Company Quick10K Filing
Navigator Holdings
20-F 2019-12-31 Filed 2020-05-11
20-F 2018-12-31 Filed 2019-04-01
20-F 2017-12-31 Filed 2018-03-05
20-F 2016-12-31 Filed 2017-03-01
20-F 2015-12-31 Filed 2016-03-03
20-F 2013-12-31 Filed 2014-03-17

NVGS 20F Annual Report

Item 17
Item 18
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-8.1 d891368dex81.htm
EX-12.1 d891368dex121.htm
EX-12.2 d891368dex122.htm
EX-13.1 d891368dex131.htm
EX-13.2 d891368dex132.htm
EX-15.1 d891368dex151.htm
EX-15.2 d891368dex152.htm

Navigator Holdings Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

20-F
0.010.01P5YP6YThe 2018 Bonds bear interest at a rate of 3-month NIBOR plus 6.0% per annum, calculated on a 360-day year basis and mature on November 2, 2023.estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, including ongoing time charters, as of December 31, 2019. ASU 2014-09 requires disclosure based on time bands that would be the most appropriate for the duration of the remaining performance obligations. The company uses one year time bands for contracts with up to two years in remaining duration, then up to and more than five years thereafter. Interest is payable quarterly in arrears on February 2, May 2, August 2 and November 2. The Company may redeem the 2018 Bonds, in whole or in part, at any time beginning on or after November 2, 2021. Any 2018 Bonds redeemed from November 2, 2021 until November 1, 2022, are redeemable at 102.4% of par, from November 2, 2022 until May 1, 2023, are redeemable at 101.5% of par, and from May 2, 2023 to the maturity date are redeemable at 100% of par, in each case, in cash plus accrued interest. The Company may redeem the 2017 Bonds, in whole or in part, at any time beginning on or after February 11, 2019. Any 2017 Bonds redeemed from February 11, 2019 up until February 10, 2020, are redeemable at 103.875% of par, from February 11, 2020 to August 10, 2020, are redeemable at 101.9375% of par, and from August 11, 2020 to the maturity date are redeemable at 100% of par, in each case, plus accrued interest.The financial covenants each as defined within the bond agreement are: (a) The issuer shall ensure that the Group (meaning “the Company and its subsidiaries”) maintains a minimum liquidity of no less than $25.0 million and (b) maintain a Group equity ratio of at least 30% (as defined in the 2018 Bond Agreement). As of December 31, 2019, the Company was in compliance with all covenants for the 2018 Bonds. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 2.5:1; and c) maintain a ratio of total stockholders' equity to total assets of not less than 30%The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders' equity to total assets of not less than 30%.P3YP3YP3YP10M2025-032022-122023-12the Company entered into a bareboat charter for the vessel for a period of up to 13 years, with purchase options at years 5, 7 and 10falseFYNYSEGBGB1TNavigator Holdings Ltd.0001581804--12-31P5YVoyage Charter revenues: Voyage charter revenues, which include revenues from contracts of affreightment, are shown net of address commissions.Includes amounts relating to the Navigator Aurora Facility held within a lessor entity (for which legal ownership resides with financial institutions) that we are required to consolidate under U.S. GAAP into our financial statements as a variable interest entity (Please read Note 9 (Variable Interest Entities) to our consolidated financial statements. 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nvgs:Vessels
Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM
 20-F
 
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, 2019
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:
001-36202
 
NAVIGATOR HOLDINGS LTD.
(Exact Name of Registrant as Specified in Its Charter)
 
Republic of the Marshall Islands
(Jurisdiction of Incorporation or Organization)
c/o NGT Services (UK) Ltd
10 Bressenden Place
London, SW1E 5DH, United Kingdom
Telephone: +44 20 7340 4850
(Address of Principal Executive Offices)
Niall Nolan
Chief Financial Officer
10 Bressenden Place
London, SW1E 5DH, United Kingdom
Telephone: +44 20 7340 4850
Facsimile: +44 20 7340 4858
(Name, Telephone,
E-mail
and/or Facsimile Number 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
 
NVGS
 
New York Stock Exchange
 
 
 
 
 
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
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.
55,826,644 Shares of Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  
    No  
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.    Yes  
    No  
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.    Yes  
    No  
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
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
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  
    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 which basis of accounting the registrant has used to prepare the financial statements included in this filing:
         
U.S. GAAP  
 
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.
Item 17  
                 Item 18  
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).    Yes  
    No  
 
 

Table of Contents
NAVIGATOR HOLDINGS LTD.
INDEX TO REPORT ON FORM
20-F
             
 
 
1
 
Item 1.
 
 
 
1
 
Item 2.
 
 
 
1
 
Item 3.
 
 
 
1
 
A.
 
 
 
1
 
B.
 
 
 
4
 
C.
 
 
 
4
 
D.
 
 
 
4
 
Item 4.
 
 
 
31
 
A.
 
 
 
31
 
B.
 
 
 
32
 
C.
 
 
 
59
 
D.
 
 
 
59
 
Item 4A.
 
 
 
60
 
Item 5.
 
 
 
60
 
A.
 
 
 
60
 
B.
 
 
 
73
 
C.
 
 
 
84
 
D.
 
 
 
84
 
E.
 
 
 
85
 
F.
 
 
 
85
 
G.
 
 
 
86
 
 
 
 
86
 
Item 6.
 
 
 
92
 
A.
 
 
 
92
 
B.
 
 
 
95
 
C.
 
 
 
98
 
D.
 
 
 
99
 
E.
 
 
 
99
 
Item 7.
 
 
 
99
 
A.
 
 
 
99
 
B.
 
 
 
100
 
C.
 
 
 
101
 
Item 8.
 
 
 
101
 
A.
 
 
 
101
 
B.
 
 
 
101
 
Item 9.
 
 
 
102
 
A.
 
 
 
102
 
B.
 
 
 
102
 
C.
 
 
 
102
 
Item 10.
 
 
 
102
 
A.
 
 
 
102
 
B.
 
 
 
102
 
C.
 
 
 
102
 
D.
 
 
 
104
 
E.
 
 
 
104
 
F.
 
 
 
110
 
G.
 
 
 
110
 
i

Table of Contents
             
H.
 
 
 
110
 
I.
 
 
 
110
 
Item 11.
 
 
 
110
 
Item 12.
 
 
 
111
 
 
 
112
 
Item 13.
 
 
 
112
 
Item 14.
 
 
 
112
 
Item 15.
 
 
 
112
 
Item 16A.
 
 
 
113
 
B.
 
 
 
113
 
C.
 
 
 
113
 
D.
 
 
 
114
 
E.
 
 
 
114
 
F.
 
 
 
114
 
G.
 
 
 
114
 
H.
 
 
 
115
 
 
 
116
 
Item 17.
 
 
 
116
 
Item 18.
 
 
 
116
 
Item 19.
 
 
 
116
 
Presentation of Information in this Annual Report
This annual report on Form
20-F
for the year ended December 31, 2019, or this “annual report,” should be read in conjunction with our consolidated financial statements and notes thereto included in this annual report. Unless the context otherwise requires all references in this annual report to “Navigator Holdings,” “our,” “we,” “us” and the “Company” refer to Navigator Holdings Ltd., a Marshall Islands corporation. All references in this annual report to our wholly-owned subsidiary “Navigator Gas L.L.C.” refer to Navigator Gas L.L.C., a Marshall Islands limited liability company. As used in this annual report, unless the context indicates or otherwise requires, references to “our fleet” or “our vessels” include the 38 vessels we owned and operated as of December 31, 2019. As used in the annual report, “WLR Group” refers collectively to WL Ross & Co. LLC and certain of its affiliated investment funds owning shares of our common stock.
Cautionary Statement Regarding Forward Looking Statements
This annual report contains certain forward-looking statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto, including our financial forecast. In addition, we and our representatives may from time to time make other oral or written statements that are also forward-looking statements. Such statements include, in particular, statements about our plans, strategies, business prospects, changes and trends in our business and the markets in which we operate as described in this annual report. In some cases, you can identify the forward-looking statements by the use of words such as “may,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “forecast,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue,” “scheduled,” or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this annual report. These risks and uncertainties include, but are not limited to:
 
future operating or financial results;
 
pending acquisitions, business strategy and expected capital spending;
 
operating expenses, availability of crew, number of
off-hire
days, drydocking requirements and insurance costs;
ii

Table of Contents
 
fluctuations in currencies and interest rates;
 
 
general market conditions and shipping market trends, including charter rates and factors affecting supply and demand;
 
 
our ability to continue to comply with all our debt covenants;
 
 
our financial condition and liquidity, including our ability to refinance our indebtedness as it matures or obtain additional financing in the future to fund capital expenditures, acquisitions and other corporate activities;
 
 
estimated future capital expenditures needed to preserve our capital base;
 
 
our expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, or the useful lives of our vessels;
 
 
our continued ability to enter into long-term, fixed-rate time charters with our customers;
 
 
the availability and cost of low sulfur fuel oil compliant with the International Maritime Organization (“IMO”) sulfur emission limit reductions, generally referred to as “IMO 2020,” which took effect January 1, 2020;
 
 
our vessels engaging in ship to ship transfers of liquidified petroleum gas (“LPG”) or petrochemical cargoes which may ultimately be discharged in sanctioned areas or to sanctioned individuals without our knowledge. Three of our vessels were named in a March 2019 U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) Advisory to the Maritime Petroleum Shipping Community as ships that had engaged in such ship to ship transfers of cargoes that may have ultimately been destined for Syria;
 
 
global epidemics or other health crises such as the recent outbreak of coronavirus
COVID-19
(“Coronavirus”);
 
 
changes in governmental rules and regulations or actions taken by regulatory authorities;
 
 
potential liability from future litigation;
 
 
our expectations relating to the payment of dividends;
 
 
our expectation regarding providing
in-house
technical management for certain vessels in our fleet and our success in providing such
in-house
technical management;
 
 
our expectations regarding the completion of construction and financing of the ethylene export marine terminal at Morgan’s Point, Texas (the “Marine Export Terminal”) and the financial success of the Marine Export Terminal and our related 50/50 joint venture with Enterprise Products Partners L.P (the “Export Terminal Joint Venture”); and
 
 
other factors discussed in “Item 3—Key Information—Risk Factors” of this annual report.
 
All forward-looking statements included in this annual report are made only as of the date of this annual report. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement. We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the performance of our common stock.
iii

Table of Contents
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
 
A.
Selected Financial Data
The following table presents selected historical financial data for the years ended December 31, 2015, 2016, 2017, 2018 and 2019 which has been derived in part from our audited consolidated financial statements included elsewhere in this annual report, and should be read together with and qualified in its entirety by reference to such audited consolidated financial statements.
The following table should be read together with “Item 5—Operating and Financial Review and Prospects.”
                                         
 
Navigator Holdings
 
 
Year Ended December 31,
 
 
2015
 
 
2016
 
 
2017
 
 
2018
 
 
2019
 
 
(in thousands, except per share data, fleet data and
average daily results)
 
Income Statement Data:
 
 
 
 
 
 
 
   
 
 
Operating Revenue
  $
315,223
    $
294,112
    $
298,595
    $
310,046
    $
301,385
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brokerage commissions
   
6,995
     
5,812
     
5,368
     
5,142
     
4,938
 
Voyage expenses
   
33,687
     
42,201
     
55,542
     
61,634
     
55,310
 
Vessel operating expenses
   
78,842
     
90,854
     
100,968
     
106,719
     
111,475
 
Depreciation and amortization
   
53,453
     
62,280
     
73,588
     
76,140
     
76,173
 
General and administrative costs
   
13,564
     
14,504
     
15,947
     
18,931
     
20,878
 
Profit on sale of vessel
   
(550
)    
—  
     
—  
     
—  
     
—  
 
Vessel write down following collision
   
10,500
     
—  
     
—  
     
—  
     
—  
 
Insurance recoverable from vessel repairs
   
(9,892
)    
504
     
—  
     
—  
     
—  
 
                                         
Total operating expenses
   
186,599
     
216,155
     
251,413
     
268,566
     
268,774
 
                                         
Operating income
  $
128,624
    $
77,957
    $
47,182
    $
41,480
    $
32,611
 
                                         
Foreign currency exchange gain on senior secured bonds
   
—  
     
—  
     
—  
     
2,360
     
969
 
Unrealized loss on
non-designated
derivative instruments
   
—  
     
—  
     
—  
     
(5,154
)    
(615
)
Net interest expense
   
(29,730
)    
(32,142
)    
(41,475
)    
(44,054
)    
(48,094
)
                                         
Income/(loss) before income taxes
  $
98,894
    $
45,815
    $
5,707
    $
(5,368
)   $
(15,129
)
Income taxes
   
(800
)    
(1,177
)    
(397
)    
(333
)    
(352
)
Share of result of equity accounted joint venture
   
—  
     
—  
     
—  
     
(38
)    
(1,126
)
                                         
Net income/(loss)
  $
98,094
    $
44,638
    $
5,310
    $
(5,739
)   $
(16,607
)
Net income attributable to
non-controlling
interest
   
—  
     
—  
     
—  
     
—  
     
(99
)
                                         
Net income/(loss) attributable to stockholders of Navigator Holdings Ltd.
  $
98,094
    $
44,638
    $
5,310
    $
(5,739
)   $
(16,706
)
                                         
Earnings per share
attributable to stockholders of Navigator Holdings Ltd.:
   
     
   
     
 
Basic
  $
1.77
    $
0.81
    $
0.10
    $
(0.10
)   $
(0.30
)
Diluted
  $
1.76
    $
0.80
    $
0.10
    $
(0.10
)   $
(0.30
)
Weighted average number of shares outstanding:
   
     
   
     
 
Basic
   
55,360,004
     
55,418,626
     
55,508,974
     
55,629,023
     
55,792,711
 
Diluted
   
55,706,104
     
55,794,481
     
55,881,454
     
55,629,023
     
55,792,711
 
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Navigator Holdings
 
 
Year Ended December 31,
 
 
2015
 
 
2016
 
 
2017
 
 
2018
 
 
2019
 
 
(in thousands, except per share data, fleet data and
average daily results)
 
Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
  $
87,779
    $
57,272
    $
62,109
    $
71,515
    $
66,130
 
Total assets
   
1,560,505
     
1,724,843
     
1,853,887
     
1,832,751
     
1,874,253
 
Total liabilities
   
650,414
     
768,363
     
890,674
     
877,641
     
934,351
 
Total stockholders’ equity
   
910,091
     
956,480
     
963,213
     
955,110
     
939,803
 
Cash Flows Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
  $
149,554
    $
86,748
    $
75,921
    $
77,517
    $
49,700
 
Net cash used in investing activities
   
(205,856
)    
(238,153
)    
(183,025
)    
(42,327
)    
(90,409
)
Net cash provided by / used in financing activities
   
81,555
     
120,898
     
111,941
     
(25,784
)    
35,324
 
Fleet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of vessels
(2)
   
27.8
     
31.3
     
36.2
     
38.0
     
38.0
 
Ownership days
(3)
   
10,135
     
11,463
     
13,228
     
13,870
     
13,870
 
Available days
(4)
   
9,865
     
11,255
     
13,195
     
13,767
     
13,608
 
Operating days
(5)
   
9,298
     
9,888
     
11,564
     
12,247
     
11,813
 
Fleet utilization
(6)
   
94.3
%    
87.9
%    
87.6
%    
89.0
%    
86.8
%
Average Daily Results:
   
     
     
     
     
 
Time charter equivalent rate
(7)
  $
30,280
    $
25,476
    $
21,018
    $
20,284
    $
20,831
 
Daily vessel operating expenses
(8)
  $
7,779
    $
7,925
    $
7,635
    $
7,694
    $
8,037
 
Other Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA
(1)
  $
182,077
    $
140,237
    $
120,770
    $
114,788
    $
108,012
 
Adjusted EBITDA
(1)
  $
182,077
    $
140,237
    $
120,770
    $
117,582
    $
107,658
 
 
(1) EBITDA and Adjusted EBITDA are not measurements prepared in accordance with U.S. GAAP
(non-GAAP
financial measures). EBITDA represents net income before net interest expense, income taxes and depreciation and amortization. We define Adjusted EBITDA as EBITDA before foreign currency exchange gain or loss on senior secured bonds and unrealized gain or loss on
non-designated
derivative instruments. EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to consolidated net income, cash generated from operations or any other measure prepared in accordance with U.S. GAAP, and our calculation of EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies.
EBITDA and Adjusted EBITDA are included herein because they are bases upon which we assess our financial performance and because we believe that they are useful to investors in evaluating our operating performance and are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
  EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
  EBITDA and Adjusted EBITDA do not recognize the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
  EBITDA and Adjusted EBITDA ignore changes in, or cash requirements for, our working capital needs; and
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  other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered measures of discretionary cash available to us to invest in the growth of our business.
The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods presented:
                                         
 
Navigator Holdings
 
 
Year Ended December 31,
 
 
2015
 
 
2016
 
 
2017
 
 
2018
 
 
2019
 
 
(in thousands)
 
Net income/(loss)
  $
98,094
    $
44,638
    $
5,310
    $
(5,739
)   $
(16,607
)
Net interest expense
   
29,730
     
32,142
     
41,475
     
44,054
     
48,094
 
Income taxes
   
800
     
1,177
     
397
     
333
     
352
 
Depreciation and amortization
   
53,453
     
62,280
     
73,588
     
76,140
     
76,173
 
                                         
EBITDA
  $
182,077
    $
140,237
    $
120,770
    $
114,788
    $
108,012
 
Foreign currency exchange gain on senior secured bonds
   
—  
     
—  
     
—  
     
(2,360
)    
(969
)
Unrealized loss on
non-designated
derivative instruments
   
—  
     
—  
     
—  
     
5,154
     
615
 
                                         
Adjusted EBITDA
  $
182,077
    $
140,237
    $
120,770
    $
117,582
    $
107,658
 
                                         
(2) We calculate the weighted average number of vessels during a period by dividing the number of total ownership days during that period by the number of calendar days during that period.
(3) We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and the potential amount of revenue that we record during a period.
(4) We define available days as ownership days less aggregate
off-hire
days associated with scheduled maintenance, which includes drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.
(5) We define operating days as available days less the aggregate number of days that our vessels are
off-hire
for any reason other than scheduled maintenance. We use operating days to measure the aggregate number of days in a period that our vessels are providing services to our customers.
(6) We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. We use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.
(7) Time charter equivalent, (“TCE”), is calculated by dividing total operating revenues, less any voyage expenses, by the number of operating days for the relevant period. TCE is not calculated in accordance with U.S. GAAP. TCE rate is a shipping industry performance measure used primarily to compare
period-to-period
changes in a company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and contracts of affreightment (“COAs”)) under which the vessels may be employed between the periods. We include average daily TCE rate, as we believe it provides additional meaningful information in conjunction with net operating revenues, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rate may not be comparable to that reported by other companies.
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The following table represents a reconciliation of TCE rate to operating revenue, the most directly comparable financial measure calculated in accordance with U.S. GAAP for the periods presented:
                                         
 
Year Ended December 31,
 
 
2015
 
 
2016
 
 
2017
 
 
2018
 
 
2019
 
 
(in thousands, except operating days and
average daily time charter equivalent rate)
 
Fleet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
  $
315,223
    $
294,112
    $
298,595
    $
310,046
    $
301,385
 
Voyage expenses
   
33,687
     
42,201
     
55,542
     
61,634
     
55,310
 
                                         
Operating revenue less Voyage expenses
   
281,536
     
251,911
     
243,053
     
248,412
     
246,075
 
Operating days
   
9,298
     
9,888
     
11,564
     
12,247
     
11,813
 
Average daily time charter equivalent rate
  $
30,280
    $
25,476
    $
21,018
    $
20,284
    $
20,831
 
(8) Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant time period.
 
B.
Capitalization and Indebtedness
Not applicable.
 
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
 
D.
Risk Factors
You should carefully consider the following risk factors together with all of the other information included in this annual report in evaluating an investment in our common stock. If any of the following risks were actually to occur, our business, financial condition, operating results and cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment.
Risks Related to Our Business
Charter rates for liquefied gas carriers are cyclical in nature.
The international liquefied gas carrier market is cyclical with attendant volatility in terms of charter rates, profitability and vessel values. The degree of charter rate volatility among different types of liquefied gas carriers has varied widely. Because many factors influencing the supply of, and demand for, vessel capacity are unpredictable, the timing, direction and degree of changes in the international liquefied gas carrier market are also unpredictable.
Future growth in the demand for our services will depend on changes in supply and demand, economic growth in the world economy and demand for liquefied gas transportation relative to changes in worldwide fleet capacity. Adverse economic, political, or social developments or other global financial turmoil, could have a material adverse effect on world economic growth and thus on our business and operating results.
The charter rates we receive will be dependent upon, among other things:
  changes in the supply of vessel capacity for the seaborne transportation of liquefied gases, which is influenced by the following factors:
  the number of newbuilding deliveries and the ability of shipyards to deliver newbuildings by contracted delivery dates and capacity levels of shipyards;
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  the scrapping rate of older vessels;
  the number of vessels that are out of service, as a result of vessel casualties, repairs and drydockings; and
  changes in liquefied gas carrier prices.
  changes in the level of demand for seaborne transportation of liquefied gases, which is influenced by the following factors:
  the level of production of liquefied gases in net export regions;
  the level of demand for liquefied gases in net import regions such as Asia, Europe, Latin America and India;
  the level of internal demand for petrochemicals to supply integrated petrochemical facilities in net export regions;
  a reduction in global demand for petrochemicals due to ecological or environmental concerns about the use of plastics;
  a reduction in global or general industrial activity specifically in the plastics and chemical industry;
  changes in the cost of petroleum and natural gas from which liquefied gases are derived;
  prevailing global and regional economic conditions;
  political changes and armed conflicts in the regions traveled by our vessels and the regions where the cargoes we carry are produced or consumed that interrupt production, trade routes or consumption of liquefied gases and associated products;
  developments in international trade;
  the distances between exporting and importing regions over which liquefied gases are to be transported by sea;
  infrastructure to support seaborne liquefied gases, including pipelines, railways and terminals;
  the availability of alternative transportation means, including pipelines;
  changes in seaborne and other transportation patterns; and
  changes in environmental and other regulations that may limit the production or consumption of liquefied gases or the useful lives of vessels.
Adverse changes in any of the foregoing factors could have an adverse effect on our revenues, profitability, liquidity, cash flow and financial position.
We are partially dependent on voyage charters in the spot market, and any decrease in spot charter rates in the future may adversely affect our earnings.
We currently own and operate a fleet of 38 vessels. Of those, 14 vessels are employed in the spot market, exposing us to fluctuations in spot market charter rates.
Although spot chartering is common in our industry the spot market may fluctuate significantly over short periods of time. The successful operation of our vessels in the competitive spot market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling in ballast and to pick up cargo. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably or meet our obligations, including payments on
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indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage or multiple voyages which may last up to several weeks or months, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
We may be unable to charter our vessels at attractive rates, which would have an adverse impact on our business, financial condition and operating results.
Payments under our charters represent substantially all of our operating cash flow. Our time charters expire on a regular basis. If demand for liquefied gas carriers has declined at the time that our charters expire, we may not be able to charter our vessels at favorable rates or at all. If more vessels are added to the overall fleet through newbuilding programs, charter rates may reduce. In addition, while longer-term charters would become more attractive to us at a time when charter rates are declining, our customers may not want to enter into longer-term charters in such an environment. As a result, if our charters expire or newbuild vessels are delivered at a time when charter rates are declining, we may have to accept charters with lower rates or shorter terms than would be desirable. Furthermore, we may be unable to charter our vessels immediately after the expiration of their charters resulting in periods of
non-utilization
for our vessels. Our inability to charter our vessels at favorable rates or terms or at all would adversely impact our business, financial condition and operating results. Please read “Item 4—Information on the Company—Business Overview—Our Fleet.”
A significant portion of our revenues from a limited number of customers.
We have derived, and believe that we will continue to derive, a significant portion of our revenues from a limited number of customers. Our customers include major oil and gas companies, chemical companies, energy trading companies, state owned oil companies and various other entities that depend upon marine transportation. Four of our customers accounted for more than 10.0% each, and in aggregate, 5.41% of our consolidated revenues during the year ended December 31, 2019, equivalent to $163.5 million of our total revenue. Three of our customers accounted for more than 10.0% each, and in aggregate, 45.4% of our consolidated revenues during the year ended December 31, 2018 equivalent to $140.8 million of our total revenue. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer, or the inability of a significant customer to pay for our services, could have a material adverse effect on our business, financial condition and results of operations.
If the demand for liquefied gases and the seaborne transportation of liquefied gases does not grow, our business, financial condition and operating results could be adversely affected.
Our growth depends on continued growth in world and regional demand for liquefied gases and the seaborne transportation of liquefied gases, each of which could be adversely affected by a number of factors, such as:
  increases in the demand for industrial and residential natural gas in areas linked by pipelines to producing areas, or the conversion of existing
non-gas
pipelines to natural gas pipelines in those markets;
 
  increases in demand for chemical feedstocks in net exporting regions, leading to less liquefied gases for export;
 
  decreases in the consumption of petrochemical gases;
 
  decreases in the consumption of LPG due to increases in its price relative to other energy sources or other factors making consumption of liquefied gas less attractive;
 
  the availability of competing, alternative energy sources, transportation fuels or propulsion systems;
 
  decreases in demand for liquefied gases resulting from changes in feedstock capabilities of petrochemical plants in net importing regions;
 
  changes in the relative values of hydrocarbon and liquefied gases;
 
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  a reduction in global industrial activity, especially in the plastics and petrochemical industries, particularly in regions with high demand growth for liquefied gas, such as Asia;
 
  adverse global or regional economic or political conditions, particularly in liquefied gas exporting or importing regions, which could reduce liquefied gas shipping or energy consumption;
 
  changes in governmental regulations, such as the elimination of economic incentives or initiatives designed to encourage the use of liquefied gases over other fuel sources; or
 
  decreases in the capacity of petrochemical plants and crude oil refineries worldwide or the failure of anticipated new capacity to come online.
 
Reduced demand for liquefied gases and the seaborne transportation of liquefied gases would have a material adverse effect on our future growth and could adversely affect our business, financial condition and operating results.
The expected growth in the supply of petrochemical gases, including ethane and ethylene, available for seaborne transport may not materialize, which would deprive us of the opportunity to obtain premium charters for petrochemical cargoes.
Charter rates for petrochemical gas cargoes can be higher than those for LPG, with charter rates for ethylene historically commanding a premium. While we believe that growth in production at petrochemical production facilities and regional supply and pricing imbalances will create opportunities for us to transport petrochemical gas cargoes, including ethane and ethylene, factors that are beyond our control may cause the supply of petrochemical gases available for seaborne transport to remain constant or even decline. For example, a significant portion of any increased production of petrochemicals in export regions may be used to supply local facilities that use petrochemicals as a feedstock rather than exported via seaborne trade. If the supply of petrochemical gases available for seaborne transport does not increase, we will not have the opportunity to obtain the increased charter rates associated with petrochemical gas cargoes, including ethane and ethylene, and our expectations regarding the growth of our business may not be met.
The market values of our vessels may decline if market conditions deteriorate. This could cause us to incur impairment charges, which could cause us to breach covenants in our debt facilities.
The market value of liquefied gas carriers fluctuates. While the market values of our vessels have declined as a result of the most recent market downturn, they still remain subject to a potential significant further decline depending on a number of factors including, among other things: shipyard capacity and the cost of newbuildings, general economic and market conditions affecting the shipping industry, prevailing charter rates, competition from other shipping companies, other modes of transportation, other types, sizes and age of vessels and applicable governmental regulations.
In addition, when vessel prices are considered to be low, companies not usually involved in shipping may make speculative vessel orders, thereby increasing the supply of vessel capacity, satisfying demand sooner and potentially suppressing charter rates.
Also, if the book value of a vessel is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that could have a material adverse effect on our business, financial condition and operating results.
Furthermore, our loan agreements and our bond agreements have covenants relating to asset values, whereby if vessel values were to reduce to below those set out in the covenants, a breach would occur and cause the loan amounts to be immediately repayable. This could have a material adverse effect on our business, financial condition and operating results.
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Over the long-term, we will be required to make substantial capital expenditures to preserve the operating capacity of, and to grow, our fleet.
We must make substantial capital expenditures over the long-term to maintain the operating capacity and expansion of our fleet in order to preserve our capital base.
We estimate that drydocking expenditures can cost up to $2.0 million per vessel per drydocking, although these expenditures could vary significantly from quarter to quarter and year to year and could increase as a result of changes in:
  the location and required repositioning of the vessel;
 
  the cost of labor and materials;
 
  the types of vessels in our fleet;
 
  the age of our fleet;
 
  governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment;
 
  competitive standards; and
 
  high demand for drydock usage.
 
Our ability to obtain bank financing or to access the capital markets for future debt or equity offerings in order to finance the expansion of our fleet may be limited by our financial condition at the time of any such financing or offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for future capital expenditures could limit our ability to expand our fleet. Even if we are successful in obtaining necessary funds, the terms of such financings may significantly increase our interest expense and financial leverage and issuing additional equity securities may result in significant shareholder dilution. Please read “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Liquidity and Cash Needs.”
We may be unable to make, or realize the expected benefits from, acquisitions and the failure to successfully implement our growth strategy through acquisitions could adversely affect our business, financial condition and operating results.
Our growth strategy may include newbuildings or selectively acquiring existing liquefied gas carriers and investing in complementary assets. Factors such as competition from other companies, many of which have significantly greater financial resources than we do, could reduce our acquisition and investment opportunities or cause us to pay higher prices.
Any existing vessel or newbuilding we acquire may not be profitable at or after the time of acquisition or delivery and may not generate cash flow sufficient to cover the cost of acquisition. Market conditions at the time of delivery of any newbuildings may be such that charter rates are not favorable and the revenue generated by such vessels is not sufficient to cover their purchase prices.
In addition, our acquisition and investment growth strategy exposes us to risks that could adversely affect our business, financial condition and operating results, including risks that we may:
  fail to realize anticipated benefits of acquisitions, such as new customer relationships, cost savings or increased cash flow;
 
  not be able to obtain charters at favorable rates or at all;
 
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  be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
 
  fail to integrate investments of complementary assets or vessels in capacity ranges outside our current operations in a profitable manner;
 
  not have adequate operating and financial systems in place as we implement our expansion plan;
 
  decrease our liquidity through the use of a significant portion of available cash or borrowing capacity to finance acquisitions;
 
  significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions; or
 
  incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired.
 
Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.
From time to time, we may selectively pursue new strategic acquisitions or ventures we believe to be complementary to our seaborne transportation services and any strategic transactions that are a departure from our historical operations could present unforeseen challenges and result in a competitive disadvantage relative to our more-established competitors.
We may pursue strategic acquisitions or investment opportunities we believe to be complementary to our core business of owning and operating handysize liquefied gas carriers and the transportation of LPG, petrochemical gases and ammonia. Such ventures may include, but are not limited to, operating liquefied gas carriers in different size categories, expanding the types of cargo we carry and/or ventures or facilities involved in the export, distribution, mixing and/or storage of liquefied gas cargoes. While we have general knowledge and experience in the seaborne transportation services industry, we currently have limited operating history outside of the ownership and operation of liquified gas carriers and the transportation of petrochemicals, LPG and ammonia.
Any investments we pursue outside of our historical provision of seaborne transportation services could result in unforeseen operating difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing operation and growth of our fleet.
We may face several factors that could impair our ability to successfully execute these acquisitions or investments including, among others, the following:
  delays in obtaining regulatory approvals, licenses or permits from different governmental or regulatory authorities, including environmental permits;
 
  unexpected cost increases or shortages in the equipment, materials or labor required for the venture, which could cause the venture to become economically unfeasible; and
 
  unforeseen engineering, design or environmental problems.
 
Any of these factors could delay any such acquisitions or investment opportunities and could increase our projected capital costs. If we are unable to successfully integrate acquisitions or investments into our historical business, any costs incurred in connection with these projects may not be recoverable. If we experience delays, cost overruns, or changes in market circumstances, we may not be able to demonstrate the commercial viability of such acquisitions or investment opportunities or achieve the intended economic benefits, which would materially and adversely affect our business, financial condition and operating results.
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We may be unable to realize the expected benefits from our investment in the Marine Export Terminal in the U.S. Gulf.
There are a number of contingencies that could impact our ability to benefit from the Marine Export Terminal on a timely basis or at all, including, among others, the following:
  our ability to have the throughput to the Marine Export Terminal fully committed;
 
  any inability of the Marine Export Terminal to operate due to operational issues; and
 
  existing customers not renewing their contracts.
 
In addition, our 50/50 joint venture partner in the Export Terminal Joint Venture is the sole managing member of the Export Terminal Joint Venture and is also the operator of the related Marine Export Terminal. The success of the 50/50 owned Export Terminal Joint Venture and the Marine Export Terminal is dependent on the successful management and operation thereof by the managing member and operator. Further, the managing member’s and operator’s interests may not be entirely aligned with our interests.
If our expectations with respect to the completion of construction and financing of the Marine Export Terminal or the success of our 50/50 owned Marine Export Terminal and the Export Terminal Joint Venture are not realized, it could have a material adverse effect on our business, financial condition and operating results.
We operate in countries which can expose us to political, governmental and economic instability, which could adversely affect our business, financial condition and operating results.
Our operations are primarily conducted outside of the United States, and may be affected by economic, political and governmental conditions in the countries where we engage in business or where our vessels are registered. Any disruption caused by these conditions could adversely affect our business, financial condition and operating results. We derive some of our revenues from transporting gas cargoes from, to and within politically unstable regions. Conflicts in these regions have included attacks on ships and other efforts to disrupt shipping. In addition, vessels operating in some of these regions have been subject to piracy. Hostilities or other political instability in regions where we operate or may operate could have a material adverse effect on our business, financial condition and operating results. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries where we engage in business may limit, restrict or prohibit our trading activities with those countries, which could also harm our business. Finally, a government could requisition one or more of our vessels, which is most likely during a war or national emergency. Any such requisition would cause a loss of the vessel and would harm our business, financial condition and operating results.
If our vessels call on ports located in countries that are subject to restrictions imposed by the U.S. government, our reputation and the market for our securities could be adversely affected.
Although no vessels owned or operated by us have called on ports located in countries subject to comprehensive sanctions and embargoes imposed by the U.S. government and other authorities or countries identified by the U.S. government or other authorities as state sponsors of terrorism, such as Cuba, Iran, North Korea, Sudan, Syria and the Crimean region of Ukraine, in the future our vessels may call on ports in these countries from time to time on charterers’ instructions in violation of contractual provisions that prohibit them from doing so. 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.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing
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interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact the market for our common shares, 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.
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 or the ability of our charters to meet their obligations to us or result in fines, penalties or sanctions.
Operating our vessels in sanctioned areas or chartering our vessels to sanctioned individuals or entities could adversely affect our business, financial condition and operating results.
We have obligations and believe we comply fully with the various sanctions regimes around the world, not just the sanctions authorities of the United States, but also the relevant departments within the United Nations, European Union and other individual countries, as well as governmental institutions and agencies of those countries. Our current 38 vessels transport LPG and other liquefied petrochemical gases throughout the globe and we are vigilant in ensuring our vessels do not call to countries or ports or trade with persons that may be on any lists which restrict or inhibit such trade or relationship. Any actual or alleged violations could materially damage our reputation and ability to do business.
Our vessels engage in hundreds of ship to ship transfers of LPG or petrochemical cargoes annually and these cargoes may ultimately be discharged in sanctioned areas or to sanctioned individuals without our knowledge. For example, three of our vessels were named in a 2019 U.S. Department of the Treasury’s OFAC Advisory to the Maritime Petroleum Shipping Community as ships that had engaged in such ship to ship transfers of cargoes in 2017 that may have ultimately been destined for Syria.
Furthermore, if any of our customers were to become a sanctioned entity, the charterparty would end immediately and become void which could lead to one or more vessels being redelivered to us, ending what may be a long-term charter commitment. For example, as a result of OFAC designating Petróleos de Venezuela S.A., or “PDVSA” as such, we had to prematurely terminate long term time charters on two of our vessels.
We provide
in-house
technical management for certain vessels in our fleet which may impose significant additional responsibilities on our management and staff.
We currently provide
in-house
technical management for 17 of the 38 vessels in our fleet. Providing
in-house
technical management for any vessel in our fleet may impose significant additional responsibilities on our management and staff. Further, because we had little experience of providing technical management
in-house
prior to 2016, our management may encounter challenges as we develop and refine our technical management systems.
Some charterers and port terminals may require the crew of our fleet to have a minimum of two years of experience with our vessel’s
on-board
safety management systems. We switch to
in-house
technical management for a vessel in our fleet only if the existing charterer so agrees, but charterers may change and a new charterer may refuse to charter a vessel in our fleet if it is managed by our
in-house
technical managers. Similarly, certain ports may not allow our vessels that recently changed to
in-house
technical management into their terminals to load or discharge cargoes. If we are not successful with respect to any vessel for which we may provide technical management
in-house,
our reputation and ability to charter vessels may be negatively impacted, which could materially and adversely affect our business, financial condition and operating results.
A fluctuation in fuel prices may adversely affect our charter rates for time charters and our cost structure for voyage charters and COAs and consequently adversely affect our business, financial condition and results of operation.
The price and supply of bunker fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, supply and demand for oil, actions by members of the Organization of the
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Petroleum Exporting Countries (“OPEC”) and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations.
Bunker fuel prices have increased over the past few years and have further significantly increased with the introduction of the new low sulfur bunker fuel required effective as of January 1, 2020 under IMO 2020, absent the installation of scrubbers. We have not installed scrubbers on board our vessels, which removes sulfur oxides from exhaust gases, enabling the consumption of cheaper high sulfur bunker fuel. Consequently our customers may be less willing to enter into time charters under which they bear the full risk of bunker fuel price increases, or may shorten the periods for which they are willing to make such commitments. Under voyage charters and COAs, we bear the cost of bunker fuel used to power our vessels. From January 1, 2020, we will incur the increase in bunker fuel prices which will correspondingly increase our voyage expenses under each of our voyage charters and COAs, which could reduce our profitability and adversely affect our results of operations.
The required drydocking of our vessels could have a more significant adverse impact on our revenues than we anticipate, which would adversely affect our business, financial condition and operating results.
Our vessels require drydocking every five years until the age of 15 years and every two and a half years thereafter. The drydocking of our vessels requires significant capital expenditures and results in loss of revenue while our vessels are
off-hire.
Any significant increase in the number of days of
off-hire
due to such drydocking or in the costs of any repairs could have a material adverse effect on our financial condition. Although we attempt to ensure that no more than one vessel will be out of service at any given time, this may not always be possible because of the age of certain vessels in our fleet, we may underestimate the time required to drydock our vessels, or unanticipated problems may arise during drydocking. Currently, six of our vessels are over the age of 15 years and will require more regular drydocking.
Our operating costs are likely to increase in the future as our vessels age, which would adversely affect our business, financial condition and operating results.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our vessels age, we will incur increased costs. Older vessels are typically less fuel-efficient and more costly to maintain than newer vessels due to improvements in engine technology. If equipment on board becomes obsolete and it is not cost effective to repair it, such equipment would have to be replaced. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, including environmental, safety or other equipment standards related to the age of vessels may also require expenditures for alterations, or the addition of new equipment, to our vessels to comply. These laws or regulations may also restrict the type of activities in which our vessels may engage or limit their operation in certain geographic regions. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels as profitably as our younger vessels during the remainder of their expected useful lives.
The operation of ocean going vessels entails the possibility of marine disasters including damage or destruction of the vessel due to natural disasters, accident, the loss of a vessel due to piracy or terrorism, damage or destruction of cargo and similar events that may cause a loss of revenue from affected vessels and damage our business reputation, which may in turn lead to loss of business.
The operation of ocean going vessels entails certain inherent risks that may materially adversely affect our business and reputation, including:
  damage or destruction of vessel due to natural disasters;
 
  damage or destruction of vessel due to marine disasters such as a collision;
 
  the loss of a vessel due to piracy and terrorism;
 
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  cargo and property losses or damage as a result of the foregoing or less drastic causes such as human error, mechanical failure, grounding, fire, explosions and bad weather;
 
  environmental accidents as a result of the foregoing;
 
  risks to the onboard vessel management personnel as a result of the foregoing; and
 
  business interruptions and delivery delays caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions.
 
Any of these circumstances or events could substantially increase our costs. For example, the costs of replacing a vessel or cleaning up a spill could substantially lower our revenues by taking vessels out of operation permanently or for periods of time. The involvement of our vessels in a disaster or delays in delivery or loss of cargo may harm our reputation as a safe and reliable vessel operator and cause us to lose business.
The total loss or damage of any of our vessels or cargoes 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 that could negatively impact our business, financial condition and operating results.
The loss of or inability to operate any of our vessels would result in a significant loss of revenues and cash flow which would adversely affect our business, financial condition and operating results.
We do not carry loss of hire insurance. If, at any time, we cannot operate any of our vessels due to mechanical problems, lack of seafarers to crew a vessel, prolonged drydocking periods, loss of certification, the loss of any charter or otherwise, our business, financial condition and operating results will be materially adversely affected. In the worst case, we may not receive any revenues because of the inability to operate any of our vessels, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition.
Adverse global economic conditions could have a material adverse effect on our business, financial condition and operating results.
Adverse global economic conditions may negatively impact our business, financial condition, results of operations and cash flows in ways that we cannot predict. Adverse economic conditions may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels. There has historically been a strong link between the development of the world economy and demand for energy, including liquefied gases. Global financial markets and economic conditions have been volatile in recent years and remain subject to significant vulnerabilities, including trade wars between the U.S. and China or others, the effects of volatile energy prices and continuing turmoil and hostilities in the Middle East, the Korean Peninsula, North Africa and other geographic areas. An extended period of adverse development in global economic conditions or a tightening of the credit markets could reduce the overall demand for liquefied gases and have a negative impact on our customers. These potential developments, or market perceptions concerning these and related issues, could affect our business, financial condition and operating results.
Furthermore, a future economic slowdown could have an impact on our customers and/or suppliers including, among other things, causing them to fail to meet their obligations to us. Similarly, a future economic slowdown could affect lenders participating in our secured term loan and revolving credit facilities, making them unable to fulfill their commitments and obligations to us. Any reductions in activity owing to such conditions or failure by our customers, suppliers or lenders to meet their contractual obligations to us could adversely affect our business, financial condition and operating results.
Outbreaks of epidemic and pandemic of diseases could have a material adverse effect on our business, financial condition and operating results.
Our operations are subject to risks related to outbreaks of infectious diseases. The recent outbreak of the novel strain of coronavirus referred to as
COVID-19
(“Coronavirus”) that emanated from China, as well as other
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potential outbreaks of infectious diseases in the future, may negatively affect economic conditions or restrict the seaborne transportation of products, including LPG and petrochemical products. Governments throughout the world have imposed travel bans, quarantines and other emergency public health measures. Those measures, though temporary in nature, may continue for longer than anticipated.
As a result of these measures, there may be a reduction in the supply of and demand for LPG or petrochemicals regionally or globally, including as a result of a slowdown or complete shutdown in the infrastructure of countries if the outbreak persists for an extended period of time. Any restriction on the ability to transport LPG and petrochemicals to countries or continents could adversely affect our business, financial condition and operating results, principally through reduced revenues and resultant reduced cashflows. This may affect our ability to comply with our loan covenant obligations. In addition counter parties may not honor their obligations to us, financing and refinancing may be more difficult to achieve, and our operational activities may be disrupted. The ultimate severity of the Coronavirus outbreak is uncertain at this time. Therefore, we cannot predict the impact it may have on our future operations, which could be material and adverse.
To date, we have experienced the following disruption to our operations:
  crew changes have been cancelled and/or delayed until it is safe and feasible to do so. This is due to port authorities denying disembarkation, and a lack of international air transport or denial of
re-entry
by crew members’ home countries, which may have closed their borders;
  we have sought alternative shipyards which has resulted in delays to repairs, scheduled maintenance and dry docking of our vessels, as a result of a lack availability by shipyards from a shortage in labor or due to other business disruptions caused by
COVID-19;
  delays or cancellations in vessel inspections and related certifications by class societies, customers or government agencies;
  we have had to implement and adhere to additional strict onboard procedures to avoid potential
human-to-human
transmission of
COVID-19
to crew members as a result of vessel visits by port authority members, pilots, inspectors and suppliers.
Due to our lack of vessel diversification, adverse developments in the seaborne liquefied gas transportation business could adversely affect our business, financial condition and operating results.
We rely primarily on the cash flow generated from vessels that operate in the seaborne liquefied gas transportation business. Unlike many other shipping companies, which have vessels that carry drybulk, crude oil and oil products, we depend exclusively on the transport of LPG, petrochemicals and ammonia. Due to our lack of diversification, an adverse development in the international liquefied gas shipping industry would have a significantly greater impact on our business, financial condition and operating results than it would if we maintained a more diverse fleet of vessels.
If in the future our business activities involve countries, entities and individuals that are subject to restrictions imposed by the U.S. or other governments, we could be subject to enforcement action and our reputation and the market for our common stock could be adversely affected.
The tightening of U.S. sanctions in recent years has affected
non-U.S.
companies. In particular, sanctions against Iran have been significantly expanded. In 2012 the U.S. signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (“TRA”), which placed further restrictions on the ability of
non-U.S.
companies to do business or trade with Iran and Syria. A major provision in the TRA is that issuers of securities must disclose to the U.S. Securities and Exchange Commission, or the “SEC,” in their annual and quarterly reports filed after February 6, 2013 if the issuer or “any affiliate” has “knowingly” engaged in certain activities involving Iran during the timeframe covered by the report. This disclosure obligation is broad in scope in that it requires the reporting of activity that would not be considered a violation of U.S. sanctions as well as violative conduct, and is not subject to a materiality threshold. The SEC publishes these disclosures on its website and the President of the United States must initiate an investigation in response to all disclosures.
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In addition to the sanctions against Iran, the U.S. also has sanctions that target other countries, entities and individuals. These sanctions have certain extraterritorial effects that need to be considered by
non-U.S.
companies. It should also be noted that other governments have implemented versions of U.S. sanctions. We believe that we are in compliance with all applicable sanctions and embargo laws and regulations imposed by the U.S., the United Nations or European Union countries and intend to maintain such compliance. However, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our common stock. Additionally, some investors may decide to divest their interest, or not to invest, in our common stock simply because we may do business with companies that do business in sanctioned countries. Investor perception of the value of our common stock may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Failure to comply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract termination 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 business conduct and ethics. 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 anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 and the Bribery Act 2010 of the Parliament of the United Kingdom. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, operating results 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 could consume significant time and attention of our senior management.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could disrupt our business and adversely affect our results of operations.
We rely on information technology systems and networks in our operations, and those of our third-party technical managers, including processing, transmitting and storing electronic and financial information, communication with our vessels and the administration of our business. Information systems are vulnerable to security breaches by computer hackers and cyber terrorists and our operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business, operating results, financial condition, our reputation, or cash flows. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated including any failure in disaster recovery plans or data backups for us or our third-party technical managers for any reason could disrupt our business. We may be required to incur significant additional costs to remediate, modify or enhance our information technology systems or to try to prevent any such attacks.
Our business is subject to complex and evolving laws and regulations regarding privacy and data protection (“data protection laws”).
The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to significant change. New laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including the European Union General Data Protection Regulation and recent California legislation, pose increasingly complex compliance challenges and potentially elevate our costs. Any
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failure, or perceived failure, by us to comply with applicable data protection laws could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. As noted above, we are also subject to the possibility of cyber-attacks, which themselves may result in a violation of these laws.
Maritime claimants could arrest our vessels, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, cargo receivers and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums to have the arrest lifted.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that 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 all of the vessels in our fleet for claims relating to only one of our ships. The arrest of any of our vessels would adversely affect our business, financial condition and operating results.
A shortage of qualified officers would make it more difficult to crew our vessels and increase our operating costs. If a shortage were to develop, it could impair our ability to operate and have an adverse effect on our business, financial condition and operating results.
Our liquefied gas carriers require technically skilled officer staff with specialized training. As the world liquefied gas carrier fleet and the liquefied natural gas, or “LNG,” carrier fleet grows, the demand for such technically skilled officers increases and could lead to a shortage of such personnel. If our crewing managers were to be unable to employ such technically skilled officers, they would not be able to adequately staff our vessels and effectively train crews. The development of a deficit in the supply of technically skilled officers or an inability of our crewing managers to attract and retain such qualified officers could impair our ability to operate and increase the cost of crewing our vessels and, thus, materially adversely affect our business, financial condition and operating results. Please read “Item 4—Information on the Company—Business Overview—Crewing and Staff.”
Compliance with safety and other vessel requirements imposed by classification societies may be very costly and could adversely affect our business, financial condition and operating results.
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 the Safety of Life at Sea Convention. Our vessels are currently enrolled with, Lloyd’s Register, DNV GL Group AS or the American Bureau of Shipping. All of our vessels have been awarded International Safety Management certification.
As part of the certification process, a vessel must undergo annual surveys, intermediate surveys 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. All of the vessels in our existing fleet are on a planned maintenance system, or “PMS,” approval, and as such the classification society attends
on-board
once every year to verify that the maintenance of the
on-board
equipment is done correctly. Each of the vessels in our fleet have been qualified within its respective classification society for drydocking either once every two and a half or once every five years, depending on the age of the vessel, the latter being subject to an intermediate underwater survey done using an approved diving company in the presence of a surveyor from the classification society twice in each five-year cycle, with a maximum of 30 months between each underwater survey.
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If any vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable. This would adversely affect our business, financial condition and operating results.
Delays in deliveries of newbuildings or acquired vessels, or deliveries of vessels with significant defects, could harm our operating results and lead to the termination of any related charters that may be entered into prior to their delivery.
Although we currently have no vessels on order, under construction or subject to purchase agreements, we may purchase or order additional vessels from time to time. The delivery of these vessels could be delayed, not completed or cancelled, which would delay or eliminate our expected receipt of revenues from the employment of these vessels. In addition, under some of the charters we may enter into for newbuildings, if our delivery of a vessel to the customer is delayed, the customer may terminate the time charter, resulting in loss of revenues. The delivery of any newbuilding with substantial defects could have similar consequences.
Our receipt of newbuildings we may order or agree to purchase could be delayed because of many factors, including:
  quality or engineering problems;
  changes in governmental regulations or maritime self-regulatory organization standards;
  work stoppages or other labor disturbances at the shipyard;
  bankruptcy or other financial crisis of the shipbuilder;
  a backlog of orders at the shipyard;
  hostilities or political or economic disturbances in the locations where the vessels are being built;
  weather interference or catastrophic event, such as a major earthquake or fire;
  our requests for changes to the original vessel specifications;
  shortages of, or delays in the receipt of necessary construction materials, such as steel;
  our inability to obtain sufficient finance for the purchase of the vessels or to make timely payments; or
  our inability to obtain requisite permits or approvals.
We do not typically carry delay of delivery insurance to cover any losses that are not covered by delay penalties in our construction contracts. As a result, if delivery of a vessel is materially delayed, it could adversely affect our business, financial condition and operating results.
Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition.
The process of obtaining new charters is highly competitive, generally involves an intensive screening process and competitive bids, and often extends for several months or even years. Contracts are awarded based upon a variety of factors, including:
  the shipowner’s industry relationships, experience and reputation for customer service, quality operations and safety;
  the quality, experience and technical capability of the crew;
  the age, type, capability and versatility of our vessels;
  the shipowner’s construction management experience, including the ability to obtain
on-time
delivery of new vessels according to customer specifications;
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  the shipowner’s willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
  the competitiveness of the bid in terms of the vessel’s overall economics.
We expect substantial competition for providing seaborne transportation services from a number of experienced companies. As a result, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, financial condition and operating results.
The marine transportation industry is subject to substantial environmental and other regulations, which may limit our operations and increase our expenses.
Our operations are affected by extensive and changing environmental protection laws and other regulations and international treaties and conventions, including those relating to equipping and operating vessels and vessel safety. These regulations include the U.S. Oil Pollution Act of 1990, or “OPA 90,” the U.S. Clean Water Act, the U.S. Maritime Transportation Security Act of 2002 and regulations of the IMO, including the International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and generally referred to as the CLC, the IMO International Convention for the Prevention of Pollution from Ships of 1975, as from time to time amended and generally referred to as MARPOL, the International Convention for the Prevention of Marine Pollution of 1973, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and generally referred to as SOLAS, the IMO International Convention on Load Lines of 1966, as from time to time amended, the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the “ISM Code,” the International Convention on Civil Liability for Bunker Oil Pollution Damage, generally referred to as the Bunker Convention, and the European Union 2015 Regulation on the monitoring, reporting, and verification of carbon dioxide emissions from maritime transport. We have incurred, and expect to continue to incur, substantial expenses in complying with these laws and regulations, including expenses for vessel modifications and changes in operating procedures. For example, under IMO 2020, absent the installation of expensive sulfur scrubbers to achieve reduced emission requirements, the maximum sulfur content of bunker fuels used by the marine sector, including our vessels, was lowered from 3.5% to 0.5% sulfur content. The marine sector accounts for approximately half of all global fuel oil demand and the impact of the increased demand for compliant low sulfur fuel is expected to affect the availability and cost of such fuels and increase our costs of operation. Additional laws and regulations may be adopted that could limit our ability to do business or further increase costs, which could harm our business. In addition, failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of operations.
In addition, we believe that the heightened environmental, quality and security concerns of the public, regulators, insurance underwriters and charterers will generally lead to additional regulatory requirements, including enhanced risk assessment and security requirements, greater inspection and safety requirements on all vessels in the marine transportation markets and possibly restrictions on the emissions of greenhouse gases from the operation of vessels. These requirements are likely to add incremental costs to our operations and the failure to comply with these requirements may affect the ability of our vessels to obtain and, possibly, collect on insurance or to obtain the required certificates for entry into the different ports where we operate.
Please read “Item 4—Information on the Company—Business Overview—Environmental and Other Regulation” for a more detailed discussion on these topics.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from vessel emissions.
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These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Additionally, a treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes in laws and regulations relating to climate change could increase our costs of operating and maintaining our vessels and could require us to make significant financial expenditures that we cannot predict with certainty at this time.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also have an effect on demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
Changes in the law and regulations relating to the use of, or a decrease in the demand for, plastic could adversely impact our business.
There is growing public concern surrounding the accumulation of plastics in the environment and, as a result, concerning the use of plastics more generally. Plastics are derived or manufactured largely from the petrochemical gases that we transport. The growing public concern could reduce consumer demand for plastic products and result in laws and regulations restricting the use of plastics, which could limit or reduce the demand and need for petrochemical gases to be transported and could have a significant adverse impact on our business, financial condition and operating results.
Marine transportation is inherently risky. An incident involving significant loss of product or environmental contamination by any of our vessels could adversely affect our reputation, business, financial condition and operating results.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes and the LPG and petrochemical production and terminal facilities that we service are at risk of being damaged or lost because of events such as:
  marine disasters;
  bad weather or climate change;
  business interruption caused by mechanical failures;
  grounding, capsizing, fire, explosions and collisions;
  war, terrorism, piracy, cyber-attack; and
  human error.
An accident involving any of our vessels could result in any of the following:
  death or injury to persons, loss of property or damage to the environment and natural resources;
  delays in the delivery of cargo;
  loss of revenues;
  higher than anticipated expenses, or liabilities or costs to recover any spilled cargo and to restore the ecosystem where the spill occurred;
  governmental fines, penalties or restrictions on conducting business;
  higher insurance rates; and
  damage to our reputation and customer relationships generally.
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Any of these results could have a material adverse effect on our business, financial condition and operating results.
Competition from more technologically advanced liquefied gas carriers could reduce our charter hire income and the value of our vessels.
The charter 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 fuel economy, speed and the ability to be loaded and discharged quickly. Flexibility includes the ability to enter ports, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new liquefied gas carriers are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced liquefied gas carriers could adversely affect the charter rates we receive for our vessels once their current charters are terminated and the resale value of our vessels. As a result, our business, financial condition and operating results could be adversely affected.
Acts of piracy on any of our vessels or on ocean going vessels could adversely affect our business, financial condition and operating results.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Gulf of Aden off the coast of Somalia, and West Africa. If such piracy attacks result in regions in which our vessels are deployed being named on the Joint War Committee Listed Areas,
war-risk
insurance premiums payable for such coverage could increase significantly and such insurance coverage might become more difficult to obtain. In addition, crew costs, including costs that may be incurred to the extent we employ
on-board
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 crew or vessels could require a significant amount of management time negotiating the release of crew members or the vessel and could have a material adverse impact on our business, financial condition and operating results.
Terrorist attacks, increased hostilities, piracy or war could lead to further economic instability, increased costs and disruption of business.
Terrorist attacks may adversely affect our business, operating results, financial condition, ability to raise capital and future growth. Continuing hostilities in the Middle East may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute further to economic instability and disruption of production and distribution of LPG, petrochemical gases and ammonia, which could result in reduced demand for our services.
In addition, petrochemical production and terminal facilities and vessels that transport petrochemical products could be targets of future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport gases to or from certain locations. Terrorist attacks, piracy, war or other events beyond our control that adversely affect the distribution, production or transportation of gases to be shipped by us could entitle customers to terminate our charters, which would harm our cash flow and business. In addition, the loss of a vessel as a result of terrorism or piracy would have a material adverse effect on our business, financial condition and operating results.
Exposure to currency exchange rate fluctuations results in fluctuations in cash flows and operating results.
Substantially all of our cash receipts are in U.S. Dollars. Certain disbursements, however, including some vessel operating expenses and general and administrative expenses are in the foreign currencies invoiced by the
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supplier, principally the Euro and British Pound Sterling. We remit funds in the various currencies invoiced. We convert the
non-U.S.
Dollar invoices received and their subsequent payments into U.S. Dollars when the transactions occur. This mismatch between receipts and payments may result in fluctuations if the value of the U.S. Dollar changes relative to such other currencies.
In addition, the Company has entered into a cross-currency interest rate swap agreement concurrently with the issuance of its NOK600 million
NOK-denominated
Senior secured bonds. If the Norwegian Kroner depreciates relative to the U.S. Dollar beyond a certain threshold, we are required to place cash collateral with our swap providers for the forecast future liability on the cross-currency interest rate swap. In the event the depreciation of the Norwegian Kroner relative to the U.S. Dollar is significant, the cash collateral requirements could adversely affect our liquidity and financial position.
Our insurance may be insufficient to cover losses that may occur to our vessels or result from our operations.
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. We may not be able to adequately insure against all risks, and any particular claim may not be paid by insurance. None of our vessels are insured against loss of revenues resulting from vessel
off-hire
time. In addition, as a member of protection and indemnity associations we may be required to make additional payments over and above budgeted premiums if members claims exceed association reserves.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future during adverse market conditions. Changes in the insurance markets attributable to war, terrorist attacks or piracy may also make certain types of insurance more expensive or more difficult to obtain. In addition, the insurance may be voidable by the insurers as a result of certain actions, such as vessels failing to maintain certification with applicable maritime self-regulatory organizations. Any uninsured or underinsured loss could have a material adverse effect on our business, financial condition and operating results.
Restrictive covenants in our secured term loan facilities and revolving credit facilities and in our secured and unsecured bonds and our Terminal Facility impose, and any future debt facilities will impose, financial and other restrictions on us
.
The secured term loan facilities and revolving credit facilities and the secured bonds and unsecured bonds impose, and any future debt facility will impose, operating and financial restrictions on us. The restrictions in the existing secured term loan facilities and revolving credit facilities and the secured bonds and unsecured bonds may limit our ability to, among other things:
  pay dividends out of operating revenues generated by the vessels securing indebtedness under the facility, redeem any shares or make any other payment