May 20, 2006
U.S. Shipping orders two more barges, ends SENESCO contract
According to a Form 8-K filing with the SEC, U.S. Shipping Partnership LLP has exercised an option with Manitowoc Marine Group for construction of two 160, 000 bbl barges
The partnership also reports that its board has approved a Memorandum of Understanding that will see cancellation of its agreement with SENESCO for construction of an ATB. Under this agreement SENESCO will pay the partnership $20 million, $6.5 million of which will be held in escrow to pay unpaid vendor and subcontractor bills.
The two barges now being ordered from Manitowoc are options under a construction contract entered into in February 2006, that covered construction of two barges, with options to construct up to two additional barges. On the same date, the partnership entered into a contract for the construction of two tugs with Eastern Shipbuilding Group, Inc., or ("Eastern"), which will be joined with the MMG barges to complete two articulated tug barge, or ATB units.
The contract with Eastern includes options to construct four additional tugs on the basis that each such option shall cover two option tugs. Each option for two additional tugs must be exercised by August 2006 and February 2007.
The two latest barges, scheduled for delivery in August 2009 and November 2009, have a carrying capacity of approximately 160,000 barrels. The cost of constructing these two additional barges, the associated tugs and owner furnished items, is currently estimated to be $66 million per vessel.
The partnership currently intends to finance the construction of these barges and the associated tugs through cash from operations, borrowings under its credit facility and debt and equity offerings.
On May 12, 2006, the Board of Directors of the Partnership approved a memorandum of understanding between certain subsidiaries of the Partnership and Southeastern New England Shipbuilding Corporation ("SENESCO") relating to the completion of construction of its first ATB. Upon closing of the transaction, which is subject to completion of definitive documentation, the Partnership's agreement with SENESCO to construct an ATB will be cancelled. The partnership has hired a naval architecture and marine engineering firm to manage and supervise the completion of the tug and the barge. This firm will use subcontractors currently employed in the completion of the units together with other specialty contractors. SENESCO will be released from financial responsibilities in all respects for construction effective May 11, 2006. The transfer of operational responsibility shall take place at a future closing date. At the closing, SENESCO will transfer $20 million to the Partnership, of which $6.5 million will be placed in escrow for payment of unpaid vendor and subcontractor bills. SENESCO will be responsible for all unpaid vendor and subcontractor bills in excess of $6.5 million. The partnership will cancel the $18 million of letters of credit provided on behalf of SENESCO to cover cost overruns. The partnership expects the total cost to the partnership to construct this ATB will be approximately $60-$64 million, of which the partnership has paid $38 million to date, and that the ATB will be delivered in the first quarter of 2007. The partnership does not believe the estimated increased cost paid to complete the ATB will have a material adverse effect on the Partnership's business or results of operations.