Table of Contents

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-210284

 

This preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, as amended, but is 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 MARCH 28, 2017

PRELIMINARY PROSPECTUS SUPPLEMENT

(To Prospectus dated March 18, 2016)

 

 

 

 

 

 

 

        % Senior Notes due 2019

We are offering $        aggregate principal amount of our     % Senior Notes due 2019 (the “Notes”). We have granted the underwriters the option to purchase, exercisable during the 30-day period beginning on the date of this prospectus supplement, up to an additional $        aggregate principal amount of the Notes. The Notes will bear interest from                 , 2017 at a rate of     % per year. The Notes will mature on June 1, 2019. Interest on the Notes will be payable quarterly in arrears on the 1st day of March, June, September and December of each year, commencing on June 1, 2017. We may redeem the Notes at our option, in whole or in part, at any time on or after December 1, 2018, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, 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, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, if certain events occur involving changes in taxation, as described in this prospectus supplement under “Description of Notes—Optional Redemption for Changes in Withholding Taxes.”

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.

 

 

Investing in the Notes involves risks. Please see “Risk Factors” beginning on page S-11.

 

 

 

		PER NOTE				TOTAL
Public offering price		$				$
Underwriting discount		$				$
Proceeds, before expenses, to us		$				$

 

 

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

 

 

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.

 

 

Joint Bookrunning Managers

 

Stifel		Janney Montgomery Scott

Co-Managers

 

Ladenburg Thalmann		Wunderlich

We expect that delivery of the Notes will be made to investors on or about                 , 2017, through the book-entry system of The Depository Trust Company for the accounts of its participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear system, and Clearstream Banking, société anonyme.

The date of this prospectus supplement is March                 , 2017.

---

Table of Contents

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

 

 

IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT			S-i
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES			S-ii
INDUSTRY AND MARKET DATA			S-iii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			S-iv
PROSPECTUS SUMMARY			S-1
THE OFFERING			S-5
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA			S-8
RISK FACTORS			S-11
USE OF PROCEEDS			S-16
RATIO OF EARNINGS TO FIXED CHARGES			S-17
CAPITALIZATION			S-18
THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY			S-19
BUSINESS			S-28
MANAGEMENT			S-43
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT			S-51
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			S-52
DESCRIPTION OF NOTES			S-57
DESCRIPTION OF OTHER INDEBTEDNESS			S-79
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS			S-94
MARSHALL ISLANDS TAX CONSIDERATIONS			S-97
UNDERWRITING (CONFLICTS OF INTEREST)			S-98
EXPENSES			S-101
LEGAL MATTERS			S-102
EXPERTS			S-103
WHERE YOU CAN FIND ADDITIONAL INFORMATION			S-104

BASE PROSPECTUS

 

ABOUT THIS PROSPECTUS			1
PROSPECTUS SUMMARY			2
RISK FACTORS			4
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS			5
RATIO OF EARNINGS TO FIXED CHARGES			7
USE OF PROCEEDS			8
CAPITALIZATION			9
PLAN OF DISTRIBUTION			10
DESCRIPTION OF CAPITAL STOCK			12
DESCRIPTION OF DEBT SECURITIES			13
DESCRIPTION OF WARRANTS			18
DESCRIPTION OF PURCHASE CONTRACTS			19
DESCRIPTION OF RIGHTS			20
DESCRIPTION OF UNITS			21
TAX CONSIDERATIONS			22
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES			23
EXPENSES			24
LEGAL MATTERS			25
EXPERTS			26
WHERE YOU CAN FIND ADDITIONAL INFORMATION			27

 

 

 

---

Table of Contents

IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT

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 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, and when we refer to the accompanying base prospectus, we are referring to the base prospectus.

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 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.

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.

 

S-i

---

Table of Contents

SERVICE OF PROCESS AND 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

---

Table of Contents

INDUSTRY AND MARKET DATA

The discussions contained under the heading “The International Oil Tanker Shipping Industry” have been reviewed by Drewry Shipping Consultants Ltd., or Drewry, which has confirmed to us that they accurately describe the international oil tanker shipping market as of March 15, 2017.

The statistical and graphical information we use in this prospectus supplement has been compiled by Drewry from its database. Drewry compiles and publishes data for the benefit of its clients. Its methodologies for collecting data, and therefore the data collected, may differ from those of other sources, and its data does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the market.

 

S-iii

---

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Matters discussed in this document and the documents incorporated by reference herein may constitute forward-looking statements. 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.

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 with this safe harbor legislation. This document and the documents incorporated by reference herein may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “likely,” “may,” “will,” “would,” “could” and similar expressions identify forward-looking statements.

The forward-looking statements in this document and the documents incorporated by reference herein are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.

In addition to these important factors and matters discussed elsewhere in this prospectus, and in the documents incorporated by reference in this prospectus, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:

 

∎

the strength of world economies and currencies;

 

∎

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

 

∎

potential liability from pending or future litigation;

 

∎

general domestic and international political conditions;

 

∎

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

 

∎

vessels breakdowns and instances of off-hires;

 

∎

competition within our industry;

 

∎

the supply of and demand for vessels comparable to ours;

 

∎

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

 

∎

delays and cost overruns in construction projects;

 

∎

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;

 

∎

availability of skilled workers and the related labor costs;

 

∎

compliance with governmental, tax, environmental and safety regulations;

 

∎

any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) 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;

 

S-iv

---

Table of Contents

∎

our dependence on key personnel;

 

∎

adequacy of insurance coverage;

 

∎

our ability to obtain indemnities from customers;

 

∎

changes in laws, treaties or regulations;

 

∎

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

 

∎

other factors described from time to time in the reports we file and furnish with the U.S. Securities and Exchange Commission, or the Commission, and the New York Stock Exchange, or the NYSE.

We caution readers of this prospectus supplement, the accompanying base prospectus and the documents incorporated by reference into each not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.

 

S-v

---

Table of Contents

 

S-1

---

Table of Contents

 

S-2

---

Table of Contents

 

S-3

---

Table of Contents

 

S-4

---

Table of Contents

 

S-5

---

Table of Contents

 

S-6

---

Table of Contents

 

S-7

---

Table of Contents

 

S-8

---

Table of Contents

 

S-9

---

Table of Contents

 

S-10

---

Table of Contents

RISK FACTORS

Before making an investment in our 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 year ended December 31, 2016, filed with the Commission on March 16, 2017, 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 of Investing in Our Notes

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

Our Notes are unsubordinated unsecured general obligations of ours and are not, either directly or indirectly, an obligation of any third party. Our 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 our 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 our 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 our Notes.

Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

As of March 24, 2017, we had $1,993.5 million of total outstanding indebtedness and $150.6 million of availability under our credit facilities. The amount of our outstanding borrowings under our debt facilities will increase following drawdowns in connection with the completion of our acquisition of the eight vessels in our Newbuilding Program that we have contracted to purchase. In addition, we may enter into new debt arrangements or issue additional debt securities in the future. 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 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. Additionally, as described below under the section entitled “Description of Other Indebtedness,” our 2011 Credit Facility, our DVB Credit Facility and the Existing Notes are scheduled to mature in May 2017, August 2017 and October 2017, respectively. In 2017, we refinanced four of the seven vessels collateralized under the 2011 Credit Facility. In addition, we received an offer to refinance the remaining amounts under the 2011 Credit Facility (via a non-binding offer that we received in December 2016 to sell and leaseback three vessels) and a commitment to refinance our DVB Credit Facility which remain subject to the execution of definitive documentation and customary conditions precedent.

 

S-11

---

Table of Contents

If we are unable to repay or refinance upcoming maturities on our existing indebtedness and if our results of operations are not sufficient to service our current or future indebtedness and charter hire obligations, we will be forced to take actions such as reducing dividends, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

Our subsidiaries conduct the substantial majority of our operations and own our operating assets, and your right to receive payments on our 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 our 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 our Notes. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due on our Notes or to make funds available for that purpose. Our Notes will not be guaranteed by any of our subsidiaries or any other person.

The rights of holders of our 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 subsidiary to us. Our 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 December 31, 2016, we had $1,952.1 million of outstanding indebtedness (of which $1,498.1 million was secured and $454.0 million was unsecured) and as of March 24, 2017 we had $1,993.5 million of outstanding indebtedness (of which $1,539.5 million was secured and $454.0 million was unsecured).

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

Our 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 our Notes. As of December 31, 2016, we had $1,952.1 million of outstanding indebtedness (of which $1,498.1 million was secured and $454.0 million was unsecured) and as of March 24, 2017, we had $1,993.5 million of outstanding indebtedness (of which $1,539.5 million was secured and $454.0 million was unsecured). Please read “Description of Other Indebtedness.” We will continue to have the ability to incur additional secured debt, subject to limitations in our credit facilities and the indenture relating to our Notes.

We may not have the ability to raise the funds necessary to purchase our Notes as required upon a change of control, and our existing and future debt may contain limitations on our ability to purchase our Notes.

Following a change of control as described under “Description of Notes—Change of Control Permits Holders to Require us to Purchase Notes,” holders of Notes will have the right to require us to purchase their Notes for cash. A change of control may also constitute an event of default or prepayment under, and result in the acceleration of the maturity of, our then existing indebtedness. We cannot assure you that we will have sufficient financial resources, or will be able to arrange financing, to pay the change of control purchase price in cash with respect to any Notes surrendered by holders for purchase upon a change of control. In addition, restrictions in our then existing credit facilities or other indebtedness, if any, may not allow us to purchase the Notes upon a change of control. Our failure to purchase the Notes upon a change of control when required would result in an event of default with respect to the Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the Notes.

 

S-12

---

Table of Contents

Some significant restructuring transactions may not constitute a change of control, in which case we would not be obligated to offer to purchase the Notes.

Upon the occurrence of a change of control, you have the right to require us to purchase your Notes. However, the change of control provisions will not afford protection to holders of Notes in the event of certain transactions that could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings or certain restructurings would not constitute a change of control requiring us to repurchase the Notes. In the event of any such transaction, holders of the Notes would not have the right to require us to purchase their Notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting holders of the Notes.

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

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

 

∎

prevailing interest rates;

 

∎

the market for similar securities;

 

∎

general economic and financial market conditions;

 

∎

our issuance 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 our 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.

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

We have not sought to obtain a rating for our Notes, and our Notes may never be rated. It is possible, however, that one or more credit rating agencies might independently determine to assign a rating to our Notes or that we may elect to obtain a rating of our 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 our 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 our Notes, could adversely affect the market for, or the market value of, our 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 our Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of our Notes may not reflect all risks related to us and our business, or the structure or market value of our Notes.

Risks Related to Our 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

 

S-13

---

Table of Contents

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 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 pay dividends to you if we determine to do so in the future, finance our future operations or capital requirements, make acquisitions or pursue business opportunities.

In addition, our secured credit facilities 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

 

S-14

---

Table of Contents

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 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.

 

S-15

---

Table of Contents

USE OF PROCEEDS

We intend to use the net proceeds of the sale of our 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), to fund a portion of the Tender Offer for our Existing Notes that we are commencing concurrently with this offering and to repay any Existing Notes not repurchased in the Tender Offer. Any remaining net proceeds will be used for general corporate purposes and working capital.

 

S-16

---

Table of Contents

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth our ratio of earnings to fixed charges for each of the years ended December 31, 2016, 2015, 2014, 2013 and 2012.

 

 

 

		YEAR ENDED DECEMBER 31,
		2016				2015				2014				2013				2012
Earnings:
Add:
(Loss) / income before income or loss from associate and income taxes		($	24,903	)		$	217,749			$	50,618			$	16,646			($	26,537	)
Fixed charges (calculated below)			112,985				96,761				41,784				11,614				12,263
Amortization of capitalized interest			1,188				1,103				363				165				39
Less:																			—
Interest capitalized			(6,274	)			(5,571	)			(17,482	)			(6,379	)			(3,220	)
Earnings			82,996				310,042				75,283				22,046				(17,455	)
Fixed charges:
Interest expensed and capitalized on bank loans			81,308				77,434				33,368				7,221				6,494
Amortization of deferred financing fees			28,628				17,418				4,834				332				4,093
Interest component of rent			3,049				1,909				3,582				4,061				1,676
Fixed charges			112,985				96,761				41,784				11,614				12,263
Ratio of earnings to fixed charges (1)			—	(2)			3.20x				1.80x				1.90x				—	(2)

 

 

(1)	For purposes of calculating the ratios of consolidated earnings to fixed charges:

 

∎

“earnings” consist of net income before income or loss from associate as prepared under IFRS, plus fixed charges and the amortization of capitalized interest, net of capitalized interest; and

 

∎

“fixed charges” represent interest expensed and capitalized, amortization of deferred financing fees (whether expensed or capitalized) and the Company’s estimate of the interest component of rent.

The ratios of earnings to fixed charges are ratios that we are required to present in this prospectus and have been calculated in accordance with Commission rules and regulations. These ratios have no application to any of our credit facilities or unsecured borrowings and we believe they are not ratios generally used by investors to evaluate our overall operating performance.

 

(2)	Our earnings were insufficient to cover fixed charges and accordingly, the ratio was less than 1:1. We would have needed to generate additional earnings of $30.0 million and $29.7 million to achieve coverage of 1:1 in the years ended December 31, 2016 and 2012, respectively.

 

S-17

---

Table of Contents

CAPITALIZATION

The following table sets forth our capitalization at December 31, 2016, on:

 

∎

an actual basis;

 

∎

an as adjusted basis to give effect to the following:

 

∎

payments totaling $55.0 million related to installment payments under our Newbuilding Program, which included $51.4 million for the final installment payments on STI Selatar and STI Rambla, LR2 product tankers that were delivered to us in February and March 2017, respectively;

 

∎

drawdowns of $137.5 million from our secured credit facilities consisting of (i) $58.4 million from our Credit Suisse Credit Facility to partially finance the purchases of STI Selatar and STI Rambla, which were delivered in February and March 2017, respectively, (ii) $27.6 million from our BNP Paribas Credit Facility to refinance the existing indebtedness on STI Sapphire and STI Emerald, (iii) $31.1 million to refinance the existing indebtedness on STI Duchessa and STI Onyx and (iv) $20.4 million from our 2017 Credit Facility to partially finance the purchase of STI Galata; and

 

∎

repayments of $96.0 million on our secured credit facilities consisting of $50.0 million on our 2011 Credit Facility as part of the refinancing of the existing indebtedness on STI Sapphire, STI Emerald, STI Duchessa and STI Onyx, and scheduled principal repayments of $46.0 million.

 

∎

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 December 31, 2016, as so adjusted.

This table is derived from, and should be read together with, our consolidated financial statements and related notes thereto, and other financial information contained in our Annual Report on Form 20-F for the fiscal year ended December 31, 2016, which is incorporated by reference in this prospectus supplement.

 

 

 

		AS OF DECEMBER 31, 2016
IN THOUSANDS OF U.S. DOLLARS		ACTUAL				AS ADJUSTED				AS FURTHER ADJUSTED
Cash		$	99,887			$	65,908	(2)
Current debt:
Current portion of long term debt (1)			353,012				267,766
Non-current debt:
Long term debt (1)			1,529,669				1,656,350
Total debt		$	1,882,681			$	1,924,116
Shareholders’ equity:
Share capital			2,247				2,247
Additional paid in capital			1,756,769				1,756,769
Treasury shares			(443,816	)			(443,816	)
Retained earnings / (accumulated deficit)			—				—
Total shareholders’ equity		$	1,315,200			$	1,315,200
Total capitalization		$	3,197,881			$	3,239,316

 

 

(1)

The current portion at December 31, 2016 was net of unamortized deferred financing fees of $4.3 million and the non-current portion was net of unamortized deferred financing fees of $33.1 million. Debt, as adjusted, does not reflect deferred financing fee activity from January 1, 2017 through March 24, 2017. This activity is estimated to be $0.3 million and includes estimated additions of $2.8 million as a result of the aforementioned drawdowns on new credit facilities entered into during 2017 offset by estimated write-offs of $0.1 million as a result of the refinancing of the amounts borrowed under the 2011 Credit Facility and estimated amortization of $3.0 million.

(2)	Cash, as adjusted, does not include the impact of cash flows from operations from January 1, 2017 through March 24, 2017.

 

S-18

---

Table of Contents

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., or 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 principally 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 global economy, with demand for products slowing significantly in the period immediately after the onset of the global economic downturn in late 2008, before recovering gradually from 2011 onwards with the general improvement in the macro-economic environment.

In 2016, 3.2 billion tons of crude oil, products and vegetable oils/chemicals were moved by sea. Of this, crude shipments constituted 2.0 billion tons of cargo, products 1.0 billion tons, with the balance made up of other bulk liquids, including vegetable oils, chemicals and associated products.

 

 

 

WORLD SEABORNE TANKER TRADE
		CRUDE OIL				PRODUCTS				VEG OILS/ CHEMICALS				TOTAL
YEAR		MILL T		% Y-O-Y		MILL T		% Y-O-Y		MILL T		% Y-O-Y		MILL T		% Y-O-Y
2001		1,751		3.2%		518		3.0%		121		3.5%		2,390		3.2%
2002		1,756		0.3%		519		0.3%		129		6.6%		2,404		0.6%
2003		1,860		5.9%		550		6.0%		136		4.9%		2,545		5.9%
2004		1,963		5.6%		599		8.8%		146		7.2%		2,707		6.4%
2005		1,994		1.6%		646		8.0%		161		10.3%		2,801		3.5%
2006		1,996		0.1%		677		4.7%		171		6.3%		2,844		1.5%
2007		2,008		0.6%		723		6.8%		175		2.8%		2,907		2.2%
2008		2,014		0.3%		765		5.8%		178		1.5%		2,956		1.7%
2009		1,928		(4.2)%		777		1.6%		184		3.2%		2,888		(2.3)%
2010		1,997		3.6%		810		4.2%		196		6.4%		3,002		3.9%
2011		1,941		(2.8)%		860		6.3%		205		4.9%		3,007		0.1%
2012		1,988		2.4%		859		(0.2)%		210		2.5%		3,057		1.7%
2013		1,918		(3.5)%		904		5.3%		217		3.3%		3,040		(0.6)%
2014		1,895		(1.2)%		912		0.8%		221		1.6%		3,027		(0.4)%
2015		1,957		3.3%		953		4.5%		231		4.8%		3,142		3.8%
2016*		2,016		3.0%		987		3.6%		229		(0.8)%		3,233		2.9%
CAGR (2011-2016)		0.8%				2.8%				2.3%				1.5%
CAGR (2006-2016)		0.1%				3.8%				3.0%				1.3%

 

 

*	Provisional assessment

Source: 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 benefited from economic growth in Asia, especially in China, where oil consumption increased by a compound

 

S-19

---

Table of Contents

average growth rate (CAGR) of 5.4% to 11.9 million barrels per day (mbpd) between 2006 and 2016. Low per capita oil consumption in developing countries such as China and India compared to 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, although provisional data for the United States (U.S.) and some European countries indicates that this trend was reversed in 2015 and 2016. This was almost certainly due to the positive impact of lower oil prices on demand for products such as gasoline.

World Oil Consumption: 1991-2016

(Million bpd)

 

 

 

*	Provisional estimate

Source: Drewry

Provisional estimates suggest that world oil demand in 2016 was 96.5 million bpd, an increase of 1.5% from 2015, and between 2006 and 2016, world oil demand grew by a CAGR of 1.3%.

 

S-20

---

Table of Contents

Oil Product Exports & Imports

Product trades have increased in the last decade as a result of developments in the U.S. energy economy. In the U.S., as a result of the development of shale oil deposits, domestic crude oil production increased by a CAGR of 10.2% between 2008 and 2015 to reach just in excess of 9.0 million bpd, however provisional estimates suggest a marginal decline to 8.9 million bpd in 2016. Horizontal drilling and hydraulic fracturing have triggered a shale oil revolution and rising crude oil production has also ensured the availability of cheaper feedstocks to local refineries. As a result, the U.S. has become a major net exporter of products (see chart below).

Oil Product Exports—Major Growth Regions

(Million Bpd)

 

 

Source: Drewry

In a short span of time, the U.S. has become the largest exporter of refined products in the world, with supplies from U.S. Gulf Coast terminals heading to most parts of the globe. By way of illustration, U.S. product exports to South America were close to 8.8 million tons in 2006, but had increased to 63.2 million tons by 2016, owing to strong import demand and the growth in U.S. products availability. Most of these exports were carried by MR product tankers, which constitute approximately 58% of global product tanker fleet capacity and have been the mainstay of seaborne trade in refined petroleum products. However, lower crude oil prices in 2015 and 2016 have adversely impacted U.S. shale oil producers and accordingly crude production in the region has been declining since May 2015. In November 2016 U.S. crude oil production was 8.9 million bpd, compared with 9.3 million bpd in November 2015. Declining crude oil production in addition to the lifting of the ban on crude oil exports in December 2015 has limited the availability of feedstocks to domestic refineries and in turn may limit the export of refined products from the U.S.

The shift in the location of global oil production is also being accompanied by a shift in the location of global refinery capacity and throughput. In short, capacity and throughput are moving from the developed to the developing world. Between 2006 and 2016 total OECD refining throughput declined by 4.3%, largely as a result of cutbacks in OECD Europe and OECD Asia Oceania. On the other hand, throughput in the OECD Americas in the same period was up by 1.9% to 18.9 million bpd. In 2016, refining throughput of OECD countries stood at 37.6 million bpd and accounted for 47.5% of global refinery throughput.

Asia (excluding China) and the Middle East added over 0.9 million bpd of export-oriented refinery capacity in 2015 whereas 0.4 million bpd new capacity came online in the U.S. during the year. For 2016, approximately 0.4 million bpd of new refining capacity was scheduled to be added in the U.S. and another 0.3 million bpd in Middle East. As a result of these developments countries such as India, Saudi Arabia and the U.S. have become major exporters of refined products.

 

S-21

---

Table of Contents

Export-oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the developed world, have prompted longer-haul shipments to meet product demand.

Oil Product Imports—Major Growth Regions

(Million bpd)

 

 

Source: Drewry

Current Tanker Fleet

Crude oil is transported in uncoated vessels, which range upwards in size from 55,000 dwt. Products are carried predominately in coated ships and include commodities such as fuel oil and vacuum gas oil (often referred to as “dirty products”), gas oil, gasoline, jet fuel, kerosene and naphtha (often referred to as “clean products”). In addition, some product tankers are also able to carry bulk liquid chemicals and edible oils and fats if they have the appropriate International Maritime Organization (IMO) certification. These vessels are classified as product/chemical tankers and as such they represent a swing element in supply, having the ability to move between trades depending on market conditions. Clean petroleum products are therefore carried by non-IMO product tankers and IMO certified product/chemical tankers. IMO tankers will also carry, depending on their tank coatings, a range of other products including organic and inorganic bulk liquid chemicals, vegetable oils and animal fats and special products such as molasses.

 

S-22

---

Table of Contents

As of March 1, 2017, the total oil tanker fleet (crude, products and product/chemical tankers) consisted of 4,754 ships with a combined capacity of 525.9 million dwt.

 

 

 

THE OIL TANKER FLEET—MARCH 1, 2017
VESSEL TYPE		DEADWEIGHT TONS (DWT)				NUMBER OF VESSELS				% OF FLEET				CAPACITY (M DWT)				% OF FLEET
Crude Tankers (1)
VLCC/ULCC			200,000+				712				35.1				218.9				58.1
Suezmax			120-199,999				517				25.5				80.3				21.3
Aframax			80-119,999				649				32.0				70.0				18.6
Panamax			55-79,999				87				4.3				6.0				1.6
Handymax			40-54,999				17				0.8				0.8				0.2
Handy			25-39,999				12				0.6				0.4				0.1
Handy			10-24,999				36				1.8				0.6				0.2
Total Fleet							2,030				100.0				377.0				100.0
Product Tankers
Long Range 3 (LR3)			120-199,999				16				1.2				2.5				2.9
Long Range 2 (LR2)			80-119,999				319				23.8				34.5				40.0
Long Range 1 (LR1)			55-79,999				318				23.8				23.3				27
Medium Range 2 (MR2)			40-54,999				429				32.1				20.1				23.3
Medium Range 1 (MR1)			25-39,999				114				8.5				3.9				4.5
Handy			10-24,999				142				10.6				2.0				2.3
Total Fleet							1,338				100.0				86.3				100.0
Product/Chemical Tankers (2)
Long Range 3 (LR3)			120-199,999				—				—				—				—
Long Range 2 (LR2)			80-119,999				3				0.2				—				—
Long Range 1 (LR1)			55-79,999				25				1.8				1.8				2.9
Medium Range 2 (MR2)			40-54,999				1,004				72.4				48.5				77.4
Medium Range 1 (MR1)			25-39,999				315				22.7				11.7				18.7
Handy			10-24,999				39				2.8				0.6				1.0
Total Fleet							1,386				100.0				62.6				100.0
Product & Product/Chemical Fleet
Long Range 3 (LR3)			120-199,999				16				0.6				2.5				1.7
Long Range 2 (LR2)			80-119,999				322				11.8				34.5				23.2
Long Range 1 (LR1)			55-79,999				343				12.6				25.1				16.9
Medium Range 2 (MR2)			40-54,999				1,433				52.6				68.6				46.1
Medium Range 1 (MR1)			25-39,999				429				15.7				15.6				10.5
Handy			10-24,999				181				6.6				2.6				1.7
Total Fleet							2,724				100.0				148.9				100.0
Crude, Product and Product/Chemical Tanker Fleet
VLCC/ULCC			200,000+				712				15.0				218.9				41.6
Suezmax/LR3			120-199,999				533				11.2				82.8				15.7
Aframax/LR2			80-119,999				971				20.4				104.5				19.9
Panamax/LR1			55-79,999				430				9.0				31.1				5.9
Handy/Medium Range			40-54,999				1450				30.5				69.4				13.2
Handy/Medium Range			25-39,999				441				9.3				16.0				3.0
Handy/Handymax			10-54,999				217				4.6				3.2				0.6
Total Fleet							4,754				100.0				525.9				100.0

 

 

(1)	Included shuttle tankers and tankers on storage duties

 

(2)	Includes product and product/chemical tankers, excludes chemical tankers

Source: Drewry

 

S-23

---

Table of Contents

The world product tanker fleet as of March 1, 2017 consisted of 2,724 ships with a combined capacity of 148.9 million dwt. The breakdown of the fleet by type (product and product/chemical) and by size together with the orderbook for newbuilding tankers as of March 1, 2017, is illustrated in the table below.

 

 

 

						THE WORLD TANKER FLEET(1) & ORDERBOOK—MARCH 1, 2017
VESSEL TYPE						EXISTING FLEET								ORDERBOOK								ORDERBOOK % FLEET								2017								2018								2019								2020+
		(DWT)				NO				M DWT				NO				M DWT				NO				DWT				NO				M DWT				NO				M DWT				NO				M DWT				NO				M DWT
Crude Tankers (1)
VLCC/ULCC			200,000+				712				218.9				86.0				26.6				12.1				12.2				36.0				11.0				47.0				14.6				3.0				1.0				—				—
Suezmax			120-199,999				517				80.3				79.0				12.4				15.3				15.4				60.0				9.4				19.0				3.0				—				—				—				—
Aframax			80-119,999				649				70.0				89.0				10.1				13.7				14.4				38.0				4.3				38.0				4.3				9.0				1.0				4.0				0.5
Panamax			55-79,999				87				6.0				6.0				0.4				6.9				6.7				6.0				0.4				—				—				—				—				—				—
Handymax			40-54,999				17				0.8				2.0				0.1				11.8				12.5				2.0				0.1				—				—				—				—				—				—
Handy			25-39,999				12				0.4				—				—				—				—				—				—				—				—				—				—				—				—
Handy			10-24,999				36				0.6				4.0				0.1				11.1				16.7				4.0				0.1				—				—				—				—				—				—
Total Fleet							2,030				377.0				266.0				49.7				13.1				13.2				146.0				25.3				104.0				21.9				12.0				2.0				4.0				0.5
Product Tankers
Long Range 3 (LR3)			120-199,999				16				2.5				4.0				0.6				25.0				24.0				2.0				0.3				2.0				0.3				—				—				—				—
Long Range 2 (LR2)			80-119,999				319				34.5				46.0				5.2				14.4				15.1				29.0				3.2				11.0				1.3				6.0				0.7				—				—
Long Range 1 (LR1)			55-79,999				318				23.3				42.0				3.1				13.2				13.3				25.0				1.8				14.0				1.0				1.0				0.1				2.0				0.2
Medium Range 2 (MR2)			40-54,999				429				20.1				38.0				1.9				8.9				9.5				4.0				0.2				9.0				0.4				18.0				0.9				7.0				0.4
Medium Range 1 (MR1)			25-39,999				114				3.9				—				—				—				—				—				—				—				—				—				—				—				—
Handy			10-24,999				142				2.0				8.0				0.2				5.6				10.0				5.0				0.1				3.0				0.1				—				—				—				—
Total Fleet							1,338				86.3				138.0				11.0				10.3				12.7				65.0				5.6				39.0				3.1				25.0				1.7				9.0				0.6
Product/Chemical Tankers (2)
Long Range 3 (LR3)			120-199,999				—				—				—				—				—				—				—				—				—				—				—				—				—				—
Long Range 2 (LR2)			80-119,999				3				—				—				—				—				—				—				—				—				—				—				—				—				—
Long Range 1 (LR1)			55-79,999				25				1.8				—				—				—				—				—				—				—				—				—				—				—				—
Medium Range 2 (MR2)			40-54,999				1,004				48.5				81.0				4.0				8.1				8.2				56.0				2.8				19.0				0.9				6.0				0.3				—				—
Medium Range 1 (MR1)			25-39,999				315				11.7				13.0				0.5				4.1				4.3				12.0				0.4				1.0				0.1				—				—				—				—
Handy			10-24,999				39				0.6				—				—				—				—				—				—				—				—				—				—				—				—
Total Fleet							1,386				62.6				94.0				4.5				6.8				7.2				68.0				3.2				20.0				1.0				6.0				0.3				—				—
Product & Product/Chemical Fleet
Long Range 3 (LR3)			120-199,999				16				2.5				4.0				0.6				25.0				24.0				2.0				0.3				2.0				0.3				—				—				—				—
Long Range 2 (LR2)			80-119,999				322				34.5				46.0				5.2				14.3				15.1				29.0				3.2				11.0				1.3				6.0				0.7				—				—
Long Range 1 (LR1)			55-79,999				343				25.1				42.0				3.1				12.2				12.4				25.0				1.8				14.0				1.0				1.0				0.1				2.0				0.2
Medium Range 2 (MR2)			40-54,999				1,433				68.6				119.0				5.9				8.3				8.6				60.0				3.0				28.0				1.3				24.0				1.2				7.0				0.4
Medium Range 1 (MR1)			25-39,999				429				15.6				13.0				0.5				3.0				3.2				12.0				0.4				1.0				0.1				—				—				—				—
Handy			10-24,999				181				2.6				8.0				0.2				4.4				7.7				5.0				0.1				3.0				0.1				—				—				—				—
Total Fleet							2,724				148.9				232.0				15.5				8.5				10.4				133.0				8.8				59.0				4.1				31.0				2.0				9.0				0.6
Crude, Product and Product/Chemical Tanker Fleet
VLCC/ULCC			200,000+				712				218.9				86.0				26.6				12.1				12.2				36.0				11.0				47.0				14.6				3.0				1.0				—				—
Suezmax/LR3			120-199,999				533				82.8				83.0				13.0				15.6				15.7				62.0				9.7				21.0				3.3				—				—				—				—
Aframax/LR2			80-119,999				971				104.5				135.0				15.3				13.9				14.6				67.0				7.5				49.0				5.6				15.0				1.7				4.0				0.5
Panamax/LR1			55-79,999				430				31.1				48.0				3.5				11.2				11.2				31.0				2.2				14.0				1.0				1.0				0.1				2.0				0.2
Handy/Medium Range			40-54,999				1,450				69.4				121.0				6.0				8.3				8.6				62.0				3.1				28.0				1.3				24.0				1.2				7.0				0.4
Handy/Medium Range			25-39,999				441				16.0				13.0				0.5				2.9				3.1				12.0				0.4				1.0				0.1				—				—				—				—
Handy/Handymax			10-54,999				217				3.2				12.0				0.3				5.5				9.4				9.0				0.2				3.0				0.1				—				—				—				—
Total Fleet							4,754				525.9				498.0				65.2				10.5				12.4				279.0				34.1				163.0				26.0				43.0				4.0				13.0				1.1

 

 

(1)	Included shuttle tankers and tankers on storage duties

 

(2)	Product and product/chemical tankers only, excludes pure chemical tankers

Source: Drewry

 

S-24

---

Table of Contents

As of March 1, 2017, the orderbook for product and product/chemical tankers for vessels above 10,000 dwt comprised 232 ships with a combined capacity of 15.5 million dwt, equivalent to 10.4% of the existing fleet. Based on the total orderbook and scheduled deliveries, approximately 8.8 million dwt is expected to be delivered in 2017, followed by 4.1 million dwt in 2018 and the remaining 2.6 million dwt will be delivered in 2019 and beyond. In recent years, however, the orderbook has been affected by the non-delivery of vessels (sometimes referred to as ‘‘slippage’’). Some of this slippage resulted from delays, either through mutual agreement or through shipyard problems, while some was due to vessel cancellations. Slippage is likely to remain an issue going forward and, as such, it will have a moderating effect over product tanker fleet growth in 2017 and 2018.

The Oil Tanker Freight Market

Tanker charter hire rates and vessel values for all tankers are influenced by the supply and demand for tanker capacity. Also, in general terms, time charter rates are less volatile than spot rates, because they reflect the fact that the vessel is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand and are thus prone to more volatility. The trend in spot rates since 2001 for the main vessel classes is shown in the table below.

Oil Tanker—Spot (TCE) Rates: 2001-2017

(US$/Day)

 

 

 

YEAR		CARIBS USAC 40-70,000 DWT				NW EUROPE NW EUROPE 70-100,000 DWT				WEST AFRICA CARIBS/USES 150-160,000 DWT				AG JAPAN 280-300,000 DWT
2001			26,300				35,308				31,992				36,891
2002			16,567				22,800				19,325				21,667
2003			28,833				41,883				37,367				49,342
2004			42,158				55,408				64,792				95,258
2005			34,933				57,517				40,883				59,125
2006			28,792				47,067				40,142				51,142
2007			30,100				41,975				35,392				45,475
2008			36,992				56,408				52,650				89,300
2009			13,450				19,883				20,242				29,483
2010			17,950				27,825				19,658				40,408
2011			5,558				12,183				12,508				10,100
2012			9,042				10,617				13,825				12,775
2013			10,417				12,908				12,900				12,325
2014			18,217				33,075				21,200				24,892
2015			28,533				44,567				40,942				68,600
2016			16,633				32,875				23,433				41,792
Feb-17			14,500				38,200				11,300				28,500

 

 

Source: Drewry

After a period of favorable market conditions between 2004 and 2008, demand for products fell as the world economy went into recession in the latter half of 2008 and there was a negative impact on product tanker demand. With supply at the same time increasing at a fast pace, falling utilization levels pushed tanker freight rates downwards in 2009. A modest recovery took place in the early part of 2010, but this was short-lived and rates started to fall once more in mid-2012 before rebounding in 2014.

Freight rates in the tanker sector started to improve in the second half of 2014 as result of low growth in vessel supply and rising vessel demand. In the products sector a number of factors combined to push up rates, including:

 

∎

Increased trade due to higher stocking activity and improved demand for oil products

 

∎

Longer voyage distances because of refining capacity additions in Asia

 

S-25

---

Table of Contents

∎

Product tankers also carrying crude encouraged by firm freight rates for dirty tankers

 

∎

Lower bunker prices contributing to higher net earnings

Freight rates remained firm throughout 2015 and first half of 2016 and this led to greater revenue and improved profitability for ship-owners. However, in the second half of 2016 tanker freight rates declined sharply as a result of the increase tanker supply outweighing the demand for tankers.

Oil Tanker Newbuilding Prices

Newbuilding prices increased significantly between 2003 and 2007 primarily as a result of increased tanker demand. Thereafter prices weakened in the face of a poor freight market and lower levels of new ordering. In late 2013, prices started to recover and they continued to edge up slowly during 2014 before falling marginally in late 2015. Moreover, newbuilding prices fell further in 2016 because of excess capacity available at shipyards accompanied with low steel prices. New orders declined on account of diminishing earnings potential of oil tankers, and mandatory compliance to Tier III emission for ships ordered on or after January 1, 2016.

For most oil tanker sizes, newbuilding prices are well below the peaks reported at the height of the market boom in 2007-08 and also below long-term averages.

Oil Tankers: Newbuilding Prices: 2001-2017

(In millions of U.S. Dollars)

 

 

 

YEAR END		30,000 DWT				50,000 DWT				75,000 DWT				110,000 DWT				160,000 DWT				300,000 DWT
2001			25.0				27.0				33.5				38.0				47.0				72.0
2002			24.5				26.5				31.0				36.0				44.0				66.0
2003			28.5				30.5				34.5				40.0				52.0				73.0
2004			34.0				39.0				41.0				57.0				68.0				105.0
2005			37.5				42.0				43.0				59.0				71.0				120.0
2006			40.5				47.5				50.0				65.0				78.0				128.0
2007			46.0				54.0				64.0				78.0				90.0				146.0
2008			40.0				46.5				57.0				71.5				87.0				142.0
2009			31.0				36.0				42.5				52.0				62.0				101.0
2010			33.0				36.0				46.0				57.0				67.0				105.0
2011			31.5				36.0				44.0				52.8				61.7				99.0
2012			30.0				33.0				42.0				48.0				56.5				92.0
2013			31.0				35.0				43.0				51.5				59.0				93.5
2014			33.0				37.0				45.5				54.0				65.0				97.0
2015			32.0				35.5				45.0				51.5				63.0				94.0
2016			24.0				32.0				39.0				45.0				54.0				83.0
Feb-17			21.0				32.0				39.0				43.0				55.0				81.0
Long-term average			32.6				37.1				43.8				53.5				64.1				101.0

 

 

Source: Drewry

Secondhand Prices

Secondhand values primarily, albeit with a lag, reflect prevailing and expected charter rates. During extended periods of high charter rates vessel values tend to appreciate and vice versa. However vessel values are also influenced by other factors, including the age of the vessel. Prices for young vessels, those approximately up to five years old, are also influenced by newbuilding prices while prices for old vessels, near the end of their useful economic life, those approximately at or in excess of 25 years, are influenced by the value of scrap steel.

 

S-26

---

Table of Contents

The table below illustrates the movements of prices for secondhand oil tankers from 2001 to January 2017. In late 2013, prices for all modern tankers increased as a result of improvement in freight rates and positive market sentiment and further gains were recorded in 2014 and 2015. However in 2016, second hand prices saw a double-digit decline on weakening freight rates. For example, the secondhand price of a five year old LR vessel of 95,000 dwt capacity fell by 35% from $46 million in 2015 to $30 million in 2016. As of February 2017 secondhand prices for oil tankers were also still well below their long-term averages for every vessel class.

Oil Tanker Secondhand Prices: 2001-2017

(In millions of U.S. Dollars)

 

 

 

YEAR END		30,000 DWT				45,000 DWT				75,000 DWT				95,000 DWT				150,000 DWT				300,000 DWT
AGE		5 YRS				5 YRS				5 YRS				5 YRS				5 YRS				5 YRS
2001			25.0				25.0				25.5				34.5				41.5				63.0
2002			21.5				21.5				21.0				29.5				39.0				55.0
2003			29.5				29.5				24.0				37.0				47.0				70.0
2004			42.0				42.0				38.0				57.0				73.0				112.0
2005			40.0				45.5				46.5				58.0				75.0				110.0
2006			42.0				47.5				48.0				63.0				77.0				115.0
2007			40.5				52.0				59.0				68.5				87.0				130.0
2008			36.5				42.0				46.0				55.0				77.0				110.0
2009			20.5				24.0				32.5				38.0				53.0				77.5
2010			21.5				24.0				35.0				42.0				58.0				85.5
2011			22.5				27.0				32.0				33.5				45.5				58.0
2012			20.0				24.0				25.0				27.5				40.0				57.0
2013			25.0				29.0				31.0				33.0				42.0				60.0
2014			20.0				24.0				33.5				42.0				57.0				76.0
2015			23.0				27.0				36.0				46.0				60.0				80.0
2016			15.0				22.0				28.0				30.0				42.0				60.0
Feb-21			15.0				22.0				28.0				29.0				40.0				60.0
Long-term average			27.8				31.6				35.1				43.4				57.1				82.4

 

 

Source: Drewry

 

S-27

---

Table of Contents

BUSINESS

We provide seaborne transportation of refined petroleum products worldwide. As of March 24, 2017, we operate a fleet consisting of 79 wholly-owned tankers (23 LR2 tankers, 14 Handymax tankers and 42 MR tankers) with a weighted average age of approximately 2.3 years, and 19 time or bareboat chartered-in tankers (nine Handymax tankers, eight MR tankers, one LR1 tanker and one LR2 tanker), which we refer to collectively as our Operating Fleet. In addition, as of the same date, we have contracts for the construction of eight newbuilding MR product tankers, which we refer to as our Newbuilding Program. These vessels are expected to be delivered to us throughout the remainder of 2017 and first quarter of 2018.

The following table sets forth certain information regarding our fleet as of March 24, 2017:

 

 

 

		VESSEL NAME		YEAR BUILT				DWT				ICE     CLASS				EMPLOYMENT		VESSEL TYPE
		Owned vessels
1		STI Brixton			2014				38,734				1A			SHTP (1)		Handymax
2		STI Comandante			2014				38,734				1A			SHTP (1)		Handymax
3		STI Pimlico			2014				38,734				1A			Time Charter (5)		Handymax
4		STI Hackney			2014				38,734				1A			SHTP (1)		Handymax
5		STI Acton			2014				38,734				1A			SHTP (1)		Handymax
6		STI Fulham			2014				38,734				1A			SHTP (1)		Handymax
7		STI Camden			2014				38,734				1A			SHTP (1)		Handymax
8		STI Battersea			2014				38,734				1A			SHTP (1)		Handymax
9		STI Wembley			2014				38,734				1A			SHTP (1)		Handymax
10		STI Finchley			2014				38,734				1A			SHTP (1)		Handymax
11		STI Clapham			2014				38,734				1A			SHTP (1)		Handymax
12		STI Poplar			2014				38,734				1A			Time Charter (5)		Handymax
13		STI Hammersmith			2015				38,734				1A			SHTP (1)		Handymax
14		STI Rotherhithe			2015				38,734				1A			SHTP (1)		Handymax
15		STI Amber			2012				49,990				—			SMRP (2)		MR
16		STI Topaz			2012				49,990				—			SMRP (2)		MR
17		STI Ruby			2012				49,990				—			SMRP (2)		MR
18		STI Garnet			2012				49,990				—			SMRP (2)		MR
19		STI Onyx			2012				49,990				—			SMRP (2)		MR
20		STI Sapphire			2013				49,990				—			SMRP (2)		MR
21		STI Emerald			2013				49,990				—			SMRP (2)		MR
22		STI Beryl			2013				49,990				—			SMRP (2)		MR
23		STI Le Rocher			2013				49,990				—			SMRP (2)		MR
24		STI Larvotto			2013				49,990				—			SMRP (2)		MR
25		STI Fontvieille			2013				49,990				—			SMRP (2)		MR
26		STI Ville			2013				49,990				—			SMRP (2)		MR
27		STI Duchessa			2014				49,990				—			SMRP (2)		MR
28		STI Opera			2014				49,990				—			SMRP (2)		MR
29		STI Texas City			2014				49,990				—			SMRP (2)		MR
30		STI Meraux			2014				49,990				—			SMRP (2)		MR
31		STI San Antonio			2014				49,990				—			SMRP (2)		MR
32		STI Venere			2014				49,990				—			SMRP (2)		MR
33		STI Virtus			2014				49,990				—			SMRP (2)		MR
34		STI Aqua			2014				49,990				—			SMRP (2)		MR
35		STI Dama			2014				49,990				—			SMRP (2)		MR
36		STI Benicia			2014				49,990				—			SMRP (2)		MR
37		STI Regina			2014				49,990				—			SMRP (2)		MR
38		STI St. Charles			2014				49,990				—			SMRP (2)		MR
39		STI Mayfair			2014				49,990				—			SMRP (2)		MR

 

S-28

---

Table of Contents

		VESSEL NAME		YEAR BUILT				DWT				ICE     CLASS				EMPLOYMENT		VESSEL TYPE
40		STI Yorkville			2014				49,990				—			SMRP (2)		MR
41		STI Milwaukee			2014				49,990				—			SMRP (2)		MR
42		STI Battery			2014				49,990				—			SMRP (2)		MR
43		STI Soho			2014				49,990				—			SMRP (2)		MR
44		STI Memphis			2014				49,995				—			SMRP (2)		MR
45		STI Tribeca			2015				49,990				—			SMRP (2)		MR
46		STI Gramercy			2015				49,990				—			SMRP (2)		MR
47		STI Bronx			2015				49,990				—			SMRP (2)		MR
48		STI Pontiac			2015				49,990				—			SMRP (2)		MR
49		STI Manhattan			2015				49,990				—			SMRP (2)		MR
50		STI Queens			2015				49,990				—			SMRP (2)		MR
51		STI Osceola			2015				49,990				—			SMRP (2)		MR
52		STI Notting Hill			2015				49,687				1B			Time Charter (6)		MR
53		STI Seneca			2015				49,990				—			SMRP (2)		MR
54		STI Westminster			2015				49,687				1B			Time Charter (6)		MR
55		STI Brooklyn			2015				49,990				—			SMRP (2)		MR
56		STI Black Hawk			2015				49,990				—			SMRP (2)		MR
57		STI Elysees			2014				109,999				—			SLR2P (4)		LR2
58		STI Madison			2014				109,999				—			SLR2P (4)		LR2
59		STI Park			2014				109,999				—			SLR2P (4)		LR2
60		STI Orchard			2014				109,999				—			SLR2P (4)		LR2
61		STI Sloane			2014				109,999				—			SLR2P (4)		LR2
62		STI Broadway			2014				109,999				—			SLR2P (4)		LR2
63		STI Condotti			2014				109,999				—			SLR2P (4)		LR2
64		STI Rose			2015				109,999				—			Time Charter (7)		LR2
65		STI Veneto			2015				109,999				—			SLR2P (4)		LR2
66		STI Alexis			2015				109,999				—			SLR2P (4)		LR2
67		STI Winnie			2015				109,999				—			SLR2P (4)		LR2
68		STI Oxford			2015				109,999				—			SLR2P (4)		LR2
69		STI Lauren			2015				109,999				—			SLR2P (4)		LR2
70		STI Connaught			2015				109,999				—			SLR2P (4)		LR2
71		STI Spiga			2015				109,999				—			SLR2P (4)		LR2
72		STI Savile Row			2015				109,999				—			SLR2P (4)		LR2
73		STI Kingsway			2015				109,999				—			SLR2P (4)		LR2
74		STI Carnaby			2015				109,999				—			SLR2P (4)		LR2
75		STI Lombard			2015				109,999				—			SLR2P (4)		LR2
76		STI Grace			2016				109,999				—			SLR2P (4)		LR2
77		STI Jermyn			2016				109,999				—			SLR2P (4)		LR2
78		STI Selatar			2017				109,999				—			SLR2P (4)		LR2
79		STI Rambla			2017				109,999				—			SLR2P (4)		LR2
		Total owned DWT							5,171,232

 

		VESSEL NAME		YEAR BUILT				DWT				ICE CLASS				EMPLOYMENT		VESSEL TYPE		DAILY BASE RATE				EXPIRY (8)
		Bareboat / time chartered-in vessels
80		Kraslava			2007				37,258				1B			SHTP (1)		Handymax		$	17,000				13-May-18	(9)
81		Krisjanis Valdemars			2007				37,266				1B			SHTP (1)		Handymax		$	11,250				13-Mar-18	(10)
82		Silent			2007				37,847				1A			SHTP (1)		Handymax		$	7,500				31-Mar-19	(11)
83		Single			2007				37,847				1A			SHTP (1)		Handymax		$	7,500				31-Mar-19	(11)
84		Star I			2007				37,847				1A			SHTP (1)		Handymax		$	7,500				31-Mar-19	(11)

 

S-29

---

Table of Contents

		VESSEL NAME		YEAR BUILT				DWT				ICE CLASS				EMPLOYMENT		VESSEL TYPE		DAILY BASE RATE				EXPIRY (8)
85		Sky			2007				37,847				1A			SHTP (1)		Handymax		$	6,000				31-Mar-19	(12)
86		Steel			2008				37,847				1A			SHTP (1)		Handymax		$	6,000				31-Mar-19	(12)
87		Stone I			2008				37,847				1A			SHTP (1)		Handymax		$	6,000				31-Mar-19	(12)
88		Style			2008				37,847				1A			SHTP (1)		Handymax		$	6,000				31-Mar-19	(12)
89		Miss Mariarosaria			2011				47,499				—			SMRP (2)		MR		$	16,350				26-May-17
90		Vukovar			2015				49,990				—			SMRP (2)		MR		$	17,034				01-May-18
91		Targale			2007				49,999				—			SMRP (2)		MR		$	16,200				17-May-17
92		Zefyros			2013				49,999				—			SMRP (2)		MR		$	15,800				08-Jul-17	(13)
93		Gan-Trust			2013				51,561				—			SMRP (2)		MR		$	13,050				06-Jan-18	(14)
94		CPO New Zealand			2011				51,717				—			SMRP (2)		MR		$	15,250				12-Sep-18	(15)
95		CPO Australia			2011				51,763				—			SMRP (2)		MR		$	15,250				01-Sep-18	(15)
96		Ance			2006				52,622				—			SMRP (2)		MR		$	13,500				12-Oct-17	(16)
97		Hellespont Progress			2006				73,728				—			SPTP (3)		LR1		$	17,250				13-Apr-17
98		Densa Alligator			2013				105,708				—			SLR2P (4)		LR2		$	14,360				17-Aug-17	(17)
		Total time chartered-in DWT							924,039

NEWBUILDINGS CURRENTLY UNDER CONSTRUCTION

 

		VESSEL NAME		YARD		DWT				VESSEL TYPE
99		Hull 2601—TBN STI Galata		HMD (18)			52,000			MR
100		Hull 2602—TBN STI Bosphorus		HMD (18)			52,000			MR
101		Hull 2603—TBN STI Leblon		HMD (18)			52,000			MR
102		Hull 2604—TBN STI La Boca		HMD (18)			52,000			MR
103		Hull 2605—TBN STI San Telmo		HMD (18)			52,000			MR
104		Hull 2606—TBN STI Donald C Trauscht		HMD (18)			52,000			MR
105		Hull 2607—TBN STI Esles II		HMD (18)			52,000			MR
106		Hull 2608—TBN STI Jardins		HMD (18)			52,000			MR
		Total newbuilding product tankers DWT					416,000
		Total Fleet DWT					6,511,271

 

 

(1)	This vessel operates in or is expected to operate in the Scorpio Handymax Tanker Pool (SHTP). SHTP is operated by Scorpio Commercial Management (SCM). SHTP and SCM are related parties to the Company.

(2)	This vessel operates in or is expected to operate in the Scorpio MR Pool (SMRP). SMRP is operated by SCM. SMRP is a related party to the Company.

(3)	This vessel operates in or is expected to operate in the Scorpio Panamax Tanker Pool (SPTP). SPTP is operated by SCM. SPTP is a related party to the Company.

(4)	This vessel operates in or is expected to operate in the Scorpio LR2 Pool (SLR2P). SLR2P is operated by SCM. SLR2P is a related party to the Company

(5)	This vessel is currently time chartered-out to an unrelated third-party for three years at $18,000 per day. This time charter is scheduled to expire in January 2019.

(6)	This vessel is currently time chartered-out to an unrelated third-party for three years at $20,500 per day. This time charter is scheduled to expire in December 2018.

(7)	This vessel is currently time chartered-out to an unrelated third-party for three years at $28,000 per day. This time charter is scheduled to expire in February 2019.

(8)	Redelivery from the charterer is plus or minus 30 days from the expiry date.

(9)	In February 2017, we entered into a new charter agreement for one year at $11,250 per day effective May 2017. We have an option to extend the charter for an additional year at $13,250 per day.

(10)	In February 2017, we entered into a new charter agreement for one year at $11,250 per day effective March 2017. We have an option to extend the charter for an additional year at $13,250 per day.

(11)

In December 2016, we entered into an agreement to bareboat-in this vessel, which was previously time chartered-in by the Company for $15,600 per day. The time charter-in contract was cancelled in January 2017 and replaced by the new bareboat contract at a rate of $7,500 per day. The agreement includes a purchase option which can be exercised through December 31, 2018. If the purchase option is not exercised, the bareboat-in agreement will expire on March 31, 2019.

 

S-30

---

Table of Contents

(12)	In December 2016, we entered into an agreement to bareboat-in this vessel at a rate of $6,000 per day. The agreement includes a purchase option which can be exercised through December 31, 2018. If the purchase option is not exercised, the bareboat-in agreement will expire on March 31, 2019.

(13)	We have an option to extend the charter for an additional year at $17,000 per day.

(14)	In November 2016, we entered into a new charter agreement for one year at $13,050 per day effective January 2017. We have an option to extend the charter for an additional year at $15,000 per day.

(15)	We have an option to extend the charter for an additional year at $16,000 per day.

(16)	We have an option to extend the charter for an additional year at $15,000 per day.

(17)	In February 2017, we entered into a new charter agreement for six months at $14,360 per day. We have an option to extend the charter for an additional six months at $15,385 per day.

(18)	These newbuilding vessels are being constructed at HMD (Hyundai Mipo Dockyard Co. Ltd. of South Korea). Seven vessels are expected to be delivered throughout the remainder of 2017 and one vessel is expected to be delivered in the first quarter of 2018.

Chartering Strategy

Generally, we operate our vessels in commercial pools, on time charters or in the spot market.

Commercial Pools

To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. As of March 24, 2017, 93 of the vessels in our Operating Fleet operate in, or are expected to operate in, one of the Scorpio Group Pools. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial managers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market, but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment, or COAs, thus generating higher effective time charter equivalent, or TCE, revenues than otherwise might be obtainable in the spot market.

Time Charters

Time charters give us a fixed and stable cash flow for a known period of time. Time charters also mitigate in part the seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future, we may opportunistically look to enter our vessels into time charter contracts. We may also enter into time charter contracts with profit sharing agreements, which enable us to benefit if the spot market increases. As of March 24, 2017, five of the vessels in our Operating Fleet are employed under long-term time charters (with initial terms of one year or greater).

Spot Market

A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable, but may enable us to capture increased profit margins during periods of improvements in tanker rates. As of March 24, 2017, three of the bareboat chartered-in vessels in our Operating Fleet were operating directly in the spot market. These vessels are temporarily operating in the spot market prior to their expected entrance into the Scorpio Handymax Tanker Pool.

Management of Our Fleet

Please see “Certain Relationships and Related Party Transactions—Management of Our Fleet.”

Our Relationship with Scorpio Group and its Affiliates

We believe that one of our principal strengths is our relationship with the Scorpio Group of companies (described below). Our vessel operations are managed under the supervision of our board of directors, by our management team and by members of the Scorpio Group of companies. Our relationship with the Scorpio Group of companies provides access to Scorpio Group’s customer and supplier relationships and their technical, commercial and managerial expertise, which we believe allows us to compete more effectively and operate our vessels on a cost efficient basis.

 

S-31

---

Table of Contents

The Scorpio Group includes Scorpio Ship Management S.A.M, or SSM, which provides vessel technical management services for our vessels, and Scorpio Commercial Management, or SCM, which provides vessel commercial management services for our vessels.

We can provide no assurance, however, that we will realize any benefits from our relationship with the Scorpio Group. Emanuele Lauro, our founder, Chairman and Chief Executive Officer, and Filippo Lauro, our Vice President, are members of the Lolli-Ghetti family, which owns and controls our administrator and commercial and technical managers. These responsibilities and relationships could create conflicts of interest between us, on the one hand, and our administrator and/or commercial and technical managers, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus vessels managed by other companies affiliated with our commercial or technical managers. Our commercial and technical managers may give preferential treatment to vessels that are time chartered-in by related parties because our founder, Chairman and Chief Executive Officer and members of his family may receive greater economic benefits. In addition, all of our executive officers serve in similar management positions in certain other companies within the Scorpio Group. These relationships may create conflicts of interest in matters involving or affecting us and our customers, including in the chartering, purchase, sale and operation of the vessels in our fleet versus vessels managed by other members of the Scorpio Group. Conflicts of interest may arise between us, on the one hand, and our commercial and technical managers, on the other hand. As a result of these conflicts, our commercial and technical managers, who have limited contractual duties, may favor their own or other owner’s interests over our interests. These conflicts may have unfavorable results for us.

Competition

We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation and that of our commercial manager. We compete primarily with other independent tanker vessel-owners and with major oil companies that own and operate their own vessels. Our competitors may have more resources than us and may operate vessels that are newer, and therefore more attractive to charterers, than our vessels. Ownership of tanker vessels is highly fragmented and is divided among publicly listed companies, state-controlled owners and private shipowners.

Properties

We have no properties other than our vessels.

Legal Proceedings

To our knowledge, we are not currently a party to any lawsuit that, if adversely determined, would have a material adverse effect on our financial position, results of operations or liquidity. As such, we do not believe that pending legal proceedings, taken as a whole, should have any significant impact on our financial statements. From time to time in the future we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. While we expect that these claims would be covered by our existing insurance policies, those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We have not been involved in any legal proceedings which may have, or have had, a significant effect on our financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our financial position, results of operations or liquidity.

Exchange Controls

Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.

Environmental and Other Regulations

Government laws and regulations significantly affect the ownership and operation of our vessels. We are subject to various international conventions, laws and regulations in force in the countries in which our vessels may operate or are registered. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modification and implementation costs.

 

S-32

---

Table of Contents

A variety of government, quasi-governmental and private organizations subject our vessels to both scheduled and unscheduled inspections. These organizations include the local port authorities, national authorities, harbor masters or equivalent entities, classification societies, relevant flag state (country of registry) and charterers, particularly terminal operators and oil companies. Some of these entities require us to obtain permits, licenses, certificates and approvals for the operation of our vessels. Our failure to maintain necessary permits, licenses, certificates or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance coverage.

We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for tankers that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our