May 12, 2008
U.S. Shipping Partners reports first quarter loss
U.S. Shipping Partners L.P. (NYSE: USS) today reported a net loss of $5.8 million for the first quarter ended March 31, 2008-- and said it has it has retained Greenhill & Co., LLC and Jefferies & Company, Inc. to assist it in "exploring a number of strategic alternatives, which could include, among other things, a recapitalization of the partnership, the sale of new equity and other ways to increase liquidity and strengthen the financial resources of the partnership."
For the quarter, voyage revenue were $51.5 million, operating income of $0.5 million and net loss of $5.8 million, compared to voyage revenue of $42.1 million, operating income of $10.4 million and net income of $5.7 million for the same period in 2007.
The partnership's financial results for the first quarter reflect a non-cash impairment charge of $5.7 million related to the adjustment of the fair value of the construction in progress of its fifth Articulated Tug Barge unit ("ATB") to zero, while 2007 results were favorably affected by a $3.5 million contract settlement. Excluding these items, 2008 operating income would have been $6.2 million and net loss would have been $0.1 million, and 2007 operating income would have been $6.9 million and net income would have been $2.3 million.
The partnership previously entered into contracts to construct four additional ATB units similar to the ATB Freeport, each specified to have a carrying capacity of approximately 156,000 barrels. The partnership has the option to cancel the fifth ATB unit prior to June 30, 2008. The partnership has obtained financing for construction of the second, third and fourth ATB units, but not for the fifth . Based on current market conditions ,it expects to exercise the cancellation option for the fifth barge in June 2008, and it does not expect to exercise its option to construct the fifth tug, although it continues to pursue charters for the operation of, and financing for the construction of, the vessel. Accordingly, the partnership has assessed the fair value of the construction in progress of the fifth ATB unit at zero, resulting in a non-cash impairment charge of $5.7 million.
Earnings before interest, taxes and depreciation and amortization and other non-cash expenses ("Adjusted EBITDA"), a non-GAAP measure, were $17.7 million for the three months ended March 31, 2008 compared to $19.5 million for the comparable period in 2007.
The partnership declared a distribution of $0.45 per common unit in respect of the first quarter payable May 21, 2008 to unitholders of record as May 16, 2008.
The partnership did not declare a distribution on its subordinated units and general partner units for the first quarter to allow it to retain the cash for working capital purposes; to increase reserves available for payment of future quarterly distributions on its common units; for the completion of its capital construction program; and to strengthen coverage with respect to the financial covenants under the partnership's credit facility in future periods.
The partnership says it is in compliance with all its financial covenants as of the end of the first quarter of 2008. However, it says that earnings before interest, taxes and depreciation and amortization ("EBITDA") and liquidity have come under increasing pressure due to current difficult market conditions, and "unless there is a significant improvement in utilization of, and charter rates for, the Integrated Tug Barge units ("ITBs") and a resumption of growth in the partnership's chemical business, and/or an amendment to the partnership's financial covenants, it is possible that the partnership will fall out of compliance with certain financial ratio covenants under its senior credit facility measured at the end of the second quarter and likely that the partnership will fall out of compliance with these same covenants measured at the end of the third quarter, although the partnership expects to have sufficient cash resources to service its debt. If the partnership is not in compliance with its financial covenants, the lenders have a number of remedies, including not permitting the partnership to make distributions on its common units until the partnership is again in compliance, although any unpaid distributions on the common units will continue to accrue."
As noted, the partnership announced that it has retained Greenhill & Co., LLC and Jefferies & Company, Inc. to assist it in exploring a number of strategic alternatives.
"We are facing difficult current market conditions" said Paul Gridley, U.S. Shipping Partners' CEO. "Demand in the spot market has recently deteriorated significantly due to overall declining economic activity and decreased demand for the domestic coastwise transportation of petroleum products. Additionally, refinery utilization has declined considerably, fuel prices for operating our vessels are at record levels and increased industry capacity from newbuilds is serving the Jones Act market. Due to these market shifts, the ITBs have recently incurred idle periods greater than, and charter rates below, our previous expectations. Additionally, we have observed modest decreased demand for the domestic coastwise transportation of chemical products served by our chemical transporting vessels, which we believe is due to our customers working off inventory levels."
"The current spot market in which our ITBs operate is significantly more challenging than we had expected," continued Mr. Gridley. "Although current market conditions are difficult, and we cannot give assurances as to future developments, we remain confident in our long term plan for the partnership's vessels, particularly the new ATBs coming on line later this year. These new vessels will enable us to operate at lower cost and compete more effectively for a wider range of transport business, and we expect our currently available resources will enable us to sustain our strong relationships with customers and suppliers."