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Gener8 Maritime Says Its ECO Tankers Commanded 10-15% Freight Rate Premiums As Two-Tier Market Emerges

Gener8 Maritime, Inc., a leading U.S.-based provider of international seaborne crude oil transportation services, today announced its financial results for the three and twelve months ended December 31, 2016.

Highlights

Recorded net income of $5.8 million, or $0.07 basic and diluted earnings per share, for the three months ended December 31, 2016, compared to $45.5 million or $0.55 basic and diluted earnings per share for the same period in the prior year. Recorded adjusted net income of $20.1 million, or $0.24 basic and diluted adjusted earnings per share, for the three months ended December 31, 2016, compared to $47.7 million or $0.58 basic and diluted earnings per share for the same period in the prior year.

Increased vessel operating days by 52.0% to 3,533 in the three months ended December 31, 2016 compared to 2,319 in the same period in the prior year. Increased “ECO” VLCC operating days to 77% of VLCC operating days in the three months ended December 31, 2016, compared to 29% in the same period in the prior year.

Increased full fleet “ECO” operating days to 43% in the three months ended December 31, 2016, compared to 9% in the same period in the prior year.

Took delivery of five “ECO” newbuilding VLCCs since the end of the third quarter of 2016. The Gener8 Miltiades, the Gener8 Noble and the Gener8 Theseus were delivered during the fourth quarter of 2016, and the Gener8 Hector and the Gener8 Ethos were delivered subsequent to the end of the quarter.

Sold the 2000-built Suezmax tanker Gener8 Spyridon in December 2016 for net proceeds of $1.8 million after prepaying $11.7 million of associated debt.

Sold the 2003-built VLCC tanker Gener8 Ulysses in February 2017 for net proceeds of $10.2 million after prepaying $20.0 million of associated debt.

“As we continue to receive vessels from our newbuilding program, it becomes increasingly apparent that a two-tier market exists favoring modern, “ECO” vessels. For the second consecutive quarter, our “ECO” VLCCs earned between 10% and 15% more on an average daily TCE basis than our non-“ECO” VLCCs,” said Peter Georgiopoulos, Chairman and Chief Executive Officer of Gener8 Maritime. “We continued to increase the modernity of our fleet with the delivery of three “ECO” VLCCs in the fourth quarter and two “ECO” VLCCs to date in the first quarter of 2017 and the sale of two older vessels during the same periods. Following the completion of our newbuilding program expected this year and assuming no further changes to our fleet, the DWT-weighted average age of our fleet will be 4.9 years, and our VLCCs will have an average age of just 2.7 years, giving us the youngest and most modern VLCC fleet among our public company peers. Marine fuel prices have been steadily increasing over the last year, highlighting the fuel efficiency of our “ECO” design vessels, which have quickly become a significant driver of the favorable TCE rates we have been able to achieve in a relatively weak rate environment. We believe this advantage will become more pronounced over time.”

Leo Vrondissis, Chief Financial Officer, added, “Following the delivery of the Gener8 Ethos on March 9, 2017, 20 of the 21 “ECO” VLCCs from our newbuilding program have been delivered. Based on recent valuations, the remaining payment due on the final newbuilding VLCC is expected to be fully covered through available borrowings. Additionally, in conjunction with the sales of the Gener8 Spyridon and Gener8 Ulysses we have prepaid $31.7 million of debt, which will have a positive effect on our average vessel breakeven rates going forward.”

Fourth Quarter 2016 Results Summary

The Company recorded net income for the three months ended December 31, 2016 of $5.8 million, or $0.07 basic and diluted earnings per share, compared to net income of $45.5 million, or $0.55 basic and diluted earnings per share, for the prior year period.

Adjusted net income was $20.1 million, or $0.24 basic and diluted adjusted earnings per share, for the three months ended December 31, 2016, compared to adjusted net income of $47.7 million, or $0.58 basic and diluted adjusted income per share, for the three months ended December 31, 2015. The decrease in adjusted net income was primarily due to an increase in interest expense, net and depreciation and amortization expense during the three months ended December 31, 2016 compared to prior year period as a result of the delivery of 15 newbuilding vessels during the year ended December 31, 2016.

The average daily spot TCE rates obtained by the Company’s VLCC fleet, including its vessels that were deployed in the Navig8 pools, were $36,282 for the three months ended December 31, 2016 and $40,130 for the twelve months ended December 31, 2016. During the three months ended December 31, 2016, the Company’s “ECO” VLCC fleet earned an average daily TCE of $37,430, and the Company’s non-“ECO” VLCC fleet earned an average daily TCE of $32,419. The average daily TCE rate obtained by the Company on a full-fleet basis was $28,190.

Net voyage revenue was $99.6 million for the three months ended December 31, 2016, substantially flat as compared to $100.7 million in the prior year period.

Direct vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, and maintenance and repairs, increased by $7.4 million, or 32.0%, to $30.3 million for the three months ended December 31, 2016 compared to $22.9 million for the prior year period. The increase in direct vessel operating expenses was primarily due to the increase by 11.2 vessels, or by 40.8%, in the average size of the Company’s fleet to 38.6 vessels for the three months ended December 31, 2016, as compared to 27.4 vessels for the prior year period.

Navig8 charterhire expenses decreased by $4.2 million, to ($0.2) million for the three months ended December 31, 2016 compared to $4.0 million for the prior year period. These charterhire expenses were related to the Nave Quasar, a vessel chartered-in, as a result of the 2015 merger. Navig8 charterhire expenses during the three months ended December 31, 2015 included profit share adjustments related to the profit share plan for the Nave Quasar. In March 2016, the time charter under which this vessel had been chartered-in expired, and the vessel was redelivered to its owner.

General and administrative expenses decreased by $2.6 million, or 32.0%, to $5.6 million during the three months ended December 31, 2016 compared to $8.2 million for the prior year period, primarily due to $2.2 million of lower legal and other professional fees relating to, among other things, the Company’s existing credit facilities during the three months ended December 31, 2016 as compared to the prior year period.

Adjusted EBITDA for the three months ended December 31, 2016 was $64.3 million, compared to $64.6 million for the prior year period. Please refer to the tables at the end of this press release for a reconciliation of adjusted EBITDA to net income.

Depreciation and amortization expenses increased by $12.6 million, or 90.3%, to $26.6 million during the three months ended December 31, 2016 compared to $14.0 million for the prior year period. Depreciation of vessel costs increased by $12.5 million, or 102.3%, to $24.6 million during the three months ended December 31, 2016 compared to $12.2 million for the prior year period. This increase was primarily due to an increase in the Company’s fleet size as its newbuilding vessels were delivered (the Company took delivery of 15 newbuilding vessels during the year ended December 31, 2016).

Loss on disposal of vessels, net increased by $13.4 million during the three months ended December 31, 2016 compared to $0.6 million for the prior year period, primarily due to losses associated with the sale of Gener8 Spyridon and the agreement to sell the Gener8 Ulysses.

Net interest expense increased by $13.5 million, to $18.3 million for the three months ended December 31, 2016 compared to $4.8 million for the prior year period. This increase was primarily attributable to a decrease in the capitalization of interest expense associated with vessel construction of $7.9 million, or 70.5%, to $3.3 million for the three months ended December 31, 2016 compared to $11.2 million for the prior year period, primarily as a result of deliveries of the VLCC newbuildings the Company acquired in 2015. Contributing to the increase in interest expense, net during the three months ended December 31, 2016 was an increase in interest expense associated with the Company’s credit facilities of $3.7 million, or 43.4%, to $12.4 million compared to $8.6 million for the prior year period, primarily due to an increase in the outstanding borrowings under these credit facilities and senior notes. The Company’s outstanding borrowings under its credit facilities and senior notes were $1.6 billion and $1.0 billion as of December 31, 2016 and 2015, respectively.

In addition, in May 2016, the Company entered into six interest rate swap transactions that effectively fix the interest rate on a portion of its outstanding variable rate debt to a range of fixed rates. During the three months ended December 31, 2016, the Company recorded $1.2 million related to interest rate swap settlements as net interest expense.

As of December 31, 2016, the Company’s cash balance was $94.7 million, compared to $157.5 million as of December 31, 2015. As of December 31, 2016, the Company’s net debt (calculated as total debt less cash, discounts and deferred financing costs) was $1.4 billion.

As of December 31, 2016, there were 82,960,194 shares of the Company’s common stock outstanding.

Full Year 2016 Results Summary

The Company recorded net income for the year ended December 31, 2016 of $67.3 million, or $0.81 basic and diluted earnings per share, compared to $129.6 million, or $2.06 basic and $2.05 diluted earnings per share, for the prior year period.

The Company recorded adjusted net income of $124.8 million, or $1.51 basic and diluted adjusted earnings per share for the year ended December 31, 2016, compared to an adjusted net income of $154.4 million or $2.46 basic and $2.45 diluted adjusted earnings per share for the prior year period. The large decrease in voyage expenses for the year ended December 31, 2016, compared to the prior year period is primarily resulted from the Company having transitioned the majority of its vessels into the Navig8 pools where voyage expenses are borne by the pool and netted out of monthly distributions.

Net voyage revenue increased by $57.5 million, or 17.2%, to $392.1 million for the year ended December 31, 2016 compared to $334.6 million for the prior year period. The increase in net voyage revenues was primarily attributable to the increase in the Company’s vessel operating days as a result of the deployment of 15 additional VLCC newbuilding vessels that were delivered during the year ended December 31, 2016.

Direct vessel operating expenses increased by $21.8 million, or 25.5%, to $107.3 million for the year ended December 31, 2016 compared to $85.5 million for the prior year period. This increase was also primarily attributable to the increase in the Company’s vessel operating days.

Navig8 charterhire expenses decreased by $8.2 million, or 73.0%, to $3.1 million for the year ended December 31, 2016 compared to $11.3 million for the prior year period. In March 2016, the time charter under which the Nave Quasar, had been chartered-in expired and the vessel was redelivered to its owner.

General and administrative expenses decreased by $8.6 million, or 23.5%, to $27.8 million for the year ended December 31, 2016 compared to $36.4 million for the prior year period. This decrease was primarily due to a decrease in the stock-based compensation expense of $7.3 million during the year ended December 31, 2016 compared to the prior year period primarily attributable to expenses recorded in 2015 for the restricted stock units granted in connection with the Company’s initial public offering in 2015.

Adjusted EBITDA for the full year ended December 31, 2016 increased by $41.3 million, or 19.2%, to $256.5 million compared to $215.2 million for the prior year period.

Depreciation and amortization expenses increased by $39.6 million, or 83.3%, to $87.2 million for the year ended December 31, 2016 compared to $47.6 million for the prior year period. Depreciation of vessels costs increased by $37.5 million, or 90.1%, to $79.1 million for the year ended December 31, 2016 compared to $41.6 million for the prior year period. The increase in vessel depreciation and amortization of drydocking costs was primarily due to the increase in the Company’s fleet size and the additional drydocking costs incurred for the year ended December 31, 2016 as compared to the prior year period. The Company took delivery of 15 newbuilding vessels during the year ended December 31, 2016.

The Company recorded a goodwill impairment of $26.3 million during the year ended December 31, 2016. As a result of the goodwill impairment test performed, it was determined that the carrying value for each reporting unit was higher than its fair value and therefore goodwill was fully impaired, which resulted in a write-off of $23.3 million for the year ended December 31, 2016. Additionally, for the year ended December 31, 2016, in connection with the sale of the Genmar Victory and Genmar Vision, the Company wrote-off $3.0 million of related goodwill. During the year ended December 31, 2015, the Company recorded a loss of approximately $0.5 million related to the sale of the Gener8 Consul to reflect the difference between the fair value (less selling expenses) of the disposed vessel and its recorded value. The transaction closed in the first quarter of 2016.

Losses on disposal of vessels, net increased by $23.4 million to $24.2 million during the year ended December 31, 2016 compared to $0.8 million for the prior year period, primarily due to losses on the sale of the Genmar Victory, Genmar Vision, and Gener8 Spyridon, as well as the Gener8 Ulysses (which was recorded as assets held for sale as of December 31, 2016 and sold in February 2017). Additionally, during the year ended December 31, 2016, following the liquidation of foreign subsidiaries, the Company recorded a $0.8 million gain related to the write-off of the accumulated translation adjustment component of equity.

Interest expense, net increased by $33.6 million to $49.6 million during the year ended December 31, 2016 compared to $16.0 million for the prior year period. The increase was primarily attributable to the increase in interest expense associated with the Company’s credit facilities and senior notes of $11.0 million, or 38.5%, to $39.5 million compared to $28.5 million for the prior year period due to the increase in outstanding borrowings. The Company’s outstanding borrowings under its credit facilities and senior notes were $1.6 billion and $1.0 billion as of December 31, 2016 and 2015, respectively. Contributing to the increase in interest expense, net during the year ended December 31, 2016, was the reduction in capitalized interest of $7.6 million, or 21.5%, to $27.6 million compared to $35.2 million for the prior year period related to the capitalization of interest expense associated with vessels under construction. Capitalized interest results in a reduction of interest expense, net. The Company does not capitalize interest expense associated with the funding of its VLCC newbuildings after delivery of the vessels. Also contributing to the increase in interest expense, net were increases in amortization of deferred financing costs of $7.9 million to $11.3 million for the year ended December 31, 2016 compared to $3.4 million for the prior year period, and commitment fees of $2.5 million, or 91.7% to $5.2 million for the year ended December 31, 2016 compared to $2.7 million for prior year period. The Company incurred these additional deferred financing costs and commitment fees in connection with the Company’s entry into the Amended Sinosure Credit Facility and the Korean Export Credit Facility, which the Company has used to fund a portion of the remaining installment payments due under the acquired VLCC Newbuilding contracts. In addition, in May 2016, the Company entered into six interest rate swap transactions that effectively fix the interest rate on a portion of its outstanding variable rate debt to a range of fixed rates. During the year ended December 31, 2016, the Company recorded $2.7 million related to interest rate swaps settlements as interest expense, net.

During the year ended December 31, 2015, in connection with the consummation of the merger with Navig8 Crude Tankers and pursuant to an equity purchase agreement entered into in connection with the merger, the Company issued an aggregate of 483,970 shares to the commitment parties as a commitment premium as consideration for their purchase commitments under such agreement. The commitment to purchase the Company’s common stock by the commitment parties was terminated upon the consummation of the Company’s initial public offering, and the related expenses of $6.0 million, representing the value of the commitment premium as of the issuance date, were reflected as other financing costs. There were no such expenses in the current year period.

The Company recognized $0.7 million of earnings as other (expense) income, net during the year ended December 31, 2016 related to the impact of its interest rate swap agreements, entered in 2016. There were no such expenses in the prior year period.

Source: Gener8 Maritime

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