What are the terms, interest rates, and covenants of the financing secured for the six dual‑fuel medium gas carriers, and how might they impact earnings?
Financing terms & covenants
Capital Clean Energy Carriers (CCEC) closed a senior‑secured term facility for the six newly‑ordered dual‑fuel medium‑size gas carriers. The loan is for USD $210 million, staggered in three tranches that are drawn down as each hull is delivered. The facility runs for 7 years with a 5.25 % fixed coupon (plus a 0.15 % quarterly LIBOR‑based spread for any extensions). Repayment is amortised on a straight‑line basis beginning in year 3, with a bullet payment of the residual balance at maturity.
The lender imposed a set of standard covenants that will shape CCEC’s balance‑sheet discipline:
- Leverage covenant: Net Debt/EBITDA ≤ 3.0× (tested quarterly).
- Liquidity covenant: Minimum cash‑plus‑cash‑equivalents of $25 million at each reporting date.
- DSCR covenant: Debt‑service‑coverage‑ratio ≥ 1.15× on a rolling 12‑month basis.
- Cap‑ex restriction: No additional capital commitments above $30 million without lender consent.
- Dividend restriction: No distribution of cash dividends while the covenant breach window remains open.
Impact on earnings
The 5.25 % interest expense translates to roughly $11 million–$12 million of annual pre‑tax cost once the first tranche is fully drawn (the expense will ramp as each vessel comes on‑line). Assuming the new gas carriers achieve the company’s target utilization (≈ 90 %) and the prevailing spot gas‑freight differential of $30 k–$35 k per day, the incremental EBITDA contribution is estimated at $45 million–$55 million per vessel per year. After subtracting financing costs, the net contribution per ship is still north of $30 million of EBITDA, which should lift the consolidated margin by 200–250 bps.
The covenants, however, impose a ceiling on leverage that will force CCEC to either accelerate debt amortisation or retain higher cash balances as earnings fluctuate with spot freight volatility. A prolonged downturn in gas freight could trigger a covenant breach, prompting a forced refinancing at higher rates or a curtailment of dividend payouts—both of which would weigh on the stock’s risk premium. Consequently, investors should watch the quarterly Net‑Debt/EBITDA ratio and cash‑position metrics as leading indicators of earnings sustainability.
Trading takeaway
- Buy on dips if the shares trade below the implied 12‑month EBITDA‑multiple (≈ 12×) and the leverage covenant remains comfortably met.
- Monitor quarterly debt‑to‑EBITDA and cash‑cover metrics; a breach would be a sell signal as financing costs could spike.
- Relative strength: CCEC’s earnings upside from the new dual‑fuel fleet is larger than most peers in the gas‑carrier niche, so a long‑biased position with a stop just below the recent low (≈ $4.20) is justified, while keeping an eye on freight‑rate swings that could erode the covenant buffers.