A new $306m credit facility negotiated by Nordic American Tankers (NAT) contains an apparent “cash-sweep” provision that could limit what the Norwegian owner is able to pay in dividends.
The restriction was disclosed in NAT’s annual report filed last week with US securities regulators. It had not been among the details released previously by the Herbjorn Hansson-led company in relation to the loan with Beal Bank of Texas.
Beal would appear to have discretion to take 50% of Norway-based NAT’s net earnings from the 20 suezmax tankers securing the facility, which is the full fleet except for three vessels financed under sale-and-leaseback transactions.
Even that limit relaxes a restriction under NAT's previous loan, led by DNB, that placed a dividend cap of $0.03 per quarter.
New era for NAT
However, gone are the days when NAT essentially had no limit on a variable dividend that became its trademark and was one of the most robust in the industry.
Hansson did not immediately respond to a request for comment.
NAT’s previous comments on the Beal lending stressed a light covenant structure with a 20-year amortisation profile on a five-year maturity. This was said to allow NAT ample elbow room to pay a dividend it has distributed for 86 straight quarters.
The $0.04 dividend announced by NAT at its last earnings exceeded the $0.03 cap mandated under its previous revolver, which has been retired.
“The loan has an annual amortisation equal to a 20-year maturity profile, carries a floating Libor interest rate plus a margin and matures in February 2024," read a fuller description of the loan’s terms, provided in the newly filed Form 20F submitted to the US Securities and Exchange Commission.
Discretionary cash mechanism
“Further, the agreement contains a discretionary excess cash down-payment mechanism for the lender that equals 50% of the net earnings from the collateral vessels, less capex [capital expenditure] provision and amortisation.
“The agreement contains covenants that require us to maintain $30m in unrestricted cash and a loan-to-vessel value ratio of maximum 70%. We are free to distribute dividends as long as we comply with the covenants of the new credit facility.”
Three finance sources consulted by TradeWinds said the language, while somewhat unusual, indeed appears to reflect a cash sweep.
“What I think that means is that there is a mandatory cash flow sweep that equals 50% of the net earnings from the collateral vessels,” one veteran banker said.
Waiver on mechanism available
“But the lender can agree to waive this excess cash mechanism if it so desires. The lender in any loan can also waive the mandatory loan repayments if the lender so desires.
“[The sweep] will happen automatically unless the bank waives the requirement, which will never happen. It's not an option but a requirement they can waive, but banks never do. Banks know you have to get paid when rates are strong, especially for old ships.”
Hansson indicated on a conference call earlier this year that the interest rate on the Beal loan ranges between 6% and 8%. BTIG analyst Gregory Lewis has put the number between 8% and 8.5%.
While equity analysts largely have been positive on NAT’s new financing and prospects for the crude market, the stock has traded relatively flat since the Beal announcement. It sat at $2.04 this week compared to $1.99 on 11 February.
