Filed Pursuant to Rule 424(b)(5)
Registration No. 333-230469

 

This preliminary prospectus supplement and the accompanying base prospectus relate to an effective registration statement under the Securities Act of 1933, as amended, but are not complete and may be changed. This preliminary prospectus supplement and the accompanying base prospectus are not an offer to sell these securities in any jurisdiction where the offer or sale is not permitted and they are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 26, 2020

PRELIMINARY PROSPECTUS SUPPLEMENT

(To Prospectus dated March 22, 2019)

 

 

    % Fixed Rate Senior Unsecured Notes due 2025

 

 

We are offering $             aggregate principal amount of our    % Fixed Rate Senior Unsecured Notes due 2025 (the “Notes”). We have granted the underwriters the option, exercisable during the 30-day period beginning on the date of this prospectus supplement, to purchase up to an additional $             aggregate principal amount of the Notes. The Notes will bear interest from                , 2020 at a rate of     % per year. The Notes will mature on June 30, 2025. Interest on the Notes will be payable quarterly in arrears on the 30th day of March, June, September and December of each year, commencing on June 30, 2020. We may redeem the Notes for cash, in whole or in part, at any time at our option (i) on or after June 30, 2022 and prior to June 30, 2023, at a redemption price equal to 102% of the principal amount to be redeemed, (ii) on or after June 30, 2023 and prior to June 30, 2024, at a redemption price equal to 101% of the principal amount to be redeemed, and (iii) on or after June 30, 2024 and prior to maturity, at a redemption price equal to 100% of the principal amount to be redeemed, in each case, plus accrued and unpaid interest to, but excluding, the date of redemption, as described in “Description of Notes—Optional Redemption.” In addition, we may redeem the Notes, in whole, but not in part, at any time at our option prior to June 30, 2022, at a redemption price equal to 104% of the principal amount to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption, upon the occurrence of certain change of control events, as described under “Description of Notes—Optional Redemption Upon Change of Control.”

The Notes will be senior unsecured obligations and will rank equally with all of our existing and future senior unsecured and unsubordinated debt. The Notes will be effectively subordinated to our existing and future secured debt, to the extent of the value of the assets securing such debt, and will be structurally subordinated to all existing and future debt and other liabilities of our subsidiaries. The Notes will be issued in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof.

We have applied to list the Notes for trading on the New York Stock Exchange (the “NYSE”) under the symbol “SBBA.” If approved for listing, trading on the NYSE is expected to commence within 30 days after the Notes are first issued.

 

 

An investment in the Notes involves risk. Before you make an investment in the Notes, you should carefully consider the section entitled “Risk Factors” beginning on page S-17 of this prospectus supplement, and other risk factors contained in the documents incorporated by reference into this prospectus supplement and the accompanying base prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying base prospectus. Any representation to the contrary is a criminal offense.

 

		Per Note				Total (2)
Public offering price		$				$
Underwriting discount (1)		$				$
Proceeds, before expenses, to us		$				$

 

(1)	See “Underwriting” for a description of all underwriting compensation payable in connection with this offering.

(2)	Assumes that the Underwriters do not exercise their option to purchase additional Notes.

The underwriters expect to deliver the Notes in registered book-entry form only through the facilities of The Depository Trust Company, including Clearstream Banking, société anonyme, Luxembourg and Euroclear Bank N.A./S.A., on or about                 , 2020.

 

 

Joint Bookrunning Managers

 

B. Riley FBR   Janney Montgomery Scott		Ladenburg Thalmann   William Blair

Co-Managers

 

Boenning and Scattergood		Incapital		National Securities Corp.		Wedbush Securities

The date of this prospectus supplement is                 , 2020.

 

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

ABOUT THIS PROSPECTUS			S-i
ENFORCEMENT OF CIVIL LIABILITIES			S-ii
PROSPECTUS SUMMARY			S-1
THE OFFERING			S-8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			S-14
RISK FACTORS			S-17
USE OF PROCEEDS			S-23
CAPITALIZATION			S-24
THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY			S-26
BUSINESS			S-38
MANAGEMENT			S-45
DESCRIPTION OF NOTES			S-49
DESCRIPTION OF OTHER INDEBTEDNESS			S-73
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS			S-77
MARSHALL ISLANDS TAX CONSIDERATIONS			S-81
UNDERWRITING			S-82
EXPENSES			S-86
LEGAL MATTERS			S-87
EXPERTS			S-87
WHERE YOU CAN FIND ADDITIONAL INFORMATION			S-88

BASE PROSPECTUS

 

		Page
ABOUT THIS PROSPECTUS			1
PROSPECTUS SUMMARY			2
RISK FACTORS			3
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS			4
USE OF PROCEEDS			7
CAPITALIZATION			8
PLAN OF DISTRIBUTION			9
DESCRIPTION OF CAPITAL STOCK			11
DESCRIPTION OF DEBT SECURITIES			12
DESCRIPTION OF WARRANTS			17
DESCRIPTION OF PURCHASE CONTRACTS			18
DESCRIPTION OF RIGHTS			19
DESCRIPTION OF UNITS			20
TAX CONSIDERATIONS			21
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES			22
EXPENSES			23
LEGAL MATTERS			24
EXPERTS			24
WHERE YOU CAN FIND ADDITIONAL INFORMATION			25

ABOUT THIS PROSPECTUS

This prospectus supplement and the accompanying base prospectus are part of a registration statement that we filed with the Securities and Exchange Commission (the “Commission”) using a shelf registration process. This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering and also adds to and updates information contained in the accompanying base prospectus and the documents incorporated by reference into this prospectus supplement and the base prospectus. The second part, the accompanying base prospectus, gives more general information about securities we may offer from time to time, some of which does not apply to this offering. Generally, when we refer only to the prospectus, we are referring to both parts combined; when we refer to the accompanying base prospectus, we are referring to the base prospectus; and when we refer to the prospectus supplement, we are referring to the prospectus supplement.

If the description of this offering varies between this prospectus supplement and the accompanying base prospectus, you should rely on the information in this prospectus supplement. This prospectus supplement, the accompanying base prospectus and the documents incorporated into each by reference include important information about us, the Notes being offered and other information you should know before investing. You should read this prospectus supplement and the accompanying base prospectus together with additional information described under the heading, “Where You Can Find Additional Information” before investing in the Notes.

We have authorized only the information contained or incorporated by reference in this prospectus supplement, the accompanying base prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters have authorized anyone to provide you with information that is different. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any information that others may give you. We are offering to sell, and seeking offers to buy, the Notes only in jurisdictions where offers and sales are permitted. The information contained or incorporated by reference in this document is accurate only as of the date such information was issued, regardless of the time of delivery of this prospectus supplement or any sale of the Notes.

We prepare our financial statements, including all of the financial statements incorporated by reference in this prospectus supplement, in U.S. dollars and in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). We have a fiscal year end of December 31.

Unless the context otherwise requires, when used in this prospectus supplement, the terms “Scorpio Tankers,” the “Company,” “we,” “our” and “us” refer to Scorpio Tankers Inc. and its subsidiaries. “Scorpio Tankers Inc.” refers only to Scorpio Tankers Inc. and not its subsidiaries. “Scorpio” refers to the Scorpio group of companies. Additionally, as used herein, “SLR2P” refers to the Scorpio LR2 Pool, “SLR1P” refers to the Scorpio LR1 Pool, “SMRP” refers to the Scorpio MR Pool, and “SHTP” refers to the Scorpio Handymax Tanker Pool, which are spot market-oriented tanker pools in which certain of our vessels operate. We refer to collectively to these pools as the Scorpio Pools, which are managed by companies that are members of the Scorpio group of companies. The financial information included or incorporated by reference in this prospectus represents our financial information and the operations of our subsidiaries. Unless otherwise indicated, all references to currency amounts in this prospectus are in U.S. dollars. Unless otherwise indicated, all information in this prospectus supplement assumes that the underwriters’ option to purchase additional Notes is not exercised.

 

S-i

ENFORCEMENT OF CIVIL LIABILITIES

We are a Marshall Islands company, and our principal executive office is located outside of the United States in Monaco, although we also have an office in New York. Some of our directors, officers and the experts named in this prospectus supplement reside outside the United States. In addition, a substantial portion of our assets and the assets of certain of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in United States courts against us or these persons.

 

 

S-ii

 

S-1

 

S-2

 

S-3

 

S-4

 

S-5

 

S-6

 

S-7

 

S-8

 

S-9

 

S-10

 

S-11

 

S-12

 

S-13

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection therewith. This prospectus and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. This prospectus includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. When used in this prospectus, the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek,” “plan,” “potential,” “continue,” “contemplate,” “possible,” “target,” “project,” “likely,” “may,” “might,” “would,” “could” and similar expressions, terms, or phrases may identify forward-looking statements.

All statements in this prospectus that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, such matters as:

 

•

our future operating or financial results;

 

•

the strength of world economies and currencies;

 

•

fluctuations in interest rates and foreign exchange rates;

 

•

general market conditions, including the market for our vessels, fluctuations in spot and charter rates and vessel values;

 

•

the length and severity of the recent novel coronavirus (COVID-19) outbreak, including its impact on the demand for seaborne transportation of petroleum products;

 

•

availability of financing and refinancing;

 

•

our business strategy and other plans and objectives for growth and future operations;

 

•

our ability to successfully employ our vessels;

 

•

planned capital expenditures and availability of capital resources to fund capital expenditures;

 

•

planned, pending or recent acquisitions, business strategy and expected capital spending or operating expenses, including drydocking, surveys, upgrades and insurance costs;

 

•

our ability to realize the expected benefits from acquisitions;

 

•

potential liability from pending or future litigation;

 

•

general domestic and international political conditions;

 

•

potential disruption of shipping routes due to accidents or political events;

 

•

vessel breakdowns and instances of off-hire;

 

•

competition within our industry;

 

•

the supply of and demand for vessels comparable to ours;

 

•

corruption, piracy, militant activities, political instability, terrorism, and ethnic unrest in locations where we may operate;

 

•

delays and cost overruns in construction projects;

 

S-14

•

our level of indebtedness;

 

•

our ability to obtain financing and to comply with the restrictive and other covenants in our financing arrangements;

 

•

our need for cash to meet our debt service obligations;

 

•

our levels of operating and maintenance costs, including bunker prices, drydocking and insurance costs;

 

•

our ability to successfully identify, consummate, integrate, and realize the expected benefits from acquisitions;

 

•

reputational risks;

 

•

availability of skilled workers and the related labor costs and related costs;

 

•

the recent implementation of the MARPOL convention, Annex VI Prevention of Air Pollution from Ships which reduced the maximum amount of sulfur that ships can emit into the air and our ability to successfully complete the installation of exhaust gas cleaning systems, or scrubbers, on all of our vessels;

 

•

the recent implementation of the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (BWM) in September 2019;

 

•

compliance with governmental, tax, environmental and safety regulation;

 

•

any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 or other applicable regulations relating to bribery;

 

•

general economic conditions and conditions in the oil and natural gas industry;

 

•

effects of new products and new technology in our industry;

 

•

the failure of counterparties to fully perform their contracts with us;

 

•

our dependence on key personnel;

 

•

adequacy of insurance coverage;

 

•

our ability to obtain indemnities from customers;

 

•

changes in laws, treaties or regulations applicable to us;

 

•

the volatility of the price of our common shares and our other securities;

 

•

other factors that may affect our future results; and

 

•

these factors and other risk factors described in this prospectus supplement and other reports that we furnish or file with the Commission.

We have based these statements on assumptions, many of which are based, in turn, upon further assumptions, and analyses formed by applying, without limitation, our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. These assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in or referred to in this section. We undertake no obligation, and specifically decline any obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus supplement might not occur.

 

S-15

These factors and the other risk factors described in or incorporated by reference into this prospectus supplement are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements which speak only as of their dates.

 

S-16

RISK FACTORS

Before making an investment in the Notes, you should carefully consider the risk factors described below, together with all of the other information included in this prospectus supplement, the accompanying base prospectus and the documents incorporated into each by reference, including those in “Item 3. Key Information—D. Risk Factors” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019, filed with the Commission on March 31, 2020, as updated by annual, quarterly and other reports and documents we file with the Commission after the date of this prospectus supplement and that are incorporated by reference herein. Please see the section of this prospectus supplement entitled “Where You Can Find Additional Information—Information Incorporated by Reference.” The occurrence of one or more of those risk factors or the risk factors described below could adversely impact our business, financial condition or results of operations.

Risks Related to the Company

The outbreak of COVID-19 and the governmental responses thereto may adversely affect our business.

The recent outbreak of the novel coronavirus (COVID-19), a virus causing potentially deadly respiratory tract infections first identified in China, has already caused severe global disruptions and may negatively affect economic conditions regionally as well as globally and otherwise impact our operations and the operations of our customers and suppliers. Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures. In response to the virus, many countries have implemented lockdown measures, and other countries and local governments may enact similar policies. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses. These restrictions, and future prevention and mitigation measures, are likely to have an adverse impact on global economic conditions, which could materially and adversely affect our future operations.

Uncertainties regarding the economic impact of the COVID-19 outbreak are likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows. As a result of these measures, our vessels may not be able to call on ports, or may be restricted from disembarking from ports, located in regions affected by the outbreak. In addition, we may experience severe operational disruptions and delays, unavailability of normal port infrastructure and services including limited access to equipment, critical goods and personnel, disruptions to crew change, quarantine of ships and/or crew, counterparty solidity, closure of ports and custom offices, as well as disruptions in the supply chain and industrial production, which may lead to reduced cargo demand, amongst other potential consequences attendant to COVID-19.

Towards the end of the first quarter of 2020, travel restrictions and other preventive measures to control the spread of COVID-19 resulted in a precipitous decline in oil demand. Lack of corresponding production and refinery cuts resulted in a supply glut of oil and refined petroleum products, which was exacerbated by extreme oil price volatility from the Russia-Saudi Arabia oil price war. The oversupply of petroleum products and contango in oil prices has led to record floating storage and arbitrage opportunities of both crude and refined petroleum products. These market conditions, which began in March 2020, have had a disruptive impact on the supply and demand balance of product tankers, resulting in significant and prolonged spikes in spot TCE rates as vessel availability tightened. As of the date of this prospectus, oil price volatility has shown incipient signs of normalizing and spot TCE rates have abated to a certain degree, albeit still at strong levels.

The extent of the COVID-19 outbreak’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, although to our knowledge our operations have not been materially affected by the COVID-19 outbreak to date, the ultimate severity of the COVID-19 outbreak is uncertain at this time and therefore we cannot predict the impact it may have on our future operations, which impact could be material and adverse, particularly if the pandemic continues to further evolve and recirculate.

 

S-17

Risks Related to the Notes

Your investment in the Notes is subject to our credit risk.

The Notes are unsubordinated unsecured general obligations of ours and are not, either directly or indirectly, an obligation of any third party. The Notes will rank equally with all of our other unsecured and unsubordinated debt obligations, except as such obligations may be preferred by operation of law. Any payment to be made on the Notes, including the return of the principal amount at maturity or any redemption date, as applicable, depends on our ability to satisfy our obligations as they come due. As a result, our actual and perceived creditworthiness may affect the market value of the Notes and, in the event we were to default on our obligations, you may not receive the amounts owed to you under the terms of the Notes.

We are highly leveraged and our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

We are highly leveraged. As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness. Subject to the restrictions contained in our existing and future debt instruments, we may incur additional indebtedness in connection with financing acquisitions, strategic transactions or other purposes, which indebtedness may rank senior to the Notes. So long as our net borrowings do not equal or exceed 70% of our total assets, the indenture under which the Notes will be issued will permit us to incur additional indebtedness without limitation. Our indebtedness increases the risk that we may be unable to generate enough cash to pay amounts due in respect of our indebtedness, including the Notes.

Our level of debt could have important consequences to us, including the following:

 

•

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

•

we may need to use a substantial portion of our cash from operations to make charter hire payments or principal and interest payments relating to our debt obligations, reducing the funds that would otherwise be available for operations and future business opportunities;

 

•

our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and

 

•

our debt level may limit our flexibility in responding to changing business and economic conditions.

Our ability to service our debt and charter hire obligations will depend upon, among other things, our financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control.

Our subsidiaries conduct the substantial majority of our operations and own our operating assets, and your right to receive payments on the Notes is structurally subordinated to the rights of the lenders of our subsidiaries.

Our subsidiaries conduct the substantial majority of our operations and own our operating assets. As a result, our ability to make required payments on the Notes depends in part on the operations of our subsidiaries and our subsidiaries’ ability to distribute funds to us. To the extent our subsidiaries are unable to distribute, or are restricted from distributing, funds to us, we may be unable to fulfill our obligations under the Notes. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due on the Notes or to make funds available for that purpose. The Notes will not be guaranteed by any of our subsidiaries or any other person.

The rights of holders of the Notes will be structurally subordinated to the rights of our subsidiaries’ lenders. A default by a subsidiary under its debt obligations would result in a block on distributions from the affected

 

S-18

subsidiary to us. The Notes will be effectively junior to all existing and future liabilities of our subsidiaries. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, creditors of our subsidiaries will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness (of which approximately $2.9 billion was secured or part of vessel leasing arrangements).

The Notes will be unsecured obligations and will be effectively subordinated to our secured debt.

The Notes are unsecured and therefore will be effectively subordinated to any secured debt we maintain or may incur to the extent of the value of the assets securing the debt. In the event of a bankruptcy or similar proceeding involving us, the assets that serve as collateral will be available to satisfy the obligations under any secured debt before any payments are made on the Notes. As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness (of which approximately $2.9 billion was secured or part of vessel leasing arrangements). Please read “Description of Other Indebtedness.” We will continue to have the ability to incur additional secured debt, subject to limitations in the agreements governing our current and future credit facilities and in the indenture relating to the Notes.

Redemption may adversely affect your return on the Notes.

Beginning June 30, 2022, we have the right to redeem some or all of the Notes prior to maturity, as described under “Description of Notes—Optional Redemption.” Prior to June 30, 2022, we have the right, but not the obligation, to redeem the Notes in whole, but not in part, at any time at our option, at a redemption price equal to 104% of the aggregate principal amount to be redeemed, upon the occurrence of certain change of control events, as described under “Description of Notes—Optional Redemption Upon Change of Control.” We may redeem the Notes at times when prevailing interest rates may be relatively low. Accordingly, you may not be able to reinvest the amount received upon a redemption in a comparable security at an effective interest rate as high as that of the Notes.

The Notes do not have an established trading market, which may negatively affect their market value and your ability to transfer or sell your Notes.

The Notes are a new issuance of securities with no established trading market. We have applied to list the Notes on the NYSE, but there can be no assurance that the NYSE will accept the Notes for listing. Even if the Notes are approved for listing by the NYSE, an active trading market on the NYSE for the Notes may not develop or, even if it develops, may not last, in which case the trading price of the Notes could be adversely affected and your ability to transfer your Notes will be limited. If an active trading market does develop on the NYSE, the Notes may trade at prices lower than the offering price. The trading price of the Notes will depend on many factors, including:

 

•

prevailing interest rates;

 

•

the market for similar securities;

 

•

general economic and financial market conditions;

 

•

our, or our subsidiaries’, issuances of debt or preferred equity securities; and

 

•

our financial condition, results of operations and prospects.

We have been advised by the underwriters that they intend to make a market in the Notes pending any listing of the Notes on the NYSE, but they are not obligated to do so and may discontinue market-making at any time without notice.

 

S-19

The Notes have not been rated, and ratings of any of our other securities may affect the trading price of the Notes.

We have not sought to obtain a rating for the Notes, and the Notes may never be rated. It is possible, however, that one or more credit rating agencies might independently determine to assign a rating to the Notes or that we may elect to obtain a rating of the Notes in the future. In addition, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to the Notes in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, or if ratings for such other securities would imply a lower relative value for the Notes, could adversely affect the market for, or the market value of, the Notes. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any particular security, including the Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of the Notes may not reflect all risks related to us and our business, or the structure or market value of the Notes.

Because the Notes will be issued in book-entry form, holders must rely on DTC’s procedures to receive communications relating to the Notes and exercise their rights and remedies.

We will issue the Notes in the form of a global note registered in the name of Cede & Co., as nominee of DTC. Beneficial interests in the global note will be shown on, and transfers of the global note will be effected only through, the records maintained by DTC. Except in limited circumstances, we will not issue certificated notes. See “Description of Notes—Book-Entry System; Delivery and Form.” Accordingly, if you own a beneficial interest in a global note, then you will not be considered an owner or holder of the Notes. Instead, DTC or its nominee will be the sole holder of the global note. Unlike persons who have certificated notes registered in their names, owners of beneficial interests in the global note will not have the direct right to act on our solicitations for consents or requests for waivers or other actions from holders. Instead, those beneficial owners will be permitted to act only to the extent that they have received appropriate proxies to do so from DTC or, if applicable, a DTC participant. The applicable procedures for the granting of these proxies may not be sufficient to enable owners of beneficial interests in a global note to vote on any requested actions on a timely basis. In addition, notices and other communications relating to the Notes will be sent to DTC. We expect DTC to forward any such communications to DTC participants, which in turn would forward such communications to indirect DTC participants, but we can make no assurances that you will timely receive any such communications.

Risks Related to Other Indebtedness

Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.

Borrowing under our debt facilities requires us to dedicate a part of our cash flow from operations to paying interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our secured debt facilities bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as seeking to raise additional capital, refinancing or restructuring our debt, selling tankers, or reducing or delaying capital investments. However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations.

If we are unable to meet our debt obligations or if some other default occurs under our debt facilities, our lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and

 

S-20

payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from our debt facilities.

Our debt agreements contain restrictive and financial covenants which may limit our ability to conduct certain activities, and further, we may be unable to comply with such covenants, which could result in a default under the terms of such agreements.

Our debt facilities impose operating and financial restrictions on us. These restrictions may limit our ability, or the ability of our subsidiaries party thereto to, among other things:

 

•

pay dividends and make capital expenditures if we do not repay amounts drawn under our debt facilities or if there is another default under our debt facilities;

 

•

incur additional indebtedness, including the issuance of guarantees;

 

•

create liens on our assets;

 

•

change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel;

 

•

sell our vessels;

 

•

merge or consolidate with, or transfer all or substantially all our assets to, another person; or

 

•

enter into a new line of business.

Therefore, we will need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to finance our future operations or capital requirements, make acquisitions or pursue business opportunities.

In addition, the terms and conditions of certain of our borrowings require us to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in our fleet. Should our charter rates or vessel values materially decline in the future, we may seek to obtain waivers or amendments from our lenders with respect to such financial ratios and covenants, or we may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet any such financial ratios and satisfy any such financial covenants. Events beyond our control, including changes in the economic and business conditions in the shipping markets in which we operate, may affect our ability to comply with these covenants. We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so or amend these requirements. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our credit facilities would prevent us from borrowing additional money under our credit facilities and could result in a default under our credit facilities. If a default occurs under our credit facilities, the lenders could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of our assets. Moreover, in connection with any waivers or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, repurchase our common shares, make capital expenditures, or incur additional indebtedness.

Furthermore, our debt agreements contain cross-default provisions that may be triggered if we default under the terms of any one of our financing agreements. In the event of default by us under one of our debt agreements, the lenders under our other debt agreements could determine that we are in default under such other financing agreements. Such cross defaults could result in the acceleration of the maturity of such debt under these agreements and the lenders thereunder may foreclose upon any collateral securing that debt, including our

 

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vessels, even if we were to subsequently cure such default. In the event of such acceleration or foreclosure, we might not have sufficient funds or other assets to satisfy all of our obligations, which would have a material adverse effect on our business, results of operations and financial condition.

The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.

We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.

 

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USE OF PROCEEDS

We intend to use the net proceeds of the sale of the Notes, which are expected to total approximately $                million after deducting underwriting discounts and commissions and estimated offering expenses (or approximately $                million if the underwriters exercise their option to purchase additional Notes in full), for general corporate purposes and working capital.

 

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CAPITALIZATION

The following table sets forth our capitalization at March 31, 2020, on:

 

•

an actual basis;

 

•

an as adjusted basis to give effect to the following:

 

•

scheduled principal payments in the amount of $4.4 million under our secured credit facilities, $13.6 million under our sale and leaseback arrangements and $14.0 million under our lease arrangements which are being accounted for under IFRS 16—Leases;

 

•

the repayment of $53.8 million upon the maturity of our 6.75% Unsecured Senior Notes due 2020;

 

•

drawdowns of an aggregate of $4.6 million on our Hamburg Credit Facility and NIBC Credit Facility to partially finance the purchase and installation of scrubbers on three vessels; and

 

•

an as further adjusted basis to give effect to this offering and the application of the net proceeds therefrom.

There have been no other significant adjustments to our capitalization since March 31, 2020, as so adjusted.

The actual figures in this table are derived from, and should be read together with, our Report on Form 6-K, furnished to the Commission on May 6, 2020, which contains our unaudited financial results for the three months ended March 31, 2020, and our Report on Form 6-K, furnished to the Commission on May 26, 2020, which contains our unaudited condensed consolidated financial statements and the notes thereto for the three months ended March 31, 2020, each of which is incorporated by reference herein.

 

		As of March 31, 2020
In thousands of U.S. dollars		Actual				As adjusted				As further adjusted
Cash and cash equivalents (1)		$	119,825			$	38,625
Current debt:
Current portion of long-term debt (2)			263,889				206,746
Lease liability—sale and leasebacks (3)			122,599				109,002
Lease liability—IFRS 16			69,711				55,708
Non-current debt:
Long term debt (2)			968,914				972,458
Lease liability—sale and leasebacks (3)			1,165,025				1,165,025
Lease liability—IFRS 16			584,237				584,237
Total debt		$	3,174,375			$	3,093,176
Shareholders’ equity:
Share capital			650				650
Additional paid-in capital			2,844,419				2,844,419
Treasury shares			(467,057	)			(467,057	)
Accumulated deficit			(352,419	)			(352,419	)
Total shareholders’ equity		$	2,025,593			$	2,025,593
Total capitalization		$	5,199,968			$	5,118,769

 

(1)

Cash, as adjusted, does not include the impact of cash flows from operations from April 1, 2020 through the date of this prospectus. Among other activity, the table does not include approximately $67 million of pool distributions relating to March 2020 which were received during the first week of April 2020.

 

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(2)	The current portion of long-term debt at March 31, 2020 is net of unamortized deferred financing fees of $1.4 million and the non-current portion of long-term debt is net of unamortized deferred financing fees of $8.3 million.

(3)

The current portion at March 31, 2020 was net of unamortized deferred financing fees of $0.7 million and the non-current portion was net of unamortized deferred financing fees of $6.7 million. Debt and Finance lease liabilities, as adjusted, does not reflect deferred financing fee activity from April 1, 2020 through May 26, 2020. This activity is estimated to be $1.0 million.

 

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THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY

All the information and data presented in this section, including the analysis of the oil tanker shipping industry, has been provided by Drewry Shipping Consultants Ltd. (“Drewry”). The statistical and graphical information contained herein is drawn from Drewry’s database and other sources. According to Drewry: (i) certain information in Drewry’s database is derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (iii) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.

Oil Tanker Demand

In broad terms, demand for oil products traded by sea is primarily affected by global and regional economic conditions, as well as other factors such as changes in the location of productive capacity, and variations in regional prices. Demand for shipping capacity is a product of the physical quantity of the cargo (measured, depending on the cargo in terms of tons or cubic metrics), together with the distance the cargo is carried. Demand cycles move broadly in line with developments in the global economy, with growth rate of demand for products slowing significantly and becoming negative in some years in the period immediately after the onset of the global economic downturn in late 2008, before recovering gradually from 2011 with general improvement in the global macro-economic environment. Low crude prices between 2015 and 2017 induced greater consumption, which led to increased seaborne trade of crude oil as well as refined products. Growth in seaborne trade slowed in 2018 because of inventory drawdown in crude as well as refined products. In 2019, decline in seaborne trade was on account of lower refinery runs and weaker economic growth. Refineries underwent maintenance in 1H19 to prepare for LSFO and MGO demand related with IMO 2020 regulations on the control of Sulphur emission, while refinery runs were lower in 2H19 due to weaker economic growth.

The outbreak of coronavirus (COVID-19) at the beginning of 2020, which has since spread globally, is impacting the global economic growth and consequently demand for refined products trade. Strict lockdown imposed in many economic hubs and major cities of the world are severely affecting the seaborne trade of refined products and especially transportation fuels (diesel, gasoline and jet fuel). The impact of the weak domestic demand for refined products is reflected in refinery runs as many refinery and petrochemical plant owners around the globe have either drastically reduced their refinery throughput or have been forced to shut down their refineries. The contagion has not only hampered economic activity in major metropolitan cities of the world, but has also squeezed local demand for transportation fuels following travel restrictions and domestic flight cancellations.

In 2019, 3,404 million tons of crude oil, products and vegetable oils/chemicals were moved by sea. Of this, crude shipments constituted 2,071 million tons of cargo, products 1,034 million tons, with the balance made up of other bulk liquids, including vegetable oils, chemicals and associated products.

 

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World Seaborne Tanker Trade

 

		Crude Oil								Refined Products								Veg Oils/Chemicals								Total
Year		Million tons				% Y-o-Y				Million tons				% Y-o-Y				Million tons				% Y-o-Y				Million tons				% Y-o-Y
2002			1,756				0.3	%			519				0.3	%			122				7.0	%			2,396				0.6	%
2003			1,860				5.9	%			550				6.0	%			129				5.9	%			2,538				5.9	%
2004			1,963				5.6	%			599				8.8	%			141				9.5	%			2,703				6.5	%
2005			1,994				1.6	%			646				8.0	%			156				10.5	%			2,797				3.5	%
2006			1,996				0.1	%			677				4.7	%			166				6.5	%			2,839				1.5	%
2007			2,008				0.6	%			723				6.8	%			176				5.9	%			2,907				2.4	%
2008			2,014				0.3	%			765				5.8	%			179				1.8	%			2,957				1.7	%
2009			1,928				(4.2	)%			777				1.6	%			202				12.9	%			2,907				(1.7	)%
2010			1,997				3.6	%			810				4.3	%			217				7.4	%			3,024				4.0	%
2011			1,941				(2.8	)%			860				6.3	%			228				5.1	%			3,029				0.2	%
2012			1,988				2.4	%			859				(0.2	)%			240				5.3	%			3,087				1.9	%
2013			1,920				(3.4	)%			904				5.3	%			252				5.1	%			3,077				(0.3	)%
2014			1,904				(0.9	)%			914				1.1	%			252				(0.1	)%			3,070				(0.2	)%
2015			1,974				3.7	%			963				5.3	%			266				5.4	%			3,202				4.3	%
2016			2,060				4.4	%			999				3.8	%			267				0.6	%			3,327				3.9	%
2017			2,121				2.9	%			1,043				4.3	%			283				5.8	%			3,447				3.6	%
2018			2,116				(0.2	)%			1,055				1.1	%			293				3.4	%			3,463				0.5	%
2019*			2,071				(2.1	)%			1,034				(1.9	)%			299				2.2	%			3,404				(1.7	)%
CAGR (2014-2019)			1.7	%							2.5	%							3.5	%							2.1	%
CAGR (2009-2019)			0.7	%							2.9	%							4.0	%							1.6	%

 

*	Provisional estimate

Source: GTIS, Drewry

The volume of oil moved by sea was affected by the economic recession in 2008 and 2009, but since then, renewed growth in the world economy and in oil demand has had a positive impact on seaborne trade. Oil demand has benefitted from economic growth in Asia, especially in China, where oil consumption increased by a compound average growth rate (CAGR) of 5.6% between 2009 and 2019 to touch 13.6 million barrels per day (mbpd). Low per capita oil consumption in developing countries, such as China and India, compared with the developed world provides scope for higher oil consumption in these economies. Conversely, oil consumption in developed OECD economies has been in decline for much of the last decade. However, in 2015, this trend was reversed for the United States (U.S.) and some European countries. This was primarily due to the positive impact of lower oil prices on demand for products such as gasoline. Oil demand in OECD economies increased at a CAGR of 0.8% from 45.8 mbpd in 2014 to 47.8 mbpd in 2019. Provisional data suggests oil demand of OECD America increased 1.5 mbpd during 2014-19 to reach 25.7 mbpd due to improved demand in the US, Canada and Mexico. Oil demand of OECD Europe remained flat at 14.2 mbpd, whereas demand in OECD Oceania dropped 0.5% to touch 7.9 mbpd during the year. Accordingly, oil consumption for OECD countries in 2019 was estimated at 47.8 mbpd. COVID-19 has adversely impacted global oil demand in the first half of 2020 following reduced economic activity.

 

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