Form

PURSUANT TO RULE OR

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20-F

 40-F.

 20-F

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 40-F

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6-K

S-T

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REPORT ON FORM FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019

 

 

This section should be read in conjunction with the interim financial statements and notes thereto presented elsewhere in this report, as well as the audited historical consolidated financial statements and notes thereto of Navigator Holdings Ltd. included in our Annual Report on Form filed with the United States Securities and Exchange Commission, or the SEC, on April 1, 2019 (“the 2018 Annual Report”). Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and are presented in U.S. Dollars unless otherwise indicated.

We are the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. We provide international and regional seaborne transportation services of petrochemical gases, liquified petroleum gas, or “LPG”, and ammonia for energy companies, industrial users and commodity traders. These gases are transported in liquefied form, by applying cooling and/or pressure, to reduce volume by up to 900 times depending on the cargo, making their transportation more efficient and economical. Vessels in our fleet are capable of loading, discharging and carrying cargoes across a range of temperatures from ambient to minus 104° Celsius and pressures from 1 bar to 6.4 bar.

We employ our vessels through a combination of time charters, voyage charters and contracts of affreightment (“COAs”). Our fleet consists of 38 vessels; 33 of these are semi- or fully-refrigerated handysize liquefied gas carriers; four are midsize 37,300 cubic meters, or “cbm”, ethylene/ethane capable semi-refrigerated liquefied gas carriers and one is a 38,000 cbm fully refrigerated liquefied gas carrier. We define handysize liquefied gas carriers as those liquefied gas carriers with capabilities between 15,000 and 24,999 cbm. Our handysize liquefied gas carriers can accommodate medium- and long-haul routes that may be uneconomical for smaller vessels and can call at ports that are unable to support larger vessels due to limited onshore capacity, absence of fully-refrigerated loading infrastructure and/or vessel size restrictions. Our midsize ethylene/ethane-capable semi-refrigerated gas carriers enable long-haul transportation of ethylene/ethane that may be uneconomical for smaller vessels.

In January 2018, we entered into a 50/50 joint venture (the “Export Terminal Joint Venture”) to construct and operate an ethylene export marine terminal at Morgan’s Point, Texas (the “Marine Export Terminal”). Our joint venture partner is the sole managing member of the Export Terminal Joint Venture and it is also the operator of the Marine Export Terminal. Our share of the capital cost for the construction of the Marine Export Terminal is expected to be $155.0 million of which we had contributed $90.5 million to the Export Terminal Joint Venture as of June 30, 2019. On July 9, 2019, we made an additional $12.5 million capital contribution to the Export Terminal Joint Venture.

on-site

 

Operating Vessel		Year Built				Vessel Size (cbm)				Employment Status				Charter Expiration Date
Ethylene/ethane capable semi-refrigerated
Navigator Orion (formerly known as Navigator Mars)			2000				22,085				Spot market				—
Navigator Neptune			2000				22,085				Time charter				October 2020
Navigator Pluto			2000				22,085				Time charter				January 2020
Navigator Saturn			2000				22,085				Contract of affreightment				April 2020
Navigator Venus			2000				22,085				Time charter				November 2020
Navigator Atlas			2014				21,000				Spot market				—
Navigator Europa			2014				21,000				Spot market				—
Navigator Oberon			2014				21,000				Contract of affreightment				April 2020
Navigator Triton			2015				21,000				Contract of affreightment				April 2020
Navigator Umbrio			2015				21,000				Spot market				—
Navigator Aurora			2016				37,300				Time charter				December 2026
Navigator Eclipse			2016				37,300				Spot market				—
Navigator Nova			2017				37,300				Time charter				January 2020
Navigator Prominence			2017				37,300				Time charter				October 2020
Semi-refrigerated
Navigator Magellan			1998				20,700				Spot market				—
Navigator Aries			2008				20,750				Time charter				April 2020
Navigator Capricorn			2008				20,750				Time charter				March 2020
Navigator Gemini			2009				20,750				Spot market				—
Navigator Pegasus			2009				22,200				Time charter				November 2019
Navigator Phoenix			2009				22,200				Time charter				January 2020
Navigator Scorpio			2009				20,750				Time charter				December 2019
Navigator Taurus			2009				20,750				Time charter				December 2019
Navigator Virgo			2009				20,750				Spot market				—
Navigator Leo			2011				20,600				Time charter				December 2023
Navigator Libra			2012				20,600				Time charter				December 2023
Navigator Centauri			2015				21,000				Time charter				December 2019
Navigator Ceres			2015				21,000				Spot market				—
Navigator Ceto			2016				21,000				Spot market				—
Navigator Copernico			2016				21,000				Time charter				December 2019
Navigator Luga			2017				22,000				Time charter				February 2022
Navigator Yauza			2017				22,000				Time charter				April 2022
Fully-refrigerated
Navigator Glory			2010				22,500				Time charter				May 2021
Navigator Grace			2010				22,500				Time charter				December 2019
Navigator Galaxy			2011				22,500				Time charter				April 2020
Navigator Genesis			2011				22,500				Time charter				June 2020
Navigator Global			2011				22,500				Time charter				November 2020
Navigator Gusto			2011				22,500				Time charter				November 2019
Navigator Jorf			2017				38,000				Time charter				August 2027

 

On May 8, 2019, a third long term throughput agreement was signed for the Marine Export Terminal, with strong indications of demand for the remaining capacity. Commercial operations continue to be scheduled to begin in the fourth quarter of 2019, with the refrigerated storage tank expected to be completed in late 2020. It is anticipated that the Marine Export Terminal’s throughput capacity during the first year of operation and prior to the cryogenic tank becoming operational will be between 60% to 75% of the total expected capacity of 1.0 million tonnes.

As of June 30, 2019, the Company had contributed $90.5 million of our expected $155.0 million share of the capital cost of the Marine Export Terminal construction from the Company’s available cash resources and the 2018 Bonds. In July 2019 we contributed a further $12.5 million. We are scheduled to contribute an additional $31.0 million this year and to contribute the remaining $21.0 million of our expected share of the capital cost for the construction during 2020.

From 2006 to 2015, Dr. Deans held a series of positions as the chief executive officer of multiple affiliates and directly owned subsidiaries of INEOS Group Holdings S.A., a chemical company. From August 2015 to December 2017, Dr. Deans was the Senior Vice President of Agrium Inc., a fertilizer producer and distributor, prior to its merger with Potash Corporation of Saskatchewan to form Nutrien Ltd., where he served as the Executive Vice President and President of the nitrogen division from January 2018 to May 2018. From August 2015 to December 2017, he also served as a member of the board of directors of Canpotex Potash Export Company. Most recently Dr. Deans was Chief EHS and Operations Officer at Johnson Matthey PLC. Dr. Deans holds a Ph.D. and M.Phil. in chemistry from Strathclyde University as well as a B.Sc. in chemistry from Glasgow University.

handysize-ton

As the LPG market strengthened, the usually more consistent petrochemical gas market faltered, as a number of unforeseeable elements combined to constrict trade flows. There have been a relatively high number of incidents at major terminals around the world in 2019. Italy, Turkey, the United States Gulf and East Coast, Mexico, Argentina, Malaysia and China have all endured misfortune and setbacks that disrupted product supply, receiving capacity and trade patterns.

handy-size

Medium-size

time-lag

 

The cbm) shipping market has seen many challenges during the first six months of 2019. It has not yet seen the improved charter rates that the VLGC sector currently enjoys, but neither has it suffered the lows of the VLGCs from six months ago. With VLGC spot earnings increasing from $1.0 million per calendar month (“pcm”) to $2.1 million pcm over the second quarter and the MGC rates rising from $500,000 pcm to $650,000 pcm over the second quarter, the market’s short-term overcapacity has certainly contributed to a decrease in our earnings in the second quarter as compared to the first quarter of 2019. However, as fully-refrigerated LPG volumes continue to rise at a steady pace, we expect to see the segment support this rise with the prospect of moving more vessels into the LPG market from the petrochemical market.

The following table compares our operating results for the three months ended June 30, 2018 and 2019:

 

 

The following table presents selected operating data for the three months ended June 30, 2018 and 2019, which we believe are useful in understanding the basis for movement in our operating revenue.

The following table represents a reconciliation of operating revenue to TCE rate. Operating revenue is the most directly comparable financial measure calculated in accordance with U.S. GAAP for the periods presented.

 

 

 

 

non-designated

 

 

 

 

 

 

The following table presents selected operating data for the six months ended June 30, 2018 and 2019, which we believe are useful in understanding the basis for movement in our operating revenue.

 

 

 

 

 

 

 

 

 

 

. Brokerage commissions, which typically vary between 1.25% and 5% of operating revenue, increased to $2.5 million for the six months ended June 30, 2019, from $2.4 million for the six months ended June 30, 2018.

. The 2018 Bonds are translated from Norwegian Krone to USD at the prevailing rate at June 30, 2019, which resulted in a foreign exchange loss of $1.0 million in the six months ended June 30, 2019.

non-designated

3-month

 

. The Company’s 50% share of the results of the Export Terminal Joint Venture was an expense of $0.14 million for the six months ended June 30, 2019. There was no charge to the income statement for the six months ended June 30, 2018.

Our primary sources of funds are cash and cash equivalents, cash from operations, undrawn bank borrowings and proceeds from bond issuances. As of June 30, 2019, we had cash and cash equivalents of $47.3 million along with $36.0 million available under the March 2019 Terminal Credit Facility to be used solely to pay capital contributions to the Export Terminal Joint Venture and $35.0 million available borrowing capacity under our secured term loan and revolving credit facilities. In compliance with our bank facilities we are required to maintain a cash balance at the greater of $35.0 million or 5% of debt, which as of June 30, 2019 equated to $43.2 million. We anticipate that the Company’s cash from operations, with particular attention made to the current and future vessel employment profile, undrawn bank borrowings and proceeds from bond issuances will be sufficient to meet our liquidity needs for at least the next twelve months

 

The following table summarizes our cash and cash equivalents provided by (used in) operating, financing and investing activities for the six months ended June 30, 2018 and 2019:

Net cash flow from operating activities depends upon the size of our fleet, charter rates attainable, fleet utilization, fluctuations in working capital balances, repairs and maintenance activity, changes in interest rates and foreign currency rates.

one-half

20-30

5-10

15-20

ten-year

Net cash used in investing activities of $10.3 million for the six months ended June 30, 2018 primarily consisted of our investment in the Export Terminal Joint Venture of $10.0 million and associated costs of $0.5 million, partially offset by insurance recoveries on an existing damage claim of $0.3 million.

Net cash used in financing activities of $39.8 million for the six months ended June 30, 2018 relates to regular quarterly loan repayments of $43.6 million, partially offset by proceeds from drawing down from the June 2017 secured term loan and revolving credit facility of $3.8 million which was used for general corporate purposes.

 

The table below summarizes the Terminal Facility as of June 30, 2019:

As of June 30, 2019, based on the existing committed throughput for the Marine Export Terminal and subject to the satisfaction of certain conditions to the ability to borrow under the Terminal Facility, $36.0 million would have been available to be drawn down under this Credit Agreement. Available amounts are expected to increase as additional throughput agreements are committed.

Following completion of the Marine Export Terminal, the Marine Terminal Borrower can only pay dividends if the Marine Terminal Borrower satisfies certain customary conditions to paying a dividend, including maintaining a debt service coverage ratio for the immediately preceding four consecutive fiscal quarters and the projected immediately succeeding four consecutive fiscal quarters of not less than 1.20 to 1.00 and no default or event of default has occurred or is continuing. The Terminal Facility also limits the Marine Terminal Borrower from, among other things, incurring indebtedness or entering into mergers and divestitures. The Terminal Facility also contains general covenants that will require the Marine Terminal Borrower to vote its interest in the Marine Terminal Joint Venture to cause the Marine Terminal Joint Venture to maintain adequate insurance coverage, complete the Marine Export Terminal and maintain its property (but only to the extent the Marine Terminal Borrower has the power under the organizational documents of the Marine Terminal Joint Venture to so cause such actions).

The Terminal Facility includes events of default for the failure to achieve the completion of the Marine Export Terminal by December 31, 2020, the abandonment of all or substantially all activities relating to the Marine Export Terminal for 90 consecutive days and if certain material contracts relating to the Marine Export Terminal are terminated, as well as customary events of default including those relating to a failure to pay principal or interest, a breach of covenant, representation or warranty, a cross-default to other indebtedness and with security documents.

The loans under the Terminal Facility are secured by first priority liens on the rights to the Marine Terminal Borrower’s distributions from the Marine Terminal Joint Venture, the Marine Terminal Borrower’s assets and properties and the company’s equity interests in the Marine Terminal Borrower.

 

The table below summarizes our secured term loan and revolving credit facilities as of June 30, 2019:

ING-DIBA

re-finance

On June 29, 2018 the Company obtained approval to amend one of the covenants in each of its secured term loan and revolving credit facilities. The covenant, requiring the ratio of Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) to be at least two and a half times or three times interest has been amended to a requirement of two times interest, up to and including September 30, 2020, before then reverting back to the original requirements of two and a half times or three times interest, dependent upon the facility. In addition, the definition of interest under these facilities now excludes interest due or payable relating to debt financing obtained by the Company in relation to its obligations associated with the construction of the Marine Export Terminal. Under the terms of these amendments, dividends may not be declared or paid by the Company until on or after December 31, 2020.

The borrowers are also required to deliver semi-annual compliance certificates, which include valuations of the vessels securing the applicable facility from an independent ship broker. Upon delivery of the valuation, if the market value of the collateral vessels is less than 135% of the outstanding indebtedness under the January 2015 facility, 130% of the outstanding indebtedness under the March 2019 facility or 125% of the outstanding indebtedness under the other facilities, the borrowers must either provide additional collateral or repay any amount in excess of 135% or 125% of the market value of the collateral vessels, as applicable. This covenant is measured semi-annually on June 30 and December 31. As of June 30, 2019, we had an aggregate excess of $345.1 million above the levels required by these covenants, in addition to four additional vessels that are unsecured.

 

non-compliance

Our compliance with the financial covenants listed above is measured as of the end of each fiscal quarter. As of June 30, 2019, we were in compliance with all covenants under the secured term loan facilities and revolving credit facilities.

360-day

Additionally, upon the occurrence of a “Change of Control Event” (as defined in the 2017 Bond Agreement), the holders of 2017 Bonds have an option to require us to repay such holders’ outstanding principal amount of 2017 Bonds at 101% of par, plus accrued interest.

Our compliance with the covenants listed above is measured as of the end of each fiscal quarter. As of June 30, 2019, we were in compliance with all covenants under the 2017 Bonds.

 

3-month

360-day

3-month

Additionally, upon the occurrence of a “Change of Control Event” (as defined in the bond agreement governing the 2018 Bonds (the “2018 Bond Agreement”)), the holders of 2018 Bonds have an option to require us to repay such holders’ outstanding principal amount of 2018 Bonds at 101% of par, plus accrued interest.

As of June 30, 2019, we were in compliance with all covenants under the 2018 Bonds.

		Remainder of 2019				2020				2021				2022				2023				Thereafter				Total
						(in thousands)
Marine Export Terminal capital contributions*			45,000				19,500				—				—				—				—				64,500
Secured term loan facilities and revolving credit facilities			34,875				69,750				69,750				311,611				142,503				63,537				692,026
2017 Bonds			—				—				100,000				—				—				—				100,000
2018 Bonds**			—				—				—				—				71,697				—				71,697
Office operating leases			745				1,276				1,124				93				—				—				3,238
Total contractual obligations		$	80,620			$	90,526			$	170,874			$	311,704			$	214,200			$	63,537			$	931,461

 

As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional vessels. We may choose to pursue such opportunities through internal growth or joint ventures or business acquisitions. We intend to finance any future acquisitions through various sources of capital, including credit facilities, debt borrowings and the issuance of additional shares of common stock.

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For a description of our material accounting policies, please read Note 2 (Summary of Significant Accounting Policies) to our audited historical consolidated financial statements included in our 2018 Annual Report.

 

We are exposed to market risk from changes in interest rates and foreign currency fluctuations, as well as inflation. We use interest rate swaps to manage interest rate risks but will not use these financial instruments for trading or speculative purposes.

The Company and certain of our vessel-owning subsidiaries are parties to secured term loan facilities and revolving credit facilities that bear interest at an interest rate of US LIBOR plus 210 to 270 basis points. A variation in LIBOR of 100 basis points would result in a variation of $6.9 million in annual interest paid on our indebtedness outstanding as at June 30, 2019, under the secured term loan facilities and revolving credit facilities.

On November 2, 2018, we issued senior secured bonds in an aggregate amount of NOK 600 million. We have entered into a cross currency interest rate swap to mitigate the risk of certain interest rate movements during the five-year tenor of these bonds which mature on November 2, 2023. Please read Note 7 (Senior Secured Bond) and Note 9 (Derivative Instruments Accounted for at Fair Value) to the unaudited condensed consolidated financial statements. A variation in LIBOR of 100 basis points would result in a variation of $0.7 million in annual interest paid on the 2018 Bonds.

Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional currency. Consequently, virtually all of our revenues are in U.S. Dollars. Our expenses, however, are in the currency invoiced by each supplier and we remit funds in the various currencies invoiced. We incur some vessel operating expenses and general and administrative costs in foreign currencies, primarily the Euro, Pound Sterling and Polish Zloty; and there is a risk that currency fluctuations could have an adverse effect on the value of our cash flows. We believe that any adverse effect on these costs would not be material and we have not entered into any derivative contracts to mitigate our exposure to foreign currency exchange rate risk.

We may be exposed to credit risks in relation to vessel employment and at times may have multiple vessels employed by one charterer. We consider and evaluate concentration of credit risk continuously and perform ongoing evaluations of these charterers for credit risk. At June 30, 2019, no more than four of our vessels were employed by the same charterer.

We invest our surplus funds with reputable financial institutions, with original maturities of no more than six months, in order to provide the Company with flexibility to meet all requirements for working capital and for capital investments.

 

6-K

6-K