels, less accumulated depreciation and impairment losses.
Depreciation is calculated on a straight-line basis to the estimated residual value over the anticipated useful life of the vessel from the date of delivery. We estimate the useful lives of our vessels to be 25 years. Vessels under construction are not depreciated until such time as they are ready for use. The residual value is estimated as the lightweight tonnage of each vessel multiplied by scrap value per ton. The scrap value per ton is estimated taking into consideration the historical four-year average scrap market rates available at the balance sheet date with changes accounted for in the period of change and in future periods.
The vessels are required to undergo planned drydocks for replacement of certain components, major repairs and maintenance of other components, which cannot be carried out while the vessels are operating, approximately every 30 months or 60 months depending on the nature of work and external requirements. These drydock costs are capitalized and depreciated on a straight-line basis over the estimated period until the next drydock. In deferred drydocking, we only include direct costs that are incurred as part of the drydocking to meet regulatory requirements, or are expenditures that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.
For an acquired or newly built vessel, a notional drydock component is allocated from the vessel’s cost. The notional drydock cost is estimated by us, based on the expected costs related to the next drydock, which is based on experience and past history of similar vessels, and carried separately from the cost of the vessel. Subsequent drydocks are recorded at actual cost incurred. The drydock component is depreciated on a straight-line basis to the next estimated drydock. The estimated amortization period for a drydock is based on the estimated period between drydocks. When the drydock expenditure is incurred prior to the expiry of the period, the remaining balance is expensed.
During the years ended December 31, 2021, 2020, and 2019, we made investments in exhaust gas cleaning systems, or scrubbers, and ballast water treatment systems, or BWTS. The costs of these systems is primarily being depreciated over the estimated remaining useful life of each vessel, which is our estimate of the useful life of this equipment based on experience with such systems. Additionally, for a newly installed scrubber, a notional component is allocated from the scrubber's cost. The notional scrubber cost is estimated by us, based on the expected related costs that we will incur for this equipment at the next scheduled drydock date and relates to the replacement of certain components and maintenance of other components. This notional scrubber cost is carried separately from the cost of the scrubber. Subsequent costs will be recorded at actual cost incurred. The notional component of the scrubber is depreciated on a straight-line basis to the next estimated drydock date.
Asset acquisitions
In October 2018, the International Accounting Standards Board ("IASB") issued amendments to the definition of a business in IFRS 3 - Business Combinations. The amendments are intended to assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments to IFRS 3 are effective for
annual reporting periods beginning on or after January 1, 2020 and apply prospectively, however earlier application was permitted.
As part of these amendments, the IASB introduced an optional fair value concentration test. The purpose of this test is to permit a simplified assessment of whether an acquired set of activities and assets is a business or an asset. Entities may elect whether or not to apply the concentration test on a transaction-by-transaction basis. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The test is based on gross assets, not net assets, as the IASB concluded that whether a set of activities and assets includes a substantive process does not depend on how the set is financed. In addition, certain assets are excluded from the gross assets considered in the test. If the test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. If the test is not met, or if an entity elects not to apply the test, a detailed assessment must be performed applying the original requirements in IFRS 3.
We early adopted these amendments to IFRS 3 in 2019 and applied them to our September 2019 transaction to acquire the leasehold interests in 19 product tankers from Trafigura Maritime Logistics Pte. Ltd. ("Trafigura"). We refer to this transaction as the "Trafigura Transaction".
We have accounted for the Trafigura Transaction as an asset acquisition under the amended guidance set forth under IFRS 3, Business Combinations as substantially all of the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets.
Moreover, the leasehold interests acquired as part of the Trafigura Transaction qualified as leases under IFRS 16.
Impairment of goodwill
Goodwill arising from our 2017 acquisition of Navig8 Product Tankers Inc. was allocated to the cash generating units within each of the respective reportable segments that are expected to benefit from the synergies of the Merger (LR2s and LR1s). Goodwill is not amortized and is tested annually (or more frequently, if impairment indicators arise) by comparing the aggregate carrying amount of the cash generating units within the reportable segment, plus the allocated goodwill, to their recoverable amounts.
The recoverable amount of goodwill is measured by the value in use of the cash generating units within the reportable segment. In assessing value in use, the estimated future cash flows of the reportable segment are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the reportable segment for which the estimates of future cash flows have not been adjusted.
If the recoverable amount is determined to be less than the aggregate carrying amount of the assets in each respective operating segment, plus goodwill, then goodwill is reduced to the lower of the recoverable amount or zero. An impairment loss is recognized as an expense immediately. This test was performed in connection with the assessment of the carrying amount of our vessels and related drydock costs and resulted in an impairment charge to the goodwill that was previously allocated to the LR1 segment of $2.6 million at December 31, 2020.
Impairment of vessels and drydock, vessels under construction and right of use assets for vessels
At each balance sheet date, we review the carrying amount of our vessels and drydock, vessels under construction (if applicable), and right of use assets for vessels to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the vessels and drydock, vessels under construction and right of use assets for vessels is estimated in order to determine the extent of the impairment loss (if any). We treat each vessel and the related drydock as a cash generating unit.
Recoverable amount is the higher of the fair value less cost to sell (determined by taking into consideration two valuations from independent ship brokers) and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Where appropriate, our value in use calculations also incorporate probability weighted assessments of different scenarios (such as potential vessel sales).
If the recoverable amount of the cash generating unit is estimated to be less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately. As described in Note 7, our impairment testing at December 31, 2020 resulted in an aggregate impairment charge of $14.2 million as the recoverable amounts of 13 of the MRs in our fleet were less than their carrying amounts.
Where an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the cash generating unit in the prior years. A reversal of impairment is recognized as income immediately.
Inventories
Inventories consist of lubricating oils and other items including stock provisions, and are stated at the lower of cost and net realizable value. Cost is determined using the first in first out method. Stores and spares are charged to vessel operating costs when purchased. Lubricating oil consumption was $10.0 million, $9.8 million, and $10.3 million for the years ended December 31, 2021, 2020, and 2019, respectively. Lubricating oil consumption is recorded to vessel operating costs.
Interests in joint ventures
In August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel MR methanol tankers (built between 2016 and 2021) which, in addition to traditional petroleum products, are designed to both carry methanol as a cargo and to consume it as a fuel, along with four ice class 1A LR1 product tankers. As part of this agreement, we acquired a 50% interest in a joint venture that ultimately has a minority interest in the entities that own the vessels for final consideration of $6.7 million.
A joint venture is an arrangement where we have joint control and have rights to the net assets of the arrangement, rather than rights to the joint venture's assets and obligations for its liabilities. We account for our interest in this joint venture using the equity method pursuant to IFRS 11 - Joint arrangements. Under this guidance, the investment is initially measured at cost, and the carrying amount of the investment is adjusted in subsequent periods based on our share of profits or losses from the joint venture (adjusted for any fair value adjustments made upon initial recognition). Any distributions received from the joint venture reduce the carrying amount. This investment is described in Note 8.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time (for example, the time period necessary to construct a vessel) to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the consolidated statement of income or loss in the period in which they are incurred.
Financial instruments
IFRS 9, Financial instruments, sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. Financial assets and financial liabilities are recognized in our balance sheet when we become a party to the contractual provisions of the instrument.
Financial assets
All financial assets are recognized and derecognized on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets "at fair value through profit or loss", or FVTPL, "at fair value through other comprehensive income" or at amortized cost on the basis of the Company’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset.
Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.
Financial assets at amortized cost
Financial assets are measured at amortized cost if both of the following conditions are met:
•the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
•the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through other comprehensive income
Financial assets are measured at fair value through other comprehensive income if both of the following conditions are met:
•the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
•the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at FVTPL
Financial assets are classified as at FVTPL where the financial asset is held for trading.
A financial asset is classified as held for trading if:
•it has been acquired principally for the purpose of selling in the near future; or
•it is a part of an identified portfolio of financial instruments that we manage together and has a recent actual pattern of short-term profit-taking; or
•it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognized in the statement of income or loss. The net gain or loss recognized in income or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 22.
Accounts receivable
Amounts due from the Scorpio Pools and other receivables that have fixed or determinable payments and are not quoted in an active market are classified as accounts receivable. Accounts receivable without a significant financing component are initially measured at their transaction price and subsequently measured at amortized cost, less any impairment (as discussed below). Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets
IFRS 9 introduced the 'expected credit loss' (ECL) model to determine and recognize impairments. ECLs are a probability-weighted estimate of credit losses and are measured as the present value of all cash shortfalls (i.e. the difference between cash flows due to the entity in accordance with the contract and cash flows that we expect to receive). ECLs are discounted at the effective interest rate of the financial asset. Under IFRS 9, credit losses are recognized earlier than under IAS 39.
Under the general model to ECLs under IFRS 9, loss allowances are measured in two different ways:
•12-month ECLs: 12-month ECLs are the expected credit losses that may result from default events on a financial instrument that are possible within the 12 months after the reporting date. 12-month ECLs are utilized when a financial asset has a low credit risk at the reporting date or has not had a significant increase in credit risk since initial recognition.
•Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. Lifetime ECLs are determined when an impaired financial asset has been purchased or originated or when there has been a significant increase in credit risk since initial recognition
IFRS 9 also permits operational simplifications for trade receivables, contract assets and lease receivables because they are often held by entities that do not have sophisticated credit risk management systems (i.e. the ‘simplified model’). These simplifications eliminate the need to calculate 12-month ECLs and to assess when a significant increase in credit risk has occurred. Under the simplified approach:
•For trade receivables or contract assets that do not contain a significant financing component, the loss allowance is required to be measured at initial recognition and throughout the life of the receivable at an amount equal to lifetime ECL.
•For finance lease receivables, operating lease receivables, or trade receivables or contract assets that do contain a significant financing component, IFRS 9 permits an entity to choose as its accounting policy to measure the loss allowance using the general model or the simplified model (i.e. at an amount equal to lifetime expected credit losses).
We measure loss allowances for all trade and lease receivables under the simplified model using the lifetime ECL approach. When estimating ECLs, we consider reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
The application of the ECL requirements under IFRS 9 have not resulted in the recognition of an impairment charge under the new impairment model. This determination was made on the basis that most of our vessels operate in the Scorpio Pools and we have never experienced a historical credit loss of amounts due from the Scorpio Pools. This determination also considers reasonable and supportable information about current conditions and forecast future economic conditions.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly-liquid investments with original maturities of three months or less, that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.
Restricted cash
We placed deposits in debt service reserve accounts under the terms and conditions set forth under our Citibank / K-Sure Credit Facility, ABN AMRO / K-Sure Credit Facility, and the lease financing arrangements with Bank of Communications Financial Leasing (LR2s). The funds in these accounts are expected to be applied against the principal balance of these facilities upon maturity. The activity within these accounts (which is adjusted from time to time based on prevailing interest rates) is recorded as financing activities on our consolidated statements of cash flows.
Financial liabilities
Financial liabilities are classified as either financial liabilities at amortized cost or financial liabilities at FVTPL. There were no financial liabilities recorded at FVTPL during the years ended December 31, 2021 or December 31, 2020.
Financial liabilities at amortized cost
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method.
Financial liabilities at FVTPL
Financial liabilities not classified at amortized cost are classified as FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognized in the Statement of Income or Loss. The net gain or loss recognized in the statement of income or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in Note 22.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset and a financial liability. It allocates interest income and interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash flows (including all fees or points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) over the expected life of the financial asset and financial liability, or, where appropriate, a shorter period.
Convertible debt instruments
Our convertible debt outstanding (which is described in Note 12) is accounted for pursuant to IAS 32 - Financial liabilities and equity. Under IAS 32, we must separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer’s economic interest cost. Under this methodology, the instrument is split between its liability and equity components upon initial recognition. The fair value of the liability is measured first, by estimating the fair value of a similar liability that does not have any associated equity conversion option. This becomes the liability’s carrying amount at initial recognition, which is recorded as part of Debt on the consolidated balance sheet. The equity component (the conversion feature) is assigned the residual amount after deducting the amount separately determined for the liability component from the fair value of the instrument as a whole and is recorded as part of Additional paid-in capital within stockholders’ equity on the consolidated balance sheet. Issuance costs are allocated proportionately between the liability and equity components.
The value of the equity component is treated as an original issue discount for purposes of accounting for the liability component. Accordingly, we are required to record non-cash interest expense as a result of the amortization of the discounted carrying value of the convertible notes to their face amount over the term of each instrument. IAS 32 therefore requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest.
Derivative financial instruments
Derivative financial instruments are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. The resulting gain or loss is recognized in income or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in income or loss depends on the nature of the hedging relationship.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months, and it is not expected to be realized or settled within 12 months.
There were no derivative instruments or transactions during the years ended December 31, 2021, 2020, and 2019.
Lease Financing
During the years ended December 31, 2021, 2020, and 2019, we entered into sale and leaseback transactions in which certain of our vessels were sold to a third party and then leased back to us under bareboat chartered-in arrangements. In these transactions, the criteria necessary to recognize a sale of these vessels were not met under IFRS 15. Accordingly, these transactions have been accounted for as financing arrangements, with the liability under each arrangement recorded at amortized cost using the effective interest method and the corresponding vessels recorded at cost, less accumulated depreciation, on our consolidated balance sheet. All of these arrangements are further described in Note 12.
Equity instruments
An equity instrument is any contract that evidences a residual interest in our assets after deducting all of its liabilities. Equity instruments issued by us are recorded at the proceeds received, net of direct issue costs.
We had 58,369,516 and 58,093,147 registered shares authorized, issued and outstanding with a par value of $0.01 per share at December 31, 2021 and December 31, 2020, respectively. These shares provide the holders with the same rights to dividends and voting rights.
Provisions
Provisions are recognized when we have a present obligation as a result of a past event, and it is probable that we will be required to settle that obligation. Provisions are measured at our best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.
Dividends
A provision for dividends payable is recognized when the dividend has been declared in accordance with the terms of the shareholder agreement.
Share based payments
The restricted stock awards granted under our 2013 Equity Incentive Plan as described in Note 14 contain only service conditions and are classified as equity settled. Accordingly, the fair value of our restricted stock awards was calculated by multiplying the average of the high and low share price on the grant date and the number of restricted stock shares granted that are expected to vest. In accordance with IFRS 2 - Share based payment, the share price at the grant date serves as a proxy for the fair value of services to be provided by the individual under the plan.
Compensation expense related to the awards is recognized ratably over the vesting period, based on our estimate of the number of awards that will eventually vest. The vesting period is the period during which an individual is required to provide service in exchange for an award and is updated at each balance sheet date to reflect any revisions in estimates of the number of awards expected to vest as a result of the effect of service vesting conditions. The impact of the revision of the original estimate, if any, is recognized in the consolidated statement of income or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
Critical accounting judgments and key sources of estimation uncertainty
In the application of the accounting policies, we are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The significant judgments and estimates are as follows:
Revenue recognition
Our revenue is primarily generated from time charters, spot voyages, or pools (see Note 16 for the components of our revenue generated during the years ended December 31, 2021, 2020 and 2019). Revenue recognition for time charters and pools is generally not as complex or as subjective as voyage charters (spot voyages). Time charters are for a specific period of time at a specific rate per day. For long-term time charters, revenue is recognized on a straight-line basis over the term of the charter. Pool revenues are determined by the pool managers from the total revenues and expenses of the pool and allocated to pool participants using a mechanism set out in the time charter agreement between the vessel owner and the pool.
We generated revenue from spot voyages during the years ended December 31, 2021 and December 31, 2020. We recognize spot market revenue ‘over time’ as the customer (i.e. the charterer) is simultaneously receiving and consuming the benefits of the vessel. Under IFRS 15, the performance obligation has been identified as the transportation of cargo from one
point to another. Therefore, in a spot market voyage under IFRS 15, revenue is recognized on a pro-rata basis commencing on the date that the cargo is loaded and concluding on the date of discharge. Under IFRS 15, voyage costs incurred in the fulfillment of a voyage charter are deferred and amortized over the course of the charter commencing on the date that the cargo is loaded and concluding on the date of discharge. Voyage costs are only deferred if they (i) relate directly to such charter, (ii) generate or enhance resources to be used in meeting obligations under the charter and (iii) are expected to be recovered.
Vessel impairment
We evaluate the carrying amounts of our vessels, vessels under construction and right of use assets for vessels to determine whether there is any indication that those vessels have suffered an impairment loss. If any such indication exists, the recoverable amount of vessels is estimated in order to determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to sell (determined by taking into consideration vessel valuations from independent ship brokers for each vessel) and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. The projection of cash flows related to vessels is complex and requires us to make various estimates including future freight rates, earnings from the vessels and discount rates. All of these items have been historically volatile. As part of our process of assessing fair value less selling costs of the vessel, we obtain vessel valuations for our operating vessels from independent ship brokers on an annual basis or when there is an indication that an asset or assets may be impaired. We generally do not obtain vessel valuations for vessels under construction. If an indication of impairment is identified, the need for recognizing an impairment loss is assessed by comparing the carrying amount of the vessels to the higher of the fair value less selling costs and the value in use. Likewise, if there is an indication that an impairment loss recognized in prior periods no longer exists or may have decreased, the need for recognizing an impairment reversal is assessed by comparing the carrying amount of the vessels to the latest estimate of recoverable amount.
At December 31, 2021, we reviewed the carrying amount of our vessels and right of use assets for vessels to determine whether there was an indication that these assets had suffered an impairment. First, we assessed the fair value less the cost to sell of our vessels taking into consideration vessel valuations from independent ship brokers. We then compared the fair value less selling costs to each vessel’s carrying value and, if the carrying value exceeded the vessel’s fair value less selling costs, an indicator of impairment exists. We also considered sustained weakness in the product tanker market or other macroeconomic indicators (such as the COVID-19 pandemic) to be an impairment indicator. Based upon these factors, we determined that impairment indicators did exist at December 31, 2021.
Once this determination was made, we prepared a value in use calculation where we estimated each vessel’s future cash flows. We did not record an impairment charge at December 31, 2021 based on the results of this analysis, the details and key assumptions of which are described in Note 7.
Vessel lives and residual value
The carrying value of each of our vessels represents its original cost at the time it was delivered or purchased less depreciation and impairment. We depreciate our vessels to their residual value on a straight-line basis over their estimated useful lives of 25 years. The estimated useful life of 25 years is management’s best estimate and is also consistent with industry practice for similar vessels. The residual value is estimated as the lightweight tonnage of each vessel multiplied by a forecast scrap value per ton. The scrap value per ton is estimated by taking into consideration the historical four-year scrap market rate average at the balance sheet date, which we update annually.
An increase in the estimated useful life of a vessel or in its scrap value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of a vessel or scrap value would have the effect of increasing the annual depreciation charge.
When regulations place significant limitations over the ability of a vessel to trade on a worldwide basis, the vessel’s useful life is adjusted to end at the date such regulations become effective. No such regulations have been identified that would have impacted the estimated useful life of our vessels. The estimated salvage value of the vessels may not represent the fair value at any one time since market prices of scrap values tend to fluctuate.
Deferred drydock cost
We recognize drydock costs as a separate component of each vessel’s carrying amount and amortize the drydock cost on a straight-line basis over the estimated period until the next drydock. We use judgment when estimating the period between when drydocks are performed, which can result in adjustments to the estimated amortization of the drydock expense. If the vessel is disposed of before the next drydock, the remaining balance of the deferred drydock is written-off and forms part of the gain or loss recognized upon disposal of vessels in the period when contracted. We expect that our vessels will be required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. Costs capitalized as part of the drydock include actual costs incurred at the drydock yard and parts and supplies used in making such repairs.
Adoption of new and amended IFRS and IFRIC interpretations from January 1, 2021
No significant standards and interpretations were adopted during the year ended December 31, 2021.
Standards and Interpretations issued and adopted in 2020
•Amendments to IAS 1 and IAS 8 - Definition of Material:
•Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform
The adoption of these standards did not have a significant impact on these consolidated financial statements.
Standards and Interpretations issued yet not adopted
Additionally, at the date of authorization of these consolidated financial statements, the following Standards which have not been applied in these consolidated financial statements were issued but not yet effective. We do not expect that the adoption of these standards in future periods will have a significant impact on our financial statements.
•Annual Improvements to IFRS Standards 2018-2020, which are summarized as follows and are effective for annual periods beginning on or after January 1, 2022:
IFRS 9 Financial Instruments - The amendment clarifies which fees an entity includes when it applies the '10 per cent' test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognize a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other's behalf.
IFRS 16 Leases - The amendment to Illustrative Example 13 accompanying IFRS 16 removes from the example of the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example.
•Amendments to IFRS 3 - Reference to the Conceptual Framework - To update reference to the Conceptual Framework without significantly changing the requirements in the standard. The effective date is for annual periods beginning on or after January 1, 2022.
•Amendments to IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use - To prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management and instead requires the recognition of the proceeds from selling such items, and the cost of producing those items, in profit or loss. The effective date is for annual periods beginning on or after January 1, 2022.
•Amendments to IAS 37 - Onerous Contracts - Cost of Fulfilling a Contract - To specify that the 'cost of fulfilling' a contract comprises the 'costs that relate directly to the contract' and that costs that relate to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The effective date is for annual periods beginning on or after January 1, 2022.
•Amendments to IAS 1 - Classification of Liabilities as Current or Non-Current - To promote consistency in applying the requirements to determine whether debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The effective date is not earlier than January 1, 2024.
•Amendments to IAS 1 - Disclosure of Accounting Policies - To require entities to disclose material accounting policies, instead of significant accounting policies. The amendments clarify, among other things, that accounting policy information may be material because of its nature, even if the related amounts are immaterial. The effective date is for annual periods beginning on or after January 1, 2023.
•Amendment to IAS 12 - Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - These amendments require companies to recognize deferred tax on transactions that, on initial recognition give rise to equal amounts of taxable and deductible temporary differences. The effective date is for annual periods beginning on or after January 1, 2023.
•Amendment to IAS 8 - Changes in Accounting Estimates - The definition of a change in accounting estimates is replaced with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The Board clarified that a change in accounting estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors. A change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. The effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods. The effective date is for annual periods beginning on or after January 1, 2023.
•Amendments to IFRS 9 – Financial Instruments (IBOR reform): The changes will impact some of our existing variable rate borrowings and leases. The changes are not expected to have a material impact.
2. Cash and cash equivalents
The following is a table summarizing the components of our cash and cash equivalents as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| | At December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Cash at banks | $ 228,732 | | $ 185,879 |
| Cash on vessels | 1,683 | | 1,632 |
| | $ 230,415 | | $ 187,511 |
Cash and cash equivalents included $20.0 million of short-term deposits with original maturities of less than 3 months at December 31, 2020.
3. Prepaid expenses and other current assets
The following is a table summarizing the components of our prepaid expenses and other current assets as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| At December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| SSM - prepaid vessel operating expenses | $ 3,426 | | $ 3,975 |
| Prepaid interest | — | | 4,035 |
| Third party - prepaid vessel operating expenses | 2,610 | | 1,757 |
| Prepaid insurance | 880 | | 574 |
| Other prepaid expenses | 1,038 | | 2,089 |
| $ 7,954 | | $ 12,430 |
4. Accounts receivable
The following is a table summarizing the components of our accounts receivable as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| | At December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Scorpio MR Pool Limited | $ 16,414 | | $ 9,751 |
| Scorpio LR2 Pool Limited | 14,344 | | 10,698 |
| Scorpio LR1 Pool Limited | 3,079 | | 2,367 |
| Scorpio Handymax Tanker Pool Limited | 2,379 | | 3,597 |
| Scorpio Commercial Management S.A.M. | — | | 284 |
| Receivables from the related parties | 36,216 | | 26,697 |
| | | |
| Insurance receivables | 905 | | 5,259 |
| Freight and time charter receivables | 820 | | — |
| Other receivables | 128 | | 1,061 |
| | $ 38,069 | | $ 33,017 |
Scorpio MR Pool Limited, Scorpio LR2 Pool Limited, Scorpio Handymax Tanker Pool Limited and Scorpio LR1 Pool Limited are related parties, as described in Note 15. Amounts due from the Scorpio Pools relate to income receivables and receivables for working capital contributions which are expected to be collected within one year. The amounts receivable from the Scorpio Pools as of December 31, 2020 included $1.1 million of working capital contributions to the Scorpio Pools which were made on behalf of certain bareboat chartered-in vessels whose leases expired within one year of the balance sheet date. For all owned vessels, we assume that these contributions will not be repaid within 12 months and are therefore considered as non-current within Other Assets on the consolidated balance sheets. For chartered-in vessels we classify the amounts as current (within accounts receivable) or non-current (within Other Assets) according to the expiration of the contract.
Insurance receivables primarily represent amounts collectible on our insurance policies in relation to vessel repairs.
Freight and time charter receivables represent amounts collectible from customers for our vessels operating on time charter or in the spot market.
We consider that the carrying amount of accounts receivable approximates their fair value due to the short maturity thereof. Accounts receivable are non-interest bearing. Our accounts receivable mostly consist of accounts receivable from the Scorpio Pools. We have never experienced a historical credit loss of amounts due from the Scorpio Pools and all amounts are considered current. Accordingly there is no reserve for expected credit losses.
5. Vessels
Operating vessels and drydock
| | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars | Vessels | | Drydock | | Total |
| | | | | | |
| Cost | | | | | | |
| As of January 1, 2021 | $ 4,773,502 | | $ 132,474 | | $ 4,905,976 |
| Additions (1) | 9,384 | | 27,266 | | 36,650 |
| Write-offs (2) | — | | (24,269) | | (24,269) |
| As of December 31, 2021 | 4,782,886 | | 135,471 | | 4,918,357 |
| | | | | | |
| Accumulated depreciation and impairment | | | | | |
| As of January 1, 2021 | (849,355) | | (53,733) | | (903,088) |
| Charge for the period | (171,052) | | (26,415) | | (197,467) |
| Write-offs (2) | — | | 24,269 | | 24,269 |
| As of December 31, 2021 | (1,020,407) | | (55,879) | | (1,076,286) |
| Net book value | | | | | |
| As of December 31, 2021 | $ 3,762,479 | | $ 79,592 | | $ 3,842,071 |
| | | | | | |
| Cost | | | | | | |
| As of January 1, 2020 | $ 4,611,945 | | $ 108,523 | | $ 4,720,468 |
| Additions (1) | 162,404 | | 40,801 | | 203,205 |
| Write-offs (2) | (847) | | (16,850) | | (17,697) |
| As of December 31, 2020 | 4,773,502 | | 132,474 | | 4,905,976 |
| | | | | | |
| Accumulated depreciation and impairment | | | | | |
| As of January 1, 2020 | (665,586) | | (46,724) | | (712,310) |
| Charge for the period | (170,409) | | (23,859) | | (194,268) |
| Impairment loss | (14,207) | | — | | (14,207) |
| Write-offs (2) | 847 | | 16,850 | | 17,697 |
| As of December 31, 2020 | (849,355) | | (53,733) | | (903,088) |
| Net book value | | | | | |
| As of December 31, 2020 | $ 3,924,147 | | $ 78,741 | | $ 4,002,888 |
(1)Additions in 2021 and 2020 primarily relate to the drydock, BWTS, and scrubber costs incurred on certain of our vessels.
(2)Represents the write-offs of fully depreciated equipment and notional drydock costs on certain of our vessels.
The following is a summary of the items that were capitalized during the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars | Drydock (1) | Notional component of scrubber (2) | Total drydock additions | | Scrubber | BWTS | Other equipment | Capitalized interest | Total vessel additions |
| For the year ended December 31, 2021 | $ 27,116 | $ 150 | $ 27,266 | | $ 4,073 | $ 190 | $ 4,945 | $ 176 | $ 9,384 |
| For the year ended December 31, 2020 | 33,901 | 6,900 | 40,801 | | 127,275 | 30,686 | 3,033 | 1,410 | 162,404 |
(1)Additions during the years ended December 31, 2021 and 2020 include new costs accrued in prior periods relating to drydocks, ballast water treatment system, and scrubber installations.
(2)For a newly installed scrubber, a notional component of approximately 10% is allocated from the scrubber's cost. The notional scrubber cost is estimated by us, based on the expected related costs that we will incur for this equipment at the next scheduled drydock date and relates to the replacement of certain components and maintenance of other components. This notional scrubber cost is carried separately from the cost of the scrubber. Subsequent costs are recorded at actual cost incurred. The notional component of the scrubber is depreciated on a straight-line basis to the next estimated drydock date.
Activity
We did not take delivery of any owned vessels during the years ended December 31, 2021 and December 31, 2020, though we did take delivery of four vessels under bareboat charters, as described in Note 6 during the year ended December 31, 2020. As of December 31, 2021, we did not have any newbuildings on order.
Ballast Water Treatment Systems
In July 2018, we executed an agreement to purchase 55 ballast water treatment systems, or BWTS, from an unaffiliated third-party supplier for total consideration of $36.2 million. These systems have been and are expected to be installed from 2019 through 2023, as each respective vessel under the agreement is due for its International Oil Pollution Prevention, or IOPP, renewal survey. Costs capitalized for these systems include the cost of the base equipment that we have contracted to purchase in addition to directly attributable installation costs, costs incurred for systems that were installed during the period, and installation costs incurred in advance of installations that are expected to occur in subsequent periods. We estimate the useful life of these systems to be for the duration of each vessel's remaining useful life and are depreciating the equipment and related installation costs on this basis.
Exhaust Gas Cleaning Systems or Scrubbers
We commenced a program to retrofit the substantial majority of our vessels with exhaust gas cleaning systems, or scrubbers. The scrubbers enable our ships to use high sulfur fuel oil, which is less expensive than low sulfur fuel oil, in certain parts of the world. From August 2018 through November 2018, we entered into agreements with two separate suppliers to retrofit a total of 77 of our tankers with such systems for total consideration of $116.1 million (which excludes installation costs). We also obtained options to retrofit additional tankers under these agreements.
In June and September 2019, we exercised the option to retrofit an additional 14 and seven of our vessels, respectively, with scrubbers for total consideration of $30.3 million. In April 2020, we reached an agreement to postpone the purchase and installation of scrubbers on 19 vessels. In February 2021, we amended an agreement with respect to the purchase of scrubbers on 19 of our vessels to extend the availability period to purchase these scrubbers. In August 2021, we exercised the option to purchase six scrubbers.
During the years ended December 31, 2021 and 2020, we retro-fitted a total of one and 46 of our vessels with scrubbers, respectively. During the year ended December 31, 2020, we retro-fitted a total of 22 vessels with BWTS. We did not install any BWTS during the year ended December 31, 2021.
Costs capitalized for these systems include the base equipment and systems purchased, and installation costs incurred. We estimate the useful life of these systems to be for the duration of each vessel's remaining useful life, with the exception of approximately 10% of the equipment cost, which is estimated to require replacement at each vessel's next scheduled drydock. This amount has been allocated as a notional component upon installation. The carrying value of the equipment, related installation costs, and notional component will be depreciated on this basis.
The following table is a timeline of future expected payments and dates for our commitments to purchase scrubbers and BWTS as of December 31, 2021 (1):
| | | | | |
| | As of December 31, |
| Amounts in thousands of US dollars | 2021 |
| Less than 1 month | $ 610 |
| 1-3 months | 4,861 |
| 3 months to 1 year | 9,006 |
| 1-5 years | 7,325 |
| 5+ years | — |
| Total | $ 21,802 |
(1)These amounts are subject to change as installation times are finalized. The amounts presented exclude installation costs.
Collateral agreements
The below table is a summary of vessels with an aggregate carrying value of $4.6 billion at December 31, 2021 which have been pledged as collateral under the terms of our secured debt and lease financing arrangements, which includes right of use assets that are accounted for under IFRS 16 (and are further described in Note 6), along with the respective borrowing or lease financing facility (which are described in Note 12) as of December 31, 2021:
| | | | | | | | |
| Credit Facility | | Vessel Name |
| $116.0 Million Lease Financing | | STI Oxford, STI Selatar, STI Gramercy, STI Queens |
| $157.5 Million Lease Financing | | STI Alexis, STI Benicia, STI Duchessa, STI Mayfair, STI San Antonio, STI St. Charles, STI Yorkville |
| IFRS 16 - Leases - $670.0 Million | | STI Lobelia, STI Lotus, STI Lily, STI Lavender, STI Magic, STI Majestic, STI Mystery, STI Marvel, STI Magnetic, STI Millenia, STI Magister, STI Mythic, STI Marshall, STI Modest, STI Maverick, STI Miracle, STI Maestro, STI Mighty, STI Maximus |
| 2018 CMB Lease Financing | | STI Milwaukee, STI Battery, STI Tribeca, STI Bronx, STI Manhattan, STI Seneca, |
| 2019 DNB / GIEK Credit Facility | | STI Condotti, STI Sloane |
| 2020 $225.0 Million Credit Facility | | STI Pride, STI Providence, STI Nautilus, STI Spiga, STI Savile Row, STI Kingsway, STI Carnaby |
| 2020 TSFL Lease Financing | | STI Galata, STI La Boca |
| 2020 CMBFL Lease Financing | | STI Bosphorus, STI Leblon |
| 2020 SPDBFL Lease Financing | | STI San Telmo, STI Donald C Trauscht, STI Esles II, STI Jardins |
| 2021 $21.0 Million Credit Facility | | STI Madison |
| 2021 AVIC Lease Financing | | STI Memphis, STI Soho, STI Osceola, STI Lombard |
| 2021 CMBFL Lease Financing | | STI Brixton, STI Comandante, STI Finchley, STI Pimlico, STI Westminster |
| 2021 TSFL Lease Financing | | STI Black Hawk, STI Pontiac, STI Notting Hill |
| 2021 CSSC Lease Financing | | STI Jermyn, STI Grace |
| 2021 $146.3 Million Lease Financing | | STI Rotherhithe, STI Broadway, STI Hammersmith, STI Winnie, STI Lauren, STI Connaught |
| 2021 $43.6 Million Credit Facility | | STI Precision, STI Prestige |
| 2021 Ocean Yield Lease Financing | | STI Gallantry, STI Guard |
| AVIC Lease Financing | | STI Fontvieille, STI Ville, STI Brooklyn, STI Rose, STI Rambla |
| BCFL Lease Financing (LR2s) | | STI Solace, STI Solidarity, STI Stability |
| BCFL Lease Financing (MRs) | | STI Amber, STI Topaz, STI Ruby, STI Garnet, STI Onyx |
| BNPP Sinosure Credit Facility | | STI Elysees, STI Fulham, STI Hackney, STI Orchard, STI Park |
| China Huarong Lease Financing | | STI Opera, STI Venere, STI Virtus, STI Aqua, STI Dama, STI Regina |
| Citibank / K-Sure Credit Facility | | STI Excellence, STI Executive, STI Experience, STI Express |
| COSCO Shipping Lease Financing | | STI Battersea, STI Wembley, STI Texas City, STI Meraux |
| Credit Agricole Credit Facility | | STI Exceed, STI Excel, STI Excelsior, STI Expedite |
| CSSC Lease Financing | | STI Goal, STI Guide, STI Gauntlet, STI Gladiator, STI Gratitude |
| Hamburg Commercial Credit Facility | | STI Poplar, STI Veneto |
| Ocean Yield Lease Financing | | STI Sanctity, STI Steadfast, STI Supreme, STI Symphony |
| Prudential Credit Facility | | STI Acton, STI Camden, STI Clapham |
| IFRS 16 - Leases - 3 MR | | STI Beryl, STI Larvotto, STI Le Rocher |
6. Right of use assets and related lease liabilities
On January 1, 2019, we adopted IFRS 16 - Leases, which amended the existing accounting standards to require lessees to recognize the rights and obligations created by the commitment to lease assets on the balance sheet, on the basis of the present value of the lease payments that are not paid at the transition date (or commencement date going forward), discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, an incremental borrowing rate, unless the term of the lease is 12 months or less. We had bareboat charter-in commitments on seven vessels under fixed rate bareboat agreements and 19 vessels under variable rate bareboat agreements during the year ended December 31, 2021 and we had bareboat charter-in commitments on 10 vessels under fixed rate bareboat agreements and 19 vessels under variable rate bareboat agreements during the years ended December 31, 2020, and 2019, which were accounted for under IFRS 16 and are described below.
IFRS 16 - Leases - 3 MRs
The transition to IFRS 16 resulted in the recognition of right-of-use assets and corresponding liabilities relating to three bareboat chartered-in vessel commitments (STI Beryl, STI Le Rocher and STI Larvotto). The bareboat contracts for these three vessels were entered into in April 2017, are scheduled to expire in April 2025, and have a fixed lease payment of $8,800 per vessel per day. We have the option to purchase these vessels beginning at the end of the fifth year of the agreement through the end of the eighth year of the agreement, at market-based prices. Additionally, a deposit of $4.35 million was retained by the buyer and will either be applied to the purchase price of the vessel, if a purchase option is exercised, or refunded to us at the expiration of the agreement. Based on the analysis of the purchase options, we determined the lease terms to be eight years, from the commencement date through the expiration date of each lease. A weighted average incremental borrowing rate of approximately 6.0% was applied at the date of initial application of IFRS 16 on this arrangement. The impact of the application of this standard on the opening balance sheet as of January 1, 2019 was the recognition of a $48.5 million right of use asset, a $50.7 million lease liability ("IFRS 16 - Leases - 3 MRs") and a $2.2 million reduction in retained earnings - a basic loss per share of $(0.05) and a diluted loss per share of $(0.06).
The IFRS 16 - Leases - 3 MRs obligations are secured by, among other things, assignments of earnings and insurances and stock pledges and account charges in respect of the subject vessels and contain customary events of default, including cross-default provisions as well as subjective acceleration clauses under which the lessor could cancel the lease in the event of a material adverse change in our business.
In April 2020, we executed agreements to increase the borrowing capacity of the three vessels under our IFRS 16 - Leases - 3 MRs obligation by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on these vessels. Each agreement will be for a fixed term of three years at the rate of up to $1,910 per vessel per day to be allocated to principal and interest. There have been no borrowings under these agreements as of December 31, 2021.
The aggregate outstanding balances of these lease liabilities were $29.3 million and $36.9 million as of December 31, 2021 and 2020, respectively.
IFRS 16 - Leases - 7 Handymax
In March 2019, we entered into new bareboat charter-in agreements on seven previously bareboat chartered-in vessels. Three of these vessels (Silent, Single and Star I) were bareboat chartered-in for one year, and the remaining four vessels (Steel, Sky, Stone I and Style) were bareboat chartered-in for two years. The daily bareboat rate under all seven agreements was $6,300 per day. We determined the lease terms to be from the commencement date through the expiration date of each lease. At the commencement date of the leases, we determined our one and two-year incremental borrowing rates to be 5.81% and 5.73%, respectively. We recognized a $24.2 million right of use asset and a corresponding $24.2 million lease liability ("IFRS 16 - Leases - 7 Handymax") at the commencement date of these leases.
In March 2020, we extended the terms of the bareboat agreements for three Handymax vessels, Silent and Single to June 2020 and Star I to July 2020, at the rate of $6,300 per day. These extensions were determined to be lease modifications under IFRS 16 - Leases and we therefore recognized additional right of use assets of $1.6 million and corresponding lease liabilities of $1.6 million based upon our incremental borrowing rate of 4.03% as a result of these modifications. The bareboat charters on Silent and Single expired in June 2020, and Star I expired in July 2020.
The remaining bareboat charter-in arrangements for four Handymax vessels (Style, Stone, Steel and Sky) expired in March 2021.
The IFRS 16 - Leases - 7 Handymax obligations were secured by, among other things, assignments of earnings and insurances and stock pledges and account charges in respect of the subject vessels and contain customary events of default, including cross-default provisions.
The aggregate outstanding balances of these lease liabilities were $2.2 million as of December 31, 2020.
IFRS 16 - Leases - Trafigura Transaction
On September 26, 2019, we acquired subsidiaries of Trafigura, which have leasehold interests in 19 product tankers under bareboat charter agreements ("Agreements") with subsidiaries of an international financial institution for aggregate consideration of $803.0 million. Of the 19 vessels, 15 (consisting of 11 MRs and four LR2s) were delivered on September 26, 2019, and four MRs were under construction. The consideration exchanged consisted of:
•For the delivered vessels on September 26, 2019, the assumption of the obligations under the Agreements of $531.5 million and the issuance of 3,981,619 shares of common stock at $29.00 per share to a nominee of Trafigura with an aggregate market value of $115.5 million.
•For the four vessels under construction on September 26, 2019, the assumption of the estimated commitments on the Agreements of $138.8 million and the issuance of 591,254 shares of common stock at $29.00 per share to a nominee of Trafigura with an aggregate market value of $17.1 million. Three vessels under construction were delivered in the first quarter of 2020, and the remaining vessel was delivered in September 2020, with aggregate final commitments on the Modified Agreements (see below) of $138.8 million.
On the date of the Trafigura Transaction, certain terms of the Agreements were modified ("Modified Agreements" and, collectively, "IFRS 16 - Leases - $670.0 Million"). Under IFRS 16- Leases the Modified Agreements did not meet the criteria to qualify as separate leases and were measured accordingly as lease modifications. The Modified Agreements each have a term of eight years from the latter of the date of the Trafigura Transaction or the delivery date of the respective vessel, and we have purchase options beginning after the first year of each agreement, limited to eight vessels until after the third anniversary date. Based on the analysis of the purchase options, we determined the lease terms to be eight years from the commencement date of the Modified Agreements, through the expiration date of each lease, at which time we have assumed that the exercise of the purchase options to be reasonably certain.
The Modified Agreements bear interest at LIBOR plus a margin of 3.50% per annum and are being repaid in equal monthly installments of approximately $0.2 million per month per vessel. Additionally, an aggregate prepayment of $18.0 million ($0.8 million for each MR and $1.5 million for each LR2) is being made in equal monthly installments over the first 12 months of each Modified Agreement.
Commencing with the date of the Trafigura Transaction, the following vessels were leased under the Modified Agreements: STI Magic, STI Majestic, STI Mystery, STI Marvel, STI Magnetic, STI Millennia, STI Magister, STI Mythic, STI Marshall, STI Modest, STI Maverick, STI Miracle, STI Maestro, STI Mighty, STI Maximus, STI Lobelia, STI Lotus, STI Lily and STI Lavender. The Modified Agreements commenced upon delivery for (i) STI Miracle and STI Maestro in January 2020; (ii) STI Mighty in March 2020; and (iii) STI Maximus in September 2020. The Modified Agreements are secured by, among other things, assignments of earnings and insurances and stock pledges and account charges in respect of the subject vessels and contain customary events of default, including cross-default provisions as well as subjective acceleration clauses under which the lessor could cancel the lease in the event of a material adverse change in our business. The leased vessels are required to maintain a fair value, as determined by an annual appraisal from an approved third-party broker, of 111% of the outstanding principal balance as of the last banking day of the year. At December 31, 2020 we made an unscheduled payment of $0.9 million with respect to one of the vessels to maintain compliance with this covenant.
The Trafigura Transaction was accounted for as an asset acquisition in accordance with the early adoption of amendments to the definition of a business in IFRS 3 - Business Combinations effective for annual reporting periods beginning on or after January 1, 2020, and the obligations assumed under the leasehold interests were accounted for under IFRS 16, Leases. Accordingly, we recorded lease liabilities and corresponding right of use assets for the delivered vessels upon the closing date of the Trafigura Transaction. The right of use assets were measured based on (i) the present value of the minimum
lease payments under each lease (which assumes the exercise of the purchase options at expiration) of $531.5 million, (ii) the value of the equity issued for each lease (as an initial direct cost) of $115.5 million, and (iii) other initial direct costs of $2.5 million.
Additionally, we recorded lease liabilities and corresponding right of use assets upon the delivery of the four MR vessels that were delivered during the year ended December 31, 2020; STI Miracle, STI Maestro, STI Mighty and STI Maximus. The right of use assets for these four vessels were measured based on (i) the present value of the minimum lease payments under each lease (which assumes the exercise of the purchase options at expiration) of $138.8 million, (ii) the value of the equity issued for each lease (as an initial direct cost) of $17.1 million, and (iii) other initial direct costs of $3.0 million (which includes costs incurred as part of the transaction and capitalized costs incurred as part of the construction of each vessel).
The aggregate outstanding balances of these lease liabilities were $546.7 million and $593.3 million as of December 31, 2021 and 2020, respectively. We were in compliance with the financial covenants under these agreements as of those dates.
The following is the activity of the 'Right of use assets for vessels' starting with the recognition of the assets on January 1, 2020 through December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. Dollars | | Vessels | | Drydock | | Total |
| Cost | | | | | | | |
| As of January 1, 2021 | | $ 853,690 | | $ 23,562 | | $ 877,252 |
| Other (1) | | (349) | | — | | (349) |
| Fully depreciated assets (1) | | (17,095) | | — | | (17,095) |
| As of December 31, 2021 | | 836,246 | | 23,562 | | 859,808 |
| | | | | | | |
| Accumulated depreciation and impairment | | | | | | |
| As of January 1, 2021 | | (63,636) | | (6,437) | | (70,073) |
| Charge for the period | | (37,661) | | (5,125) | | (42,786) |
| Other (1) | | (19) | | — | | (19) |
| Fully depreciated assets (1) | | 17,095 | | — | | 17,095 |
| As of December 31, 2021 | | (84,221) | | (11,562) | | (95,783) |
| | | | | | | |
| Net book value | | | | | | |
| As of December 31, 2021 | | $ 752,025 | | $ 12,000 | | $ 764,025 |
(1) This amount represents the adjustment of the lease term and write-off of fully depreciated right of use assets related to the bareboat charters on four fixed rate Handymax vessels that expired in March 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. Dollars | | Vessels | | Drydock (1) | | Total |
| Cost | | | | | | | |
| As of January 1, 2020 | | $ 705,857 | | $ 18,962 | | $ 724,819 |
| Additions | | 156,226 | | 4,600 | | 160,826 |
| Fully depreciated assets (2) | | (8,393) | | — | | (8,393) |
| As of December 31, 2020 | | 853,690 | | 23,562 | | 877,252 |
| | | | | | | |
| Accumulated depreciation and impairment | | | | | | |
| As of January 1, 2020 | | (25,374) | | (1,542) | | (26,916) |
| Charge for the period | | (46,655) | | (4,895) | | (51,550) |
| Fully depreciated assets (2) | | 8,393 | | — | | 8,393 |
| As of December 31, 2020 | | (63,636) | | (6,437) | | (70,073) |
| | | | | | | |
| Net book value | | | | | | |
| As of December 31, 2020 | | $ 790,054 | | $ 17,125 | | $ 807,179 |
(1) Drydock costs for 'Right of use assets for vessels' are depreciated over the shorter of the lease term or the period until the next scheduled drydock. On this basis, the drydock costs for these vessels is being depreciated separately. $4.6 million of notional drydock costs were allocated from the right of use assets recorded for the four MR vessels delivered during 2020 as part of the Trafigura Transaction.
(2) This amount represents the write-off of fully depreciated right of use assets related to the bareboat charters on three fixed rate Handymax vessels that expired during the year ended December 31, 2020.
The following table summarizes the payments made for the years ended December 31, 2021 and 2020 relating to lease liabilities accounted for under IFRS 16 - Leases:
| | | | | | | | | | | |
| For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Interest expense recognized in consolidated statements of income or loss | $ 23,641 | | $ 28,458 |
| Principal repayments recognized in consolidated cash flow statements | 56,729 | | 77,913 |
| Net decrease in accrued interest expense | 39 | | (206) |
| Net increase in prepaid interest expense | (684) | | (382) |
Total payments on lease liabilities under IFRS 16 - Leases | $ 79,725 | | $ 105,783 |
The undiscounted remaining future minimum lease payments under bareboat charter-in arrangements that are accounted as lease liabilities under IFRS 16 - Leases as of December 31, 2021 are $700.4 million. The obligations under these agreements will be repaid as follows:
| | | | | |
| As of |
| In thousands of U.S. dollars | December 31, 2021 |
| Less than 1 year | $ 78,211 |
| 1 - 5 years | 278,633 |
| 5+ years | 343,526 |
| Total | 700,370 |
Discounting effect (1) | (124,372) |
| Prepaid interest expense | (621) |
| Lease liability | $ 575,377 |
(1)Represents estimated interest payments using applicable implicit or imputed interest rates in each lease agreement. For leases with implicit rates which include a variable component tied to a benchmark, such as LIBOR, the payments were estimated by taking into
consideration: (i) the margin on each lease and (ii) the forward interest rate curve calculated from interest swap rates, as published by a third party, as of December 31, 2021.
During the year ended December 31, 2019, our charterhire expense for operating leases was $4.4 million. These lease payments include payments for the non-lease elements in our time chartered-in arrangement that expired in January 2019. We did not incur charterhire expenses during the years ended December 31, 2021 and 2020.
Vessels recorded as Right of use assets derive income from subleases through time charter-out and pool arrangements. For the years ended December 31, 2021, 2020 and 2019, sublease income of $91.8 million, $165.8 million and $78.8 million, respectively, is included in Vessel revenue.
7. Carrying values of vessels, vessels under construction, right of use assets for vessels and goodwill
At each balance sheet date, we review the carrying amounts of our goodwill, vessels and related drydock costs and right of use assets for vessels to determine if there is any indication that these amounts have suffered an impairment loss. If such indication exists, the recoverable amount of the vessels, right of use assets and related drydock costs is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is the higher of fair value less costs to sell and value in use. As part of this evaluation, we consider certain indicators of potential impairment, such as market conditions including forecast time charter rates and values for second-hand product tankers, discounted projected vessel operating cash flows, and the Company’s overall business plans.
Goodwill arising from our September 2017 acquisition of Navig8 Product Tankers Inc. has been allocated to the cash generating units within each of the respective operating segments that are expected to benefit from the synergies of this transaction (LR2s and LR1s). The carrying value of the goodwill allocated to the LR2 segment was $8.9 million at December 31, 2021. Goodwill relating to the LR1 segment, which was previously allocated for $2.6 million was written off at December 31, 2020. Goodwill is not amortized and is tested annually (or more frequently, if impairment indicators arise) by comparing the aggregate carrying amount of the cash generating units in each respective operating segment, plus the allocated goodwill, to their recoverable amounts. Recoverable amount is the higher of the fair value less cost to sell (determined by taking into consideration vessel valuations from independent ship brokers for each vessel within each segment) and value in use. In assessing value in use, the estimated future cash flows of the operating segment are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the operating segment for which the estimates of future cash flows have not been adjusted. Where appropriate, our value in use calculations also incorporate probability weighted assessments of different scenarios (such as potential vessel sales). This test was performed in connection with the assessment of the carrying amount of our vessels and related drydock costs at December 31, 2021 and an impairment charge was not recorded.
At December 31, 2021, we reviewed the carrying amount of our vessels and right of use assets for vessels to determine whether there was an indication that these assets had suffered an impairment. First, we assessed the fair value less the cost to sell of our vessels taking into consideration vessel valuations from independent ship brokers. We then compared the fair value less selling costs to each vessel’s carrying value and, if the carrying value exceeded the vessel’s fair value less selling costs, an indicator of impairment exists. We also considered sustained weakness in the product tanker market or other macroeconomic indications (such as the COVID-19 pandemic) to be an impairment indicator. Based upon these factors, we determined that impairment indicators did exist at December 31, 2021.
Once this determination was made, we prepared a value in use calculation where we estimated each vessel’s future cash flows. These estimates were primarily based on (i) our best estimate of forecasted vessel revenue through a combination of the latest forecast, published time charter rates for the next three years and a 2.44% growth rate (which is based on published historical and forecast inflation rates) in freight rates in each period through the vessel's 15th year of useful life and reduced to match the growth in expenses thereafter, (ii) our best estimate of vessel operating expenses and drydock costs, which are based on our most recent forecasts for the next three years and a 2.44% (2.34% in 2020) growth rate in each period thereafter, and (iii) the evaluation of other inputs such as the vessel's remaining useful life, residual value and utilization rate. These cash flows were then discounted to their present value using a pre-tax discount rate of 7.19% (7.24% in 2020). The results of these tests were as follows:
At December 31, 2021, our operating fleet consisted of 131 owned, finance leased or right of use vessels ("ROU vessels").
•43 of our owned, sale and leaseback, or ROU vessels in our fleet had fair values less selling costs greater than their carrying amount.
•85 of our owned, sale and leaseback, or ROU vessels in our fleet had fair values less selling costs lower than their carrying amount.
•We did not obtain valuations from independent ship brokers for three of our ROU vessels as they are not required under the respective leases.
•We prepared a value in use calculation for all 131 vessels in our fleet which resulted in no impairment charge being recognized.
At December 31, 2020, our operating fleet consisted of 135 owned, finance leased or right of use vessels ("ROU vessels").
•Seven of our owned, sale and leaseback, or ROU vessels in our fleet had fair values less selling costs greater than their carrying amount.
•121 of our owned, sale and leaseback, or ROU vessels in our fleet had fair values less selling costs lower than their carrying amount.
•We did not obtain valuations from independent ship brokers for seven of our ROU vessels as they were not required under the respective leases.
•We prepared a value in use calculation for all 135 vessels in our fleet which resulted in an aggregate impairment charge of $14.2 million on 13 MRs. The recoverable amounts per vessel were approximately $27.0 million for one MR, $29.0 million for four MRs, $34.0 million for three MRs and $35.0 million for five MRs.
The factors leading to this impairment charge and the sensitivities thereto, are described further below.
Factors leading to the 2020 impairment charges of vessels and goodwill
The factors leading to the impairment charges recorded during the year ended December 31, 2020 were shaped by the COVID-19 pandemic. Initially, the onset of the COVID-19 pandemic in March 2020 resulted in a sharp reduction of economic activity and a corresponding reduction in the global demand for oil and refined petroleum products. This period of time was marked by extreme volatility in the oil markets and the development of a steep contango in the prices of oil and refined petroleum products. Consequently, an abundance of arbitrage and floating storage opportunities were created, which resulted in record increases in spot TCE rates during the second quarter of 2020. These market dynamics led to a build-up of global oil and refined petroleum product inventories. In June 2020, the underlying oil markets stabilized, and global economies began to recover, albeit at a slow pace. These conditions led to the gradual unwinding of excess inventories and thus a reduction in spot TCE rates for the remainder of that year.
The downward pressure on spot TCE rates led to corresponding reductions in published time charter rates, which are the basis for our impairment calculations (as there are no comparable published longer term forecasts for spot TCE rates). One-year published time charter rates were impacted more meaningfully than three-year published time charter rates which implied that the market was pricing in short-term headwinds as the COVID-19 pandemic stretched into 2021, followed by a longer-term recovery once the COVID-19 pandemic subsides. The recovery that was implied in the longer-term published time charter rates was of material benefit to our calculations given that our vessels had an average age of just 5.2 years as of December 31, 2020 and an estimated useful life of 25 years.
In spite of these forecasts, the short-term headwinds that were observed in the one-year time charter rates caused the recoverable amount of 13 of the MRs in our fleet, as determined by the value in use calculations, to be lower than their carrying values by $14.2 million in aggregate as of December 31, 2020. This dynamic also impacted the value in use calculations for the goodwill that was previously allocated to the LR1 reportable segment which resulted in a goodwill impairment charge of $2.6 million. The aggregate value in use calculations in our LR2 reportable segment were sufficient to support the carrying value of its allocated goodwill of $8.9 million, given the positive outlook for this vessel class.
There were no reversals of impairment recognized as income during the year ended December 31, 2021.
Sensitivities and benchmarking
The impairment test that we conducted is most sensitive to variances in the discount rate and future time charter rates. Based on the sensitivity analysis performed for December 31, 2021:
•A 1.0% increase in the discount rate would have resulted in 26 vessels being impaired for an aggregate $12.5 million loss, comprised of: 13 MRs for $7.4 million; and 13 Handymax vessels for $5.1 million.
•A 5% decrease in forecasted time charter rates, which is between $900 per day and $1,500 per day depending on the vessel class, would have resulted in 46 vessels being impaired for an aggregate $46.0 million loss, comprised of: 32 MRs for $27.5 million; and 14 Handymax vessels for $18.5 million.
Based on the sensitivity analysis performed for December 31, 2020:
•A 1.0% increase in the discount rate would have resulted in 57 vessels being impaired for an aggregate $103.1 million loss, comprised of: 46 MRs for $90.9 million; and 11 LR1s for $12.2 million.
•A 5% decrease in forecasted time charter rates, which is between $900 per day and $1,500 per day depending on the vessel class, would result in 70 vessels being impaired for an aggregate $161.0 million loss, comprised of: 59 MRs for $140.2 million; and 11 LR1s for $20.7 million.
We also compared the results of our value in use calculations as of December 31, 2021 to various other scenarios, which can be summarized as follows:
•If we used 10-year historical average TCE rates for our value in use calculations, the calculation would result in two vessels being impaired for an aggregate $0.4 million loss, comprised of: one MR for $0.2 million; and one LR1 for $0.2 million.
•If we used 15-year historical average TCE rates for our value in use calculations, no impairment loss would be recorded in any of our vessel classes.
•If we used 20-year historical average TCE rates for our value in use calculations, no impairment loss would be recorded in any of our vessel classes.
While the results of this scenario building exercise support our conclusions, it remains our belief that our base case value in use calculations, through the use of independently published time charter rates, form an objective approximation of forward looking cash flows based on the most recent available data in the market (which incorporates market views on the trajectory of the COVID-19 pandemic, among other factors). Historical averages do not incorporate such perspectives and are also based on time periods when vessel operating expenses were lower (as opposed to our calculations, where we project gradual increases in vessel operating expenses).
Capitalized interest
In accordance with IAS 23 “Borrowing Costs,” applicable interest costs are capitalized during the period that ballast water treatment systems and scrubbers for our vessels are constructed and installed. For the years ended December 31, 2021 and 2020, we capitalized interest expense for the respective vessels of $0.2 million and $1.4 million, respectively. The capitalization rate used to determine the amount of borrowing costs eligible for capitalization was 1.6% and 3.6% for each of the years ended December 31, 2021 and 2020, respectively. We cease capitalizing interest when the vessels reach the location and condition necessary to operate in the manner intended by management.
There were no vessels under construction during the years ended December 31, 2021 and December 31, 2020.
8. Other non-current assets
The following is a table summarizing the components of our Other non-current assets as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| | At December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
Scorpio LR2 Pool Ltd. pool working capital contributions (1) | $ 35,700 | | $ 35,700 |
Scorpio MR Pool Ltd. pool working capital contributions(1) | 25,200 | | 25,200 |
Scorpio LR1 Pool Ltd. pool working capital contributions(1) | 6,600 | | 6,600 |
Scorpio Handymax Tanker Pool Ltd. pool working capital contributions (1) | 5,661 | | 5,661 |
| Working capital contributions to Scorpio Pools | 73,161 | | 73,161 |
| | | |
Deposits for exhaust gas cleaning system ('scrubbers') (2) | 15,840 | | 5,617 |
Seller's credit on sale leaseback vessels (3) | 10,793 | | 10,192 |
Investment in dual fuel tanker joint venture (4) | 5,736 | | — |
Investment in BWTS supplier (5) | 1,751 | | 1,751 |
Capitalized loan fees (6) | 1,635 | | 1,424 |
Other (7) | 47 | | — |
| | $ 108,963 | | $ 92,145 |
(1) Upon entrance into the Scorpio LR2, LR1, MR, and Handymax Pools, all vessels are required to make initial working capital contributions of both cash and bunkers. Initial working capital contributions are repaid, without interest, upon a vessel’s exit from the pool. Bunkers on board a vessel exiting the pool are credited against such repayment at the actual invoice price of the bunkers. For all owned vessels, we assume that these contributions will not be repaid within 12 months and are thus classified as non-current within Other Assets on the consolidated balance sheets. For chartered-in vessels we classify the amounts as current (within accounts receivable) or non-current (within Other Assets) according to the expiration of the contract.
(2) From August 2018 through September 2019, we entered into agreements with two separate suppliers to retrofit a total of 98 of our tankers with scrubbers for total consideration of $146.6 million (which excludes installation costs). Deposits paid for these systems are reflected as investing cash flows within the consolidated statement of cash flows. In April 2020, we reached an agreement to postpone the purchase and installation of scrubbers on 19 of our vessels. In February 2021, we signed an agreement to retain the option to purchase these scrubbers through February 2023. In August 2021, we declared options to purchase and install scrubbers on six vessels (five LR1s and an LR2). The scrubbers are expected to be installed within the first half of 2022.
(3) The seller's credit on vessels sold and leased back represents the present value of the deposits of $4.35 million per vessel ($13.1 million in aggregate) that was retained by the buyer as part of the 2017 sale and operating leaseback transactions for STI Beryl, STI Le Rocher and STI Larvotto, which is described in Note 6. This deposit will either be applied to the purchase price of the vessel if a purchase option is exercised or refunded to us at the expiration of the agreement. The present value of this deposit has been calculated based on the interest rate that is implied in the lease, and the carrying value will accrete over the life of the lease, through interest income, until expiration. We recorded $0.6 million and $0.5 million as interest income as part of these agreements during each of the years ended December 31, 2021 and 2020, respectively.
(4) In August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel MR methanol tankers (built between 2016 and 2021) which, in addition to traditional petroleum products, are designed to both carry methanol as a cargo and to consume it as a fuel, along with four ice class 1A LR1 product tankers. The dual-fuel MR methanol tankers are currently on long-term time charter contracts greater than five years. As part of this agreement, we acquired a 50% interest in a joint venture that ultimately has a minority interest in the entities that own the vessels for final consideration of $6.7 million. We account for our interest in this joint venture using the equity method pursuant to IFRS 11 - Joint arrangements. Under this guidance, the investment is initially measured at cost, and the carrying amount of the investment is adjusted in subsequent periods based on our share of profits or losses from the joint venture (adjusted for any fair value adjustments made upon initial recognition). Any distributions received from the joint venture reduce the carrying amount.
We recorded $0.6 million as our share of net income resulting from this joint venture during the year ended December 31, 2021. Additionally, the joint venture issued a cash distribution of $1.5 million in December 2021, which arose primarily as a result of the sale of two of the LR1s during the fourth quarter of 2021.
(5) In July 2018, we executed an agreement to purchase 55 BWTS from an unaffiliated third-party supplier for total consideration of $36.2 million. These systems were expected to be installed over the subsequent five years, as each respective vessel under the agreement comes due for its International Oil Pollution Prevention, or IOPP, renewal survey. Upon entry into this agreement, we also obtained a minority equity interest in this supplier for no additional consideration. We have determined that of the total consideration of $36.2 million, $1.8 million is attributable to the minority equity interest.
Since July 2018, aggregate deposits of $32.8 million have been made, of which $31.0 million has been reclassified to "Vessels" upon the installation of these systems. The remaining $1.8 million of this amount has been recorded as the aforementioned minority equity interest, which is being accounted for as a financial asset under IFRS 9. Deposits paid for these systems are reflected as investing cash flows within the consolidated statement of cash flows. Under the terms of the agreement, we were granted a put option, exercisable after one year following the date of the agreement, whereby we can put the shares back to the supplier at a predetermined price. The supplier was also granted a call option, exercisable two years following the date of the agreement, whereby it can buy the shares back from us at a predetermined price, which is greater than the strike price of the put option. Given that the value of this investment is contractually limited to the strike prices set forth in these options, we have recorded the value of the investment at the put option strike price, or $1.8 million in aggregate. The difference in the aggregate value of the investment, based on the spread between the exercise prices of the put and call options, is $0.6 million. We consider this value to be a Level 3 fair value measurement, as this supplier is a private company, and the value has been determined based on unobservable market data (i.e. the proceeds that we would receive if we exercised our put option in full).
(6) Represents upfront loan fees on credit facilities that are expected to be used to partially finance the purchase and installation of scrubbers or refinance the indebtedness on certain vessels. These fees are reclassified as deferred financing fees (net of Debt) when the tranche of the loan to which the vessel relates is drawn.
(7) Represents prepaid equity issuance costs related to keeping the ATM Program active.
9. Restricted Cash
Restricted cash as of December 31, 2021 and 2020 primarily represents debt service reserve accounts that were maintained as part of the terms and conditions of our ABN AMRO/K-Sure Credit Facility, Citibank/K-Sure Credit Facility, and the lease financing arrangements with Bank of Communications Financial Leasing (LR2s). The funds in these accounts are expected to be applied against the principal balance of these facilities upon maturity. The activity within these accounts (which is adjusted from time to time based on prevailing interest rates) is recorded as financing activities on our consolidated statements of cash flows. These facilities, and any related activity in the restricted cash balances, are further described in Note 12.
10. Accounts payable
The following is a table summarizing the components of our accounts payable as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| | At December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Scorpio Ship Management S.A.M. (SSM) | $ 9,684 | | $ 902 |
| Scorpio Services Holding Limited (SSH) | 1,888 | | 404 |
| Scorpio LR2 Pool Limited | 1,076 | | 338 |
| Scorpio LR1 Pool Limited | 785 | | — |
| Scorpio Handymax Tanker Pool Limited | 625 | | 2 |
| Amounts due to a port agent - related party | 257 | | 42 |
| Scorpio MR Pool Limited | 62 | | 230 |
| Scorpio Commercial Management S.A.M. (SCM) | 25 | | 58 |
| Accounts payable to related parties | 14,402 | | 1,976 |
| | | |
| Suppliers | 20,678 | | 10,887 |
| | $ 35,080 | | $ 12,863 |
The majority of accounts payable are settled with a cash payment within 90 days. No interest is charged on accounts payable. We consider that the carrying amount of accounts payable approximates fair value.
11. Accrued expenses
The following is a table summarizing the components the components of our accrued expenses as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| | At December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Accrued expenses to a related party port agent | $ 417 | | $ 313 |
| Scorpio Ship Management S.A.M. (SSM) | 161 | | 33 |
| Scorpio MR Pool Limited | — | | 375 |
| Accrued expenses to related parties | 578 | | 721 |
| | | |
| Suppliers | 15,193 | | 15,938 |
| Accrued interest | 5,156 | | 4,282 |
| Accrued short-term employee benefits | 3,908 | | 11,231 |
| Other accrued expenses | 71 | | 21 |
| | $ 24,906 | | $ 32,193 |
12. Current and long-term debt
The following is a breakdown of the current and non-current portion of our debt outstanding as of December 31, 2021 and December 31, 2020:
| | | | | | | | | | | |
| | At December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
Current portion of bank debt and bonds (1) | $ 235,278 | | $ 172,705 |
Sale and leaseback (2) | 178,062 | | 131,736 |
| Current portion of long-term debt | 413,340 | | 304,441 |
| | | |
Non-current portion of bank debt and bonds (3) | 666,409 | | 971,172 |
Sale and leaseback (4) | 1,461,929 | | 1,139,713 |
| | $ 2,541,678 | | $ 2,415,326 |
(1)The current portion at December 31, 2021 was net of unamortized deferred financing fees of $1.1 million. The current portion at December 31, 2020 was net of unamortized deferred financing fees of $1.8 million.
(2)The current portion at December 31, 2021 was net of unamortized deferred financing fees of $1.4 million and prepaid interest of $3.1 million. The current portion at December 31, 2020 was net of unamortized deferred financing fees of $0.9 million.
(3)The non-current portion at December 31, 2021 was net of unamortized deferred financing fees of $10.6 million. The non-current portion at December 31, 2020 was net of unamortized deferred financing fees of $12.0 million.
(4)The non-current portion at December 31, 2021 was net of unamortized deferred financing fees of $11.8 million. The non-current portion at December 31, 2020 was net of unamortized deferred financing fees of $7.8 million.
The following is a rollforward of the activity within debt (current and non-current), by facility, for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Activity | | | Balance as of December 31, 2021 consists of: |
| In thousands of U.S. dollars | | Carrying Value as of December 31, 2020 | | Drawdowns | | Repayments | | Other Activity(1) | | Carrying Value as of December 31, 2021 | Current | Non-Current |
| KEXIM Credit Facility | | 15,932 | | — | | (15,932) | | — | | — | — | — |
| ING Credit Facility | | 191,348 | | 2,128 | | (193,476) | | — | | — | — | — |
| 2018 NIBC Credit Facility | | 31,066 | | — | | (31,066) | | — | | — | — | |
| Credit Agricole Credit Facility | | 80,676 | | — | | (8,569) | | 731 | | 72,838 | 23,822 | 49,016 |
ABN AMRO / K-Sure Credit Facility (2) | | 40,587 | | — | | (41,827) | | 1,240 | | — | — | — |
| Citibank / K-Sure Credit Facility | | 84,478 | | — | | (8,417) | | 1,720 | | 77,781 | 77,781 | — |
| ABN AMRO / SEB Credit Facility | | 97,856 | | — | | (97,856) | | — | | — | — | — |
| Hamburg Commercial Bank Credit Facility | | 40,315 | | — | | (3,291) | | — | | 37,024 | 3,292 | 33,732 |
| Prudential Credit Facility | | 50,378 | | — | | (5,546) | | — | | 44,832 | 5,546 | 39,286 |
| 2019 DNB / GIEK Credit Facility | | 52,563 | | — | | (7,113) | | — | | 45,450 | 7,113 | 38,337 |
| BNPP Sinosure Credit Facility | | 94,733 | | 1,915 | | (10,334) | | — | | 86,314 | 10,334 | 75,980 |
| 2020 $225.0 Million Credit Facility | | 208,890 | | — | | (63,254) | | — | | 145,636 | 16,524 | 129,112 |
| 2021 $21.0 Million Credit Facility | | — | | 21,000 | | (1,755) | | — | | 19,245 | 19,245 | — |
| 2021 $43.6 Million Credit Facility | | — | | 43,550 | | — | | — | | 43,550 | 4,390 | 39,160 |
| Ocean Yield Lease Financing | | 137,399 | | — | | (11,245) | | 180 | | 126,334 | 11,363 | 114,971 |
| BCFL Lease Financing (LR2s) | | 83,974 | | 3,814 | | (10,690) | | 506 | | 77,604 | 10,717 | 66,887 |
CSSC Lease Financing (3) | | 136,949 | | 11,848 | | (10,313) | | (5,527) | | 132,957 | 14,253 | 118,704 |
| CSSC Scrubber Lease Financing | | 4,443 | | — | | (4,443) | | — | | — | — | — |
| BCFL Lease Financing (MRs) | | 77,748 | | 5,779 | | (14,639) | | — | | 68,888 | 15,687 | 53,201 |
| 2018 CMBFL Lease Financing | | 124,993 | | — | | (13,007) | | — | | 111,986 | 13,007 | 98,979 |
| $116.0 Million Lease Financing | | 103,801 | | 1,926 | | (9,938) | | — | | 95,789 | 10,645 | 85,144 |
| AVIC Lease Financing | | 119,732 | | — | | (13,327) | | — | | 106,405 | 13,327 | 93,078 |
| China Huarong Lease Financing | | 110,250 | | 10,000 | | (16,834) | | — | | 103,416 | 16,833 | 86,583 |
| $157.5 Million Lease Financing | | 123,800 | | — | | (14,143) | | — | | 109,657 | 14,143 | 95,514 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| COSCO Lease Financing | | 68,750 | | — | | (7,700) | | — | | 61,050 | 7,700 | 53,350 |
| 2020 CMBFL Lease Financing | | 44,573 | | — | | (3,241) | | — | | 41,332 | 3,242 | 38,090 |
| 2020 TSFL Lease Financing | | 47,250 | | — | | (3,322) | | — | | 43,928 | 3,321 | 40,607 |
| 2020 SPDB-FL Lease Financing | | 96,500 | | — | | (9,389) | | — | | 87,111 | 6,495 | 80,616 |
| 2021 AVIC Lease Financing | | — | | 96,352 | | (5,439) | | — | | 90,913 | 7,252 | 83,661 |
| 2021 CMBFL Lease Financing | | — | | 79,050 | | (4,485) | | — | | 74,565 | 6,520 | 68,045 |
| 2021 TSFL Lease Financing | | — | | 57,663 | | (3,286) | | — | | 54,377 | 4,380 | 49,997 |
| 2021 CSSC Lease Financing | | — | | 57,400 | | (3,507) | | — | | 53,893 | 5,262 | 48,631 |
| 2021 $146.3 Million Lease Financing | | — | | 146,250 | | — | | — | | 146,250 | 12,551 | 133,699 |
| 2021 Ocean Yield Lease Financing | | — | | 70,200 | | (417) | | — | | 69,783 | 5,850 | 63,933 |
IFRS 16 - Leases - 7 Handymax (See Note 6) (4) | | 2,247 | | — | | (1,879) | | (368) | | — | — | — |
| IFRS 16 - Leases - 3 MR (See Note 6) | | 36,936 | | — | | (7,668) | | — | | 29,268 | 8,130 | 21,138 |
| IFRS 16 - Leases - $670.0 Million (see Note 6) | | 593,291 | | — | | (46,561) | | — | | 546,730 | 47,006 | 499,724 |
| Unsecured Senior Notes Due 2020 | | — | | — | | — | | — | | — | — | — |
| Unsecured Senior Notes Due 2025 | | 28,100 | | 41,929 | | — | | 21 | | 70,050 | — | 70,050 |
| Convertible Notes Due 2022 | | 140,713 | | — | | — | | (72,401) | | 68,312 | 68,312 | — |
| Convertible Notes Due 2025 | | — | | 119,419 | | — | | 82,936 | | 202,355 | — | 202,355 |
| | $ 3,070,271 | | $ 770,223 | | $ (703,909) | | $ 9,038 | | $ 3,145,623 | $ 474,043 | $ 2,671,580 |
| Less: deferred financing fees | | (22,471) | | (12,907) | | — | | 10,557 | | (24,821) | (2,441) | (22,380) |
| Less: prepaid interest expense | | — | | — | | (3,747) | | — | | (3,747) | (3,747) | — |
| Total | | $ 3,047,800 | | $ 757,316 | | $ (707,656) | | $ 19,595 | | $ 3,117,055 | $ 467,855 | $ 2,649,200 |
(1) Relates to non-cash accretion or amortization on (i) debt or lease obligations assumed as part of the 2017 merger with Navig8 Product Tankers Inc. ("NPTI"), which were recorded at fair value on the closing dates, (ii) our Unsecured Senior Notes Due 2025 (iii) our Convertible Notes due 2022 and Convertible Notes Due 2025 of $4.7 million and $8.6 million, respectively, and (iv) the impact of the 2021 Convertible Notes Exchanges (described below) whereby the amounts in the above table reflect the carrying amounts of the debt portions of each of the Convertible Notes Due 2022 and Convertible Notes Due 2025 that were exchanged.
(2) Other activity for this arrangement consists of (i) accretion of the discount; and (ii) the write-off of the discount of $0.6 million related to the refinancing of existing indebtedness.
(3) Other activity for this arrangement consists of (i) the amortization of the premium up to the date of the modification of the arrangement (described below), (ii) the recognition upon modification of a non-cash gain of $5.4 million (which was offset by $2.6 million in cash prepayment fees that were paid as part of the lease modification in September 2021 as described further below) and (iii) the accretion of the discount after the date of the modification.
(4) Other activity for this arrangement represents the non-cash entry to reduce lease liabilities of $0.4 million when these leases were modified in 2021.
Secured Bank Debt
Each of our secured credit facilities contains financial and restrictive covenants, which require us to, among other things, comply with certain financial tests (described below); deliver quarterly and annual financial statements and annual projections; comply with restrictive covenants, including maintaining adequate insurances; comply with laws (including environmental laws and ERISA); and maintain flag and class of our vessels. Other such covenants may, among other things, restrict consolidations, mergers or sales of our assets; require us to obtain lender approval on changes in our vessel manager; limit our ability to place liens on our assets; limit our ability to incur additional indebtedness; prohibit us from paying dividends if there is a covenant breach under the loan or an event of default has occurred or would occur as a result of payment of such dividend; or prohibit our transactions with affiliates. Furthermore, our debt agreements contain customary events of default, including cross-default provisions, as well as subjective acceleration clauses under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
These secured credit facilities may be secured by, among other things:
•a first priority mortgage over the relevant collateralized vessels;
•a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility;
•a pledge of earnings generated by the mortgaged vessels for the specific facility; and
•a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
Each of our secured credit facilities are described below.
KEXIM Credit Facility
In February 2014, we executed a senior secured term loan facility for $429.6 million, with a group of financial institutions led by DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) and from KEXIM, a statutory juridical entity established under The Export-Import Bank of Korea Act of 1969, as amended, in the Republic of Korea. We refer to this facility as the KEXIM Credit Facility. This KEXIM Credit Facility included commitments from KEXIM of $300.6 million, or the KEXIM Tranche, and a group of financial institutions led by DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) of $129.0 million, or the Commercial Tranche.
Drawdowns under the KEXIM Credit Facility occurred in connection with the delivery of 18 newbuilding vessels as specified in the loan agreement.
In addition to KEXIM’s commitment of up to $300.6 million, KEXIM also provided an optional guarantee for a five-year amortizing note of $125.25 million, the proceeds of which reduced the $300.6 million KEXIM Tranche. These notes were issued on July 18, 2014 and were repaid in full upon their maturity in September 2019.
During the year ended December 31, 2019, the debt on five vessels that were collateralized under this facility were refinanced with a portion of the proceeds from the Hamburg Commercial Bank Credit Facility and the Prudential Credit Facility, as described below.
During the year ended December 31, 2020, the debt on twelve vessels that were collateralized under this facility were refinanced with a portion of the proceeds from the BNPP Sinosure Credit Facility, the 2019 DNB/GIEK Credit Facility and the ING Credit Facility, as described below.
The amount outstanding relating to this facility was $15.9 million as of December 31, 2020, and we were in compliance with the financial covenants under this facility as of that date.
In January 2021, this facility was repaid in full upon the maturity of the Commercial Tranche and refinanced using a portion of the proceeds of the 2021 $21 Million Credit Facility, as described below.
ING Credit Facility
In June 2015, we executed a senior secured term loan facility with ING Bank N.V., London Branch for a credit facility of up to $52.0 million (the "ING Credit Facility"). In September 2015, we amended and restated the facility to increase the borrowing capacity to $87.0 million, and in March 2016, we amended and restated the facility to further increase the borrowing capacity to $132.5 million. In June 2018, we executed another agreement to further increase the borrowing capacity to $171.2 million. In September 2019, we executed another agreement to further increase the borrowing capacity to partially finance the purchase and installation of scrubbers on seven of the vessels collateralized under this facility. In July and September 2020, we drew down an aggregate of $5.9 million under the scrubber portion of this facility to partially finance the purchase and installation of scrubbers on four MRs and one LR2 that are currently part of this arrangement. The scrubber related borrowings are scheduled to mature upon the maturity dates of the respective vessel tranche of the loan to which the scrubber relates.
In May 2020, we executed another agreement to further increase the borrowing capacity to $251.4 million. This upsized portion of this facility of $72.1 million was fully drawn in May 2020, and the proceeds were used to refinance the existing debt on five vessels (STI Broadway, STI Comandante, STI Brixton, STI Pimlico and STI Finchley), which were previously financed under the KEXIM Credit Facility. We repaid the outstanding indebtedness of $60.2 million related to these vessels under the KEXIM Credit Facility as part of this transaction.
In July 2020, we drew down on the scrubber portion of the facility consisting of (i) $2.2 million related to STI Lombard and STI Osceola and (ii) $1.1 million related to STI Pontiac. In September 2020, we drew down on the scrubber portion of the facility consisting of (i) $1.1 million related to STI Black Hawk which and (ii) $1.5 million related to STI Notting Hill.
In January 2021, we drew down $2.1 million from ING Credit Facility to partially finance the purchase and installations of scrubbers on two LR2 product tankers (STI Grace and STI Jermyn).
The ING Credit Facility was repaid in full during the year ended December 31, 2021 when the amounts borrowed were refinanced with a portion of the proceeds from the 2021 $146.3 Million Lease Financing, the 2021 AVIC Lease Financing, the 2021 CMBFL Lease Financing, the 2021 TSFL Lease Financing, and the 2021 CSSC Lease Financing. These lease financing arrangements are described below.
The amount outstanding relating to this facility was $191.3 million as of December 31, 2020, and we were in compliance with the financial covenants under this facility as of that date.
2018 NIBC Credit Facility
In June 2018, we executed an agreement with NIBC Bank N.V. for a $35.7 million term loan facility (the "2018 NIBC Credit Facility"). This facility was fully drawn in August 2018, and the proceeds were used to refinance the existing indebtedness related to two MR product tankers (STI Memphis and STI Soho). Additionally, in August 2019, we executed an agreement to upsize the existing NIBC Credit Facility by $3.1 million in aggregate, the proceeds of which were used to partially finance the purchase and installation of scrubbers on the two vessels that were collateralized under this facility. In April 2020, we drew down $3.1 million on the scrubber portion of this facility.
The 2018 NIBC Credit Facility was repaid in full during the year ended December 31, 2021 when the amounts borrowed were refinanced with a portion of the proceeds from the 2021 AVIC Lease Financing, as described below.
The amount outstanding relating to this facility was $31.1 million as of December 31, 2020. We were in compliance with the financial covenants relating to this facility as of that date.
Credit Agricole Credit Facility
As part of the closing of the four LR1s that were acquired from Navig8 Product Tankers Inc. in June 2017, we assumed the outstanding indebtedness under a senior secured term loan with Credit Agricole (the "Credit Agricole Credit Facility"). STI Excel, STI Excelsior, STI Expedite and STI Exceed are pledged as collateral under this facility. Repayments are being made in equal quarterly installments of $2.1 million in aggregate in accordance with a 15-year repayment profile with a balloon payment due upon maturity, which occurs between November 2022 and February 2023 (depending on the vessel). The facility bears interest at LIBOR plus a margin of 2.75% per annum.
Our Credit Agricole Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issues occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 135% of the then aggregate outstanding principal amount of the loan outstanding under the credit facility.
The carrying values of the indebtedness related to this facility (which includes the discount recorded to write the value down to its fair value as part of the purchase price allocation of the acquisition) as of December 31, 2021 and 2020 were $72.8 million and $80.7 million. We were in compliance with the financial covenants relating to this facility as of those dates.
ABN AMRO / K-Sure Credit Facility
We assumed the outstanding indebtedness on a senior secured credit facility with ABN AMRO Bank N.V. and Korea Trade Insurance Corporation, or K-Sure, as part of the September 2017 acquisition of Navig8 Product Tankers Inc. (the "ABN AMRO / K-Sure Credit Facility"). Two LR1s (STI Precision and STI Prestige) are collateralized under this facility and the facility consisted of two separate tranches, a $11.5 million commercial tranche and a $43.8 million K-Sure tranche.
The ABN AMRO / K-Sure Credit Facility was repaid in full during the year ended December 31, 2021 when the amounts borrowed were refinanced with a portion of the proceeds from the 2021 $43.6 Million Credit Facility, as described below.
Additionally, we had an aggregate of $0.5 million on deposit in a debt service reserve account in accordance with the terms and conditions of this facility. The funds deposited in this account were not freely available and were released upon the final repayment. The balance in this account was previously recorded as non-current Restricted Cash on our consolidated balance sheet as of December 31, 2020
The carrying value of the indebtedness related to this facility (which includes the discount recorded to write the value down to its fair value as part of the purchase price allocation of the acquisition) as of December 31, 2020 was $40.6 million, and we were in compliance with the financial covenants relating to this facility as of that date.
Citibank / K-Sure Credit Facility
We assumed the outstanding indebtedness under a senior secured credit facility with Citibank N.A., London Branch, Caixabank, S.A., and K-Sure, as part of the September 2017 acquisition of Navig8 Product Tankers Inc. (the "Citibank / K-Sure Credit Facility"). Four LR1s (STI Excellence, STI Executive, STI Experience, and STI Express) are collateralized under this facility. The facility consists of two separate tranches, a $25.1 million commercial tranche and a $91.2 million K-Sure tranche, which represents the amounts assumed from Navig8 Product Tankers Inc. ("NPTI").
The commercial tranche bears interest at LIBOR plus 2.50% per annum, and the K-Sure tranche bears interest at LIBOR plus 1.60% per annum. Repayments on the K-Sure tranche are being made in equal quarterly installments of $2.1 million in accordance with a 12-year repayment profile from the date of delivery from the shipyard, with a balloon payment due upon maturity, and the commercial tranche is scheduled to be repaid via a balloon payment upon maturity which occurs between March and May 2022 (depending on the vessel). The K-Sure tranche fully matures between March and May 2028 (depending on the vessel), and K-Sure has an option to require repayment upon the maturity of the commercial tranche if the commercial tranche is not refinanced by its maturity dates.
Our Citibank / K-Sure Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issues occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 135% of the then aggregate outstanding principal amount of the loans (less any amounts held in a debt service reserve account as described below) under the credit facility.
Additionally, we have an aggregate of $4.0 million on deposit in a debt service reserve account as of December 31, 2021 in accordance with the terms and conditions of this facility. The funds deposited in this account are not freely available and will be released upon maturity. The balance in this account has been recorded as current Restricted Cash on our consolidated balance sheet as of December 31, 2021 and as non-current Restricted Cash as of December 31, 2020.
The carrying values of the indebtedness related to this facility (which includes the discount recorded to write the value down to its fair value as part of the purchase price allocation of the acquisition) as of December 31, 2021 and 2020 were $77.8 million and $84.5 million, respectively. We were in compliance with the financial covenants relating to this facility as of those dates.
ABN AMRO / SEB Credit Facility
In June 2018, we executed a senior secured term loan facility with ABN AMRO Bank N.V. and Skandinaviska Enskilda Banken AB for up to $120.6 million (the "ABN AMRO / SEB Credit Facility"). This loan was fully drawn in June 2018, and the proceeds were used to refinance the existing indebtedness of $87.6 million under our K-Sure Credit Facility relating to 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).
Additionally, in September 2019, we executed an agreement with the lenders under this facility to upsize the credit facility by up to $6.3 million, which was fully drawn in 2020 with the proceeds used to partially finance the purchase and installation of scrubbers on four of the vessels that were collateralized under this facility.
The amount outstanding related to this facility as of December 31, 2020 was $97.9 million. We were in compliance with the financial covenants relating to this facility as of that date.
The ABN AMRO / SEB Credit Facility was repaid in full during the year ended December 31, 2021 when the amounts borrowed were refinanced with portions of the proceeds from the 2021 CMBFL Lease Financing and the 2021 $146.3 Million Credit Facility, as described below.
Hamburg Commercial Bank Credit Facility
In November 2019, we executed an agreement with Hamburg Commercial Bank AG for a senior secured term loan facility for $43.65 million (the "Hamburg Commercial Bank Credit Facility"), of which, (i) $42.2 million (Tranche 1) was used to refinance the existing debt for STI Veneto and STI Poplar, (which were previously financed under the KEXIM Credit Facility), and (ii) $1.4 million (Tranche 2) was used to finance the purchase and installation of a scrubber on STI Veneto. We refer to this facility as our Hamburg Commercial Bank Credit Facility. Tranche 1 was drawn in December 2019, and we repaid the outstanding indebtedness of $31.0 million related to these vessels under our KEXIM Credit Facility as part of this transaction. Tranche 2 was drawn in April 2020
Both tranches of the Hamburg Commercial Bank Credit Facility mature in November 2024, bear interest at LIBOR plus a margin of 2.25% per annum and are scheduled to be repaid in equal quarterly installments of $0.8 million per quarter, in aggregate, with a balloon payment due upon maturity.
Our Hamburg Commercial Bank Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1,000,000,000 plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after December 31, 2018 and (ii) 50% of the net proceeds of new equity issuances occurring on or after December 31, 2018.
•Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall be: 134% of the loan outstanding.
The amounts outstanding under this facility as of December 31, 2021 and 2020 were $37.0 million and $40.3 million, respectively, and we were in compliance with the financial covenants as of those dates.
Prudential Credit Facility
In November 2019, we executed an agreement with Prudential Private Capital for a senior secured term loan facility for $55.5 million (the "Prudential Credit Facility"). The loan facility was fully drawn in December 2019, and a portion of the proceeds was used to refinance the outstanding indebtedness of $35.6 million for STI Clapham, STI Camden and STI Acton, which were previously financed under the KEXIM Credit Facility.
The Prudential Credit Facility has a final maturity of December 2025 and bears interest at LIBOR plus a margin of 3.00% per annum. The loan is scheduled to be repaid in monthly installments of $0.5 million per month, in aggregate, with a balloon payment due upon maturity.
Our Prudential Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1,000,000,000 plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issuances occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall be no less than 125% of the loan outstanding.
The amounts outstanding as of December 31, 2021 and 2020 were $44.8 million and $50.4 million, respectively, and we were in compliance with the financial covenants as of those dates.
2019 DNB / GIEK Credit Facility
In November 2019, we executed a $55.5 million term loan facility with DNB Bank ASA and the Norwegian Export Credit Guarantee Agency (“GIEK”). The loan is comprised of two facilities: (i) an ECA facility of $47.2 million (which is comprised of a $41.6 million tranche which is guaranteed by GIEK, or the “GIEK Tranche”, and a $5.6 million commercial tranche or the “Commercial Bank Tranche”) and (ii) a commercial facility of $8.3 million, or the “Commercial Facility." These facilities are collectively referred to as the 2019 DNB/GIEK Credit Facility.
In March 2020, we drew $31.9 million from this facility to refinance the existing debt on an LR2, STI Sloane, that was previously financed under the KEXIM Credit Facility. We repaid the outstanding indebtedness of $17.4 million related to this vessel on the KEXIM Credit Facility as part of this transaction. In December 2020, we drew $23.7 million from this credit facility to refinance the existing indebtedness on an LR2 product tanker, STI Condotti, which was previously financed under the KEXIM Credit Facility and repaid $15.9 million on the KEXIM Credit Facility as part of this transaction.
The 2019 DNB / GIEK Credit Facility matures in July 2024. The GIEK tranche bears interest at LIBOR plus a margin of 2.50% per annum, and the Commercial Bank and Commercial Facility tranches bear interest at LIBOR plus a margin of 2.50% per annum. The 2019 DNB / GIEK Credit Facility is scheduled to be repaid in equal quarterly installments of approximately $1.8 million per quarter with a balloon payment due at maturity.
Our 2019 DNB/GIEK Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issues occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 130% of the then aggregate outstanding principal amount of the loans under the credit facility through the second anniversary of the date of the agreement and 135% at all times thereafter.
The amounts outstanding as of December 31, 2021 and 2020 were $45.5 million and $52.6 million, respectively, and we were in compliance with the financial covenants as of those dates.
BNPP Sinosure Credit Facility
In December 2019, we executed a senior secured term loan facility with BNP Paribas and Skandinaviska Enskilda Banken AB for up to $134.1 million. This loan is split into two facilities, (i) a commercial facility for up to $67.0 million (the "Commercial Facility"), and (ii) a Sinosure facility for up to $67.0 million (the "Sinosure Facility"), which was funded by the lenders under the commercial facility and insured by the China Export & Credit Insurance Corporation ("Sinosure"). These facilities are collectively referred to as the BNPP Sinosure Credit Facility.
In March 2020, we drew $42.1 million from this facility to partially finance the purchase and installation of scrubbers on 22 vessels. This borrowing is collateralized by two of our vessels (STI Park and STI Fulham) that were previously financed under our KEXIM Credit Facility. We repaid the outstanding indebtedness of $28.8 million related to these vessels on our KEXIM Credit Facility as part of this transaction.
In June 2020, we drew $24.9 million from this facility to partially finance the purchase and installation of scrubbers on 13 vessels. This borrowing is collateralized by one of our LR2 product tankers (STI Elysees), which was previously financed under our KEXIM Credit Facility. We repaid the outstanding indebtedness of $17.8 million related to this vessel on our KEXIM Credit Facility as part of this transaction.
In September 2020, we drew $24.9 million from this facility to partially finance the purchase and installation of scrubbers on 13 vessels. This borrowing is collateralized by one of our LR2 product tankers (STI Orchard), which was previously financed under our KEXIM Credit Facility. We repaid the outstanding indebtedness of $16.2 million related to this vessel on our KEXIM Credit Facility as part of this transaction.
In December 2020, we drew down $9.6 million from our BNPP Sinosure Credit Facility to partially finance the purchase of scrubbers on five vessels. This borrowing is collateralized by a Handymax product tanker (STI Hackney), which was previously financed under the KEXIM Credit Facility. We repaid $9.9 million on the KEXIM Credit Facility as part of this transaction.
In January 2021, we signed an agreement to extend the availability period under this loan facility to June 15, 2022 from March 15, 2021 (the "Extension Agreement").
In March 2021, we drew $1.9 million from our BNPP Sinosure Credit Facility to partially finance the purchase and installation of a scrubber on an MR product tanker.
A total of $103.4 million has been drawn, with remaining availability of $27.6 million until March 15, 2022, then $26.0 million until June 15, 2022, under the Extension Agreement. The BNPP Sinosure Credit Facility is split into 70 tranches each of which represent the lesser of 85% of the purchase and installation price of 70 scrubbers, or $1.9 million per scrubber (not to exceed 65% of the fair value of the collateral vessels). The Sinosure Facility and the Commercial Facility bear interest at LIBOR plus a margin of 1.80% and 2.80% per annum, respectively. Based on the amounts drawn as of December 31, 2021, the Sinosure Facility is scheduled to be repaid in 10 semi-annual installments of $5.2 million in aggregate (which may increase to $6.7 million once the loan is fully drawn, with separate repayment periods as each tranche of the loan is drawn) and the Commercial Facility is scheduled to be repaid at the final maturity date of the facility, or October 2025.
Our BNPP Sinosure Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issues occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 130% of the then aggregate outstanding principal amount of the loans under the credit facility through December 31, 2022 and 135% at all times thereafter.
The amounts outstanding as of December 31, 2021 and 2020 were $86.3 million and $94.7 million, respectively, and we were in compliance with the financial covenants as of those dates.
2020 $225.0 Million Credit Facility
In May 2020, we executed the 2020 $225.0 Million Credit Facility with a group of European financial institutions. In June 2020 we drew down $101.2 million from this facility to refinance the existing debt on four LR2s (STI Savile Row, STI Spiga, STI Kingsway and STI Carnaby) that were previously financed under the ABN AMRO Credit Facility (which was scheduled to mature during the third quarter of 2020). We repaid the outstanding indebtedness of $87.7 million under our ABN AMRO Credit Facility as part of this transaction.
In September 2020, we drew down $43.7 million from this facility to refinance the existing debt on two LR1s (STI Pride and STI Providence) that were previously financed under our CMBFL Lease Financing arrangement and we repaid $54.0 million on our CMBFL Lease Financing arrangement as part of this transaction. In connection with this repayment, approximately $2.0 million was released from restricted cash that was previously held in a deposit account under the terms and conditions of our CMBFL Lease Financing Arrangement.
In October and November 2020, we drew down an aggregate of $71.8 million from this facility to refinance the existing debt on three LR2 product tankers, STI Nautilus, STI Guard, and STI Gallantry, all of which were previously financed
under the CSSC Lease Financing arrangement. We repaid $81.7 million on the CSSC Lease Financing and CSSC Scrubber Lease Financing arrangements, and a $1.6 million prepayment fee was paid as part of these transactions.
The remaining availability of $2.2 million under the 2020 $225.0 Million Credit Facility to partially finance the purchase and installation of scrubbers on two LR2s was terminated in December 2020.
In December 2021, we closed on the sale and leaseback transactions for two LR2 product tankers (STI Gallantry and STI Guard) with Ocean Yield ASA (the “2021 Ocean Yield Lease Financing”, which is described below) and a portion of the proceeds were used to repay the aggregate outstanding indebtedness of $42.3 million relating to these vessels under the 2020 $225.0 Million Credit Facility.
This facility has a final maturity of five years from the closing date of the loan, bears interest at LIBOR plus a margin, and is scheduled to be repaid in equal installments of approximately $4.1 million per quarter (after taking into consideration the above mentioned repayments), in aggregate, with a balloon payment due at maturity.
Our 2020 $225.0 Million Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
•Consolidated tangible net worth of no less than $1.4 billion.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 130% of the then aggregate outstanding principal amount of the loans outstanding and the swap exposure under the credit facility through May 2022 and 140% at all times thereafter.
The amounts outstanding as of December 31, 2021 and 2020 were $145.6 million and $208.9 million, respectively, and we were in compliance with the financial covenants as of those dates.
2021 $21.0 Million Credit Facility
In February 2021, we drew down $21.0 million on a term loan facility with a European financial institution (the "2021 $21.0 Million Credit Facility"). The proceeds of this loan facility were used to refinance the outstanding debt on a LR2 product tanker, STI Madison, that was previously financed under our KEXIM Credit Facility. We repaid the outstanding indebtedness of $15.9 million related to this vessel on the KEXIM Credit Facility in January 2021 upon its maturity. The loan facility has a final maturity of December 2022, bears interest at LIBOR plus a margin of 2.65% per annum, and is scheduled to be repaid in equal quarterly installments of approximately $0.6 million, with a balloon payment due upon maturity.
Our 2021 $21.0 Million Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of not less than $1.0 billion plus (i) 25% of the positive consolidated net income for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issues occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 140% of the then aggregate outstanding principal amount of the loans under the credit facility.
The amount outstanding as of December 31, 2021 was $19.2 million, and we were in compliance with the financial covenants as of that date.
2021 $43.6 Million Credit Facility
In November 2021, we closed on a senior secured term loan facility for two LR1 product tankers (STI Precision and STI Prestige) with an international financial institution (the “2021 $43.6 Million Credit Facility”). The borrowing amount under
the agreement was $43.6 million and part of the proceeds were used to repay the aggregate outstanding indebtedness of $38.9 million relating to these vessels under the ABN AMRO / K-Sure Credit Facility.
The credit facility is scheduled to mature five years from its drawdown date, bears interest at LIBOR plus an initial margin of 2.50% per annum, and is scheduled to be repaid in equal quarterly principal installments of approximately $1.1 million in aggregate for both vessels with a balloon payment at maturity. The margin for each vessel tranche may be adjusted on each anniversary of its drawdown date based upon the preceding calendar year’s performance of that vessel’s Annual Efficiency Ratio (“AER”) as calculated pursuant to the Poseidon Principles, where the margin may be reduced to a minimum of 2.35% per annum or increased to a maximum of 2.55% per annum. The remaining terms and conditions, including financial covenants, are similar to those set forth in our existing credit facilities.
Our 2021 $43.6 Million Credit Facility includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
•Consolidated tangible net worth of not less than $1.5 billion.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be no less than 125% of the then aggregate outstanding principal amount of the loans under the credit facility.
The amount outstanding as of December 31, 2021 was $43.6 million, and we were in compliance with the financial covenants as of that date.
Lease financing arrangements
The below summarizes the key terms of our lease financing arrangements. For each arrangement, we have evaluated whether, in substance, these transactions are leases or merely a form of financing. As a result of this evaluation, we have concluded that each agreement is a form of financing on the basis that each transaction is a sale and leaseback transaction which does not meet the criteria for a sale under IFRS 15. Accordingly, the cash received in the transfer has been accounted for as a liability under IFRS 9, and each arrangement has been recorded at amortized cost using the effective interest method, with the corresponding vessels being recorded at cost, less accumulated depreciation, on our consolidated balance sheet.
The obligations set forth below are secured by, among other things, assignments of earnings and insurances and stock pledges and account charges in respect of the subject vessels. All of the financing arrangements contain customary events of default, including cross-default provisions as well as subjective acceleration clauses under which the lessor could cancel the lease in the event of a material adverse change in the Company’s business.
Ocean Yield Lease Financing
We assumed the obligations under a lease financing arrangement with Ocean Yield ASA for four LR2 tankers (STI Sanctity, STI Steadfast, STI Supreme, and STI Symphony) in connection with the September 2017 acquisition of Navig8 Product Tankers Inc. (the "Ocean Yield Lease Financing). Under this arrangement, each vessel is subject to a 13-year bareboat charter, which expires between February and August 2029 (depending on the vessel). Charterhire, which is paid monthly in advance, includes a fixed payment in addition to a quarterly adjustment based on prevailing LIBOR rates.
Monthly principal payments are approximately $0.2 million per vessel gradually increasing to $0.3 million per vessel per month until the expiration of the agreement. The interest component of the leases approximates LIBOR plus 5.40% per annum. We also have purchase options to re-acquire each of the vessels during the bareboat charter period, with the first of such options exercisable beginning at the end of the seventh year from the delivery date of the subject vessel.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issues occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and $250,000 per each time chartered-in vessel.
The carrying values of the amounts due under this arrangement (which reflect fair value adjustments made as part of the initial purchase price allocation of the acquisition) were $126.3 million and $137.4 million as of December 31, 2021 and 2020, respectively. We were in compliance with the financial covenants as of those dates.
BCFL Lease Financing (LR2s)
We assumed the obligations of a lease financing arrangement with Bank of Communications Finance Leasing Co Ltd., or BCFL, for three LR2 tankers (STI Solace, STI Solidarity, and STI Stability) as part of the September 2017 acquisition of Navig8 Product Tankers Inc. (the "BCFL Lease Financing (LR2s)"). Under the arrangement, each vessel is subject to a 10-year bareboat charter which expires in July 2026. Charterhire under the arrangement is determined in advance, on a quarterly basis and is calculated by determining the payment based off of the then outstanding balance, the time to expiration and an interest rate of LIBOR plus 3.50% per annum. Using the forward interest swap curve at December 31, 2021, future monthly principal payments are estimated to be $0.2 million per vessel gradually increasing to $0.3 million per vessel per month until the expiration of the agreement. We have purchase options to re-acquire each of the subject vessels during the bareboat charter period, with the first of such options exercisable at the end of the fourth year from the delivery date of the respective vessel. There is also a purchase obligation for each vessel upon the expiration of the agreement.
In April 2020, we executed an agreement to increase the borrowing capacity of our BCFL Lease Financing arrangements (LR2s) by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on the above vessels. The agreement will be for a fixed term of three years at the rate of up to $1,910 per vessel per day to be allocated to principal and interest.
In July 2020, we drew $1.9 million to partially finance the purchase and installation of a scrubber on one vessel, and in January 2021, we drew $3.8 million to partially finance the purchase and installation of scrubbers on two vessels.
Additionally, we have an aggregate of $0.8 million on deposit in a deposit account as of December 31, 2021 in accordance with the terms and conditions of this facility. The funds deposited in this account are not freely available and will be released upon maturity. The balance in this account has been recorded as non-current Restricted Cash on our consolidated balance sheet as of December 31, 2021 and 2020, respectively.
The carrying values of the amounts due under this arrangement (which reflect fair value adjustments made as part of the initial purchase price allocation of the acquisition) were $77.6 million and $84.0 million as of December 31, 2021 and 2020, respectively. We were in compliance with the financial covenants as of those dates.
CSSC Lease Financing and CSSC Scrubber Lease Financing
We assumed the obligations under a lease financing arrangement with CSSC (Hong Kong) Shipping Company Limited, or CSSC, for eight LR2 tankers (STI Gallantry, STI Nautilus, STI Guard, STI Guide, STI Goal, STI Gauntlet, STI Gladiator and STI Gratitude) as part of the September 2017 acquisition of Navig8 Product Tankers Inc. (the "CSSC Lease Financing").
Under the arrangement, each vessel is subject to a 10-year bareboat charter which expire throughout 2026 and 2027 (depending on the vessel). Charterhire under the arrangement is comprised of a fixed repayment amount of $0.2 million per month per vessel plus a variable component calculated at LIBOR plus 4.60% per annum. We have purchase options to re-acquire each of the subject vessels during the bareboat charter period, with the first of such options exercisable at the end of the fourth year from the delivery date of the respective vessel. There is also a purchase obligation for each vessel upon the expiration of the agreement.
Additionally, in September 2019, we executed an agreement with CSSC to increase the borrowing capacity by up to $12.5 million to partially finance the purchase and installation of scrubbers on the eight LR2s (the "CSSC Scrubber Lease
Financing"). In December 2019, $11.0 million was borrowed under this arrangement to partially finance the purchase and installation of seven scrubbers, and in August 2020, we drew down $1.6 million to partially finance the purchase and installation of a scrubber on one vessel. The upsized portion of the lease financing bears interest at LIBOR plus a margin of 3.80% per annum, matures two years from the date of the drawdown and is being repaid in monthly installment payments of approximately $0.3 million in aggregate after the repayments noted below.
In October and November 2020, we repaid $81.7 million on the CSSC Lease Financing and CSSC Scrubber Lease Financing arrangements, and we paid a $1.6 million prepayment fee when we refinanced the existing debt on STI Nautilus, STI Guard, and STI Gallantry.
In September 2021, we amended and restated the terms of the CSSC Lease Financing and CSSC Scrubber Lease Financing arrangements for the remaining five LR2 vessels (STI Gratitude, STI Gladiator, STI Gauntlet, STI Guide and STI Goal). Under the terms of the amended and restated agreement, the borrowing amount increased to $140.7 million from $128.9 million at the time of the transaction (which is inclusive of scrubber financing), resulting in a net additional borrowing of $11.8 million.
The tenor of the arrangement remained unchanged with each lease scheduled to expire throughout 2026 and 2027, however the amended and restated lease contains an option to extend the lease for each vessel by an additional 24 months. The interest under the amended and restated agreement was reduced to LIBOR plus a margin of 3.50% per annum and the principal balance is scheduled to be repaid in equal installments of approximately $0.2 million per vessel per month. Each lease also contains purchase options to re-acquire each of the subject vessels beginning on the second anniversary date from the effective date of the amended agreement, with a purchase obligation for each vessel upon the expiration of each agreement.
Our CSSC Lease Financing arrangement includes a financial covenant that requires the fair market value of each vessel that is leased under this facility to at all times be no less than 125% of the applicable outstanding balance for such vessel.
This transaction was accounted for as an amendment to the original financial liability under IFRS 9 as the terms of the amended and restated arrangement were determined to not be substantially different than that of the original arrangement. Pursuant to IFRS 9, where an existing financial liability is modified, a gain or loss should be recognized as the difference between the original contractual cash flows and the modified contractual cash flows discounted using the original effective interest rate. This calculation resulted in a gain of $2.9 million, which consisted of the gain arising from the present value calculation of the modified contractual cash flows, offset by fees paid to the lessor.
The carrying values of the amounts due under the arrangement (which reflect fair value adjustments made as part of the initial purchase price allocation and of the modification) were $133.0 million and $141.4 million as of December 31, 2021 and 2020, respectively. We were in compliance with the financial covenants under these arrangements as of those dates.
BCFL Lease Financing (MRs)
In September 2017, we entered into agreements to sell and lease back five 2012 built MR product tankers (STI Amber, STI Topaz, STI Ruby, STI Garnet and STI Onyx) with Bank of Communications Finance Leasing Co Ltd., or BCFL, for a sales price of $27.5 million per vessel (the "BCFL Lease Financing (MRs)"). The financing for STI Topaz, STI Ruby and STI Garnet closed in September 2017, the financing for STI Onyx closed in October 2017, and the financing for STI Amber closed in November 2017. Each agreement is for a fixed term of seven years at a bareboat rate of $9,025 per vessel per day, and we have three consecutive one-year options to extend each charter beyond the initial term. Furthermore, we have the option to purchase these vessels beginning at the end of the fifth year of the agreements through the end of the tenth year of the agreements. A deposit of $5.1 million per vessel was retained by the buyers and will either be applied to the purchase price of the vessel if a purchase option is exercised, or refunded to us at the expiration of the agreement (as applicable).
In April 2020, we executed an agreement to increase the borrowing capacity of our BCFL Lease Financing arrangements (MRs) by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on the above vessels. The agreement is for a fixed term of three years at the rate of up to $1,910 per vessel per day to be allocated to principal and interest.
In July 2020, we drew $1.9 million to partially finance the purchase and installation of a scrubber on one vessel and in January 2021, we drew $5.8 million to partially finance the purchase and installation of scrubbers on three vessels.
Our BCFL Lease Financing (MRs) includes a financial covenant that requires us to maintain that the aggregate of the fair market value of each vessel leased under the facility plus the aforementioned $5.1 million deposit shall at all times be no less than 100% of the then outstanding balance plus the aforementioned $5.1 million deposit.
The aggregate outstanding balances under this arrangement were $68.9 million and $77.7 million as of December 31, 2021 and 2020, respectively. We were in compliance with the financial covenants as of those dates.
2018 CMBFL Lease Financing
In July 2018, we 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 "2018 CMBFL Lease Financing"). The aggregate borrowing amount under the arrangement is $141.6 million and the sales closed in August 2018.
Each agreement is for a fixed term of eight years, and we have 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 3.20% per annum and are scheduled to 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.
In December 2019, we amended and restated the agreement to increase the borrowing capacity to partially finance the purchase and installation of scrubbers on the six MRs that are currently part of the agreement. In May 2020, we drew an aggregate of $10.1 million under the scrubber portion of the 2018 CMBFL Lease Financing to partially finance the purchase and installation of scrubbers on the six MRs. The upsized portion of the lease financing has a final maturity of 3.5 years after the first drawdown, bears interest at LIBOR plus a margin of 3.10% per annum, and is scheduled to be repaid in quarterly principal payments of approximately $0.1 million per vessel.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issuances occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the outstanding balance for such vessel.
The amounts outstanding, which include the scrubber and non-scrubber portions, were $112.0 million and $125.0 million as of December 31, 2021 and 2020, respectively. We were in compliance with the financial covenants under these arrangements as of those dates.
$116.0 Million Lease Financing
In August 2018, we executed 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 $116.0 Million Lease Financing"). The net borrowing amount (which reflects the selling price less deposits and commissions to the lessor) under the arrangement was $114.8 million in aggregate, consisting of $23.8 million per MR and $33.7 million per LR2.
Under the terms of these agreements, we 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 (which includes both the principal and interest components of the lease). In addition, we have purchase options beginning at the end of the third year of each agreement, and a purchase obligation for each vessel upon the expiration of each agreement.
In April 2020, we executed agreements to increase the borrowing capacity of four vessels under our $116.0 Million Lease Financing by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on these vessels. Each agreement is for a fixed term of three years at the rate of up to $1,910 per vessel per day to be allocated to principal and interest. In July 2020, we drew $5.7 million to partially finance the purchase and installation of scrubbers on three vessels. In January 2021, we drew $1.9 million to partially finance the purchase and installation of scrubbers on one vessel.
We are subject to certain terms and conditions under the $116.0 Million Lease Financing, including a financial covenant that requires us to maintain that the aggregate of the fair market value of each vessel leased under the facility plus the aforementioned deposits shall at all times be no less than 111% of the then outstanding balance plus the aforementioned deposits. The LR2 tankers in this facility are grouped for purposes of this test.
The amounts outstanding, which include the scrubber and non-scrubber portions, were $95.8 million and $103.8 million as of December 31, 2021 and 2020, respectively. We were in compliance with the financial covenants as of those dates.
AVIC Lease Financing
In July 2018, we 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 "AVIC Lease Financing"). The borrowing amounts under the arrangement are $24.0 million per MR and $36.5 million per LR2 ($145.0 million in aggregate). These transactions closed in August and September 2018.
Each agreement is for a fixed term of eight years, and we have options to purchase the vessels beginning at the end of the second year of each agreement. The leases bear interest at LIBOR plus a margin of 3.70% per annum and are scheduled to 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.
Additionally, in February 2020, we executed an agreement to upsize the AVIC Lease Financing arrangement to finance the purchase and installation of scrubbers on two MRs (STI Fontvieille and STI Brooklyn) and two LR2 (STI Rose and STI Rambla) product tankers that are part of this arrangement. The upsized portion of the lease financing was to be used to finance up to the lesser of 80% of the purchase and installation price of the scrubbers or 80% of the appreciated value of the vessel. In December 2020, we drew $4.6 million from the upsized portion of this arrangement to partially finance the purchase and installation of scrubbers on three vessels that are currently part of this arrangement, one MR (STI Brooklyn) and two LR2s. The upsized portion of the lease financing has a final maturity of three years after the first drawdown, bears interest at LIBOR plus a margin of 4.20% per annum and is scheduled to be repaid in quarterly principal payments of approximately $0.4 million, in aggregate, for all three vessels.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.70 to 1.00.
•Consolidated tangible net worth of no less than $650.0 million.
•The fair market value of each grouped vessels (MRs or LR2s) leased under the facility shall at all times be no less than 110% of the outstanding balance for such grouped vessels (MRs or LR2s).
The outstanding amounts, which include the scrubber and non-scrubber portions, were $106.4 million and $119.7 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants as of those dates.
China Huarong Lease Financing
In August 2018, we closed on the sale and leaseback of 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. (the "China Huarong Lease Financing"). The borrowing amount under the arrangement is $144.0 million in aggregate.
Each agreement is for a fixed term of eight years, and we have options to purchase the vessels beginning at the end of the third year of each agreement. The leases bear interest at LIBOR plus a margin of 3.50% 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.
In September 2020 we received a commitment to upsize this arrangement by $2.0 million per vessel to partially finance the purchase and installation of scrubbers on these vessels. In January 2021, we executed the agreements on five of the vessels (STI Virtus, STI Venere, STI Aqua, STI Dama, and STI Regina) and drew down $10.0 million under the upsized portion of this arrangement. Borrowings under the upsized portion bear interest at LIBOR plus a margin of 3.50% per annum and are scheduled to be repaid in equal quarterly installments of approximately $0.2 million per vessel for three years from the date of drawdown.
We are subject to certain terms and conditions under this arrangement, including the financial covenant that the we maintain consolidated tangible net worth of no less than $650.0 million. Additionally, during the scrubber loan period (between its drawdown date and maturity date), each vessel shall maintain a fair market value of no less than 115% of the total principal outstanding balance for such vessel.
The aggregate outstanding balances under this arrangement were $103.4 million and $110.3 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants relating to this facility as of those dates.
$157.5 Million Lease Financing
In October 2018, we sold and leased back 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 "$157.5 Million Lease Financing"). The borrowing amount under the arrangement was $157.5 million in aggregate, and these sales closed in October 2018.
Each agreement is for a fixed term of seven years, and we have options to purchase the vessels beginning at the end of the third year of each agreement. The leases bear interest at LIBOR plus a margin of 3.00% per annum and are scheduled to be repaid in equal 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). We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issuances occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the outstanding balance for such vessel.
The amounts outstanding were $109.7 million and $123.8 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants as of those dates.
COSCO Lease Financing
In September 2018, we executed 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 Oriental Fleet International Company Limited (the "COSCO Lease Financing"). The amounts borrowed under the arrangement were $21.2 million for the Handymax vessels and $22.8 million for each of the MR vessels ($88.0 million in aggregate).
Each agreement is for a fixed term of eight years, and we have 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 3.60% per annum and is being 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. We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of total liabilities (less cash and cash equivalents) to total assets no greater than 0.65 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2018 and (ii) 50% of the net proceeds of new equity issuances occurring on or after January 1, 2018.
•The fair market value of each vessel leased under the facility shall at all times be no less than 110% of the outstanding balance for such vessel.
The amounts outstanding were $61.1 million and $68.8 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants as of those dates.
2020 CMBFL Lease Financing
In September 2020, we executed an agreement with CMB Financial Leasing Co., Ltd to sell and leaseback two MR product tankers (STI Leblon and STI Bosphorus). The aggregate borrowing amount under the arrangement was $45.4 million, which was drawn in September 2020 (the "2020 CMBFL Lease Financing"). A portion of the proceeds were utilized to repay $30.1 million of the outstanding indebtedness relating to these two vessels under our 2017 Credit Facility.
Each agreement is for a fixed term of seven years, and we have options to purchase the vessels beginning on the third anniversary of the delivery date of each agreement. The leases bear interest at LIBOR plus a margin of 3.20% per annum and will be repaid in equal quarterly principal installments of $0.4 million per vessel. Each agreement also has a purchase option at the end of the seventh year (which is equal to the outstanding principal balance at that date). We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issuances occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The fair market value of each vessel leased under the facility shall at all times be no less than 120% of the outstanding balance for such vessel.
The amounts outstanding were $41.3 million and $44.6 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants as of those dates.
2020 TSFL Lease Financing
In November 2020, we executed an agreement with Taiping & Sinopec Financial Leasing Co., Ltd. (the "2020 TSFL Lease Financing") to sell and leaseback two MR product tankers (STI Galata and STI La Boca). The aggregate borrowing
amount under the arrangement was $47.3 million, which was drawn in November 2020. A portion of the proceeds were utilized to repay $29.3 million of the outstanding indebtedness relating to these two vessels under our 2017 Credit Facility.
Each agreement is for a fixed term of seven years and we have options to purchase the vessels beginning on the third anniversary of the delivery date of each agreement. The leases bear interest at LIBOR plus a margin of 3.20% per annum and will be repaid in equal quarterly principal installments of $0.4 million per vessel. 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). We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion.
•The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the outstanding balance for such vessel.
The amounts outstanding were $43.9 million and $47.3 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants as of those dates.
2020 SPDBFL Lease Financing
In November 2020, we executed an agreement with SPDB Financial Leasing Co., Ltd to sell and leaseback four MR product tankers (STI Donald C Trauscht, STI Esles II, STI San Telmo, and STI Jardins). The aggregate borrowing amount under the arrangement was $96.5 million, which was drawn in November and December 2020 (the "2020 SPDBFL Lease Financing"). A portion of the proceeds were utilized to repay $62.9 million of the outstanding indebtedness relating to these vessels under our 2017 Credit Facility. In connection with these repayments, approximately $5.0 million was released from restricted cash that was previously held in a debt service reserve account under the terms and conditions of the 2017 Credit Facility.
The agreements for STI Donald C Trauscht and STI San Telmo are for a fixed term of seven years. The agreements for STI Esles and STI Jardins are for a fixed term of eight years. Each of the agreements have options to purchase the vessels beginning on the third anniversary of the delivery date of each agreement. The leases bear interest at LIBOR plus a margin of 3.05% per annum and will be repaid in equal quarterly principal installments of $0.4 million per vessel. Each agreement also has a purchase obligation at the end of their term (which is equal to the outstanding principal balance at that date). Additionally, coinciding with the first payment dates in the first quarter of 2021, we were required to deposit with the lessor 3% of the borrowing amount, or $2.9 million in aggregate. We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.70 to 1.00.
•Consolidated tangible net worth of no less than $650.0 million.
•The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the outstanding balance for such vessel.
The carrying values of the amounts due under the arrangement (net of the deposits made during 2021) were $87.1 million and $96.5 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants as of those dates.
2021 AVIC Lease Financing
In February 2021, we closed on the sale and leaseback of two vessels (STI Memphis and STI Soho) with AVIC International Leasing Co., Ltd. for aggregate proceeds of $44.2 million (the “2021 AVIC Lease Financing”). We repaid the outstanding indebtedness of $30.1 million related to these vessels on the 2018 NIBC Credit Facility as part of these transactions. In March 2021, we closed on the sale and leaseback of two additional vessels (STI Lombard and STI Osceola) under the 2021 AVIC Lease Financing for aggregate proceeds of $53.1 million. We repaid the outstanding indebtedness of $29.6 million related to these vessels on the ING Credit Facility as part of these transactions.
Under the 2021 AVIC Lease Financing, each vessel is subject to a nine-year bareboat charter-in agreement. The lease financings bear interest at LIBOR plus a margin of 3.45% per annum and are scheduled to be repaid in equal aggregate quarterly repayments of approximately $1.8 million. Each agreement contains purchase options to re-acquire each of the subject vessels beginning on the second anniversary date from the delivery date of the respective vessel, with a purchase obligation upon the expiration of each agreement. Additionally, we are required to deposit with the lessor 1% of the borrowing amount, or $1.0 million in aggregate.
Our 2021 AVIC Lease Financing includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.70 to 1.00.
•Consolidated tangible net worth shall always exceed $650.0 million.
•The aggregate of the fair market value of the vessels provided as collateral under the lease financing shall at all times be no less than 115% of the then aggregate outstanding principal amount on or before the third anniversary date of the delivery of the vessel and 120% thereafter.
The carrying values of the amounts due under the arrangement (net of the deposits made during 2021) was $90.9 million as of December 31, 2021, and we were in compliance with the financial covenants as of that date.
2021 CMBFL Lease Financing
In March 2021, we received a commitment to sell and leaseback four Handymax vessels (STI Comandante, STI Brixton, STI Pimlico and STI Finchley) and one MR (STI Westminster) from CMB Financial Leasing Co. Ltd, or CMBFL (the "2021 CMBFL Lease Financing"). In March 2021, we closed on the sale and leaseback of the four aforementioned Handymax vessels under the 2021 CMBFL Lease Financing for aggregate proceeds of $58.8 million and repaid the outstanding indebtedness of $46.7 million related to these vessels on the ING Credit Facility as part of these transactions. In April 2021, we closed on the sale and leaseback of STI Westminster for aggregate proceeds of $20.25 million and repaid the outstanding indebtedness of $16.1 million related to this vessel on the ABN AMRO / SEB Credit Facility as part of this transaction.
Under the 2021 CMBFL Lease Financing, each vessel is subject to a seven-year bareboat charter-in agreement. The lease financings bear interest at LIBOR plus a margin of 3.25% per annum for the Handymax vessels and 3.20% per annum for the MR vessel. Each agreement contains purchase options to re-acquire each of the subject vessels beginning on the third anniversary date from the delivery date of the respective vessel, with a purchase option for each vessel upon the expiration of each agreement.
Our 2021 CMBFL Lease Financing includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issuances occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The fair market value of each vessel leased under the facility shall at all times be no less than 120% of the outstanding balance for such vessel.
The amount outstanding was $74.6 million as of December 31, 2021, and we were in compliance with the financial covenants as of that date.
2021 TSFL Lease Financing
In March 2021, we closed on the sale and leaseback of three MR vessels (STI Black Hawk, STI Notting Hill and STI Pontiac) with Taiping & Sinopec Financial Leasing Co., Ltd. for aggregate proceeds of $57.7 million (the "2021 TSFL Lease Financing"). We repaid the outstanding indebtedness of $40.7 million related to these vessels on the ING Credit Facility as part of these transactions.
Under the 2021 TSFL Lease Financing, each vessel is subject to a seven-year bareboat charter-in agreement. The lease financings bear interest at LIBOR plus a margin of 3.20% per annum and are scheduled to be repaid in equal quarterly principal installments of approximately $0.4 million per vessel. Each agreement contains purchase options to re-acquire each of the subject vessels beginning on the second anniversary date from the delivery date of the respective vessel, with a purchase option for each vessel upon the expiration of each agreement.
Our 2021 TSFL Lease Financing includes financial covenants that require us to maintain:
•The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion.
•The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the outstanding balance for such vessel.
The amount outstanding was $54.4 million as of December 31, 2021, and we were in compliance with the financial covenants as of that date.
2021 CSSC Lease Financing
In May 2021, we closed on the sale and leaseback of two LR2 vessels (STI Grace and STI Jermyn) with CSSC (Hong Kong) Shipping Company Limited (the "2021 CSSC Lease Financing") for aggregate proceeds of $57.4 million. We repaid the aggregate outstanding indebtedness of $36.9 million related to these two vessels on the ING Credit Facility as part of this transaction.
Under the 2021 CSSC Lease Financing, each vessel is subject to a six-year bareboat charter-in agreement. The lease financings bear interest at LIBOR plus a margin of 3.50% per annum and are scheduled to be repaid in equal principal installments of approximately $0.2 million per vessel per month. Each agreement contains purchase options beginning on the second anniversary date from the delivery date of the respective vessel, with a purchase obligation for each vessel upon the expiration of each agreement.
Our 2021 CSSC Lease Financing includes a covenant that requires that the fair market value of each vessel leased under the facility shall at all times be no less than 125% of the outstanding balance for such vessel.
The amount outstanding was $53.9 million as of December 31, 2021, and we were in compliance with the financial covenants as of that date.
2021 $146.3 Million Lease Financing
In November 2021, we closed on the sale and leaseback transactions for four LR2 product tankers (STI Connaught, STI Winnie, STI Lauren and STI Broadway) and two Handymax product tankers (STI Rotherhithe and STI Hammersmith) with an international financial institution (the “2021 $146.3 Million Lease Financing”). The borrowing amount under the agreement was $146.3 million in aggregate and part of the proceeds were used to repay the aggregate outstanding indebtedness of $105.0 million relating to these vessels under the ING Credit Facility and ABN AMRO / SEB Credit Facility.
Under this lease financing arrangement, each vessel is subject to a seven-year bareboat charter-in agreement. The lease financings bear interest at LIBOR plus a margin of 3.30% per annum and are scheduled to be repaid in equal quarterly principal installments of approximately $0.7 million on three LR2 vessels, $0.6 million on one LR2 vessel and $0.4 million per Handymax vessel. Each agreement contains purchase options beginning at the end of the second year with a purchase obligation for each vessel upon the expiration of each agreement.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2018 and (ii) 50% of the net proceeds of new equity issuances occurring on or after January 1, 2018.
•Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus $250,000 per each time chartered-in vessel.
•The fair market value of each vessel leased under the facility shall at all times be no less than 110% of the outstanding balance for such vessel.
The amount outstanding was $146.3 million as of December 31, 2021, and we were in compliance with the financial covenants as of that date.
2021 Ocean Yield Lease Financing
In December 2021, we closed on the sale and leaseback transactions for two LR2 product tankers (STI Gallantry and STI Guard) with Ocean Yield ASA (the “2021 Ocean Yield Lease Financing”). The borrowing amount under the agreements was $70.2 million in aggregate, and part of the proceeds were used to repay the aggregate outstanding indebtedness of $42.3 million relating to these vessels under the 2020 $225.0 Million Credit Facility.
Under this lease financing arrangement, each vessel is subject to a ten-year bareboat charter-in agreement. The lease financings bear interest at LIBOR plus a margin per annum and are scheduled to be repaid in equal monthly principal installments of approximately $0.2 million per vessel. Each agreement contains purchase options to re-acquire each of the subject vessels on the fourth, fifth, and seventh anniversary dates from the effective date of each agreement, with a purchase obligation for each vessel upon the expiration of each agreement.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
•The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
•Consolidated tangible net worth no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net proceeds of new equity issues occurring on or after January 1, 2016.
•Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and $250,000per each time chartered-in vessel.
The amount outstanding was $69.8 million as of December 31, 2021, and we were in compliance with the financial covenants as of that date.
Unsecured debt
Senior Notes Due 2020
On May 12, 2014, we issued $50.0 million in aggregate principal amount of 6.75% Senior Notes due May 2020, or our "Senior Notes Due 2020," and on June 9, 2014, we issued an additional $3.75 million aggregate principal amount of Senior Notes Due 2020 when the underwriters partially exercised their option to purchase additional Senior Notes Due 2020 on the same terms and conditions. The net proceeds from the issuance of the Senior Notes Due 2020 were $51.8 million after deducting the underwriters’ discounts, commissions and offering expenses.
In May 2020, our Senior Notes due 2020 matured, and the outstanding principal balance of $53.8 million was repaid in full.
Senior Notes Due 2025
In May 2020, we issued $28.1 million aggregate principal amount of 7.00% senior unsecured notes due June 30, 2025, or our "Senior Notes Due 2025", in an underwritten public offering. This amount includes $3.1 million related to the partial exercise of the underwriters’ option to purchase additional Senior Notes due 2025 under the same terms and conditions. The aggregate net proceeds were approximately $26.5 million after deducting underwriting commissions and offering expenses.
In January 2021, we entered into a note distribution agreement (the "Distribution Agreement") with B. Riley Securities, Inc. as the sales agent (the "Agent") under which we may offer and sell, from time to time, up to an additional $75.0 million aggregate principal amount of our Senior Notes Due 2025 (the "Additional Notes").
Any Additional Notes sold will be issued under that certain indenture pursuant to which we previously issued $28.1 million aggregate principal amount our Senior Notes Due 2025, on May 29, 2020 (the "Initial Notes"). The Additional Notes will have the same terms as the Initial Notes (other than date of issuance), form a single series of debt securities with the Initial Notes and have the same CUSIP number and be fungible with the Initial Notes immediately upon issuance, including for purposes of notices, consents, waivers, amendments and any other action permitted under the aforementioned indenture. The Senior Notes Due 2025 are listed on the NYSE under the symbol “SBBA.”
Sales of the Additional Notes may be made over a period of time, and from time to time, through the Agent, in transactions involving an offering of the Senior Notes Due 2025 into the existing trading market at prevailing market prices. During the year ended December 31, 2021, we issued $42.1 million aggregate principal amount of Senior Notes due 2025 under the program, resulting in $41.2 million in aggregate net proceeds (net of underwriters commissions and expenses)
The Senior Notes Due 2025 bear interest at a coupon rate of 7.0% per year, payable quarterly in arrears on the 30th day of March, June, September, and December of each year. Coupon payments commenced on June 30, 2020. We may redeem the Senior Notes Due 2025 in whole or in part, at our option, at any time (i) on or after June 30, 2022 and prior to June 30, 2023, at a redemption price equal to 102% of the principal amount to be redeemed, (ii) on or after June 30, 2023 and prior to June 30, 2024, at a redemption price equal to 101% of the principal amount to be redeemed, and (iii) on or after June 30, 2024 and prior to maturity, at a redemption price equal to 100% of the principal amount to be redeemed, in each case plus accrued and unpaid interest to, but excluding, the redemption date.
The Senior Notes Due 2025 are a senior unsecured obligation and rank equally with all of our existing and future senior unsecured and unsubordinated debt, are effectively subordinated to our existing and future secured debt, to the extent of the value of the assets securing such debt, and are structurally subordinated to all existing and future debt and other liabilities of our subsidiaries. No sinking fund is provided for the Senior Notes Due 2025. The Senior Notes Due 2025 were issued in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof.
The Senior Notes Due 2025 require us to comply with certain covenants, including financial covenants, restrictions on consolidations, mergers or sales of assets and prohibitions on paying dividends or returning capital to equity holders if a covenant breach or an event of default has occurred or would occur as a result of such payment. Prior to June 30, 2022, we may repurchase in whole, but not in part, the Senior Notes Due 2025 at a redemption price equal to 104% of the principal amount of the Senior Notes Due 2025 to be repurchased, plus accrued and unpaid interest to, but excluding, the date of redemption upon the occurrence of certain change of control events.
The financial covenants under our Senior Notes Due 2025 include:
•Net borrowings shall not equal or exceed 70% of total assets.
•Net worth shall always exceed $650.0 million.
The carrying values of the Senior Notes Due 2025 (net of unamortized net discount on the Additional Notes issued at market price during 2021) were $70.1 million and $28.1 million as of December 31, 2021 and 2020, respectively, and we were in compliance with the financial covenants relating to the Senior Notes Due 2025 as of those dates.
Convertible Notes Due 2022
In May 2018 and July 2018, we exchanged $188.5 million and $15.0 million, respectively, in aggregate principal amount of our 3.00% senior Convertible Notes due 2019 for $188.5 million and $15.0 million, respectively, in aggregate principal amount of newly issued unsecured Convertible Notes due 2022 bearing interest at 3.00%, or our "Convertible Notes Due 2022". The Convertible Notes Due 2022 issued in July 2018 have identical terms, are fungible with and are part of the series of Convertible Notes Due 2022 issued in May 2018. Interest is payable semi-annually in arrears on November 15 and May 15 of each year, beginning on November 15, 2018. The Convertible Notes Due 2022 will mature on May 15, 2022, unless earlier converted or repurchased in accordance with their terms.
The conversion rate of the Convertible Notes Due 2022 was initially 25 common shares per $1,000 principal amount of Convertible Notes Due 2022 (equivalent to an initial conversion price of approximately $40.00 per share of our common stock), and is subject to adjustment upon the occurrence of certain events as set forth in the indenture governing the Convertible Notes Due 2022 (such as the payment of dividends).
The table below details the dividends issued during the years ended December 31, 2021 and 2020, and the corresponding effect on the conversion rate of the Convertible Notes Due 2022:
| | | | | | | | | | | | | | |
| Record Date | | Dividends per share | | Share Adjusted Conversion Rate (1) |
| March 2, 2020 | | $ 0.10 | | 25.8763 |
| June 1, 2020 | | $ 0.10 | | 26.0200 |
| September 9, 2020 | | $ 0.10 | | 26.2463 |
| November 23, 2020 | | $ 0.10 | | 26.4810 |
| March 2, 2021 | | $ 0.10 | | 26.6617 |
| May 21, 2021 | | $ 0.10 | | 26.7879 |
| September 9, 2021 | | $ 0.10 | | 26.9419 |
| December 3, 2021 | | $ 0.10 | | 27.1571 |
(1) Per $1,000 principal amount of the Convertible Notes. |
The Convertible Notes Due 2022 are freely convertible at the option of the holder on or after January 1, 2019 and prior to the close of business on the business day immediately preceding the maturity date, and could be converted at any time prior to the close of business on the business day immediately preceding January 1, 2019 only under the following circumstances:
•during any calendar quarter commencing after the calendar quarter ending on March 31, 2018 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 15 trading days (whether or not consecutive) during a period of 25 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•during the five-business day period after any five consecutive trading day period, or the Measurement Period, in which the trading price (as defined in the indenture) per $1,000 principal amount of Convertible Notes due 2022 for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or
•upon the occurrence of specified corporate events as defined in the indenture (e.g. consolidations, mergers, a binding share exchange or the transfer or lease of all or substantially all of our assets).
Upon conversion of the Convertible Notes Due 2022, holders will receive shares of the Company’s common stock. The Convertible Notes Due 2022 are not redeemable by the Company.
The Convertible Notes Due 2022 require us to comply with certain covenants such as restrictions on consolidations, mergers or sales of assets. Additionally, if we undergo a fundamental change (as defined in the indenture), holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Upon the May and July 2018 issuances, we determined the initial carrying values of the liability components of the Convertible Notes Due 2022 to be $154.3 million and $12.2 million, respectively, based on the fair value of a similar liability that does not have any associated conversion feature. We utilized recent pricing (with adjustments made to align the tenor) on our (i) unsecured senior unsecured notes due 2019 bearing interest at 8.25% (which were repaid in March 2019), (ii) Senior Notes Due 2020 and (iii) the pricing on recently issued unsecured bonds in the shipping sector as the basis for this determination. The difference between the fair value of the liability component and the face value of the Convertible Notes Due 2022 is being amortized over the term of the Convertible Notes Due 2022 under the effective interest method and recorded as part of financial expenses. The residual values (the conversion feature) of $34.2 million and $2.8 million, respectively, were recorded to Additional paid-in capital upon issuance.
Between July 1, 2020 and September 30, 2020, we repurchased $52.3 million face value of our Convertible Notes Due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million. As a result of these repurchases, we
reduced the liability component of the Convertible Notes Due 2022 by $47.7 million and we recorded a $1.0 million gain on repurchase of Convertible Notes within the consolidated statement of income or loss.
In March 2021 and June 2021, we completed the exchange of approximately $62.1 million and $19.4 million, respectively, in aggregate principal amount of Convertible Notes Due 2022 for approximately $62.1 million and $19.4 million, respectively in aggregate principal amount of new 3.00% Convertible Notes due 2025 (the "Convertible Notes Due 2025", which are described below) pursuant to separate, privately negotiated, agreements with certain holders of the Convertible Notes Due 2022, which we refer to as the 2021 Convertible Notes Exchanges.
We have accounted for the 2021 Convertible Notes Exchanges as extinguishments of the original financial liability and the recognition of a new liability on the basis that the terms of the Convertible Notes Due 2022 are substantially different to the terms of the Convertible Notes Due 2025. We recorded an aggregate loss on the extinguishment of the Convertible Notes Due 2022 of $5.5 million as a result of the 2021 Convertible Notes Exchanges, which primarily arose from (i) the difference between the carrying value and the face value of the Convertible Notes Due 2022 on the date of the exchange, and (ii) transaction costs directly attributable to the 2021 Convertible Notes Exchanges. We also determined that the fair value of the equity component of the exchanged portion of the Convertible Notes Due 2022 was approximately $1.5 million. This amount was recorded as a reduction to additional paid-in capital as a result of the 2021 Convertible Notes Exchanges
The carrying values of the liability component of the Convertible Notes Due 2022 as of December 31, 2021 and 2020, respectively, were $68.3 million and $140.7 million. We incurred $2.8 million of coupon interest and $4.7 million of non-cash accretion during the year ended December 31, 2021. We incurred $5.5 million of coupon interest and $8.4 million of non-cash accretion during the year ended December 31, 2020. We were in compliance with the covenants related to the Convertible Notes due 2022 as of those dates.
Convertible Notes Due 2025
As mentioned above, we completed the 2021 Convertible Notes Exchanges in March 2021 and June 2021. Additionally, in March 2021 and June 2021, we issued and sold $76.1 million and $42.4 million, respectively, in aggregate principal amount of Convertible Notes Due 2025 pursuant to separate, privately negotiated, agreements with certain investors in a private offering, which we refer to as the 2021 Convertible Notes Offerings. The Convertible Notes Due 2025 that were issued and sold in June 2021 as part of the 2021 Convertible Notes Offerings were issued at 102.25% of par, or $43.3 million, plus accrued interest.
The Convertible Notes Due 2025 that were issued in June 2021 have the same terms as (other than date of issuance), form a single series of debt securities with, have the same CUSIP number and are fungible with, the Convertible Notes Due 2025 that were issued in March 2021, including for purposes of notices, consents, waivers, amendments and any other action permitted under the Indenture.
Upon the March 2021 and June 2021 issuances, we determined the initial carrying value of the liability component of the Convertible Notes Due 2025, to be $132.9 million and $60.8 million, respectively. This determination was based on the fair value of a similar liability that does not have any associated conversion feature. We utilized the market pricing on unsecured bonds in the shipping sector as the basis for this determination. The residual value, attributable to the conversion feature, of $5.3 million and $2.4 million, was recorded to Additional paid-in capital upon the March 2021 and June 2021 issuances, respectively. The difference between the fair value of the liability component and the face value of the Convertible Notes Due 2025 is being accreted over the term of the Convertible Notes Due 2025 under the effective interest method and recorded as part of financial expenses.
The Convertible Notes Due 2025 are our senior, unsecured obligations and bear coupon interest at a rate of 3.00% per annum. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2021. Additionally, commencing in March 2021, principal will accrete on the principal amount, compounded semi-annually, at a rate equal to approximately 5.5202% per annum, which principal amount, together with any accretions thereon, is the “Accreted Principal Amount”. The Accreted Principal Amount at maturity will equal 125.3% of par, which together with the 3.00% coupon interest rate, compounds to a yield-to-maturity of approximately 8.25%.
The Accreted Principal Amount feature is scheduled to accrete over the term of the Convertible Notes Due 2025 under the effective interest method and will be recorded as part of financial expenses. The following table sets forth the Accreted
Principal Amount per $1,000 principal amount of the Convertible Notes due 2025 per the indenture as of the specified dates during the period from the issue date through the maturity date:
| | | | | |
| Date | Accreted Principal Amount |
| March 25, 2021 | $100.0000 |
| May 15, 2021 | $100.7125 |
| November 15, 2021 | $103.3669 |
| May 15, 2022 | $106.1308 |
| November 15, 2022 | $109.0087 |
| May 15, 2023 | $112.0053 |
| November 15, 2023 | $115.1255 |
| May 15, 2024 | $118.3744 |
| November 15, 2024 | $121.7574 |
| May 15, 2025 | $125.2798 |
The Convertible Notes Due 2025 will mature on May 15, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms. The conversion rate of the Convertible Notes Due 2025 was initially 26.6617 common shares per $1,000 principal amount of Convertible Notes Due 2025 (equivalent to an initial conversion price of approximately $37.507 per common share), and is subject to adjustment upon the occurrence of certain events as set forth in the indenture governing the Convertible Notes Due 2025 (such as the payment of dividends).
The table below details the dividends issued during the year ended December 31, 2021 and the corresponding effect on the conversion rate of the Convertible Notes Due 2025:
| | | | | | | | | | | | | | |
| Record Date | | Dividends per share | | Share Adjusted Conversion Rate (1) |
| March 2, 2021 | | $ 0.10 | | 26.6617 |
| May 21, 2021 | | $ 0.10 | | 26.7879 |
| September 9, 2021 | | $ 0.10 | | 26.9419 |
| December 3, 2021 | | $ 0.10 | | 27.1571 |
(1) Per $1,000 principal amount of the Convertible Notes.
The Convertible Notes Due 2025 are freely convertible at the option of the holder and prior to the close of business on the 5th business day immediately preceding the maturity date. Upon conversion of the Convertible Notes Due 2025, holders will receive shares of our common stock. We may, subject to certain exceptions, redeem the Convertible Notes Due 2025 for cash, if at any time the per share volume-weighted average price of our common shares equals or exceeds 125.4% of the conversion price then in effect on (i) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the applicable redemption date; and (ii) the trading day immediately before such date of the redemption notice.
The Convertible Notes Due 2025 require us to comply with certain covenants such as restrictions on consolidations, mergers or sales of assets. Additionally, if we undergo a fundamental change, as defined in the indenture, holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the Accreted Principal Amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The carrying value of the liability component of the Convertible Notes Due 2025 as of December 31, 2021 was $202.4 million and we were in compliance with the covenants related to the Convertible Notes Due 2025 as of that date. We incurred $4.1 million of coupon interest and $8.6 million of non-cash accretion (inclusive of the Accreted Principal Amount of $8.1 million) during the year ended December 31, 2021.
13. Segment reporting
Information about our reportable segments for the years ended December 31, 2021, 2020 and 2019 is as follows:
For the year ended December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars | | LR1 | | Handymax | | LR2 | | MR | | Reportable segments subtotal | | Corporate and eliminations | | Total |
| | | | | | | | | | | | | | |
| Vessel revenue | | $ 47,053 | | $ 50,143 | | $ 180,912 | | $ 262,678 | | $ 540,786 | | $ — | | $ 540,786 |
| Vessel operating costs | | (29,883) | | (38,157) | | (105,714) | | (161,086) | | (334,840) | | — | | (334,840) |
| Voyage expenses | | 24 | | (477) | | (246) | | (2,756) | | (3,455) | | — | | (3,455) |
| Depreciation - owned or finance leased vessels | | (20,970) | | (21,120) | | (81,062) | | (74,315) | | (197,467) | | — | | (197,467) |
| Depreciation - right of use assets | | — | | (1,773) | | (8,503) | | (32,510) | | (42,786) | | — | | (42,786) |
| General and administrative expenses | | (1,158) | | (1,464) | | (4,050) | | (6,148) | | (12,820) | | (39,926) | | (52,746) |
| Financial expenses | | — | | — | | — | | — | | — | | (144,104) | | (144,104) |
| Loss on Convertible Notes exchange | | — | | — | | — | | — | | — | | (5,504) | | (5,504) |
| Financial income | | 2 | | — | | (5) | | 602 | | 599 | | 3,024 | | 3,623 |
| Other income and (expenses), net | | — | | — | | — | | — | | — | | 2,058 | | 2,058 |
| Segment income or loss | | $ (4,932) | | $ (12,848) | | $ (18,668) | | $ (13,535) | | $ (49,983) | | $ (184,452) | | $ (234,435) |
For the year ended December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars | | LR1 | | Handymax | | LR2 | | MR | | Reportable segments subtotal | | Corporate and eliminations | | Total |
| Vessel revenue | | $ 87,026 | | $ 105,353 | | $ 375,594 | | $ 347,919 | | 915,892 | | $ — | | $ 915,892 |
| Vessel operating costs | | (30,396) | | (47,791) | | (107,710) | | (147,851) | | (333,748) | | — | | (333,748) |
| Voyage expenses | | (60) | | (402) | | (3,479) | | (4,018) | | (7,959) | | — | | (7,959) |
| Depreciation - owned or finance leased vessels | | (20,557) | | (21,359) | | (79,208) | | (73,144) | | (194,268) | | — | | (194,268) |
| Depreciation - right of use assets | | — | | (12,017) | | (8,583) | | (30,950) | | (51,550) | | — | | (51,550) |
| Impairment of vessels | | — | | — | | — | | (14,207) | | (14,207) | | — | | (14,207) |
| Impairment of goodwill | | (2,639) | | — | | — | | — | | (2,639) | | — | | (2,639) |
| General and administrative expenses | | (1,180) | | (1,960) | | (4,029) | | (6,060) | | (13,229) | | (52,958) | | (66,187) |
| Financial expenses | | — | | — | | — | | — | | — | | (154,971) | | (154,971) |
| Gain on repurchase of Convertible Notes | | — | | — | | — | | — | | — | | 1,013 | | 1,013 |
| Financial income | | 104 | | 9 | | 51 | | 520 | | 684 | | 565 | | 1,249 |
| Other income and (expenses), net | | — | | — | | — | | — | | — | | 1,499 | | 1,499 |
| Segment income or loss | | $ 32,298 | | $ 21,833 | | $ 172,636 | | $ 72,209 | | $ 298,976 | | $ (204,852) | | $ 94,124 |
For the year ended December 31, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars | | LR1 | | Handymax | | LR2 | | MR | | Reportable segments subtotal | | Corporate and eliminations | | Total |
| Vessel revenue | | $ 67,461 | | $ 106,811 | | $ 263,818 | | $ 266,235 | | $ 704,325 | | $ — | | $ 704,325 |
| Vessel operating costs | | (29,161) | | (50,750) | | (97,346) | | (117,274) | | (294,531) | | — | | (294,531) |
| Voyage expenses | | (1,628) | | (1,414) | | (530) | | (2,588) | | (6,160) | | — | | (6,160) |
| Charterhire | | — | | (4,256) | | 271 | | (414) | | (4,399) | | — | | (4,399) |
| Depreciation - owned or finance leased vessels | | (19,520) | | (19,119) | | (73,774) | | (67,639) | | (180,052) | | — | | (180,052) |
| Depreciation - right of use assets | | — | | (11,678) | | (2,266) | | (12,972) | | (26,916) | | — | | (26,916) |
| General and administrative expenses | | (1,167) | | (2,192) | | (3,841) | | (4,951) | | (12,151) | | (50,144) | | (62,295) |
| Financial expenses | | — | | — | | — | | — | | — | | (186,235) | | (186,235) |
| Financial income | | 360 | | 18 | | 32 | | 538 | | 948 | | 7,234 | | 8,182 |
| Other expenses, net | | — | | — | | — | | 15 | | 15 | | (424) | | (409) |
| Segment income or loss | | 16,345 | | 17,420 | | 86,364 | | 60,950 | | 181,079 | | (229,569) | | $ (48,490) |
Revenue from customers representing greater than 10% of total revenue during the years ended December 31, 2021, 2020 and 2019, within their respective segments was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars | | | | For the year ended December 31, |
| Segment | | Customer | | 2021 | | 2020 | | 2019 |
| MR | | Scorpio MR Pool Limited (1) | | $ 256,874 | | $ 340,937 | | $ 261,727 |
| LR2 | | Scorpio LR2 Pool Limited (1) | | 180,912 | | 369,476 | | 260,893 |
| Handymax | | Scorpio Handymax Tanker Pool Limited (1) | | 50,143 | | 105,355 | | 103,150 |
| | | | | $ 487,929 | | $ 815,768 | | $ 625,770 |
(1)These customers are related parties as described in Note 15.
14. Common shares
Reverse stock split
On January 18, 2019, the Company effected a one-for-ten reverse stock split. All share and per share information has been retroactively adjusted to reflect the reverse stock split. The par value was not adjusted as a result of the reverse stock split.
Trafigura Transaction
As described in Note 6, in September 2019, we acquired the leasehold interests in 19 product tankers (four of which were under construction) as part of the Trafigura Transaction. The consideration exchanged consisted of:
•For the 15 delivered vessels, the assumption of the obligations under the Agreements of $531.5 million and the issuance of 3,981,619 shares of common stock at $29.00 per share to a nominee of Trafigura with an aggregate market value of $115.5 million.
•For the four vessels that were under construction, the assumption of the commitments on the Agreements of $138.8 million and the issuance 591,254 shares of common stock at $29.00 per share to a nominee of Trafigura with an aggregate market value of $17.1 million. Three of the vessels under construction were delivered in the first quarter and one was delivered in September 2020.
Private Placement
In September 2019, we closed on private placements with Trafigura and SSH (a related party) for $35 million and $15 million, respectively, in exchange for an aggregate of 1,724,137 of our common shares at $29.00 per share.
At the Market Share Issuance Program
In November 2019, we entered into an “at the market” offering program (the “ATM Program”) pursuant to which we may sell up to $100 million of our common shares, par value $0.01 per share. As part of the ATM Program, we entered into an equity distribution agreement dated November 7, 2019 (the “Sales Agreement”), with BTIG, LLC, as sales agent (the “Agent”). In accordance with the terms of the Sales Agreement, we may offer and sell our common shares from time to time through the Agent by means of ordinary brokers’ transactions on the NYSE at market prices, in block transactions, or as otherwise agreed upon by the Agent and us. We intend to use the net proceeds from any sales under the ATM Program for general corporate and working capital purposes.
During the year ended December 31, 2020, we sold an aggregate of 137,067 of our common shares at an average price of $18.79 per share for aggregate net proceeds of $2.6 million. No shares were sold during the year ended December 31, 2021. There is $97.4 million of remaining availability under the ATM Program as of December 31, 2021.
2013 Equity Incentive Plan
In April 2013, we adopted an equity incentive plan, which was amended in March 2014 and which we refer to as the 2013 Equity Incentive Plan, under which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates are eligible to receive incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock. We initially reserved a total of 500,000 common shares for issuance under the 2013 Equity Incentive Plan which was increased by an aggregate of 4,342,783 common shares through December 31, 2018 and subsequently revised as follows:
•In February 2019, we reserved an additional 86,977 common shares, par value $0.01 per share, for issuance pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained unchanged.
•In July 2019, we reserved an additional 134,893 common shares, par value $0.01 per share, for issuance pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained unchanged.
•In December 2019, we reserved an additional 529,624 common shares, par value $0.01 per share, for issuance pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained unchanged.
•In June 2020, we reserved an additional 362,766 common shares, par value $0.01 per share, for issuance pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained unchanged.
•In December 2020, we reserved an additional 367,603 common shares, par value $0.01 per share, for issuance pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained unchanged.
•In June 2021, we reserved an additional 386,883 common shares, par value $0.01 per share, for issuance pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained unchanged.
•In October 2021, we reserved an additional 693,864 common shares, par value $0.01 per share, for issuance pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained unchanged.
Under the terms of the 2013 Equity Incentive Plan, stock options and stock appreciation rights granted under the 2013 Equity Incentive Plan will have an exercise price equal to the fair market value of a common share on the date of grant, unless otherwise determined by the plan administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of grant. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan administrator, but in no event will they be exercisable later than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting, forfeiture and other terms and conditions as determined by the plan administrator. Following the vesting of a restricted stock unit, the award recipient will be paid an amount equal to the number of vested restricted stock units multiplied by the fair market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization or other extraordinary event. In the event of a “change in control” (as defined in the 2013 Equity Incentive Plan), unless otherwise provided by the plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
Our Board of Directors may amend or terminate the 2013 Equity Incentive Plan and may amend outstanding awards, provided that no such amendment or termination may be made that would materially impair any rights, or materially increase any obligations, of a grantee under an outstanding award. Shareholder approval of plan amendments will be required under certain circumstances. Unless terminated earlier by our board of directors, the 2013 Equity Incentive Plan will expire ten years from the date the plan was adopted.
The following paragraphs summarize our grants of restricted stock during the years ended December 31, 2021, 2020, and 2019. The vesting periods of these grants are determined by the plan administrator and generally range from one to five years. Additionally, vesting of these grants is generally subject to a grantee's continued employment with the Company through the vesting date unless the grantee is terminated without cause or due to the grantee's death or disability.
In June 2019, we issued 112,750 shares of restricted stock to our employees and 107,500 to SSH employees for no cash consideration. The share price on the issuance date was $24.93 per share. The vesting schedule of the restricted stock issued to both our employees and SSH employees is (i) one-third of the shares vest on June 6, 2022, (ii) one-third of the shares vest on June 5, 2023 and (iii) one-third of the shares vest on June 4, 2024.
In July 2019, we issued 230,170 shares of restricted stock to our employees for no cash consideration. The share price on the issuance date was $26.23 per share. The vesting schedule of the restricted stock issued to our employees is (i) one-third of the shares vest on May 24, 2022, (ii) one-third of the shares vest on May 23, 2023, and (iii) one-third of the shares vest on May 22, 2024.
In December 2019, we issued 60,000 shares of restricted stock to our independent directors for no cash consideration. The share price on the issuance date was $33.90 per share. The vesting schedule of the restricted stock issued to our independent directors is (i) one-third of the shares vested on December 4, 2020, (ii) one-third of the shares vested on December 3, 2021, and (iii) one-third of the shares vest on December 2, 2022.
In January 2020, we issued 469,680 shares of restricted stock to certain of our employees for no cash consideration. The share price on the issuance date was $36.73 per share. The vesting schedule for these restricted shares is (i) one-third of the shares vest on September 8, 2022, (ii) one-third of the shares vest on September 7, 2023, and (iii) one-third of the shares vest on September 5, 2024.
In September 2020, we issued 220,500 shares of restricted stock to certain of our employees for no cash consideration. The share price on the issuance date was $11.15 per share. The vesting schedule for these restricted shares is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In September 2020, we issued 141,900 shares of restricted stock to certain SSH employees for no cash consideration. The share price on the issuance date was $11.15 per share. The vesting schedule of the restricted stock issued to SSH employees is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In December 2020, we issued 90,000 shares of restricted stock to our independent directors and 3,000 to an SSH employee for no cash consideration. The share price on the issuance date was $11.36 per share. The vesting schedule of the restricted stock issued to independent directors is (i) one-third of the shares vested on December 3, 2021, (ii) one-third of the shares vest on December 2, 2022, and (iii) one-third of the shares vest on December 1, 2023. The vesting schedule of restricted stock issued to the SSH employee is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In April 2021, we issued 276,369 shares of restricted stock to certain of our employees for no cash consideration. The share price on the issuance date was $18.38 per share. The vesting schedule for these restricted shares is (i) one-third of the shares vest on March 1, 2024, (ii) one-third of the shares vest on March 3, 2025, and (iii) one-third of the shares vest on March 2, 2026.
There were 1,080,747 shares eligible for issuance under the 2013 Equity Incentive Plan as of December 31, 2021.
The following is a summary of activity for awards of restricted stock during the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| | | Number of Shares | | Weighted Average Grant Date Fair Value |
| Outstanding and non-vested, December 31, 2019 | | 3,561,742 | | $ 26.45 |
| Granted | | 925,080 | | 24.16 |
| Vested | | (678,649) | | 36.01 |
| Forfeited | | (1,400) | | 26.64 |
| Outstanding and non-vested, December 31, 2020 | | 3,806,773 | | 24.19 |
| Granted | | 276,369 | | 18.38 |
| Vested | | (1,085,150) | | 25.27 |
| Forfeited | | — | | — |
| Outstanding and non-vested, December 31, 2021 | | 2,997,992 | | $ 23.27 |
Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line method.
Assuming that all the restricted stock will vest, the stock compensation expense in future periods, including that related to restricted stock issued in prior periods will be:
| | | | | | | | | | | | | | | | | | | | |
| In thousands of U.S. dollars | | Employees | | Directors | | Total |
| For the year ending December 31, 2022 | | 13,952 | | 488 | | 14,440 |
| For the year ending December 31, 2023 | | 6,951 | | 107 | | 7,058 |
| For the year ending December 31, 2024 | | 2,482 | | — | | 2,482 |
| For the year ending December 31, 2025 | | 540 | | — | | 540 |
| For the year ending December 31, 2026 | | 58 | | — | | 58 |
| | | $ 23,983 | | $ 595 | | $ 24,578 |
Dividend Payments
The following dividends were paid during the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | |
| Dividends | | Date |
| per share | | Paid |
| $0.100 | | March 28, 2019 |
| $0.100 | | June 27, 2019 |
| $0.100 | | September 27, 2019 |
| $0.100 | | December 13, 2019 |
| $0.100 | | March 13, 2020 |
| $0.100 | | June 15, 2020 |
| $0.100 | | September 29, 2020 |
| $0.100 | | December 14, 2020 |
| $0.100 | | March 15, 2021 |
| $0.100 | | June 15, 2021 |
| $0.100 | | September 29, 2021 |
| $0.100 | | December 15, 2021 |
2015 Securities Repurchase Program
In May 2015, our Board of Directors authorized a new Securities Repurchase Program to purchase up to an aggregate of $250 million of our securities.
During the year ended December 31, 2020, we acquired an aggregate of 1,170,000 of our common shares at an average price of $11.18 per share for a total of $13.1 million. No shares were repurchased during the year ended December 31, 2021. All repurchased shares are being held as treasury shares.
Between July 1, 2020 and September 30, 2020 we repurchased $52.3 million face value of our Convertible Notes Due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million and we recorded a $1.0 million gain on repurchase of Convertible Notes within the consolidated statement of income or loss.
New $250 Million Securities Repurchase Program
In September 2020, our Board of Directors authorized a new securities repurchase program to purchase up to an aggregate of $250 million of securities, which, in addition to our common shares, currently consist of our Senior Notes Due 2025 (NYSE: SBBA), Convertible Notes Due 2022, and Convertible Notes Due 2025. The aforementioned repurchases of common stock and our convertible notes were executed under the previous securities repurchase program, which has since been terminated and any future repurchases of our securities will be made under the new $250 million securities repurchase program.
There were 7,519,324 common shares held in treasury at December 31, 2021 and December 31, 2020.
We had $250.0 million remaining under our Securities Repurchase Program as of December 31, 2021. We expect to repurchase any securities in the open market, at times and prices that are considered to be appropriate, but we are not obligated under the terms of the program to repurchase any securities.
Shares outstanding
We currently have 175,000,000 registered shares authorized of which 150,000,000 are designated as common shares with a par value of $0.01 and 25,000,000 are designated as preferred shares with a par value of $0.01.
As of December 31, 2021, we had 58,369,516 common shares outstanding. These shares provide the holders with rights to dividends and voting rights.
15. Related party transactions
Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the terms and conditions set forth under a revised master agreement which was effective as from January 1, 2018 (the "Revised Master Agreement").
The Revised Master Agreement may be terminated by either party upon 24 months' notice, unless terminated earlier in accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a notice period of three months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a payment equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that any additional vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially similar terms.
Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related parties) in the consolidated statements of income or loss and balance sheets are as follows:
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 | | 2019 |
Pool revenue(1) | | | | | |
| Scorpio MR Pool Limited | $ 256,874 | | $ 340,937 | | $ 261,727 |
| Scorpio LR2 Pool Limited | 180,912 | | 369,476 | | 260,893 |
| Scorpio Handymax Tanker Pool Limited | 50,143 | | 105,355 | | 103,150 |
| Scorpio LR1 Pool Limited | 47,053 | | 87,028 | | 66,009 |
Voyage revenue(2) | — | | 2,334 | | — |
Voyage expenses(3) | (1,461) | | (3,507) | | (2,414) |
Vessel operating costs(4) | (35,427) | | (33,896) | | (31,732) |
Administrative expenses(5) | (13,557) | | (13,876) | | (12,975) |
(1)These transactions relate to revenue earned in the Scorpio Pools. The Scorpio Pools are related parties. When our vessels are in the Scorpio Pools, SCM, the pool manager, charges fees of $300 per vessel per day with respect to our LR1/Panamax and Aframax vessels, $250 per vessel per day with respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus a commission of 1.50% on gross revenue per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third party vessels. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges the Company’s vessels to effectively reduce such to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.
(2)These transactions relate to revenue earned in the spot market on voyages chartered through SSH, a related party.
(3)Related party expenditures included within voyage expenses in the consolidated statements of income or loss consist of the following:
•Expenses due to SCM, a related party, for commissions related to the commercial management services provided by SCM under the commercial management agreement for vessels that are not in one of the Scorpio Pools. SCM’s services include securing employment, in the spot market and on time charters, for our vessels. When not in one of the Scorpio Pools, each vessel pays (i) flat fees of $250 per day for LR1/Panamax and LR2/Aframax vessels
and $300 per day for Handymax and MR vessels and (ii) commissions of 1.25% of their gross revenue per charter fixture. These expenses are included in voyage expenses in the consolidated statements of income or loss. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges the Company’s vessels to effectively reduce such to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.
•Bunkers of $2.6 million, $3.6 million, and $0.8 million were purchased from a related party bunker provider during the years ended December 31, 2021, 2020, and 2019, respectively. These bunkers were purchased when our vessels were operating in the spot market, outside of the Scorpio Pools. Approximately $1.4 million, $2.9 million, and $0.3 million, respectively, of these purchases were consumed during the spot market voyages, and the remaining unconsumed portion was considered a working capital contribution to the pool (see below for a description on the accounting for working capital contributions to the Scorpio Pools) when the vessels re-joined the pools during the years ended December 31, 2021 and 2020, respectively.
•Voyage expenses of $19,175, $4,925 and $4,357 charged by a related party port agent during the years ended December 31, 2021, 2020. and 2019 respectively. SSH has a majority equity interest in a port agent that provides supply and logistical services for vessels operating in its regions.
(4)Related party expenditures included within vessel operating costs in the consolidated statements of income or loss consist of the following:
•Technical management fees of $32.7 million, $31.9 million, and $30.0 million charged by SSM, a related party, during the years ended December 31, 2021, 2020 and 2019 respectively. SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants, and providing technical support. SSM administers the payment of salaries to our crew on our behalf. The crew wages that were administered by SSM (and disbursed through related party subcontractors of SSM) were $152.0 million, $146.0 million, and $138.9 million during the years ended December 31, 2021, 2020, and 2019 respectively. SSM's annual technical management fee is a fixed fee of $175,000 per vessel plus certain itemized expenses pursuant to the technical management agreement.
•Vessel operating expenses of $2.7 million, $2.0 million, and $1.7 million charged by a related party port agent during the years ended December 31, 2021, 2020 and 2019, respectively. SSH has a majority equity interest in a port agent that provides supply and logistical services for vessels operating in its regions.
(5)We have an Amended Administrative Services Agreement with SSH for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH also administers the payroll for certain of our employees. SSH is a related party to us. The services provided to us by SSH may be sub-contracted to other entities within Scorpio. The expenses incurred under this agreement were recorded in general and administrative expenses in the consolidated statement of income or loss and were as follows:
•The expense for the year ended December 31, 2021 of $13.6 million included (i) administrative fees of $12.2 million charged by SSH, (ii) restricted stock amortization of $1.3 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash consideration pursuant to the 2013 Equity Incentive Plan, and (iii) the reimbursement of expenses of $51,962 to SSH and $14,726 to SCM.
•The expense for the year ended December 31, 2020 of $13.9 million included (i) administrative fees of $12.6 million charged by SSH, (ii) restricted stock amortization of $1.2 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $19,772 to SSH and $45,539 to SCM.
•The expense for the year ended December 31, 2019 of $13.0 million included (i) administrative fees of $11.4 million charged by SSH, (ii) restricted stock amortization of $1.1 million, which relates to the issuance of an
aggregate of 221,900 shares of restricted stock to SSH employees for no cash consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $0.2 million to SSH and $0.2 million to SCM.
We had the following balances with related parties, which have been included in the consolidated balance sheets:
| | | | | | | | | | | |
| As of December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Assets: | | | |
Accounts receivable (due from the Scorpio Pools) (1) | $ 36,216 | | $ 26,413 |
Accounts receivable and prepaid expenses (SSM) (2) | 3,426 | | 4,259 |
Other assets (pool working capital contributions) (3) | 73,161 | | 73,161 |
| Liabilities: | | | |
| Accounts payable and accrued expenses (SSM) | 9,844 | | 935 |
| Accounts payable and accrued expenses (owed to the Scorpio Pools) | 2,548 | | 945 |
| Accounts payable and accrued expenses (SSH) | 1,888 | | 404 |
| Accounts payable and accrued expenses (related party port agent) | 674 | | 355 |
| Accounts payable and accrued expenses (SCM) | 25 | | 58 |
(1)Accounts receivable due from the Scorpio Pools relate to hire receivables for revenues earned and receivables from working capital contributions. The amounts as of December 31, 2020 included $1.1 million of working capital contributions made on behalf of our vessels to the Scorpio Pools. Upon entrance into such pools, all vessels are required to make working capital contributions of both cash and bunkers. Additional working capital contributions can be made from time to time based on the operating needs of the pools. These amounts are accounted for and repaid as follows:
•For vessels in the Scorpio LR2 Pool, Scorpio LR1 Pool, Scorpio MR Pool and Scorpio Handymax Tanker Pool, the initial contribution amount is repaid, without interest, upon a vessel’s exit from the pool no later than six months after the exit date. Bunkers on board a vessel exiting the pool are credited against such repayment at the actual invoice price of the bunkers. For all owned or lease financed vessels we assume that these contributions will not be repaid within 12 months and are thus classified as non-current within other assets on the consolidated balance sheets.
•For time or bareboat chartered-in vessels we classify the initial contributions as current (within accounts receivable) or non-current (within other assets) according to the expiration of the contract. Any additional working capital contributions are repaid when sufficient net revenues become available to cover such amounts.
(2) Accounts receivable and prepaid expenses from SSM primarily relate to advances made for vessel operating expenses (such as crew wages) that will either be reimbursed or applied against future costs.
(3) Represents the non-current portion of working capital receivables as described above.
Private Placement
In September 2019, we closed on a private placement with SSH for $15.0 million, in exchange for an aggregate of 517,241 of our common shares at $29.00 per share, as described in Note 14.
Other transactions
Starting in October 2019, we provided guarantees in respect of the payment obligations of a related party bunker provider (who is engaged in the procurement of bunkers on behalf of the Company and the Scorpio Pools) toward its physical suppliers. These guarantee agreements expired during the year ended December 31, 2021 and no amounts were paid to this provider under these guarantees during the years ended December 31, 2021 and 2020.
As described in Note 8, in August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel MR methanol tankers (built between 2016 and 2021) along with four ice class 1A LR1 product tankers. Two of the LR1 tankers that are part of this joint venture are commercially and technically managed by SCM and SSM, respectively.
Key management remuneration
The table below shows key management remuneration for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 | | 2019 |
| Short-term employee benefits (salaries) | $ 5,488 | | $ 10,989 | | $ 10,821 |
Share-based compensation (1) | 17,476 | | 22,217 | | 21,712 |
| Total | $ 22,964 | | $ 33,206 | | $ 32,533 |
(1)Represents the amortization of restricted stock issued under our 2013 Equity Incentive Plan as described in Note 14.
For the purpose of the table above, key management are those persons who have authority and responsibility for making strategic decisions, and managing operating, financial and legal activities.
We have entered into employment agreements with the majority of our executives. These employment agreements remain in effect until terminated in accordance with their terms upon not less than between 24 months' and 36 months' prior written notice, depending on the terms of the employment agreement applicable to each executive. Pursuant to the terms of their respective employment agreements, our executives are prohibited from disclosing or unlawfully using any of our material confidential information.
Upon a change in control of us, the annual bonus provided under the employment agreement becomes a fixed bonus of between 150% and 250% of the executive’s base salary, and the executive may receive an assurance bonus equal to the fixed bonus, depending on the terms of the employment agreement applicable to each executive.
Any such executive may be entitled to receive upon termination an assurance bonus equal to such fixed bonus and an immediate lump-sum payment in an amount equal to three times the sum of the executive’s then current base salary and the assurance bonus, and he will continue to receive all salary, compensation payments and benefits, including additional bonus payments, otherwise due to him, to the extent permitted by applicable law, for the remaining balance of his then-existing employment period. If an executive’s employment is terminated for cause or voluntarily by the employee, he shall not be entitled to any salary, benefits or reimbursements beyond those accrued through the date of his termination, unless he voluntarily terminated his employment in connection with certain conditions. Those conditions include a change in control combined with a significant geographic relocation of his office, a material diminution of his duties and responsibilities, and other conditions identified in the employment agreement.
There are no material post-employment benefits for our executive officers or directors. By law, our employees in Monaco are entitled to a one-time payment of up to two months salary upon retirement if they meet certain minimum service requirements.
16. Vessel revenue
During the years ended December 31 2019, we had five vessels that earned revenue through long-term time-charter contracts (with initial terms of one year or greater), respectively. There were no vessels that earned revenue through long-term time-charter contracts during the years ended December 31, 2021 and 2020. The remaining vessels earned revenue from the Scorpio Pools or in the spot market. The following table sets forth our revenue, by employment type, for these periods:
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 | | 2019 |
| Pool revenue | $ 534,982 | | $ 902,796 | | $ 691,886 |
| Time charter revenue | — | | — | | 2,551 |
| Voyage revenue (spot market) | 5,804 | | 13,096 | | 9,888 |
| | $ 540,786 | | $ 915,892 | | $ 704,325 |
IFRS 16 Lease Revenue
In accordance with IFRS 16 - Leases, we are required to identify the lease and non-lease components of revenue and account for each component in accordance with the applicable accounting standard. In time charter-out or pool arrangements, we have determined that the lease component is the vessel and the non-lease component is the technical management services provided to operate the vessel. Each component is quantified on the basis of the relative stand-alone price of each lease component and on the aggregate stand-alone price of the non-lease components.
These components will be accounted for as follows:
•All fixed lease revenue earned under these time charter-out arrangements is recognized on a straight-line basis over the term of the lease.
•Lease revenue earned under our pool arrangements is recognized as it is earned, since it is 100% variable.
•The non-lease component is accounted for as services revenue under IFRS 15. This revenue is recognized “over time” as the customer (i.e. the pool or the charterer) is simultaneously receiving and consuming the benefits of the service.
The following table summarizes the lease and non-lease components of revenue from time charter-out and pool revenue during the years ended December 31, 2021, 2020 and 2019. These figures are not readily quantifiable as the Company's contracts (with the Scorpio pools or under time charter-out arrangements) do not separate these components. The Company does not view its pool and time charter-out revenue as two separate streams of revenue. Nevertheless, we have estimated these amounts by reference to (i) third party, published time charter rates for the lease component, and (ii) an approximation of the fair market value of vessel operating expenses for the non-lease component.
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | | 2021 | | 2020 | | 2019 |
| Lease component of revenue from time charter-out and pool revenue | | $ 280,633 | | $ 548,988 | | $ 428,781 |
| Non-lease component of revenue from time charter-out and pool revenue | | 254,349 | | 353,808 | | 265,656 |
| | $ 534,982 | | $ 902,796 | | $ 694,437 |
The following table summarizes the terms of our time chartered-out vessels that were in place during the years ended December 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Year built | | Type | | Delivery Date to the Charterer | | Charter Expiration | | Rate ($/ day) | |
| 1 | STI Pimlico | | 2014 | | Handymax | | February-16 | | March-19 | | $ 18,000 | |
| 2 | STI Poplar | | 2014 | | Handymax | | January-16 | | February-19 | | $ 18,000 | |
| 3 | STI Rose | | 2015 | | LR2 | | February-16 | | February-19 | | $ 28,000 | |
Payments received include payments for the non-lease elements in these time chartered-out arrangements.
17. Crewing costs
The following table sets forth the components of our crew expenses, including crew benefits, during the years ended December 31, 2021, 2020 and 2019, respectively.
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of US dollars | | 2021 | | 2020 | | 2019 |
| Short term crew benefits (i.e. wages, victualing, insurance) | | 171,546 | | 173,912 | | 155,958 |
| Other crewing related costs | | 26,311 | | 24,375 | | 20,728 |
| | $ 197,857 | | $ 198,287 | | $ 176,686 |
There are no material post-employment benefits for our crew.
18. General and administrative expenses
General and administrative expenses primarily represent employee benefit expenses, professional fees and administrative fees payable to SSH under our administrative services agreement (as described in Note 15).
Employee benefit expenses (excluding crew) consist of:
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 | | 2019 |
| Short term employee benefits (salaries) | $ 10,841 | | $ 18,099 | | $ 16,776 |
| Share based compensation (see Note 14) | 22,931 | | 28,506 | | 27,421 |
| | $ 33,772 | | $ 46,605 | | $ 44,197 |
There are no material post-employment benefits for our executive officers or directors. By law, our employees in Monaco are entitled to a one-time payment of up to two months salary upon retirement if they meet certain minimum service requirements.
19. Financial expenses
The following table sets forth the components of our financial expenses for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 | | 2019 |
Interest expense on debt, net of capitalized interest (1) | $ 115,983 | | $ 132,423 | | $ 162,738 |
| Accretion of convertible notes (as described in Note 12) | 13,265 | | 8,413 | | 11,375 |
| Amortization of deferred financing fees | 7,570 | | 6,657 | | 7,041 |
Loss on extinguishment of debt and write-off of deferred financing fees (2) | 3,604 | | 4,056 | | 1,466 |
Accretion of premiums and discounts on debt(3) | 3,682 | | 3,422 | | 3,615 |
| Total financial expenses | $ 144,104 | | $ 154,971 | | $ 186,235 |
(1) The decrease in interest expense, net of capitalized interest during the year ended December 31, 2021 is primarily attributable to lower average LIBOR rates compared to the year ended December 31, 2020. As a result of the onset of the COVID-19 pandemic in March 2020, LIBOR rates decreased significantly during the year ended December 31, 2020. Given the timing of when interest rates are fixed on our variable rate borrowings, this decrease primarily impacted our interest expense in the second half of that year and throughout 2021. The average carrying value of our debt was relatively unchanged at $3.14 billion as of December 31, 2021 compared to $3.13 billion as of December 31, 2020.
The decrease in interest expense during the year ended December 31, 2020 is primarily attributable to lower LIBOR rates. As a result of the COVID-19 pandemic, LIBOR rates decreased significantly during the year ended December 31, 2020. Additionally, we were able to lower the weighted average margin on our variable rate debt through various refinancing initiatives commencing in the fourth quarter of 2019 and throughout 2020. The combination resulted in lower interest expense for the year ended December 31, 2020 compared to December 31, 2019 despite the increase in the average carrying value of our debt to $3.13 billion from $2.91 billion as of December 31, 2020 and 2019, respectively.
Interest payable during those periods was offset by interest capitalized of $0.2 million, $1.4 million and $2.8 million, during the years ended December 31, 2021, 2020, and 2019 respectively.
(2) The loss on extinguishment of debt and write-off of deferred financing fees during the year ended December 31, 2021 include (i) $3.0 million of write-offs of deferred financing fees related to the refinancing of existing indebtedness on certain vessels and (ii) $0.6 million of write-offs of the discounts related to the refinancing of existing indebtedness on certain vessels.
The loss on extinguishment of debt and write-off of deferred financing fees during the year ended December 31, 2020 include (i) $2.7 million of write-offs of deferred financing fees related to the refinancing of existing indebtedness on certain vessels, (ii) $2.0 million of cash prepayment fees, primarily from the CSSC Lease Financing (as described in Note 12), offset by (iii) $0.7 million of write-offs of the premium and discounts related to the refinancing of existing indebtedness on certain vessels.
The loss on extinguishment of debt and write-off of deferred financing fees during the year ended December 31, 2019 includes write-offs of deferred financing fees of (i) $1.2 million related to the refinancing of existing indebtedness on certain vessels, and (ii) $0.3 million related to the redemption of the Senior Notes Due 2019.
(3) The accretion of premiums and discounts primarily represents the accretion or amortization of the fair value adjustments relating to the indebtedness assumed as part of the 2017 acquisition of Navig8 Product Tankers Inc.
20. Tax
Scorpio Tankers Inc. and its vessel-owning or leasing subsidiaries are incorporated in either the Republic of the Marshall Islands or in Singapore. We are not subject to Marshall Islands’ income tax in accordance with the income tax laws of the Marshall Islands, and we are eligible for tax exemptions in accordance with the income tax laws of Singapore. Based upon review of applicable laws and regulations, and after consultation with counsel, we do not believe we are subject to material income taxes in any jurisdiction, including the United States of America. Therefore, we did not have any income tax charges, benefits, or balances as of or for the periods ended December 31, 2021, 2020 and 2019.
21. Earnings / (loss) per share
The calculation of both basic and diluted loss per share is based on net loss attributable to equity holders of the parent and weighted average outstanding shares of:
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| In thousands of U.S. dollars except for share data | 2021 | | 2020 | | 2019 |
| Net income / (loss) attributable to equity holders of the parent - basic | $ (234,434) | | $ 94,124 | | $ (48,490) |
| Convertible notes interest expense | — | | — | | — |
| Convertible notes deferred financing amortization | — | | — | | — |
| Net income / (loss) attributable to equity holders of the parent - diluted | $ (234,434) | | $ 94,124 | | $ (48,490) |
| | | | | |
| Basic weighted average number of shares | 54,718,709 | | 54,665,898 | | 49,857,998 |
| Effect of dilutive potential basic shares: | | | | | |
| Restricted stock | — | | 1,726,413 | | — |
| Convertible notes | — | | — | | — |
| — | | 1,726,413 | | — |
| Diluted weighted average number of shares | 54,718,709 | | 56,392,311 | | 49,857,998 |
| | | | | |
| Earnings / (Loss) Per Share: | | | | | |
| Basic | $ (4.28) | | $ 1.72 | | $ (0.97) |
| Diluted | $ (4.28) | | $ 1.67 | | $ (0.97) |
During the year ended December 31, 2021, we incurred a net loss and as a result, the inclusion of potentially dilutive shares relating to unvested shares of restricted stock and our Convertible Notes due 2022 and Convertible Notes due 2025 were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. Accordingly, interest expense, deferred financing amortization, and the potentially dilutive securities relating to the conversion of the Convertible Notes due 2022 and Convertible Notes due 2025 (representing 7,324,132 shares of common stock for the year ended December 31, 2021,) along with the potentially dilutive impact of 2,997,992 unvested shares of restricted stock were excluded from the computation of diluted loss per share for the year ended December 31, 2021.
During the year ended December 31, 2020, the inclusion of potentially dilutive shares relating to our Convertible Notes due 2022 (representing an aggregate of 4,004,702 shares of common stock) were excluded from the computation of diluted earnings per share because their effect under the if-converted method would have been anti-dilutive.
During the year ended December 31, 2019, the inclusion of potentially dilutive shares relating to unvested shares of restricted stock (representing 3,561,742 shares of common stock) and potentially dilutive shares relating to the conversion of the Convertible Notes due 2019 and Convertible Notes due 2022 (representing an aggregate of 5,238,105 shares of common stock) were excluded from the computation of diluted loss per share would have been anti-dilutive.
22. Financial instruments - financial and other risks
Funding and capital risk management
We manage our funding and capital resources to ensure our ability to continue as a going concern while maximizing the return to the shareholder through optimization of the debt and equity balance.
IFRS 13 requires classifications of fair value measures into Levels 1, 2 and 3. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair values and carrying values of our financial instruments at December 31, 2021 and 2020, respectively, are shown in the table below.
Categories of Financial Instruments
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 | | As of December 31, 2020 |
| Amounts in thousands of U.S. dollars | | Fair value | Carrying Value | | Fair value | Carrying Value |
| Financial assets | | | | | | |
Cash and cash equivalents (1) | | $ 230,415 | $ 230,415 | | $ 187,511 | $ 187,511 |
Restricted cash (2) | | 4,791 | 4,791 | | 5,293 | 5,293 |
Accounts receivable (3) | | 38,069 | 38,069 | | 33,017 | 33,017 |
Investment in BWTS (4) | | 1,751 | 1,751 | | 1,751 | 1,751 |
Working capital contributions to Scorpio Pools (5) | | 73,161 | 73,161 | | 73,161 | 73,161 |
Seller's credit on sale leaseback vessels (6) | | 10,793 | 10,793 | | 10,192 | 10,192 |
| | | | | | |
| Financial liabilities | | | | | | |
Accounts payable (7) | | $ 35,080 | $ 35,080 | | $ 12,863 | $ 12,863 |
Accrued expenses (7) | | 24,906 | 24,906 | | 32,193 | 32,193 |
Secured bank loans (8) | | 566,310 | 566,310 | | 976,505 | 976,505 |
Sale and leaseback liability (9) | | 1,648,993 | 1,639,991 | | 1,290,390 | 1,271,449 |
IFRS 16 - lease liability (10) | | 575,834 | 575,377 | | 634,707 | 632,473 |
Unsecured Senior Notes Due 2025 (11) | | 69,366 | 70,209 | | 28,774 | 28,100 |
Convertible Notes due 2022 (12) | | 69,059 | 69,695 | | 145,647 | 151,229 |
Convertible Notes due 2025 (12) | | 195,438 | 208,133 | | — | — |
(1) Cash and cash equivalents are considered Level 1 items as they represent liquid assets with short-term maturities.
(2) Restricted cash are considered Level 1 items due to the liquid nature of these assets.
(3) We consider that the carrying amount of accounts receivable approximate their fair value due to the relative short maturity of these instruments.
(4) We consider the fair value of our minority interest in our BWTS supplier (as described in Note 8) to be a Level 3 fair value measurement, as this supplier is a private company and the value has been determined based on unobservable market data (i.e. the proceeds that we would receive if we exercised the put option set forth in the agreement in full). Moreover, we consider that its carrying value approximates fair value given that the value of this investment is contractually limited to the strike prices set forth in the put and call options prescribed in the agreement and the difference between the two prices is not significant. The difference in the aggregate value of the investment, based on the spread between the exercise prices of the put and call options is $0.6 million.
(5) Non-current working capital contributions to the Scorpio Pools are repaid, without interest, upon a vessel’s exit from the pool. For all owned vessels, we assume that these contributions will not be repaid within 12 months and are thus classified as non-current within Other Assets on the consolidated balance sheets. We consider that their carrying values approximate fair value given that the amounts due are contractually fixed based on the terms of each pool agreement.
(6) The seller's credit on lease financed vessels represents the present value of the deposits of $4.35 million per vessel ($13.1 million in aggregate) that was retained by the buyer as part of the sale and operating leasebacks of STI Beryl, STI Le Rocher and STI Larvotto. This deposit will either be applied to the purchase price of the vessel if a purchase option is exercised or refunded to us at the expiration of the agreement. This deposit has been recorded as a financial asset measured at amortized cost. The present value of this deposit has been calculated based on the interest rate that is implied in the lease, and the carrying value will accrete over the life of the lease using the effective interest method, through interest income, until expiration. We consider that its carrying value approximates fair value given that its value is contractually fixed based on the terms of each lease.
(7) We consider that the carrying amounts of accounts payable and accrued expenses approximate the fair value due to the relative short maturity of these instruments.
(8) The carrying value of our secured bank loans are measured at amortized cost using the effective interest method. We consider that their carrying value approximates fair value because the interest rates on these instruments change with, or approximate, market interest rates and the credit risk of the Company has remained stable. Accordingly, we consider their fair value to be a Level 2 measurement. These amounts are shown net of $6.4 million and $12.3 million of unamortized deferred financing fees as of December 31, 2021 and 2020, respectively.
(9) The carrying value of our obligations due under sale and leaseback arrangements are measured at amortized cost using the effective interest method. With the exception of three fixed rate sale and leaseback arrangements, we consider that their carrying value approximates fair value because the interest rates on these instruments change with, or approximate, market interest rates and the credit risk of the Company has remained stable. The fair value of leases with fixed payments are measured at the net discounted value of the remaining minimum lease payments using our incremental borrowing rate at December 31, 2021. Accordingly, we consider their fair value to be a Level 2 measurement. These amounts are shown net of $13.1 million and $8.7 million of unamortized deferred financing fees as of December 31, 2021 and 2020, respectively.
(10) The carrying value of our lease obligations that are being accounted for under IFRS 16 are measured at the present value of the minimum lease payments under each contract. These leases are mainly comprised of the leases acquired as part of the Trafigura Transaction. We consider that their carrying value approximates fair value because the interest rates on these leases change with, or approximate, market interest rates and the credit risk of the Company has remained stable. The fair value of leases with fixed payments are measured at the net discounted value of the remaining minimum lease payments using our incremental borrowing rate at December 31, 2021 and 2020. Accordingly, we consider their fair value to be a Level 2 measurement.
(11) The carrying value of our Senior Notes Due 2025 is measured at amortized cost using the effective interest method. The carrying value of our Senior Notes Due 2025 shown in the table above is their face value. The Senior Notes due 2025 are shown net of $2.3 million of deferred financing fees and $0.2 million of unamortized discount on our consolidated balance sheet as of December 31, 2021. The Senior Notes due 2025 are shown net of $1.4 million of unamortized deferred financing fees on our consolidated balance sheet as of December 31, 2020. Our Senior Notes Due 2025 are quoted on the NYSE under the symbol 'SBBA'. We consider their fair value to be a Level 1 measurement due to their quotation on an active exchange.
(12) The carrying values of our Convertible Notes due 2022 and 2025 shown in the table above are their face value. The liability components of the Convertible Notes due 2022 and 2025 have been recorded within Long-term debt on the consolidated balance sheet as of December 31, 2021. The equity components of the Convertible Notes due 2022 and 2025 have been recorded within Additional paid-in capital on the consolidated balance sheet as of December 31, 2021. These instruments are quoted in inactive markets and are valued based on their quoted prices on the recent trading activity. Accordingly, we consider their fair value to be a Level 2 measurement.
Financial risk management objectives
We identify and evaluate significant risks on an ongoing basis with the objective of managing the sensitivity of our results and financial position to those risks. These risks include market risk, credit risk, liquidity risk and foreign exchange risk.
The use of financial derivatives is governed by our policies as approved by the Board of Directors.
Market risk
Our activities expose us to the risks inherent with the tanker industry, which has historically been volatile, and financial risks of changes in interest rates.
Spot market rate risk
The cyclical nature of the tanker industry causes significant increases or decreases in the revenue that we earn from our vessels, particularly those vessels that operate in the spot market or participate in pools that are concentrated in the spot market such as the Scorpio Pools. Additionally, we have the ability to remove our vessels from the pools on relatively short notice if attractive time charter opportunities arise. A $1,000 per day increase or decrease in spot rates for all of our vessel classes would have increased or decreased our operating income by $46.9 million, $46.2 million and $41.7 million for the years ended December 31, 2021, 2020, and 2019, respectively.
Interest rate risk
The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the balance sheet date.
If interest rates had been 1% higher/lower and all other variables were held constant, our net loss for the year ended December 31, 2021 would have decreased/increased by $26.5 million. This is mainly attributable to our exposure to interest rate movements on our variable interest rate credit facilities, lease financing arrangements and leases being accounted for under IFRS 16 as described in Notes 6 and 12.
If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year ended December 31, 2020 would have decreased/increased by $26.7 million. This is mainly attributable to our exposure to interest rate movements on our variable interest rate credit facilities, lease financing arrangements and leases being accounted for under IFRS 16 as described in Notes 6 and 12.
If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year ended December 31, 2019 would have decreased/increased by $23.1 million. This is mainly attributable to our exposure to interest rate movements on our variable interest rate credit facilities and lease financing arrangements that were in place during that year.
Credit risk
Credit risk is the potential exposure of loss in the event of non-performance by customers and derivative instrument counterparties.
We only place cash deposits with major banks covered with strong and acceptable credit ratings.
Accounts receivable are generally not collateralized; however, we believe that the credit risk is partially offset by the creditworthiness of our counterparties including the commercial manager. We did not experience any credit losses on our accounts receivables portfolio in the years ended December 31, 2021, 2020, and 2019.
The carrying amount of financial assets recognized on our consolidated financial statements represents the maximum exposure to credit risk without taking into account the value of any collateral obtained. We did not experience any impairment losses on financial assets in the years ended December 31, 2021, 2020, and 2019.
We monitor exposure to credit risk, and believe that there is no substantial credit risk arising from counterparties.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. We manage liquidity risk by maintaining adequate reserves and borrowing facilities and by continuously monitoring forecast and actual cash flows. Liquidity risks can manifest themselves when economic conditions deteriorate or when we have significant maturities of our financial instruments.
Financing risks
As of December 31, 2021, the financings for four vessels under our Citibank / K-Sure Credit Facility for $76.8 million in aggregate and the financing for one vessel under our Credit Agricole Credit Facility for $16.5 million are scheduled to mature within 2022. Additionally, the financings for three vessels under our Credit Agricole Credit Facility for $49.1 million in aggregate are scheduled to mature during the first quarter of 2023. As described in Note 23, in January 2022, we entered into agreements to sell all of these vessels within 12 months from the date of these financial statements.
Furthermore, our Convertible Notes Due 2022 are scheduled to mature in May 2022 for $69.7 million in aggregate principal amount, and one vessel under our 2021 $21.0 Million Credit Facility for $17.5 million is scheduled to mature in December 2022.
While we believe our current financial position, after taking into consideration the pending vessel sales, is adequate to address these cash outflows, a deterioration in economic conditions could cause us to breach the covenants under our financing arrangements and could have a material adverse effect on our business, results of operations, cash flows and financial condition. These circumstances could cause us to seek covenant waivers from our lenders and to pursue other means to raise liquidity, such as through the sale of vessels or in the capital markets, to meet our obligations.
Economic conditions and COVID-19 risks
Initially, the onset of the COVID-19 pandemic in March 2020 resulted in a sharp reduction in economic activity and a corresponding reduction in the global demand for oil and refined petroleum products. This period of time was marked by extreme volatility in the oil markets and the development of a steep contango in the prices of oil and refined petroleum products. Consequently, an abundance of arbitrage and floating storage opportunities opened up, which resulted in record increases in spot TCE rates late in the first quarter of 2020 and throughout the second quarter of 2020. These market dynamics, which were driven by arbitrage trading rather than underlying consumption, led to a build-up of global oil and refined petroleum product inventories. In June 2020, as underlying oil markets stabilized and global economies began to recover, the excess inventories that built up during this period began to slowly unwind thus causing demand for the seaborne transportation of refined petroleum products to decline.
These market conditions, coupled with underlying oil consumption that has yet to reach pre-pandemic levels, had an adverse impact on spot TCE rates throughout 2021. These conditions were exacerbated by the emergence of more contagious, vaccine resistant variants of the virus. Nevertheless, the easing of restrictive measures and successful roll-out of vaccines in most countries throughout the world during 2021 has served as a catalyst for a global economic recovery. Consequently, oil prices continue to push upward on the back of steadily increasing consumption, recently reaching highs not seen since 2014, and existing inventories of refined petroleum products have fallen below multi-year averages. Though these dynamics have set the stage for a long-term recovery, spot TCE rates remained subdued during 2021 as demand failed to exceed pre-pandemic levels.
We expect that the COVID-19 pandemic will continue to cause volatility in the commodities markets. The scale and duration of these circumstances is unknowable but could continue to have a material adverse impact on our earnings, cash flow and financial condition. As described in Note 23, in January and March 2022, we entered into agreements to sell 15 vessels in aggregate, which we expect will raise additional liquidity of approximately $196.6 million after the repayment of debt and payment of estimated selling costs as a result of these transactions.
We currently project that we will have adequate financial resources to continue in operation and meet our financial commitments (including but not limited to debt service obligations, obligations under sale and leaseback arrangements, commitments under other leasing arrangements, and commitments under our scrubber and BWTS contracts) for a period of at least 12 months from the date of approval of these consolidated financial statements.
Accordingly, we continue to adopt the going concern basis in preparing our financial statements.
A protracted extension of the adverse market conditions brought on by the COVID-19 pandemic could cause us to breach the covenants under our financing arrangements and could have a material adverse effect on our business, results of operations, cash flows and financial condition. These circumstances could cause us to seek covenant waivers from our lenders and to pursue other means to raise liquidity, such as through the sale of vessels or in the capital markets, to meet our obligations.
Remaining contractual maturity on secured and unsecured credit facilities, finance lease liabilities and IFRS-16 lease liabilities
The following table details our remaining contractual maturity for our secured and unsecured credit facilities, lease financing and IFRS-16 lease liabilities. The amounts represent the future undiscounted cash flows of the financial liability based on the earliest date on which we can be required to pay. The table includes both interest and principal cash flows.
As the interest cash flows are not fixed, the interest amount included has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date.
| | | | | | | | | | | |
| | As of December 31, |
| In thousands of U.S. dollars | 2021 | | 2020 |
| Less than 1 month | $ 20,172 | | $ 34,615 |
| 1-3 months | 98,407 | | 109,849 |
| 3 months to 1 year | 477,055 | | 328,880 |
| 1-3 years | 914,599 | | 1,158,802 |
| 3-5 years | 1,359,473 | | 969,016 |
| 5+ years | 880,531 | | 942,670 |
| Total | $ 3,750,237 | | $ 3,543,832 |
All other current liabilities fall due within less than one month.
Foreign Exchange Rate Risk
Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional currency. Consequently, virtually all of our revenues and the majority of our operating expenses are in U.S. Dollars. However, we incur some of our combined expenses in other currencies, particularly the Euro. The amount and frequency of some of these expenses (such as vessel repairs, supplies and stores) may fluctuate from period to period. Depreciation in the value of the U.S. dollar relative to other currencies will increase the U.S. dollar cost of us paying such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations.
There is a risk that currency fluctuations will have a negative effect on our cash flows. We have not entered into any hedging contracts to protect against currency fluctuations. However, we have some ability to shift the purchase of goods and services from one country to another and, thus, from one currency to another, on relatively short notice. We may seek to hedge this currency fluctuation risk in the future.
23. Subsequent events
Vessels Sales
In January 2022, we entered into agreements to sell two MRs (2013 built STI Fontvieille and 2019 built STI Majestic) and 12 LR1s. The sales prices of STI Fontvieille, STI Majestic, and the 12 LR1s are $23.5 million, $34.9 million, and $413.8 million, respectively. We expect to record an aggregate loss of approximately $48.0 million during the first quarter of 2022 relating to these sales.
In February 2022, we exercised the option to repurchase STI Fontvieille and repaid $17.2 million on our AVIC Lease Financing in advance of the sale of the vessel, which closed shortly thereafter.
In March 2022, we closed on the sales of the six LR1 vessels, STI Excelsior, STI Executive, STI Excellence, STI Pride, STI Providence and STI Prestige, and we repaid $18.4 million on our Credit Agricole Credit Facility, $39.5 million on our Citibank / K-Sure Credit Facility, $38.7 million on our 2020 $225.0 Million Credit Facility and $21.2 million on our 2021 $43.6 Million Credit Facility as a result of these transactions.
In March 2022 we entered into an agreement to sell an MR product tanker (STI Benicia) for $26.5 million. This sale is expected to close in the second quarter of 2022. Scorpio Services Holding Limited ("SSH"), a related party, owns a non-controlling 7.5% interest in the buyer of STI Benicia. We expect to record a loss of approximately $5.3 million during the first quarter of 2022 as a result of this agreement.
Debt
In March 2022, we drew down $3.4 million from our BNPP Sinosure Credit Facility to partially finance the scrubber installations on two LR1 product tankers.
Declaration of Dividend
On February 11, 2022, our Board of Directors declared a quarterly cash dividend of $0.10 per common share, which was paid on March 15, 2022 to all shareholders of record as of March 2, 2022.
Convertible Notes due 2022 and 2025
On March 2, 2022, the conversion rates of the Convertible Notes Due 2022 and Convertible Notes Due 2025, were adjusted to reflect the payment of a cash dividend on March 15, 2022 to all shareholders of record as of March 2, 2022. The new conversion rates for the Convertible Notes due 2022 and 2025 will be 27.3142 of the Company's common shares representing an increase of the prior conversion rates of 0.1571 for each $1,000 principal amount of the Convertible Notes due 2022 and 2025.
At the Market Offering Program
In January 2021, we entered into a note distribution agreement, or the Distribution Agreement, with B. Riley Securities, Inc., as sales agent, or the Agent, under which we may offer and sell, from time to time, up to an additional $75.0 million aggregate principal amount of our 7.00% Senior Notes due 2025, or the Additional Notes. Since January 1, 2022 and through the date of this report, we issued $0.4 million ) aggregate principal amount of additional Senior Notes Due 2025 for aggregate net proceeds (net of sales agent commissions and offering expenses) of $0.4 million. There is $32.5 million of remaining availability under this program as of date of this report.
Conflict in Ukraine
The recent military conflict in Ukraine has had a significant direct and indirect impact on the trade of refined petroleum products. This conflict has resulted in the United States, United Kingdom, and the European Union, among other countries, implementing sanctions and executive orders against citizens, entities, and activities connected to Russia. Some of these sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil from Russia to the United States or the United Kingdom. We cannot foresee what other sanctions or executive orders may arise that affect the trade of petroleum products. Furthermore, the conflict and ensuing international response has disrupted the supply of Russian oil to the global market, and as a result, the price of oil and petroleum products has risen significantly. We cannot predict what effect the higher price of oil and petroleum products will have on demand, and it is possible that the current conflict in Ukraine could adversely affect our financial condition, results of operations, cash flows, financial position and future performance.
