Capital Clean Energy Carriers Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2024

There are 5 speakers on the call.

Operator

Thank you for standing by, and welcome to the Capital Product Partners Second Quarter 2024 Financial Results Conference Call. We have with us Mr. Jerry Caligaratos, Chief Executive Officer and Mr. Brian Gallagher, Executive Vice President of Investor Relations. At this time, all participants are in a listen only mode.

Operator

There will be a presentation followed by a question and answer session. I must advise you this conference is being recorded today, August 2, 2024. The statements in today's conference call that are not historical facts, including our expectations regarding acquisition transactions and their expected effect on us, cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts or unit buyback amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectation regarding market fundamentals and employment of our vessels, including redelivery dates and charter rates, may be forward looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward looking statements involve risks and uncertainties that could cause the stated or forecast results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise.

Operator

We make no prediction or statement about the performance of our common units. I would now like to hand over to your speaker today, Mr. Caligueratos. Please go ahead, sir.

Speaker 1

Thank you, Christine, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. Today, it represents an important milestone and the start of a new chapter for the company. We have agreed to change the company's name to Capital Clean Energy Carriers Corp, reflecting our strategic pivot to the LNG and Energy Transition business and to signify the conversion of the partnership to corporation with improved governance rights for unaffiliated shareholders, a transparent corporate structure and alignment of shareholder interests. As a reminder, we announced in November 2023, together with a change of focus of the partnership on the LNG and Gas business, that we intend to also change our corporate structure from a partnership to a corporation.

Speaker 1

I'm very pleased to report that the general partner of CPLP and the special committee of our board comprising independent directors have agreed to the terms of the conversion, which entail the conversion of all common units to common shares and elimination of the general partner units and its incentive distribution rights. This includes also the elimination of the GP's existing management and consent rights, including its right to appoint 3 directors to our board and its veto rights over approval of mergers, consolidations and other significant corporate transactions. Following the conversion, the board will consist of 8 directors, a majority of which will be independent in accordance with NASDAQ rules. Until the holdings of Capital Maritime and its affiliates fall below 25% of the outstanding common shares, Capital Maritime will have the right to nominate 3 of the 8 directors, 2 directors until its holdings fall below 15% and thereafter 1 director until its holdings fall below 5%. In view of the above transaction, the GB units and associated incentive distribution rights outstanding immediately prior to the conversion will be converted to an aggregate 3,500,000 common shares.

Speaker 1

We expect that the conversion to a corporation will allow the company to grow and broaden our investor appeal and investor base and over time enhance liquidity including potential index participation. This is, of course, together with our unique business plan of putting together the largest U. S. Listed LNG and gas platform with an eye to energy transition as better described on Slide 4 of the presentation. Once all our contracted vessels are delivered, our 30 6 vessel fleet will be among the youngest out there with an average age of 2.3 years and the ability to transport a number of different cargoes, including cleaner forms of hydrocarbons such as LNG and LPG, but also service emerging energy transition trades such as the transportation of liquid CO2 and low carbon ammonia.

Speaker 1

Importantly, we have today 20 vessels in the water, including 12 latest generation LNG carriers and 8 legacy container vessels, all under medium to long term charters to 1st class counterparties. Finally, our legacy container fleet provides excellent strategic and funding optionality with 8 vessels remaining and close to $180,000,000 raised in net proceeds from sales in less than 6 months. On slide 5, you can see an overview of our contracted cash flows. Our 12 LNG carriers on the water revenue backlog is considerable, totaling 2,400,000,000 backed by diverse range of blue chip energy providers. This is complemented by an additional $400,000,000 of contracted revenue from our container book.

Speaker 1

Overall, we have a remaining charter duration of 7.2 years, providing cash flow visibility and stability during this growth phase for the company. Moving on to the Q2 of 2020 4 and recent developments on slide 7, we announced during the quarter an important strategic investment in 10 new gas carriers for 756,000,000 with expected deliveries between the Q1 of 'twenty six and the Q3 of 'twenty seven. Six vessels are dual fuel LPG, medium gas carriers and 4 are the 1st ever built liquid CO2 handy gas carriers which can also transport LPG ammonia and other conventional cargoes. On the LNG side, we took delivery of the LNG carriers, Assos, Apostolos and Daktoras in accordance with the partnership's transformative agreement to acquire 11 late generation 2 stroke LNG carriers. On the container side, we delivered to their new owners during the quarter the 5 container vessels we sold, recognizing a gain of 15,200,000.

Speaker 1

Our fleet in the order now consists of 8 containers and 12 LNG carriers. Importantly, during the Q2 of 2024, we refinanced the LNG carrier Aristides 1 and released 54,800,000 of additional liquidity, while we also approved the financing terms of the sale leaseback for the LNG carriers Aristos 1 and Aristarhorst. Addition, in the Q2 of 2024, we announced the appointment of Brian Gallagher as Executive Vice President for Investor Relations. Brian previously held the position of Head of Investor Relations at Euronav from 2014 until the end of 2023 and served on the Euronav Executive Management Board from 2016 onwards. Turning to the partnership's financial performance, net income for the Q2 of 2024 was $34,200,000 Our Board of Directors has declared a cash distribution of $0.15 per common unit for the Q2 of 'twenty 4.

Speaker 1

The Q2 cash distribution will be paid on August 12 to common unit holders of record on August 6. Turning to slide 8, total revenue for the Q2 of 'twenty four was 97,700,000 compared to 88,500,000 during the Q2 of 2023. The increase in revenue was primarily attributable to the revenue contributed by the new building vessels that joined our fleet, partly offset by the container vessels sold during this period. Total expenses for the quarter were $48,300,000 compared to $50,600,000 the Q2 of 'twenty three. Total vessel operating expenses amounted to $20,200,000 compared to $23,500,000 in the same quarter a year ago.

Speaker 1

The decrease was mainly due to the net decrease in the average number of vessels in our fleet. Total expense for the quarter also include vessel depreciation and amortization of $22,600,000 compared to $20,900,000 in the same quarter of last year. The increase was mainly attributable to the higher depreciation expense due to the change in the composition of fleet, which now includes a higher number of LNG carriers. General and administrative expenses for the Q2 of this year increased to $3,300,000 from $2,300,000 in the same quarter last year, mainly due to costs associated with the acquisition of the 11 LNG carriers. Furthermore, during the Q2 of 'twenty four, we concluded the sale of 5 container vessels.

Speaker 1

Interest expense and finance costs increased to $31,400,000 for the Q2 of 'twenty four from $25,500,000 for the Q2 of last year. The increase was mainly attributable to the increase in the partnership's average indebtedness and the increase in the weighted average interest rate to 6.63% compared to 6.28% in the Q2 of 2023. The partnership recorded net income of $34,200,000 for the quarter compared to net income of $7,400,000 in the same quarter of last year. Net income per common unit for the quarter was $0.62 compared to $0.36 per common unit in the Q2 of last year. On slide 9, you can see the details of our balance sheet.

Speaker 1

As of the end of the second quarter, the partner's capital amounted to $1,200,000,000 an increase of 50 5,100,000 compared to the end of 'twenty 3. The increase reflects net income of 68,100,000 for the 1st 6 months of 'twenty 4, other comprehensive income of 200,000 relating to the net effect of the cost currency swap agreement we designate as an accounting hedge and the amortization associated with the equity incentive plan of 3,500,000 partly offset by distributions declared and paid during the period in the total amount of 16,700,000. Total debt increased by 809,000,000 to 2.6 1,000,000,000 compared to 1,800,000,000 as of year end of 2023. The increase was driven primarily by the acquisition and the resumption of related indebtedness of 4 new LNG carriers since the beginning of the year and the refinancing of the LNGC Aristides 1, partly offset by the decrease in the US dollar equivalent of euro denominated bonds issued by CPLP Shipping Holdings, the scheduled principal payments for the period and the early debt repayment relating to 3 containers sold during the period, as well as the full repayment of the seller's credit we drew to Padlet Finance the acquisition of the LNG carrier Axios II.

Speaker 1

For more details relating to these transactions, please refer to our earnings release. Total cash as of the end of the quarter was 101,200,000 including the receipt of cash of 12,900,000 which represents the minimum liquidity requirement under our financing arrangements. On Slide 10, we take a look at where we stand on the vessel deliveries following our agreement to acquire 11 LNG carriers, which closed in December 2023. Since the closing of the agreement, we have taken delivery of 5 vessels, all of which are committed on term employment. The Q2 of 'twenty four, we took delivery of 3 LNG carriers, the ASOS, which commenced a 10 year time charter with Tokyo Gas, the Acturas, which commenced 7 year bareboat charter with Bonigas Transport and who also maintain an option to extend by an additional 3 years, and the Apostolos which commenced a 10.5 year charter with JERA, the Japanese utility, who also maintain an option to extend by an additional 3 years.

Speaker 1

Turning to slide 11, we summarize the results of the debt optimization exercise we undertook in the Q2 of 2024. For 2 LNG carriers, the Aristos 1 and the Aristos, we agreed to extend the maturity and reduce the financing cost and the amortization from their previous levels. For the LNGC Aristides 1, we refinanced the debt outstanding by entering into a new senior secured loan facility, releasing additional liquidity of $54,800,000 reducing the financing costs and pushing the maturity out by more than 3 years. Overall, our debt minimization efforts have resulted in longer amortization profiles, extended maturities, as well as in the reduction of our weighted average margin on our floating rate debt to 194 basis points as of June 30th from 236 basis points a year ago. Turning to the next slide, we review our container fleet and strategy.

Speaker 1

As we all know, the partnership has committed to divest from its remaining container vessels. As already discussed, since the closing of the LNG transaction in December 'twenty three, we have sold 7 container vessels and have released around $180,000,000 of liquidity. Of the remaining 8 containers that are part of our fleet, 5 are debt free and start to open for re chartering from the Q1 of 'twenty 5 onwards, while the remaining 3 have debt and the remaining charter duration of 8.6 years. The current downturn in the container market boosted by the trade disruption in the Red Sea provides us with additional optionality as we continue to opportunistically evaluate the potential sale of its asset against its cash flow and residual value, compared also to other opportunities in the LNG and wider gas markets. Today, the gross charter attached value of our container assets is estimated approximately 630,000,000 to 650,000,000 implying a net asset value of our container fleet of approximately 330,000,000 to 350,000,000 euros Let us now turn to Slide 13.

Speaker 1

As a result of our debt optimization efforts, generation container sales would have improved significantly the debt maturity profile of the partnership as shown by the blue circles, which signify our debt maturities as they stood at the end of the second half of twenty twenty three. Currently, our first material debt refinancing arises in October 2026 with a maturity of €150,000,000 bond listed at the Athens exchange. Now turning to slide 14 and the acquisition of the 10 gas carriers we announced in June. These vessels are latest generation assets, which can trade in the traditional gas business, such as LPG and ammonia, which have strong fundamentals of their own going forward and an attractive supply demand picture, but at the same time provide us with unique optionality to the emerging traits of energy transition, such as the carriage of liquid CO2 and low carbon ammonia. We expect that at the initial stage of development of these emerging trades, we will see handy and medium sized gas carriers service these cargoes and gradually as the trade expands and the infrastructure develops, we will see also larger vessels coming into play.

Speaker 1

Turning to slide 15, we review developments in the LNG charter market. Spot rates remained relatively steady from mid January to the end of May. Since then, there has been a continued improvement as shipping availability for loadings out of the U. S. Gulf in July dwindled, leading to an increase in spot rates.

Speaker 1

The 1st week of July, spot rates for 2 stroke vessels reached $90,000 per day. So far, fixing activity is well above the fixing activity at the activity at the same time in 20222023 and in line with 2021 fixing levels. Multi month to 1 year periods have firmed up throughout the quarter as players seek to cover winter demand. Term charter rates for 1 to 3 year periods are currently standing in the region of $85,000 per day. Longer term charters are still priced at significant premium to shorter term as market tightening is expected from 20 26 onwards.

Speaker 1

Global LNG imports continue to be robust across regions with China maintaining near seasonal record levels. Notably, imports to China have increased by approximately 24% year on year. LNG carrier transits by the Suez Canal remain at a minimum. Panama Canal use is also limited and less than 3% of voyages from the US to Asia are utilizing the Panama Canal. Therefore voyages are long while traded LNG levels are lower than previous years, the long distances have pushed on miles to historical highs.

Speaker 1

Naturally, this has increased the fleet utilization from last year's levels, but the early fleet additions have ensured that there is enough tonnage to handle the ton mile. Starting in 2025 LNG capacity additions are expected to accelerate from an average of 13 MTPA during 2020, 2024. The capacity additions are projected to average 48 MTPA yearly during 2025, 2028, reaching a peak of 70 MTPA in 2026. This accelerated growth underscores a strong demand and strategic importance of LNG. The U.

Speaker 1

S. And Qatar are said to be the primary drivers of its capacity expansion. Together they will account for approximately 60% of the total capacity additions between 2528 with the US contributing around 40% and Qatar around 20%. Focus remains on the US pause in non FDA approvals and recent judicial developments around this, as this is expected to affect liquefaction and shipping demand towards the end of the decade. More liquefaction project FIDs, both from the U.

Speaker 1

S. And other regions mean that more LNG fees will be needed in 20 28 onwards to cover demand from new projects and fleet replacement. The LNG fleet has expanded by 10 ships in the Q2 of 2024 with a total of 20 vessels delivered so far this year with an order book to fleet ratio of close to 54% of the total fleet. New building prices for LNG carriers remain steady currently on 260,000,000 per vessel for the basic specification. Shipyard capacity is also constrained with no slots available for new builds in 2026 and limited availability in 2027.

Speaker 1

Overall, softer fundamentals for 'twenty four and seasonal trends have contributed to weaker charter rates, and generally 2024 is expected to be a softer year for LNG carrier earnings. However, the medium to long term outlook remains positive with trade volumes set pick up sharply from 2025 onwards as the next major wave of liquefaction capacity begins to come online. I now turn to the final slide in our presentation, slide 16. You have a number of supporting slides available containing detailed data in our appendix, which we may refer to in the Q and A to follow shortly. However, to conclude, this has been one of the most important quarters in the company's history.

Speaker 1

The management and staff have worked hard in recent quarters to get us to the exciting position to this exciting position and I thank them for their hard work. The conversion to C Corp and then the new name reflects the pivot towards gas and the development of an important and large scale gas transportation growth platform. The new named company of capital clean energy carriers will be the youngest and get the largest energy transition gas shipping platform supported by strong LNG market fundamentals, access to new technologies and opportunities from alternative gas carriage and yet retaining optionality with the 8 vessels remaining in our container fleet. We look forward to marketing our new investment case in the coming months quarters and engaging with old and new investors. With that, I would like to hand it back to the operator for any questions.

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Liam Burke with B. Riley.

Operator

Please proceed with your question.

Speaker 2

Hi, Gerry. How are you doing today?

Speaker 1

Hi, Liam. I'm well.

Speaker 2

How are you? Good. Jerry, on the corporate conversion, right now, the MLP is paying a unit payout. Are you just going to continue your current dividend policy?

Speaker 1

Correct. The intention at this point is to continue with the $0.15 per unit quarterly distribution. This is on the back of the fact that we are in growth mode as we take delivery of the 16 new builds that we have on order. So I think at this point, we want to maintain a more conservative stance. Having said that, we do expect that the earnings power and cash flow visibility of the company once the ships deliver is going to be pretty significant and will give us a lot of financial flexibility.

Speaker 1

And I think the overall intention of the company and the board is that at some point we move to a floating dividend policy tied to a percentage of free cash flow or net income, so that shareholders can participate in potential upside as we fix our vessels going forward.

Speaker 2

Great. And this is jumping way, way ahead, but you've got an order for the 10, we'll call it alternative fuel transport vessels. Have there been any interest in contracting those things long term by any providers? Or how are you looking at the potential earnings power of that part of your fleet?

Speaker 1

So the we do see some activity right now around the transportation of low carbon ammonia, for example, for the MGCs on the back of certain tenders for the import of ammonia in order to produce power with hydrogen or blue and green ammonia. And this over time could translate into multi year charters for the right vessels. Overall, I would say it might be still early for this type of employment as most of these inquiries are for 2027, 2020 8 onwards as the infrastructure is being built and these tenders mature. But in the meantime, I think and this is where the value of the optionality comes in with these vessels. We can of course trade them in the normal LPG and ammonia market.

Speaker 1

And we will look at short to medium term fixtures as they come closer to delivery. So we are working on 2 levels really at this point. I mean we are engaging for the long term if you want the low carbon trades on the NGCs for low carbon ammonia, but at the same time we have very much our mind that as vessels deliver, they will be trading the traditional LPG market. Now, the story is quite similar for the liquid cell 2 vessels. These are effectively handy LPG vessels, vessel segment where there is minimal ordering and a lack of modern tonnage.

Speaker 1

There again we see healthy inquiries from the more traditional trades. At the same time we have been actively engaging with the liquids to market be it emitters and sequestration providers both in the Europe and the Far East. Being the only available vessels of this size in the market gives us a considerable advantage when we are engaging with these players. And at this point we expect the utilization of these vessels into the liquid Tier 2 transportation to start from kind of mid late 2027 to 2028. But again, in the meantime, they can trade as normal LPG and ammonia carriers.

Speaker 3

Great. Thank you, Gerry.

Speaker 1

Thank you, Liam.

Operator

Our next question comes from the line of Omar Nakhtar with Jefferies. Please proceed with your question.

Speaker 1

Thank you.

Speaker 3

Hi, Jerry. Good afternoon. Congrats on the official name or the upcoming name change in reincorporation. I guess just a couple of questions. I did want to follow-up maybe just on your comments to Liam about the dividend.

Speaker 3

And just to understand, it's kind of the thought process that just sort of the intention is maintain the current payout of that $0.15 quarterly. And then once those remaining LNG new buildings deliver over the next 2, 3 years, than adopt a more payout structure that's based off of a variable dividend based off of earnings?

Speaker 1

The answer is let me formulate the answer as follows. First, the $0.15 is our set dividend for the moment. Between now and the deliveries, we will be looking for ways to increase that dividend to shareholders. It's not that this is it and wait for 2027 until you see an increased payout. But I think what we need to put together is what is in the realm

Speaker 3

of

Speaker 1

being really practical about it and conservative at the same time. So given what we have set out to do, given our growth trajectory at this point and our liquidity position and cash flow generation, what is that we can do to increase that dividend? We haven't come down to a conclusion yet. So this is not a discussion that is finished, but and we will be looking into this over the next quarter or 2. But you can for the moment assume that the $0.15 is there, a floating payout once the growth vessels, the new vessels start delivering from 2026, 2027 onwards.

Speaker 1

In the meantime, we will see how we can return more capital to unitholders in a conservative way without erasing the balance sheet.

Speaker 3

That's clear. Thanks, Jared. Appreciate that. And then, Dustin, in terms of maybe just a bigger picture, as you move forward within the clean energy shipping, Can you maybe just give a sense of what that encompasses? I know we've talked about this in the past when you first announced back in December this shift.

Speaker 3

But maybe you have the LNG new buildings, you've got the LPG and CO2 carriers. Can you maybe just give sort of a lay of the land or the addressable market of what you see as being clean energy shipping going forward?

Speaker 1

Yes. Maybe the right phrase is clean air, right? Because given what technologies we have available at this point. But so the idea is as follows, right? I mean, firstly, the LNG carriers, obviously, and there are two sides to this.

Speaker 1

Firstly, the propulsion of our ships, because when you look at our core fleet, which is the LNG and gas carriers, all of them but 4 ships are dual fuel. So all our LNG carriers are dual fuel LNG and fuel oil. And in terms of our medium gas carriers, all of them all 6 of them are dual fuel LPG and fuel oil. So already I mean when we talk about the propulsion of our vessels these are very high specification vessels with energy saving devices that have dual fuel capabilities, which means that they have a reduced carbon footprint. And I think increasingly, you will see it every year in our sustainability reports how the carbon footprint of the company is being reduced because of these very high specification dual fuel vessels.

Speaker 1

But this is not really the core of our trade and air business plan. The core is as follows. In fact, with the 18 LNG carriers, the 12 in the water plus 6 to come, we already are probably the largest U. S. Listed company as far as level generation LNG carriers are concerned.

Speaker 1

And we do consider LNG to be a prime energy source for the energy transition. So that's one part of our business plan. And the other part is the where the MGCs and liquid Sertu carriers come in. Now there are 2 sides to this again. Firstly, the MGCs, they do carry traditionally, again, a kind of cleaner hydrocarbon in the form of LPG.

Speaker 1

But they are also prime for the And We see a number of projects in Australia, in the U. S, in the Middle East for the production of blue and green ammonia, which is expected to be used in places like Korea, Japan, Europe, again the U. S. Or other places for the production of power with ammonia. In many cases this will be co firing that means that many utilities intend to use both coal as well as blue and green ammonia for power production and to reduce their carbon footprint.

Speaker 1

So these vessels and especially in the years and then maybe the 1st decade are going to be probably the ideal candidates for the transportation of blue and green ammonia because right now the infrastructure for larger vessels is still lacking behind. So VLACs and other types of vessels will have a role in this for sure, potentially at the beginning as storage providers. But still we don't have enough terminals where larger vessels can call for the transportation of low carbon ammonia. So that's a part of that trade. And of course, there is the other side of the trade that is a transportation of liquid CO2.

Speaker 1

Liquid CO2 transportation can take place for 2 reasons. One is obviously the carbon capture and storage industry in many places including the U. S, Europe, again Japan, Korea, the Middle East are a number of such projects And in places like especially Europe and to the Asia Pacific region, we expect to see a lot of maritime transportation. So the carbon capture is going to take place, for example, in the European continent, but the storage is going to take place in the North Sea or in the Asia Pacific region we are seeing carbon capture in places like Korea and Japan, but then sequestration in places like Australia, Malaysia or other places of in the Asia Pacific region, which means that we will need shipping. So that's where we come in with our liquid CO2 carriers and these are the first vessels of this type and size in the world, which I think gives us a unique advantage in all these discussions.

Speaker 1

And then of course there's the other side of the transportation of liquid CO2 that is the use of biogenic liquid CO2 in order to produce e fuels which are going to be used in potentially in transportation and that needs the use of biogenic CO2. In many cases it will be imported in liquid format with ships. So this is how we cover with our LNG carriers, MGCs and liquid CO2 and the LPG carriers the majority of the energy transition trades and hence if you want the name. Sorry for the long kind of description, but this is where we see ourselves.

Speaker 3

No. Thank you, Jerry. That's an incredibly good amount of detail and gives me a good sort of framework. It gives us a good framework of seeing how deep this market really is and opportunities. If I may just ask one quick one.

Speaker 3

In terms of just the containers, you mentioned keeping optionality open. Obviously, the market sealed up this year. How are you thinking about those remaining vessels, especially the midsized ones that perhaps have some opening up in 2025 coming? Do you intend to still monetize those? Or do you think there's an opportunity to own these for a bit longer?

Speaker 1

I think we will be opportunistic about it. So having delivered now the 7 vessels that we agreed to sell, we are left with the 3 brand new 13,000 TEU container vessels. They have remaining charter duration of about 9 years and then also the 5, 5000 TEU build 2013. These are actually wide beam eco container vessels, not very different from a new build that you would order today. So very, very attractive assets in this market.

Speaker 1

If you look at kind of the charter attached valuation of these vessels and in view of the debt that they have, you'll probably come up with an NAV of $330,000,000 $350,000,000 I think the way that we are going to approach this is that if we see a good opportunity to sell to exit part or all of these assets we will do it. But then the always you have to evaluate a potential sale proposition compared to the potential cash flow. Today because these assets are quite attractive you could potentially secure a minimum of 3 years of time charter on the back of their current deployment somewhere in the $35,000 to $40,000 per day range, maybe for longer. So we will always compare whatever we see in terms of a sale value to the NPV of this forward cash flows and residual value that we expect. So I don't think we are dogmatic about it.

Speaker 1

The idea is, as we have said, to rather divest from these assets. But I don't think you don't have to take forced exits in shipping. Sometimes you have to think before you act, especially in markets like the one we're experiencing today, which is very volatile and with a series of geopolitical events affecting demand for container vessels.

Speaker 3

Yes, definitely. It makes sense, Jerry. Appreciate it. I'll turn it over. Thank you, Omar.

Operator

Our next question comes from the line of Mike Webber with Webber Research and Advisory. Please proceed with your question.

Speaker 4

Hey, good morning, guys. How are you?

Speaker 1

Hi, Mike. We're well. How are you?

Speaker 4

I'm good. Good. Thanks for covering us on time. Just I had a couple of follow-up questions. A couple of these points are touched on already, but I wanted to go back to the conversion, Jerry.

Speaker 4

And you're right that this I was going to think it's a pretty big deal, it doesn't happen all that often. And then I just wanted to make sure we were looking at the details correctly. The last time we saw something like this was around some of the LNG, LPs. It's not exactly apples to apples, but when they gave up control, the last deal saw GK LNG transition that control for $123,000,000 from their LP holders. Was there any kind of control premium associated with Capital Maritime transitioning their controlling GP stake into common units?

Speaker 1

The exchange of the GP units with common units comes as you point out with the GP foregoing also existing management and consent rights as well as the IDRs. IDRs being out of the money, but still within reach if in the future we had a special dividend for example. So there would be always an overhand. So there was a value to the IDRs. But I think that the biggest part of this is, of course, forfeiting of control that comes with the GP units, the appointment of the 3 directors, the veto rights on corporate transactions, mergers and so on and so forth.

Speaker 1

So there has been there was a premium in the exchange compared to other MLPs and even more recent examples who have gone through the same kind of conversion you'll find and I'm not talking about distressed MLPs, right, but normal MLPs, you'll find that this is at the lower end of whatever has we have seen in the market. I mean we have seen premium vary from 5% to 14%. So this is, I think, quite at the lower end of that.

Speaker 4

We're backing into something relatively similar, and I just wanted confirm that, Matt, because the scenario where you weren't in the splits, but you could have reached them was pretty identical to what we saw earlier. And it did look like this is done at a fraction of the premium that we saw from other comps.

Speaker 3

So it

Speaker 4

was worth, 1, checking into calling out that you're able to make that conversion without that kind of dilution to common holders, which I think is probably appreciated.

Speaker 1

I should also add, of course, which is the usual thing that this was exhaustively negotiated between the special committee of the board comprising independent directors and there was and this being supported by fairness opinion. So it has all been done after a lot of discussions and hence also the slight delay in getting it across.

Speaker 3

Yes. Well, it looks like

Speaker 4

it came across in a much more seamless fashion and much more cost effective than the comps that we've seen recently. So congrats on getting that done.

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Capital Clean Energy Carriers Q2 2024
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