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Scorpio Tankers Inc. Reports First Quarter Net Loss of $62.4 Million

Scorpio Tankers Inc. Friday reported its results for the three months ended March 31, 2021. The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.10 per share on the Company’s common stock.

Results for the three months ended March 31, 2021 and 2020

For the three months ended March 31, 2021, the Company had a net loss of $62.4 million, or $1.15 basic and diluted loss per share. For the three months ended March 31, 2021, the Company had an adjusted net loss (see Non-IFRS Measures section below) of $57.3 million, or $1.05 basic and diluted loss per share, which excludes from the net loss $3.9 million, or $0.07 per basic and diluted share, of losses recorded on the transaction to exchange $62.1 million in aggregate principal amount of its existing Convertible Notes due 2022 for $62.1 million in aggregate principal amount of new Convertible Notes due 2025, described in detail below, and $1.3 million, or $0.02 per basic and diluted share, write-offs of deferred financing fees related to the refinancing of certain credit facilities.

For the three months ended March 31, 2020, the Company had net income of $46.6 million, or $0.85 basic and $0.82 diluted earnings per share. There were no Non-IFRS adjustments to the net income for the three months ended March 31, 2020.

Declaration of Dividend

On May 6, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per common share, payable on or about June 15, 2021 to all shareholders of record as of May 21, 2021 (the record date). As of May 6, 2021, there were 58,369,516 common shares of the Company outstanding.

Summary of First Quarter and Other Recent Significant Events

• Below is a summary of the average daily Time Charter Equivalent (“TCE”) revenue (see Non-IFRS Measures section below) and duration of contracted pool voyages and time charters for the Company’s vessels thus far in the second quarter of 2021 as of the date hereof (See footnotes to “Other operating data” table below for the definition of daily TCE revenue):

• Below is a summary of the average daily TCE revenue earned by the Company’s vessels in each of the pools during the first quarter of 2021:

• In March 2021, the Company completed the exchange of $62.1 million in aggregate principal amount of its Convertible Notes due 2022 for $62.1 million in aggregate principal amount of new 3.00% Convertible Notes due 2025 (the “Convertible Notes due 2025”), pursuant to separate, privately negotiated, agreements with certain holders of the Convertible Notes due 2022. Simultaneously, the Company issued and sold $76.1 million in aggregate principal amount of Convertible Notes due 2025 pursuant to separate, privately negotiated, agreements with certain investors in a private offering.
• In January 2021, the Company entered into a note distribution agreement with B. Riley Securities, Inc., as sales agent, pursuant to which the Company may offer and sell, from time to time, up to $75.0 million of additional aggregate principal amount of its 7.00% Senior Unsecured Notes due 2025 (the “Senior Notes due 2025”). Since the inception of this program and through the date of this press release, the Company issued $17.9 million aggregate principal amount of additional Senior Notes due 2025 for aggregate net proceeds (net of sales agent commissions and offering expenses) of $17.5 million.
• The Company has received a commitment to refinance the existing indebtedness on two LR2s, which is expected to raise $20.5 million in new liquidity (after the repayment of existing debt). These refinancings are expected to close before the end of the second quarter of 2021.
• The Company is also in discussions with financial institutions to further increase its liquidity by up to $46.7 million in connection with the refinancing of 11 vessels.
• In addition to the above, the Company has $20.0 million of additional liquidity available (after the repayment of existing debt) from previously announced financings that have been committed. These drawdowns are expected to occur at varying points in the future as these financings are tied to scrubber installations on the Company’s vessels.
• The Company has $280.1 million in cash and cash equivalents as of May 6, 2021.

March 2021 Exchange Offer and New Issuance of Convertible Notes

In March 2021, the Company completed the exchange of $62.1 million in aggregate principal amount of Convertible Notes due 2022 for $62.1 million in aggregate principal amount of the Convertible Notes due 2025, pursuant to separate, privately negotiated, agreements with certain holders of the Convertible Notes due 2022 (the “March 2021 Exchange”). Simultaneously with the March 2021 Exchange, the Company issued and sold $76.1 million in aggregate principal amount of Convertible Notes due 2025 pursuant to separate, privately negotiated, agreements with certain investors in a private offering (the “March 2021 Convertible Notes Offering”).

The Convertible Notes due 2025 are the Company’s senior, unsecured obligations and bear interest at a rate of 3.00% per year. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2021. The Convertible Notes due 2025 will mature on May 15, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.

The conversion rate of the Convertible Notes due 2025 is initially 26.6617 common shares per $1,000 principal amount of Convertible Notes due 2025 (equivalent to an initial conversion price of approximately $37.507 per common share), and is subject to adjustment upon the occurrence of certain events as set forth in the indenture governing the Convertible Notes due 2025 (such as the payment of dividends).

Commencing on the issue date of the Convertible Notes due 2025, principal will accrete on the principal amount, compounded semi-annually, at a rate of approximately 5.52% per annum, which principal amount, together with any accretions thereon, is the “Accreted Principal Amount”. The Accreted Principal Amount at maturity will equal 125.3% of par, which together with the 3.00% interest rate, compounds to a yield-to-maturity of approximately 8.25%.

The Convertible Notes due 2025 are freely convertible at the option of the holder and prior to the close of business on the 5th business day immediately preceding the maturity date. Upon conversion of the Convertible Notes due 2025, holders will receive shares of the Company’s common stock. The Company may, subject to certain exceptions, redeem the Convertible Notes due 2025 for cash, if at any time the per share volume-weighted average price of our common shares equals or exceeds 125.4% of the conversion price then in effect on (i) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the applicable redemption date; and (ii) the trading day immediately before such date of the redemption notice.

The Company recorded a loss on the extinguishment of the Convertible Notes due 2022 of $3.9 million as a result of the March 2021 Exchange, which primarily arose from the difference between the carrying value and the face value of the Convertible Notes due 2022 on the date of the exchange.

Distribution Agreement of Additional Senior Notes due 2025

In January 2021, the Company entered into a note distribution agreement (the “Distribution Agreement”) with B. Riley Securities, Inc., as sales agent (the “Agent”), under which the Company may offer and sell, from time to time, up to an additional $75.0 million aggregate principal amount of its Senior Notes due 2025 (the “Additional Notes”).

Any Additional Notes sold will be issued under the Indenture pursuant to which the Company previously issued $28.1 million aggregate principal amount of the Senior Notes due 2025 on May 29, 2020 (the “Initial Notes”). The Additional Notes will have the same terms as (other than date of issuance), form a single series of debt securities with and have the same CUSIP number and be fungible with, the Initial Notes immediately upon issuance, including for purposes of notices, consents, waivers, amendments and any other action permitted under the Indenture. The Senior Notes due 2025 are listed on the New York Stock Exchange (the “NYSE”) under the symbol “SBBA.”

Sales of the Additional Notes may be made over a period of time, and from time to time, through the Agent, in transactions involving an offering of the Senior Notes due 2025 into the existing trading market at prevailing market prices.

During the first quarter of 2021, the Company issued $14.1 million in aggregate principal amount of Additional Notes for aggregate net proceeds (net of sales agent commissions and offering expenses) of $13.8 million. Since the inception of this program and through the date of this press release, the Company issued $17.9 million aggregate principal amount of Additional Notes for aggregate net proceeds (net of sales agent commissions and offering expenses) of $17.5 million.

Diluted Weighted Number of Shares

The computation of earnings or loss per share is determined by taking into consideration the potentially dilutive shares arising from (i) the Company’s equity incentive plan, and (ii) the Company’s Convertible Notes due 2022 and Convertible Notes due 2025. These potentially dilutive shares are excluded from the computation of earnings or loss per share to the extent they are anti-dilutive.

The impact of the Convertible Notes due 2022 and Convertible Notes due 2025 on earnings or loss per share is computed using the if-converted method. Under this method, the Company first includes the potentially dilutive impact of restricted shares issued under the Company’s equity incentive plan, and then assumes that its Convertible Notes due 2022 and Convertible Notes due 2025, which were issued in May and July 2018 and March 2021, respectively, were converted into common shares at the beginning of each period. The if-converted method also assumes that the interest and non-cash amortization expense associated with these notes of $3.1 million during the three months ended March 31, 2021 were not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

The Company’s basic weighted average number of shares outstanding were 54,318,792 for the three months ended March 31, 2021. There were 56,019,369 weighted average shares outstanding including the potentially dilutive impact of restricted shares, and 60,168,137 weighted average shares outstanding under the if-converted method. Since the Company was in a net loss position, the potentially dilutive shares arising from both the Company’s restricted shares and under the if-converted method, were anti-dilutive for purposes of calculating the loss per share. Accordingly, basic weighted average shares outstanding were used to calculate both basic and diluted loss per share for this period.

COVID-19

Initially, the onset of the COVID-19 pandemic in March 2020 resulted in a sharp reduction in economic activity and a corresponding reduction in the global demand for oil and refined petroleum products. This period of time was marked by extreme volatility in the oil markets and the development of a steep contango in the prices of oil and refined petroleum products. Consequently, an abundance of arbitrage and floating storage opportunities opened up, which resulted in record increases in spot TCE rates late in the first quarter of 2020 and throughout the second quarter of 2020. These market dynamics, which were driven by arbitrage trading rather than underlying consumption, led to a build-up of global oil and refined petroleum product inventories.

In June 2020, as underlying oil markets stabilized and global economies began to recover, the excess inventories that built up during this period began to slowly unwind. Nevertheless, global demand for oil and refined petroleum products remained subdued as governments around the world continued to impose travel restrictions and other measures in an effort to curtail the spread of the virus. These market conditions had an adverse impact on the demand for our vessels beginning in the third quarter of 2020 and continuing through the first quarter of 2021. Recently, the easing of restrictive measures and successful roll-out of vaccines in certain countries have begun to stimulate oil demand and have manifested into sequential improvements in market conditions to start the second quarter of 2021.

We expect that the COVID-19 virus will continue to cause volatility in the commodities markets. The scale and duration of these circumstances is unknowable but could have a material impact on our earnings, cash flow and financial condition in 2021. An estimate of the impact on our results of operations and financial condition cannot be made at this time.

$250 Million Securities Repurchase Program

In September 2020, the Company’s Board of Directors authorized a new Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s securities which, in addition to its common shares, currently consist of its Senior Notes due 2025 (NYSE: SBBA), which were originally issued in May 2020, Convertible Notes due 2022, which were issued in May and July 2018, and Convertible Notes due 2025, which were issued in March 2021. No securities have been repurchased under the new program since its inception through the date of this press release.

Full Report

Source: Scorpio Tankers Inc.

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